Consider Adding Roth for SECURE 2.0 Compliance

As SECURE 2.0 reshapes retirement planning, Provision 603 brings Roth (post-tax) contributions into focus. High earners must make catch-up contributions as Roth deferrals starting in 2026, with a transition period for 2024 and 2025.

If you intend to amend your plan(s) and don’t currently offer Roth deferrals, now's the time to add this feature to ensure all participants can make catch-up contributions. With further Internal Revenue Service (IRS) guidance pending, consider adding Roth to your plan amendments for flexibility and compliance. Contact your client service team for guidance on how to amend. It’s not just about meeting new standards; it's about enhancing your retirement plan(s) for the future. Learn more about Provision 603.

Understanding the Department of Labor’s (DOL's) Final Fiduciary Rule

In April 2024, the DOL released the Retirement Security Rule, which expands the definition of an investment advice fiduciary and requires that advice given to a broader range of retirement investors meets fiduciary standards. This rule also makes amendments to several prohibited transaction exemptions (PTEs), including PTE 2020-02 and PTE 84-24 regarding eligibility and conditions for exemption. The final rule was scheduled to go into effect on September 23, 2024. But, in July 2024, two separate U.S. District Courts ruled that the DOL may not enforce the final rule and associated amendments to the PTEs. These temporary orders will remain in effect until final decisions have been rendered in each case.

Understand these changes and how they may affect retirement planning and investment decisions for you and participants by reading more.

Forfeiture Guidance for 2024 and Beyond

In 2023, the Internal Revenue Service (IRS) released proposed regulations for how and when qualified defined contribution plans must use forfeitures. These proposed regulations apply for plan years beginning on or after January 1, 2024. Here’s what you should do.

1. Take advantage of the transition relief period. Use forfeitures generated and accumulated before 2024 as if they originated during the 2024 plan year—no matter how they accumulated over previous plan years.
2. Use forfeitures by the deadlines. Forfeitures must be used within 12 months of the close of the plan year in which they were created. For example, if your plan year end is December 31, forfeitures from the 2024 plan year must be used by December 31, 2025.
3. Use forfeitures to:

• pay plan administrative expenses,
• reduce employer contributions (including restoring conditionally forfeited participant accounts), or
• increase benefits in other participant accounts as described in the plan document.

We’ll share additional guidance as it becomes available. If you have any questions, contact your client service team.

DOL Clarifies Employee and Independent Contractor Status

The Department of Labor (DOL) has issued a final rule, effective March 11, 2024, to help employers determine if a worker is considered an employee or independent contractor under the Fair Labor Standards Act (FLSA). The rule only affects a worker’s status under FLSA and doesn’t directly apply to ERISA. The worker’s status under the FLSA standard may impact who can join an employer-sponsored retirement plan. Employers must still consider the existing IRS standard to determine a worker’s status for tax purposes. Read more.

Keep pace with changes from the SECURE 2.0 Act of 2022 (SECURE 2.0)

As SECURE 2.0 legislation evolves, we want to keep you informed and help you prepare. Our new Guide to SECURE 2.0: Provisions for Plan Sponsors is your single source of information about provisions that may affect your plan and employee(s). Visit the News & Communications section of your plan website to view the guide and read about provisions, such as:

• Provision 304: Cash-out dollar limit increase from $5,000 to $7,000. If your plan elected the maximum cash-out limit of $5,000 as of the end of 2023, your plan was defaulted to the new maximum limit of $7,000 as of January 1, 2024.
  
• Provision 312: Employer reliance on employee certification for deemed hardship distributions. Participants may now self-certify that a distribution qualifies as a safe harbor hardship distribution. Additionally, all plans that allow for hardship distributions have been defaulted to allow for self-certification, unless we have been instructed otherwise.
  
• Provision 325: Exempting designated Roth accounts from required minimum distributions (RMDs). Effective for RMDs beginning in 2024, Roth balances are no longer included when calculating the participant’s RMD and should not be counted towards satisfying a participant’s RMD.

Use the guide to understand the provisions, steps we’re taking, and what you may need to do to comply with the new legislation. It will be periodically updated to reflect the most current guidance.

