SECURE Act: How new IRS regs impact salary deferrals

IRS has released proposed regs on the Setting Every Community Up for Retirement Enhancement (SECURE) Act. If your company offers a defined contribution plan as an employee benefit, the regs contain important info for you.

The regs go into detail on the SECURE Act of 2019, which brought many changes to retirement plans.

One such change? Increasing the age – from 70 1/2 to 72 – used to determine when required minimum distributions (RMDs) from 401(k), 403(b), 457 and certain other plans must begin.

So, someone who turned 72 in 2021 and who’s retired has until April 1, 2022, to start taking RMDs.

But of course, there are exceptions. An individual who reached 72 in 2021 but who hasn’t retired faces that same April 1, 2022, deadline for RMDs if:

• the plan requires that, or
• that person owns more than 5% of the business sponsoring the plan.

Action step: Give employees receiving RMDs the option to continue making salary deferrals if your plan permits them. Otherwise, your plan’s qualified status will be in jeopardy.

Other changes to know

Here are some other provisions of the SECURE Act related to salary deferrals:

Higher contribution percentage. Thanks to the SECURE Act, the allowable contribution percentage increased from 10% to 15% for organizations with safe harbor retirement plans that utilize automatic enrollment.

To avoid surprises, Payroll may want to give employees a heads-up about any changes to their salary deferrals.

Long-term, part-timer eligibility. Under the SECURE Act, employees who complete at least 500 hours of service per year can’t be excluded from participation in retirement plans. Note: They have to put in the 500 hours for three consecutive 12-month periods.

Remind Payroll: The change means tracking part-time employees’ hours starting Jan. 1, 2021.

Then, as of 2024, you may need to let employees make contributions through salary deferrals. But employer contributions won’t be required.