On Thursday, December 19, 2019, Congress passed a last-minute appropriations bill (“Appropriations Bill”) that, among other tax code changes, repeals two controversial Affordable Care Act (“ACA”) taxes and enacts the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”), which contains several retirement plan changes. President Trump is expected to sign the bill into law later today, December 20, to avoid a partial government shutdown.
The Cadillac Tax – a 40% excise tax on high-cost health insurance – has been unpopular since the Affordable Care Act was passed in 2010, with both Republicans and Democrats united in opposition. Originally slated to go into effect for tax years beginning after 2017, it had been delayed twice by Congress: first until 2020, then again until 2022. The Appropriations Bill repeals the tax entirely.
The ACA also imposed a 2.3% tax on the sale of medical devices. The tax initially went into effect in 2013. Congress then suspended the tax for 2016 and 2017, before allowing it to return in 2018. It will now be repealed in its entirety beginning in 2020.
In addition, the Appropriations Bill includes numerous retirement changes contained in the SECURE Act. Among other provision, these include:
- Changing the required minimum distribution rules so that required minimum distributions begin following age 72 instead of age 70½.
- Accelerating post-death distributions for most non-spouse beneficiaries. Instead of being able to make annual payments over the beneficiary’s life, the full distribution of the beneficiary’s benefit will be required within 10 years of the participant’s death.
- Preventing 401(k) plans from excluding part-time employees who work at least 500 hours per year over a period of 3 years.
- Changing the maximum automatic contribution rate for safe harbor qualified automatic contribution plans from 10% to 15%.
- Eliminating the safe harbor notice requirement for nonelective safe harbor 401(k) plans and extending the deadline for sponsors to amend their plans to take advantage of the nonelective safe harbor. Safe harbor match plans would still be required to provide the safe harbor notice.
- Requiring defined contribution plans to provide participants with annual disclosures about the lifetime income stream they could receive from their plan balances.
- Providing a safe harbor for fiduciaries to select an annuity provider to offer annuities under the plan.
- Eliminating the prohibition on individuals making deductible contributions to traditional IRAs after age 70½.
- Encouraging small employers to offer retirement plans by permitting small employers to join with other unrelated employers to offer pooled employer plans.
For more information on these topics, please contact your Employee Benefits and Executive Compensation Counsel at Smith, Gambrell & Russell, LLP.