New fed spending bill brings big changes to your 401(k)

The feds passed a $1.4 trillion spending bill in the last days of 2019, and it will drastically change the way you administer your company’s retirement plan.

The SECURE Act (Setting Every Community Up for Retirement Enhancement Act) has been kicking around for a long time but was folded into the spending bill.

It contains a massive revamp of the way employers can structure and execute their 401(k) plans.

And small businesses got their own set of new incentives to maintain their own retirement plans.

Here’s a breakdown of all the major retirement-plan-related changes in the new fed spending bill:

For everyone

Among the major changes your company must make on the 401(k) front:

• Plan participation for long-term part-time employees. The condition: They must have worked 500 hours each year for three consecutive years and are 21 or older. The only exception? A collectively-bargained plan.
• A higher cap for automatic enrollment. You can help employees save more faster by setting your automatic enrollment cap at 15% of an employee’s paycheck, instead of the 10% it has been.
• Penalty-free withdrawals after the birth or adoption of a child. Employees younger than 59 1/2 can now withdraw up to $5,000 from their 401(k) without penalty. Note: The distribution remains subject to tax.
• Delayed minimum distribution requirements. Flag any employee who turned 70 1/2 after Dec. 31, 2019. Those folks can now delay taking the required minimum distributions until they turn 72.
• A new safe harbor. If your company makes a 4% non-elective contribution to your participants, you can shift to a safe harbor plan that will help correct ADP/ACP or top-heavy tests.
• New penalties. Missteps will cost your company more going forward. For example, failure to timely file Form 5500 will cost you $250 per day (capped at $150,000).

Just for small businesses

If you’re a small business, you’re getting some additional incentives to help employees save for their golden years. The spending bill green lighted a number of features that benefit small firms specifically.

Three of the biggest:

• a bigger tax credit for plan startup costs. In some cases you’ll get up to $5,000 instead of the current $500 cap.
• an additional tax credit for adding automatic enrollment. If you’re a small business and include this feature you’ll get an additional $400 tax credit for three years.
• easier administration, including extra time to adopt new plans and simplified notice requirements.