Prepare for required minimum distribution (RMD) season

Ensuring RMD compliance requires preparation. Learn what you can do now to make sure your affected participants and beneficiaries take their RMDs—which generally must be distributed by December 31 each year.

SECURE 2.0 increased RMD age, allowing more time to save

Specific legislation in the SECURE 2.0 Act has increased the RMD age to age 73 in 2023 (age 72 if born from July 1, 1949 to December 31, 1950, and age 70½ if born before July 1, 1949). This offers savers the opportunity to delay taking distributions from their retirement plans, while allotting additional time to grow their nest eggs. Read more about this change.
 
To help answer questions you may have, RMD reference materials can be found on your plan website (Resources > News & Communications > RMD Reference Materials).

Download the New IRS W-4R Withholding Form

Your plan website has been updated with the 2023 version of Form W-4R, as required by the Internal Revenue Service (IRS). Updates include withholding instructions, a new and revised form, and new withholding rates, where applicable. It is expected that the IRS will update the withholding instructions annually.
 
Prior versions of the distribution form will be accepted for processing through March 31, 2023, after which they will not be considered in good order and will not be accepted for processing. To avoid delays, always download a current version of the distribution form directly from the plan website and begin using it right away.
 
As a reminder, Form W-4R is used for nonperiodic distributions (those payable on demand). Learn more about the new form on the IRS website.
 
Participants can now choose a federal withholding rate between 0–100% (instead of a minimum of 10%) to be applied to distributions, such as hardship distributions or required minimum distributions, that are not eligible for rollover into another retirement vehicle. Distributions eligible for rollover and paid to the participant are still subject to a mandatory 20% federal withholding rate, which can be increased by the participant.

Learn What SECURE 2.0 Means for You

The SECURE Act of 2019 has been followed by a package of several bills, collectively dubbed “SECURE 2.0.” These bills were eventually combined into a single bill, the SECURE 2.0 Act of 2022, which was signed into law on December 29, 2022. The new legislation has many wondering, “What does this mean for my business?” Read this high-level summary that addresses some of the SECURE 2.0 Act’s key provisions, several of which will take effect this year.

Watch for New IRS W-4P, W-4R Withholding Forms Available in Early 2023

Effective January 1, 2023, the IRS will split the current W-4P withholding form into two:

• Form W-4P will be used only for periodic distributions (i.e., annuity or similar type payments). 
• Form W-4R will be used for nonperiodic distributions (those payable on demand). Learn more about the new form on the IRS website.

Participants can now choose a federal withholding rate between 0–100% (instead of a minimum of 10%) to be applied to distributions, such as hardship distributions or required minimum distributions, that are not eligible for rollover into another retirement vehicle. Distributions eligible for rollover and paid to the participant are still subject to a mandatory 20% federal withholding rate, which can be increased by the participant.

By January 1, 2023, updates will be made to all distribution forms. The plan and employee websites will also be updated with W-4R withholding instructions, the new and revised forms, and new withholding rates, where applicable.

Lifetime income disclosures help employees stay on track for retirement.

We're showing employees whether they're on track to meet their retirement goals—while ensuring plan compliance. Beginning this year, and at least annually moving forward, the SECURE Act will require ERISA-covered defined contribution plan sponsors to include lifetime income disclosures and illustrations on participant statements. The illustration will show a participant's projected monthly payment in retirement, based on their current balance. We'll add these disclosures and illustrations to participant statements by late summer.

Stay up-to-date on the SECURE Act

The SECURE Act, signed into law 12/20/2019, provides two tax credits for small employers. Both credits are available to employers for three tax years, beginning with the 2020 taxable year.

NEW! Now you can earn the CPSP credential in a live virtual classroom.

We're excited to share a new path to earn your Certified Plan Sponsor Professional™ credential. Expand your knowledge and validate your experience with the eight-week, instructor-led program featuring weekly live webinars and exclusive access to a robust plan administration resources portal. You will earn a valuable credential and the course is approved for 16 hours of HRCI^® and SHRM^® CE. 

Register before August 9 for the session beginning August 10. Learn more and register here.

