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This document illustrates the value and services provided by a Third-Party Administrator.

August 2023 Newsletter

Summer 2023 – Benefit Insights Newsletter

Bonds: Is your plan covered?, It doesn’t hurt to double check! We’re here for you!, Are Changes Needed to the Plan?, Upcoming Compliance Deadlines for Calendar-Year Plans

Bonds: Is your plan covered?

The Employee Retirement Income Security Act (ERISA) requires coverage to protect the plan from losses due to fraud and dishonesty.

There are three main types of bond coverage for retirement plans: fidelity bonds, fiduciary liability insurance, and cyber liability insurance. Not all three coverages are required, but understanding what is available and what they cover will help you determine the best protection for your plan.

ERISA Fidelity Bond

An ERISA fidelity bond protects the plan against losses caused by acts of fraud or dishonesty—such as theft, embezzlement, and forgery—by those who handle plan funds or other property. These funds or property are used by the plan to pay benefits to participants. This includes plan investments such as land, buildings, and mortgages. It also includes contributions received by the plan and cash or checks held to make distributions to participants. A person is considered to “handle” plan funds if their duties could cause a loss due to fraud or dishonesty, either by acting alone or in collaboration with others. Per the U.S. Department of Labor (DOL), handling refers to the following:

  • Physical contact with cash, checks or similar property;
  • Power to transfer funds from the plan to oneself or to a third party;
  • Power to negotiate plan property (mortgages, title to land and buildings or securities);
  • Disbursement authority or authority to direct disbursement;
  • Authority to sign checks or other negotiable instruments; or
  • Supervisory or decision-making responsibility over activities that require bonding.

Bond coverage is required for most ERISA employee benefit plans and the amount of coverage is reported on your plan’s Form 5500. The minimum coverage is 10% of prior year plan assets but not less than $1,000. The maximum bond amount is $500,000, or $1,000,000 for plans that hold employer securities. Bonding requirements do not apply to plans that are not subject to Title 1 of ERISA, such as church or governmental plans. Some regulated financial institutions (certain banks and insurance companies, for example) are exempt if they meet certain criteria.

The fidelity bond can be part of your company’s umbrella policy or can stand alone. In either case, the plan must be named and there can’t be a deductible. If your fidelity bond is less than $500,000, including an inflation guard will automatically increase the value of the fidelity bond to cover the growing plan assets so you will always have adequate coverage. It should be noted that the fidelity bond is different than the employee dishonesty bond that may be in effect for your company. While both provide coverage in the case of fraud, the fidelity bond provides protection for the plan, whereas the employee dishonesty bond protects the employer.

Fiduciary Liability Insurance:

Fiduciary liability insurance covers fiduciaries against losses due to a breach of fiduciary responsibility. A fiduciary is defined by the DOL as any of the following:

  • Persons or entities who exercise discretionary control or authority over plan management or plan assets.
  • Anyone with discretionary authority or responsibility for the administration of a plan.
  • Anyone who provides investment advice to a plan for compensation or has any authority or responsibility.

Examples of fiduciaries include plan trustees, plan administrators, and members of the plan’s investment committee. A fiduciary is in a position of trust with respect to the participants and beneficiaries in the plan and is responsible to act solely in their interest, provide benefits, defray reasonable expenses, follow the plan document, and diversify plan investments. The fiduciary must act with care, skill, prudence, and diligence. This bond is not required but can provide protection to the fiduciaries.

Cyber Liability Insurance:

Cyber liability insurance for the plan provides protection from covered losses and expenses in the event of a cyber breach. Your service provider’s insurance may not cover your plan for all losses, so the plan may want to consider its own policy. In May 2023 at the Plan Sponsor Council of America National Conference, DOL Assistant Secretary Lisa Gomez mentioned the importance of cybersecurity. She stressed that many employers may have cyber liability insurance for the company and assume that it covers the plan, but the fine print in the policy clarifies that it does not cover the company in its capacity as a plan sponsor.

In 2021, the DOL issued cybersecurity guidance for plan sponsors, plan fiduciaries, record-keepers, and plan participants. The guidance, which is still very relevant, included the following:

  • Tips for hiring a service provider: Includes questions to ask when choosing a service provider to ensure they follow strong cybersecurity practices.
  • Cybersecurity Program best practices: Suggestions of practices and procedures that plan fiduciaries and record-keepers should have in place for risk assessments, secure data storage, cybersecurity training, and incident response.
  • Online Security Tips: Ways that plan participants can reduce the risk of fraud.

You can access the full news release here: https://www.dol.gov/newsroom/releases/ebsa/ebsa20210414

Things can happen outside of the control of the plan sponsor. Check with your service providers to determine the type of coverage your plan needs to be protected.

