The IRS has announced the following cost of living adjustments (COLA) applicable to qualified plans:
The limit on elective deferrals to 401(k), 403(b), and 457(b) plans will increase from $19,000 to $19,500. Catch-up contributions will increase from $6,000 to $6,500.
The limitation on employer contributions to participants (including 401(k) or 403(b) amounts, but excluding catch-up contributions) increases from $56,000 to $57,000. The limit on the annual benefit paid from a defined benefit plan is raised from $225,000 to $230,000.
The annual compensation that can be considered for retirement plan purposes increases from $280,000 to $285,000. The threshold for determining a highly compensated employee is adjusted from $125,000 to $130,000 for compensation paid in the prior year.
A full list of the COLA adjustments can be found here.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed as part of a federal spending bill on December 20, 2019. It represents one of the most significant pieces of retirement plan legislation in more than a decade and it makes numerous changes (including a variety of enhancements) affecting qualified retirement plans, 403(b) and 457(b) plans, and individual retirement accounts (IRAs). Most of the provisions became effective on January 1, 2020. Below are key provisions of the SECURE Act:
- Required minimum distribution age increased to from 70.5 to 72 for individuals who turn 70.5 after December 31, 2019.
- Permits a penalty fee withdrawal up to $5,000 for expenses related to the birth of child or adoption.
- Small employer start-up tax credit increased for first three years: greater of $500 or the lesser of $250 x Non-Highly Compensated Employees (NHCE) eligible up to a maximum of $5,000.
- Small employer tax credit for adopting automatic enrollment feature: $500 annually for three years (in additional to plan start up credit).
- Removes the annual safe harbor notice for plans using the qualified non-elective contribution to satisfy safe harbor.
- Allows late adoption of safe harbor non-elective plan.
- Increases the automatic deferral for QACA cap from 10% to 15%.
- 403(b)(9) church plan retirement income accounts can cover employees of tax-exempts controlled by, or affiliated with, a church.
- Extends the signing deadline to adopt a new plan to the tax filing deadline (including extensions) for the taxable year for plan sponsor.
- 403(b) custodial accounts (mutual funds) in terminated plans will be treated as distributed, if distributed “in-kind” to participants, allowing the participant to continue to maintain the 403(b) account outside of the plan.
- Removes inherited stretch IRAs and modifies the required distribution rules for beneficiaries to 10 years (with exceptions).
- Requires benefit statements to include annuity equivalents of account balance based on DOL assumptions.
- Elimination of the maximum age to contribute to an IRA.
- Penalty for a late Form 5500 increases from $25 per day up to $15,000 to $250 per day up to a maximum $150,000.
- Failure to file a Form 8955-SSA increases a daily penalty from $1 per participant up to $5,000 to $10 per participant up to a maximum of $50,000.
- Failure to provide a required withholding notice would trigger a penalty of $100 for each failure, with a limit of $50,000 for all failures during any calendar year.
- Lowers in-service pension distribution age from 62 to 59.5.
- Lowers in-service government 457(b) distribution age from 70.5 to 59.5 – tax-exempt stays at 70.5.
If you have any concerns about plan compliance, please contact Connie Lee at clee@windes.com or 844.4WINDES (844.494.6337).