Are you ready to comply with broadened eligibility requirements?

As a plan sponsor, you’re required to ensure all eligible employees can participate in the plan.

The SECURE (Setting Every Community Up for Retirement Enhancement) Act recently broadened 401(k) plan eligibility requirements to include long-term part-time employees for plan years beginning January 1, 2021. Employees who are 21 and older who work at least 500 hours in three consecutive 12-month periods can participate in the plan.

We can help ensure your records are accurate for the first employees to benefit from this change in 2024. All you have to do, if you’re not doing so already, is make sure to submit payroll information, including hours, for all employees regardless of how many hours you expect them to work. With this information, we’ll track when they’re eligible to participate in the plan under the new rules.

IRS issues new guidance on extended rollover periods for certain plan loan offsets.

The Tax Cut and Jobs Act of 2017 extended the rollover period for qualified plan loan offset (QPLO) amounts. The IRS recently released proposed regulations, which can be relied upon today, to clarify how this extension applies. If the plan has a loan provision, it's important to understand any implications for your employees. Read our recent article.

IRS Hardships Got Easier

On September 23, 2019 the IRS published the final regulations on hardship distributions. These final rules include:

•       Eliminating the six-month suspension of employee elective deferrals after a hardship distribution

•       Allowing employer QNECs and QMACs (qualified nonelective and matching contributions) and earnings to be included in hardship distributions*

•       Permitting hardship distributions without first requiring that plan loans be taken

Most employers will have to amend their plans to meet these new requirements. Click here to learn what you need to know now. For more complete details, including a hardship distribution overview, click here.

Based on these final regulations, our hardship distribution forms will be updated. Watch for a notification soon of their availability on the plan website, so you can download them to replace your existing forms.

*This rule does not apply to most 403(b) plans.

Your Required Minimum Distribution (RMD) Package is Coming Soon

To help you meet your compliance responsibility for ensuring that affected participants and beneficiaries take their required minimum distributions (RMDs)—which generally must be distributed by December 31 of each year—we’ll post your 2019 RMD package to your plan website in October and send a reminder when it's available. In the meantime, refer to this overview for actions we recommend you start taking now.  

Tax Legislation Requires Action

Earlier this year, we noted some important retirement plan changes brought about by the Tax Cut and Jobs Act of 2017 and by the Bipartisan Budget Act of 2018. The biggest impact of these is the upcoming change to ease the rules around hardship distributions, starting with the first day of your 2019 plan year. That’s January 1, 2019, for calendar year plans!

While this change may be good for participants, you must take action to be sure the plan is following the new rules on the first day of your 2019 plan year. Key operational changes that you may need to take include: 

·        Removing suspensions and allowing participants to start to defer again, as of the first day of your 2019 plan year

·        Updating your hardship approval process

·        Downloading new distribution and disclosure forms

Read our article to learn more about how the hardship rules have changed, what you must do operationally on the first day of your 2019 plan year, which forms have been updated, and to catch up on other changes from this legislation.

Prevent Delinquent Contributions

Have you provided us with your company’s current payroll calendar? Please take a few moments every quarter to make sure it's up to date. If we don’t have an accurate calendar, you may run the risk of creating plan compliance concerns and possibly facing Department of Labor (DOL) monetary penalties.

The reason is simple: we use your payroll calendar to anticipate when we should receive your plan's employee contributions. You should make these payments shortly after each payroll in order to put your employees’ assets to work. If we don’t receive employee deferrals within a reasonable time after each payroll date, the DOL could consider your plan funding delinquent under the regulations.

If you’d like to update your payroll calendar, contact Client Service for assistance. If you’re concerned about past delinquent contributions, consider looking at the DOL’s Voluntary Fiduciary Correction Program. Information on this program can be found in this FAQ.

Watch for plan amendment news

This past April, new DOL regulations were put in place governing the procedures that plan fiduciaries must follow when denying claims for disability benefits. Although the impact of the change on retirement plans may be minimal, your plan's Basic Plan Document must be amended to reflect the new guidance (at no charge to you). Please watch for upcoming communications from us regarding this amendment.