How the SECURE Act will impact healthcare practice owners

The SECURE Act was passed into law late last year and became effective on January 1, 2020.

It represents one of the most sweeping changes to retirement plans in decades.

Are you a business owner who maintains a retirement plan for your employees?

If so, you need to pay attention. Provisions in the SECURE Act apply to you.

New changes affect the timing of when you can adopt a qualified retirement plan, what employees are eligible, how tax credits are applied, and more.

In this post, I summarize the five most important changes enacted by the SECURE Act that I believe will affect healthcare practice owners.

1. Retirement Plan Adoption

Beginning this year, employers can choose to treat a qualified retirement plan that was adopted after the close of a tax year but before the due date of the tax return, as having been adopted as the last day of the year.

Previously you had to adopt the plan prior to December 31.

My opinion: This might be good if you’re a business that decides to implement a new plan. But really this is nothing more than a provision to procrastinate.

2. Eligible Employees

Currently, employers are generally allowed to exclude part-time employees (those that work less than 1,000 hours) from participating in the retirement plan.

But starting in 2021, the new rules will require most employers with a 401(k) plan to have dual eligibility requirements.

An employee will be able to participate in the 401(k) plan if they meet either of the following requirements:

Option #1: Work >1,000 hours in one year
Option #2: Work >500 hours each year for three consecutive years

If an employee enters the 401(k) plan through Option #2, the employer is allowed to exclude the employee from testing under the non-discrimination rules. This means that you won’t need to provide a company contribution to these employees.

My opinion: How many part-time employees that you know are likely to contribute to a 401(k) plan? I suspect that most employees who might benefit from Option #2 entry into a 401(k) plan are not currently contributing to an IRA plan – which provides the same benefits. This provision will increase the costs of administration and provide little to no benefit. This is a “feel good” provision.

3. Tax Credits

Beginning January 1, 2020, a new tax credit for up to $500 per year for three years is available to employers who start up a new 401(k) plan or SIMPLE plan that include automatic enrollment.

In addition, the provisions provide other tax credits that combine to $500-$5,000 for starting up a plan in general.

My opinion: This credit may benefit you depending upon the type of business entity and the number of non-highly compensated employees benefiting from the plan. But even with or without the tax credit – if you don’t have a retirement plan for your business – you should start one!

4. Multiple Employer Plans

Starting in 2021, the new rules reduce the barriers to creating and maintaining Multiple Employer Plans.

MEPs are a single plan maintained by two or more unrelated employers.

My opinion: If this results in lower costs and more efficiencies for our clients, great! We will be watching this provision for more details.

5. Other Provisions

Here are a few other provisions that I think are worth mentioning without going into detail:

• Loosening of safe-harbor notice requirements
• Increasing employee auto-enrollment percentages
• Expanding of portability of lifetime income options
• Barring loans that are distributed through credit card arrangements
• New annual disclosures for lifetime income streams
• Fiduciary safe harbor added for a selection of annuity providers
• Increased penalties

Conclusion

Retirement plans are a great tool that allows our doctor clients to save money and defer taxes.

But it’s important to stay on top of regulatory changes.

The SECURE Act represents just one example of this, with many more sure to follow.

There are extensive rules about how retirement plans must be administered. And if you break the rules – intentionally or not – the penalties can be severe.

And so I leave you with two questions:

Is this the year to start offering your employees a retirement plan benefit?

If so, who will you partner with to make sure that it’s done right?