It doesn’t hurt to double check! We’re here for you!

As situations arise during the plan year, it’s always better to double check the plan provisions rather than address a plan failure after the fact. In some situations, it’s easier to ask for forgiveness rather than permission, but that isn’t true in retirement plans. Correcting mistakes can be very costly. Do not hesitate to reach out to us for clarification on what the plan allows. For example:

When a participant (staff or owner) requests a distribution, there is a process to follow to ensure the distribution is permitted by the plan. Questions to be considered:

  • Eligibility:
    • If a request is made for an in-service or hardship distribution, does the participant satisfy the requirements?
    • For terminated participants, does the plan permit distributions immediately or is there a waiting period defined in the plan document?
  • Available funds:
    • Is the type of distribution limited to employee contributions or are employer funds available?
    • Is the participant’s vested percentage sufficient if taking employer funds?
    • Has the vesting been updated for current plan year hours, if applicable?
  • Documentation:
    • Has the necessary online or paper request been completed?
    • Has spousal consent been obtained, if required?
  • Type of distribution:
    • Is the distribution only permitted in cash or are in-kind distributions permitted? In-kind refers to the transfer of assets to an IRA or another plan rather than liquidating shares and distributing the cash.
    • In the case of an in-kind transfer from a self-directed brokerage account, is the transfer to an IRA or another retirement plan (qualifying it as a rollover distribution) or to another account within the same plan (not a distribution)?

Contributions to the plan must be made per the provisions of the plan. If an employer contribution is usually funded after the end of the year but you find you have funds available during the year, a deposit may have to wait.

  • If the funds are pooled in one account, it’s important to be sure the total employer contribution funded does not exceed the deductible amount for that tax year. This won’t be known until after the end of the year when total compensation figures are available.
  • If the funds are in separate participant-directed accounts, the determination of how much to deposit to each participant is based on payroll as well. Funding some participants early, especially the owners, can also be a discrimination issue.

Are there changes to the company being considered? These events should be discussed prior to the effective date of the change because the plan can be greatly impacted.

  • Changes include buying another company, selling the company, or merging into another one.
    • Depending on the details, it may require plan termination and affect whether the participant account balances can be distributed or if they must be transferred to the other party’s plan.
    • The plan document may need to be amended for eligibility, vesting and other provisions.
  • Change in current ownership.
    • Some plan contribution formulas are suitable for the current demographics of the plan, meaning testing requirements pass. Changes to ownership may negatively affect test results so plan design changes may need to be considered.
    • Since ownership can be attributed to family members, hiring a relative can dramatically affect certain types of contributions and testing.

Any time funds are going into the plan or leaving it, there are terms of the plan that must be followed. If you find the provisions no longer suit you and your employees, an amendment can be considered to make the necessary changes. It is very important to operate the plan in accordance with the plan document, so please ask for clarification as needed!

Are Changes Needed to the Plan?

As time goes by, the needs of a company and the needs of the participants evolve, and a plan may need to be amended to keep up with those changes. This is a good time of year to review plan provisions and determine if any changes are needed before the next plan year. Below are some possible considerations:

Automatic enrollment can boost plan participation. Participants who don’t make an election will have 401(k) deferrals withheld automatically. There are several types of automatic enrollment designs that offer variations that may work best for the plan.

Does the plan fail the Actual Deferral Percentage/Actual Contribution Percentage (ADP/ACP) testing and require refunds to the Highly Compensated Employees? If so, it may be beneficial to add a safe harbor contribution, which could be either a match or a non-elective contribution. If the plan already has a safe harbor contribution, it’s possible that a different type of safe harbor will provide a better result.

Should employees be eligible for the plan earlier, or should they be ineligible for a longer period of time? It may be time to review the plan’s eligibility requirements.

Are the right participants receiving the contribution? For a non-safe harbor contribution, consider how terminated participants, participants who work low hours, and different classes of employees earn a contribution.

Is the best profit-sharing contribution formula being used? There are several ways to allocate a profit-sharing contribution, including pro rata (everyone receives the same percentage), integrated (employees with earnings above a certain dollar amount receive more), cross tested/new comparability (projects benefit to retirement and each person can receive a different contribution) and flat dollar amount (everyone receives the same amount). The best fit may change over time as the employee base changes.

Certain owners looking to boost the employer contribution beyond the limits of an existing 401(k) plan may be interested in adding a cash balance plan.

These are some ideas to be considered by plan sponsors throughout the life of a plan. Reach out if you would like to discuss any of these options.

