Year-End Law Repeals "Cadillac Tax," Enacts SECURE Act
Author: Robert S. Teachout, XpertHR Legal Editor
January 9, 2020
As 2019 closed, President Donald Trump signed into law an appropriations package that includes a provision repealing the Affordable Care Act's (ACA) "Cadillac tax." The appropriations bill also enacted the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which makes numerous compliance changes to certain employer-sponsored retirement plans.
H.R. 1865, the "Further Consolidated Appropriations Act of 2020," repealed the ACA's so-called "Cadillac tax," an excise tax on certain high-end, employer-sponsored healthcare plans. The tax had originally been set to go into effect in 2018, but the start was pushed back twice until 2022. It would have placed a 40% surcharge on high-cost employer-based health plans worth more than $10,200 for "self-only" coverage and $27,500 for family coverage.
The SECURE Act aims to make it easier and less risky for employers to create and administer retirement plans. It encourages more retirement savings and eases compliance burdens for 401(k)-type defined-contribution and defined-benefit retirement plans. The SECURE Act had been passed by Congress with broad bipartisan support and was attached as part of the year-end appropriations package.
Among the compliance changes that affect employers, the SECURE Act:
- Increases the business tax credit for 401(k) plan startup costs from $500 to as high as $5,000 under certain circumstances, making it more affordable for small businesses to set up plans;
- Allows unaffiliated employers to offer a 401(k) plan through a multiple employer plan (MEP) and will allow certain MEPs to be administered by a pooled plan provider, such as a financial services company;
- Provides an additional $500 tax credit for three years for plans that add auto-enrollment of new hires and allows automatic-enrollment safe-harbor 401(k) plans to increase the cap on automatically raising payroll contributions;
- Creates a safe harbor from liability for offering in-plan annuities in a 401(k) plan; and
- Gives employers additional time to cover employees with a profit-sharing contribution by extending the time for employers to adopt new plans from the end of the year until the company's tax-filing due date.
The SECURE Act provisions' effective dates vary by the tax and plan years.