SECURE Act and Consolidated Appropriations Act Highlights FAQs
On December 20, 2019, President Trump signed into law the Further Consolidated Appropriations Act, 2020 (H.R. 1865), which included the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 (the “Act”).
Here is a summary of select changes that may affect Deferred Compensation Plan (DCP) participants.
Distributions for Birth or Adoption
What changed?
A participant may take an in-service withdrawal from their DCP account of up to $5,000 per birth or adoption of a participant’s child. The distribution can be taken within a one-year period following the birth or adoption date. The withdrawal is not subject to the IRS 10% premature distribution penalty tax, federal 20% mandatory withholding, or the Special Tax Notice, and direct rollover rules applicable to retirement plans.
Who does this impact?
Participants experiencing the birth or adoption of a child. An adopted child must be less than 18 years old or, if older, physically or mentally incapable of self-support.
When does this go into effect?
This optional provision under the SECURE Act was adopted by the Board of Deferred Compensation Administration at its March 16, 2021 meeting and is effective for distributions made after December 31, 2019.
Will I be taxed on this withdrawal?
Yes, regardless of whether federal or state income tax is withheld, you are liable for taxes on the taxable portion of the payment. However, the withdrawal is not subject to the IRS 10% premature distribution penalty tax, federal 20% mandatory withholding, or the Special Tax Notice, and direct rollover rules applicable to retirement plans.
How do I request a distribution for birth or adoption?
You must complete and submit a Birth or Adoption Withdrawal Form. Additional documentation such as a certified copy of a birth certificate, a certified copy of the adoption decree, and/or a certified copy of the amended birth certificate may be required. To request the Birth or Adoption Form, please call our Service Center at 844-523-2457, one of our Local Retirement Counselors at 213-978-1601, or email us at LA457@lacity.org.
Who do I contact for more information?
For more information, please call our Service Center at 844-523-2457, one of our Local Retirement Counselors at 213-978-1601, or email us at LA457@lacity.org. You may also schedule a Zoom video or phone appointment.
In-Service Distributions
What changed?
Eligible participants may take withdrawals from their accounts beginning with the calendar year in which they turn age 59 ½.
Who does this impact?
Participants who have reached or passed the calendar year in which they turned age 59 ½.
When does this go into effect?
This optional provision was adopted by the Board of Deferred Compensation Administration at its March 16, 2021 meeting.
Will I be taxed on this withdrawal?
Federal and state income tax withholding apply on in-service distributions.
How do I request an in-service distribution?
To request an in-service distribution, you must complete and submit a Distribution Request Form. To request a form, please call our Service Center at 844-523-2457, one of our local retirement counselors at 213-978-1601, or email us at LA457@lacity.org.
Who do I contact for more information?
For more information please call our Service Center at 844-523-2457 or one of our local retirement counselors at 213-978-1601. You may also schedule a Zoom video or phone appointment.
Temporary Disaster Relief
What changed?
Participants who reside within a non-COVID-19 related presidentially declared disaster area – for a disaster declared between January 1, 2020 and February 25, 2021 – are now provided three additional relief options under the Consolidated Appropriations Act. Participants may request a Qualified Disaster Distribution, Qualified Disaster Loan, or Loan Payment Relief.
Who does this impact?
Participants whose principal place of abode was located in a presidentially declared disaster area, declared between January 1, 2020 and February 25, 2021, and sustained an economic loss due to such qualified disaster. The declared disaster must be for reasons other than those related to COVID-19 and the principal place of residence must be within the federally declared disaster area.
When does this go into effect?
This optional provision was adopted by the Board at its March 16, 2021 meeting. The Qualified Disaster Distribution or Qualified Disaster Loan must be received on or before June 24, 2021.
What is the Qualified Disaster Distribution (QDD)?
A QDD allows eligible participants to take a distribution from their DCP account for a qualified disaster. The aggregate amount of all qualified disaster distributions from all retirement accounts, including Individual Retirement Accounts, may not exceed $100,000 in a taxable year.
How do I apply for a Qualified Disaster Distribution?
You must complete and submit a Qualified Disaster Distribution (QDD) Form. You will need to provide the following information regarding the disaster, which can be obtained from the FEMA website.
- Disaster name
- Disaster number
- Declaration date
- Incident period
- Disaster area
The QDD must be received on or before June 24, 2021.
To request a form, please call our Service Center at 844-523-2457, one of our local retirement counselors at 213-978-1601, or email us at LA457@lacity.org.
What is the Qualified Disaster Loan (QDL)?
A QDL allows eligible participants to take a qualified loan from their DCP account of up to $100,000 or 100% vested balance whichever is less. Outstanding loan balances and the number of plan loans permitted will decrease the loan amount available.
