The Further Consolidated Appropriations Act, 2020 (the "Budget Bill") made many changes to the pension law and contained the Setting Every Community Up for Retirement Enhancement Act of 2019 (the "SECURE Act"). While most of the changes impact defined contribution plans, there are some changes that impact defined benefit plans. This alert provides a brief description of provisions of the Budget Bill that impact defined benefit plans. The Budget Bill may be found here.

Provisions Affecting Defined Benefit Plans

• Reduction in minimum age for allowable in-service distributions¹

The age permitted for in-service distributions from a pension plan is reduced from age 62 to age 59½. The change is effective for plan years beginning after December 31, 2019.

• Increase in age for required beginning date for mandatory distributions

The age for beginning required minimum distributions is increased from the April 1 following the calendar year of attainment of age 70½ to the April 1 following the calendar year of attainment of age 72 (or the calendar year of retirement, if later). The change is effective for distributions required to be made after December 31, 2019, with respect to individuals who attain age 70½ after that date.

CHEIRON OBSERVATION: It appears that the change does not impact the requirement for non-governmental plans to provide actuarial increases starting with the April 1 following the calendar year of attainment of age 70½ for employees who retire later than age 70½. Also, it is not clear whether a plan may continue to use April 1 following the calendar of attainment of age 70½ as a required beginning date for all distributions.

• Modification of nondiscrimination rules for closed plans

The SECURE Act adds special non-discrimination testing rules for defined benefit plans with closed classes of participants.² Provided certain conditions are satisfied, a defined benefit plan that provides benefits, rights, or features to a closed class of participants will not fail to satisfy the non-discrimination requirements of the Internal Revenue Code ("Code") by reason of the composition of a closed class or the benefits, rights, or features provided to a closed class. Additionally, certain plans amended to cease all benefit accruals or to provide future benefits to a closed group of participants will be deemed to satisfy the minimum participation requirement of the Code if they satisfy certain conditions.

• Provisions relating to plan amendments

Any amendment to any retirement plan or annuity contract made pursuant to the Act on or before the last day of the first plan year beginning on or after January 1, 2022, (January 1, 2024 for governmental and collectively bargained plans) or such later date as the Secretary of the Treasury may prescribe, will not fail to meet the requirements of Code Section 411(d)(6) or Section 204(g) of ERISA, provided that the plan is operated as if such amendment was in effect from the effective date of the amendment and the amendment applies retroactively to such effective date.

• Additional Provisions

The Act contains additional retirement provisions, most of which impact specific plans or a specific plan type. These include increased transfers to the 1974 UMWA Pension Plan; requirements for pooled plans and multiple employer plans; special minimum funding standards for community newspaper plans; and modification of PBGC premiums for cooperative and small employer charity (CSEC) pension plans.

If you have any questions about any of the changes made by the Act or need assistance in amending your plan document, please contact your Cheiron consultant.

Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.

¹The reduction in the age for in-service distributions is found at Section 104 of Division M of the Act, titled the "Bipartisan American Miners Act of 2019;" all other changes discussed herein are found in Division O of the Act, titled the "Setting Every Community Up for Retirement Enhancement Act of 2019."

²See the Cheiron Client Advisory of March 25, 2016, for a discussion of proposed IRS regulations that would have addressed closed plan issues.