Upcoming Compliance Deadlines for Calendar-Year Plans

September 15th
Required contribution to Money Purchase Pension Plans, Target Benefit Pension Plans, and Defined Benefit Plans.Contribution deadline for deducting 2022 employer contributions for those sponsors who filed a tax extension for Partnership or S-Corporation returns for the March 15, 2023 deadline.
September 30th
Deadline for certification of the Annual Funding Target Attainment Percentage (AFTAP) for Defined Benefit plans for the 2023 plan year.
October 16th
Extended due date for the filing of Form 5500 and Form 8955 for plan years ending December 31, 2022.Due date for 2023 PBGC Comprehensive Premium Filing for Defined Benefit plans.Contribution deadline for deducting 2022 employer contributions for those sponsors who filed a tax extension for C-Corporation or Sole-Proprietor returns for the April 18, 2023 deadline.Due date for non-participant-directed individual account plans to include Lifetime Income Illustrations on the annual participant statement for the plan year ending December 31, 2022.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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© 2023 Benefit Insights, LLC. All Rights Reserved.

May 2023 Newsletter

Spring 2023 – Benefit Insights Newsletter

Plan Participants: The More They Know, The Better, Beneficiary on File?, News Flash!, Upcoming Compliance Deadlines for Calendar-Year Plans

Plan Participants: The More They Know, The Better

As a plan sponsor, do you feel your employees have a clear understanding of the company’s retirement plan?

Do most utilize it as a tool to save for retirement—and, if not, do they understand the benefit that they are missing? According to the 2022 PLANSPONSOR Participant Survey, 115 of 774 (14.9%) respondents opted not to participate in a workplace defined contribution plan for various reasons. 18.3% of those that declined to participate said it was because they need to better understand the benefits of participating. 15.7% said they needed their income for day-to-day expenses. 50.5% of the nonparticipating employees were between the age of 18 through 39, 44.3% were age 40 through 59. This means that participants of all ages would benefit from additional education and encouragement.

Getting started is a very important first step. Automatic enrollment provisions are popular and allow participants to begin their employee contribution deferral at a default rate (stated in the plan’s document), such as 3%, unless they elect another amount or proactively opt out. Keep in mind that, since they do not have to make an active election to begin deferrals, they may not take advantage of the education materials available to them as part of the enrollment process. Education materials come in many forms, from simple informative handouts that explain the benefits of starting early, to more advanced retirement accumulation calculators that help the participant understand how the actions that they take now might affect them at retirement age. Websites are available that may help participants determine the appropriate amount to save for their retirement based on their current financial situation. The information shared with participants during the enrollment process will vary based on the recordkeeper or investment platform where the plan funds are held; further resources may be provided by the plan’s investment advisor.

There are several advantages to having participants meet with the plan’s investment advisor, whether as a group or in one-on-one meetings. For participants who may feel like retirement is too far away to be thinking about now, or who want to learn more about the benefits of starting early, information regarding how compound interest (earnings and dividends being reinvested and growing over time) and dollar cost averaging (recurring deposits per paycheck which buys shares at different prices throughout the year) affects their long-term goal is beneficial. An advisor can also help the participant review their full financial picture to determine how much they should contribute to the plan, as well as which investment options might be appropriate based upon their targeted retirement date and risk tolerance. If there is an employer matching contribution available, an initial instinct is to contribute enough to receive the full match, but there may be a higher contribution percentage that should be considered to reach their retirement goals.

It is also quite common in today’s employment arena to have employees who are focused on paying off student debt instead of contributing to a retirement plan. One can certainly understand their dilemma. If your plan currently offers an employer matching contribution, the optional matching contribution on student loan payments may be beneficial. This provision would allow a participant to continue making loan repayments, while remaining eligible to receive a matching contribution funded to the plan on their behalf, helping them to begin building an account balance. This optional matching ability is new and will be available beginning January 1, 2024.

Some participants are hesitant to participate in an employer sponsored plan since it can be more difficult to access their account balance for hardships or other life events. To ensure that employees feel as though they will have access to the funds if they do contribute, you can choose to include several types of distributions in your plan document provisions, including the following:

