IRS issues FAQs on SECURE and Bipartisan American Miners acts 

IRS issues FAQs on SECURE and Bipartisan American Miners acts Westend61 / Josep Rovirosa (Westend61 / Josep Rovirosa (Photographer) - [None]
September 22, 2020

New IRS FAQs in Notice 2020-68 address implementation issues under six provisions of the Setting Every Community Up for Secure Retirement Enhancement (SECURE) Act (Division O of Pub. L. No. 116-94), including several questions about qualified birth or adoption distributions (QBOADs). The notice also provides guidance on the reduction in the minimum age for in-service distributions from qualified pension plans, as provided by the Bipartisan American Miners Act of 2019 (Division M of Pub. L. No. 116-94). IRS has requested comments by Nov. 2.


Many SECURE Act provisions took effect immediately or even retroactively, leaving plan sponsors scrambling to implement the new rules with sparse guidance. The recent notice helps employers by addressing some of the most critical outstanding questions, particularly about the act’s QBOAD provisions and rules for 401(k) participation by long-term, part-time employees. The notice also gives guidance on a few other outstanding issues (for employers and individuals). Topics covered in the notice include the following:

  • QBOADs. The SECURE Act added a new exception to the 10% early distribution tax for QBOADs — distributions of up to $5,000 from a tax-favored retirement plan (other than a defined benefit plan) within a year of a child’s birth or adoption. The notice contains 18 FAQs relating to QBOADs, including the following clarifications:

    • The $5,000 limit applies per child, not per birth or adoption. So if an employee gives birth to or adopts twins, the employee can request two QBOADs.
    • Absent actual knowledge to the contrary, a plan sponsor may rely on an employee’s reasonable representation that the employee is eligible to receive a QBOAD.
    • If an employer-sponsored plan allows QBOADs, then the plan must let an employee repay a QBOAD taken from the plan, provided the employee is eligible to make a rollover contribution to the plan. This is consistent with the Joint Committee on Taxation and House reports on the SECURE Act.
    • If a plan does not provide for QBOADs, participants may treat up to $5,000 of an otherwise permissible in-service distribution (e.g., a hardship withdrawal) that meets the QBOAD requirements as a QBOAD on for federal income tax purposes. The distribution will be includible in gross income, but the QBOAD portion is not subject to the 10% early distribution tax. The participant may recontribute the QBOAD to an individual retirement arrangement (IRA).
  • Long-term, part-time employee participation in 401(k) plans. Effective for plan years beginning after Dec. 31, 2020, sponsors of noncollectively bargained 401(k) plans will have to allow elective deferrals by part-time workers who are at least age 21 and have completed at least 500 hours of service in each of three consecutive 12-month periods. Twelve-month periods beginning before 2021 aren’t taken into account in determining eligibility to participate. However, the FAQs clarify that such periods are taken into account for vesting purposes. So any 12-month period during which the employee worked at least 500 hours counts as a year of service for vesting, unless one of the usual exceptions applies (e.g., years of service before age 18 can be disregarded).
  • Tax credit for small-employer plans adopting automatic enrollment. The act established a new business credit of $500 annually for up to three years for an eligible employer that adds an eligible automatic contribution arrangement (EACA) to a qualified plan. Eligible employers must have 100 or fewer employees paid at least $5,000 in the prior year. The FAQs clarify some details about the credit, including how it applies to employers adding more than one EACA and how the credit applies to multiple-employer plans.
  • Repeal of maximum age for traditional IRA contributions. The SECURE Act lifted the ban on individuals contributing to an IRA after age 70-1/2. However, the FAQs make clear that financial institutions aren’t required to accept post-age 70-1/2 contributions. The FAQs also clarify that an individual may not offset the amount of required minimum distributions by the amount of post-age 70-1/2 contributions, since contributions and distributions are separate transactions. In addition, the FAQs provide an example of how to calculate qualified charitable distributions (generally excludable from income) for an individual who has also made post-age 70-1/2 contributions.
  • Foster care difficulty-of-care payments as eligible Section 415 compensation. Defined contribution plans may consider “difficulty of care payments” as compensation when determining the limit on annual additions under Internal Revenue Code Section 415. Difficulty-of-care payments are made to foster care providers as additional compensation but are excludable from income. The notice clarifies that if an employer makes these payments to plan participants, it must amend the plan’s Section 415 definition of compensation to include the payments, but no amendment is needed if the employer doesn’t make such payments. Only payments made by the individual’s employer are included in compensation.

Bipartisan American Miners Act

Section 104 of this act lowered the minimum age for in-service distributions in qualified pension and governmental 457(b) plans from age 62 to age 59-1/2. The notice clarifies that the age reduction is optional — as is offering in-service distributions generally — so plans are not required to make the change. The notice also clarifies that the Miners Act has no impact on the rule that a plan’s normal retirement age (NRA) must be no younger than what is reasonably representative of the typical retirement age for the plan participants’ industry. Under IRS regulations, a NRA of 62 is deemed to satisfy this rule. The Miners Act did not lower this safe harbor NRA to 59-1/2.

Plan amendment deadlines

The SECURE Act generally provides that amendments for its changes aren’t due before the last day of the first plan year beginning on or after Jan. 1, 2022 (or a later date prescribed by IRS). For governmental and certain collectively bargained plans, amendments aren’t due before the last day of the first plan year beginning on or after Jan. 1, 2024. The notice clarifies that the same deadlines apply to both discretionary and required SECURE Act amendments and to amendments for the Miners Act. Amendments to qualified and 403(b) plans can be adopted after these dates but aren't entitled to any anti-cutback relief.

Request for comments

IRS and Treasury are requesting comments on all matters covered in the notice. In particular, the notice specifically invites comments on how sponsors can reduce potential administrative burdens related to counting years of service before 2021 for 401(k) vesting purposes for long-term, part-time employees. Comments are due Nov. 2

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