Knowledge. Shared Blog

March 2020

What Retirement Plan Sponsors Should Know about the SECURE Act

Retirement and wealth strategies expert Matt Sommer discusses some of the key implications retirement plan sponsors should be aware of with the passage of the SECURE Act, including the elimination of the “One Bad Apple Rule” in relation to multiple employer pension plans and new guidelines around employee eligibility.

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Matt Sommer: My name is Matt Sommer. I’m a Senior Managing Director within our Retirement Strategy Group. We will be talking about the SECURE Act.

One of the hurdles with the MEP [multiple employer pension plan] concept historically was this so-called one bad apple rule, which basically meant if I am going to join together with 99 other businesses and someone does something wrong, is that going to ruin the entire, hence, one bad apple. The good news is that the SECURE Act has eliminated the one bad apple rule and now plan sponsors need not worry about those implications.

You have to remember that in our country, the vast majority of small businesses do not have any retirement programs. So it creates this pension gap. The catalysts behind the open MEP was to entice some of these businesses that currently do not have any type of retirement program to rethink that decision.

So historically the way that eligibility has worked with retirement programs is, once an employee completed two years of service – a year of service being defined as 1,000 hours – then they have to be eligible to participate in the program. As an alternative, you can have one year of service with 1,000 hours or you can make the rules as liberal as you would like.

One of the areas that plan sponsors need to be on the lookout for, however, is a new provision within the SECURE Act, which essentially says that if you have employees who complete 500 hours of service over three consecutive years, they have to be eligible to participate in the plan. So there are industries, there are businesses out there that may have long-term part-time employees, but because they have never hit the 1,000-hour requirement, they were never eligible to participate in the plan. Now they are. So this is definitely an issue that plan sponsors who may be impacted need to take another look [at] with their advisor and their recordkeeper, service providers, to see whether or not that would be impactful and if so, to what extent.

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