  • In-service distributions from your plan are not required to be made available but can be included if participants satisfy the requirements dictated by your plan’s document. An example might be attainment of age 60 and 5 years of service.
  • Hardship distributions:
    • Must be taken due to an immediate and heavy financial need.
    • Internal Revenue Service (IRS) regulations consider the following “safe harbor” reasons to meet the immediate and heavy financial need requirement.
      • Medical care expenses for the employee, the employee’s spouse, dependents, or beneficiary.
      • Purchase of an employee’s principal residence (excluding mortgage payments).
      • Tuition related educational expenses for the next 12 months of postsecondary education for the employee, the employee’s spouse, children, dependents, or beneficiary.
      • Prevent eviction or foreclosure from the employee’s principal residence.
      • Funeral expenses for the employee, the employee’s spouse, children, dependents, or beneficiary.
      • Certain expenses to repair damage to the employee’s principal residence.
    • The amount available is that of the financial need, which can include the amounts necessary to pay taxes resulting from the distribution. However, the participant must have the necessary amount available for withdrawal within their account. Your plan document can limit the money types available—such as employee contributions and earnings only—or balances from employer contributions can be made available for withdrawal as well.
  • Qualified Birth and Adoption distributions:
    • A distribution up to $5,000 made during the one-year period beginning on the date on which the child of the individual is born, or the legal adoption by the individual is finalized.
    • Each parent has a separate limit, and if there are multiple children, a distribution can be taken for each child.
    • The 10% early withdrawal penalty is not waived for this distribution, but the amount can be repaid to the plan (no time limit applies).
  • $1,000 penalty-free emergency withdrawal will be available on or after January 1, 2024:
    • One distribution can be taken per year and can be repaid within three years.
    • The distribution amount is exempt from the 10% early withdrawal penalty.
    • No additional emergency distribution can be taken during the 3-year period if the original distribution was not repaid.
  • Distributions to domestic abuse survivors will be available on or after January 1, 2024:
    • The distribution amount is exempt from the 10% early withdrawal penalty.

In conclusion, the more engaged participants are in the conversation about retirement and the more they understand the benefit being offered, the better chance they have for a successful retirement. Understanding the reasons why your participants opt out of plan participation may help you either determine if more education is needed or if there are plan provisions that could be considered that would encourage participation.

Beneficiary on File?

As part of the enrollment process, participants are asked to elect a beneficiary. However, this step is often not completed or kept up to date as time goes on, which can make death distributions more complicated than they need to be. When a participant names a beneficiary, it helps to ensure their account balance will be distributed to the person intended. However, updating the designation is also very important as life events occur.

When a plan includes automatic enrollment provisions, it does help participants begin saving for retirement. However, if they use the default deferral rate and the default investment option, they may neglect to elect a beneficiary at that time since they aren’t filling out any other enrollment paperwork, or maybe they are married and assume the funds will automatically be paid to their spouse. What they need to factor in, though, is how their account balance will be paid if they do not make an election or if they fail to update it as time goes on.

If a current beneficiary election is not on record at the time of a participant’s death, the default rules of the plan will determine the beneficiary, which may be the following order: surviving spouse, children in equal shares, surviving parents in equal shares, and lastly, estates. But what if the participant goes through a divorce and doesn’t update their election? What if there are more children or stepchildren that are not added to the election? What if there is no spouse, parent, or child to benefit and no estate?

Having a beneficiary election on file makes the distribution process much smoother for all involved and requires less interpretation, which often involves engaging in the services of an attorney. When a participant is enrolled in the plan, it is best to have them designate a beneficiary even if it takes making the request several times until they do. Then, make the discussion part of a recurring process to have the participants review and update the information so that it’s not an issue if the need to reference the beneficiary should arise.

News Flash!

Defined Contribution plans: Form 5500 news!

Effective for plan years beginning on or after January 1, 2023, the determination of a large or small plan will be based on the number of participants with an account balance as of the beginning of the year, rather than the number of participants eligible for the plan.

This is welcome news for plans that required an accountant’s audit as a large plan because there were more than 100 eligible participants but not all of those participants had balances. For new plans, the participant count will be based on the number of participants with an account balance as of the end of the year.

Defined Benefit plans: Plan Document news!

The two-year Cycle 3 restatement window for pre-approved defined benefit plan documents opened April 1, 2023, and will end March 31, 2025. Check with your document provider to confirm when they intend to update your plan document for your review and signature during this restatement period.


  • Required amendments for SECURE Act, CARES Act and Miners Act: These were originally due as of the last day of the plan year beginning after January 1, 2022 (December 31, 2022, for calendar year plans). Due dates were extended as follows:
    • 401(k) plans, profit sharing plans, money purchase plans, defined benefit plans and 403(b) plans have until December 31, 2025.
    • Governmental plans (including governmental 457(b) plans) have until 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.
    • The extension does not apply to tax-exempt 457(b) plans.
  • Form 5500 relief for retroactively adopted plans: If a plan is adopted after the end of a plan year but before the employer’s tax filing deadline (including extensions), the plan is considered to be adopted on the last day of the taxable year. No Form 5500 is due for the initial plan year, but the subsequent year form will have a box checked to indicate it is a retroactively adopted plan permitted by SECURE Act Section 201.