There are two types of loans available: General Loan with a repayment period of five years and a Residential Loan (purchase of your primary residence) with a repayment period of 15 years.
How do I apply for a Qualified Disaster Loan?
You must complete and submit a Qualified Disaster Loan (QDL) Request Form. You will need to provide the following information regarding the disaster, which can be obtained from the FEMA website.
- Disaster name
- Disaster number
- Declaration date
- Incident period
- Disaster area
The QDL must be received on or before June 24, 2021.
To request a form, please call our Service Center at 844-523-2457, one of our local retirement counselors at 213-978-1601, or email us at LA457@lacity.org.
What is the Loan Payment Relief?
Loan payment relief allows eligible participants to delay loan payments that are due on or after the first day of the incident period for the qualified disaster up until June 25, 2021 for new or existing loans. Interest will continue to accrue on the delayed loan payments.
In late June/early July 2021, Voya will re-amortize your loan over the remaining term of the loan plus an additional 12 months. The loan amount that will be re-amortized will include the outstanding principal balance plus the interest accrued during the suspension period. Your new loan payment amount will be communicated via a re-amortization confirmation statement. Loan payments will resume on the next periodic due date via the same method that was in use prior to the suspension period (e.g. payroll deduction, check, ACH debit).
How do I apply for Loan Payment Relief
You may request to delay loan payments by calling our Service Center at 844-523-2457. Please advise the Customer Service Agent that you would like to delay your loan payments as a result of the Consolidated Appropriations Act.
Required Minimum Distribution (RMD) Rules
What are RMDs?
RMDs are mandatory distributions for those who have reached a certain age threshold and are thus required to withdraw their funds in minimum amounts in accordance with their life expectancy.
What changed?
The age when DCP participants must take RMDs, which was previously age 70 ½, was increased to age 72 for those individuals who turn 70 ½ in 2020 or later. In addition, the Federal Coronavirus Aid, Relief, and Economic Security (CARES) Act temporarily suspended RMDs in 2020.
Who does this impact?
As RMDs resumed in 2021, all retired participants are now required to begin their RMD at age 72.
Why was this change implemented?
By extending the RMD start date to age 72, the SECURE Act extends the time those funds may grow without being depleted by distributions and taxes.
When does this go into effect?
Changes to the RMD rules were mandatory as part of the SECURE Act signed into law on December 20, 2019.
Who do I contact for more information?
For more information, please call our Service Center at 844-523-2457 or one of our local retirement counselors at 213-978-1601. You may also schedule a Zoom video or phone appointment.
Required Minimum Distribution (RMD) rules for payments to non-spousal beneficiaries from certain defined contribution plans
What are RMDs?
RMDs are mandatory distributions for those who have reached a certain age threshold and are thus required to withdraw their funds in minimum amounts in accordance with their life expectancy.
What changed?
Payments to most non-spousal beneficiaries must be completed by the 10th calendar year following the year of the participant’s death regardless of whether RMDs begin before or after death.
Who does this impact?
This change applies to beneficiaries taking distributions if the plan participant account-holder passes away after December 31, 2021.
Who is exempted?
The ten-year rule does not apply to any portion payable to “eligible designated beneficiaries” if such portion will be distributed over the beneficiary’s life or a period not exceeding their life expectancy and such distributions begin within one year of the death.
Eligible designated beneficiaries are defined as:
- Surviving spouse of the employee;+
- Disabled or chronically ill individual;
- Individual who is not more than 10 years younger than the employee; or
- Minor child of the employee++
+ If the eligible designated beneficiary is the surviving spouse, then such distributions would not be required to begin earlier than the date on which the participant would have attained age 72.
++ In the case of a child who has not attained the age of majority, the ten-year rule would apply as of the date the child attains the age of majority.
Why was this change implemented?
This change was made to eliminate "Stretch" RMDs over the lifetime of certain non-spousal beneficiaries ("Stretch" RMD is a tax strategy used to “stretch” the tax-deferred status of funds in plans by providing for RMD payout over the lifetime of a younger designated beneficiary following the death of the participant).
When does this go into effect?
Changes to the RMD rules were mandatory as part of the SECURE Act signed into law on December 20, 2019.
Who do I contact for more information?
Since it is expected that this provision will be further clarified by Internal Revenue Service guidance, you may want to consider reviewing the beneficiary designations of your retirement accounts once that guidance is released and make any appropriate modifications to your beneficiary designations under the DCP. If your beneficiary is a trust, consult with a tax and legal professional to review how this change may affect your estate plan. A non-person beneficiary (including an estate, a trust that does not meet look through requirements, or a charity) remains under the five-year rule.
For more information please call our Service Center at 844-523-2457 or one of our local retirement counselors at 213-978-1601. You may also schedule a Zoom video or phone appointment.