  • In the last edition, the example of Required Minimum Distribution (RMD) age increases from 72 to 73 should have read as follows:
    • For participants who turn 73 in 2023, they were 72 in 2022 and subject to the age 72 RMD rule in effect for 2022.
    • For those who turn 72 in 2023, their 1st RMD will be due by December 31, 2024 or they may opt to delay it until April 1, 2025. If they choose the latter, they will take both their 1st and 2nd payment in 2025.

Upcoming Compliance Deadlines for Calendar – Year Plans

May 15th
Quarterly Benefit Statement – Deadline for participant-directed plans to supply participants with the quarterly benefit/disclosure statement including a statement of plan fees and expenses charged to individual plan accounts during the first quarter of 2023.
June 30th
EACA ADP/ACP Corrections – Deadline for processing corrective distributions for failed ADP/ACP tests to avoid a 10% excise tax on the employer for plans that have elected to participate in an Eligible Automatic Enrollment Arrangement (EACA).
July 29th
Summary of Material Modifications (SMM) – An SMM is due to participants no later than 210 days after the end of the plan year in which a plan amendment was adopted.
July 31st
Due date for calendar year end plans to file Form 5500 and Form 8955-SSA (without extension).
Due date for calendar year end plans to file Form 5558 to request an automatic extension of time to file Form 5500.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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© 2023 Benefit Insights, LLC. All Rights Reserved.

SECURE 2.0 Summary

We would like to share the attached information with you.  Congress passed legislation in late December 2022 that included retirement plan reform known as SECURE 2.0.  We have compiled a summary of specific provisions that we feel may affect your plan in the coming year and years ahead.  Most provisions are related to Defined Contribution Plans, but a few apply to Defined Benefit Plans.  The summary is in order of effective date, with the most current ones at the beginning.  You will note that some provisions are optional while others are mandatory.  We realize that this is a lot of information and can be complicated to understand.  Your PPC Pension Administrator would be happy to review this with you and answer your questions.

All plans will need to adopt the mandatory provisions by the last day of your plan year beginning on or after 1/1/2025.  If you wish to adopt any of the optional provisions, your PPC Pension Administrator can assist you.  Please keep in mind that some provisions require additional IRS guidance.   We will track any optional provisions you adopt and the effective date of the provision to include in the amendment of your plan document.

Please share this summary with your Human Resources staff, Trustees of the Plan, and any other decision makers who are involved with your retirement plan.  Please reach out to your PPC contact if you have any questions.  We value our relationship with you and are happy to assist you!


Congress passed the Consolidated Appropriations Act of 2023 in late December 2022.  A number of legislative initiatives were attached to the omnibus funding package, including the retirement reform measures commonly referred to as SECURE 2.0.  There were over 90 provisions included in SECURE 2.0 which was enacted on December 29, 2022.  This summary is intended to share the provisions that most affect DC and DB plans.

Effective on Enactment Date of December 29, 2022

or for Plan Years Beginning After December 29, 2022

Change to Age for Required Minimum Distributions (RMD)(Sec 107)

  • The required beginning date for Required Minimum Distributions (RMDs) has been increased to age 73 for individuals who attain age 72 after December 31, 2022. 
  • For example, Sue turns age 72 on August 17, 2023.  Her first distribution year will be 2024, when Sue attains age 73.  Her RMD may be distributed by December 31, 2024 or delayed to no later than April 1, 2025.  If she delays it until April 1, 2025, she will have two RMDs to withdraw in 2025 as the 2025 RMD must be distributed by December 31, 2025.
  • Another example, Bob turns age 73 on June 15, 2023.  His first distribution year will be 2023, when he attains age 73.  His RMD may be distributed by December 31, 2023 or delayed to no later than April 1, 2024. If he delays it until April 1, 2024, he will have two RMDs to withdraw in 2024.

Reduced RMD Penalties (Sec 302)

  • Penalties for failure to take RMDs in a timely manner is decreased from 50% to 25% and decreased even further to 10% if the failure is corrected before the correction window ends.  Correction window is two years after the year the RMD should have been taken unless the IRS issues deficiency notice sooner.

Sole Proprietor 401(k) Deferrals (Sec 317)

  • New law allows an unincorporated sole proprietor with no employees to make a deferral election contribution up to the date of the tax return for the first year of the plan.  The deferral is made after the end of the tax year, but by the filing deadline, and is treated as having been made before the end of the first plan year. 
  • This provision is not applicable for Partnerships.

Small Deferral Incentives for Contribution (Sec 113)

  • Employers may offer de minimis financial incentives, not paid from plan assets, to boost employee participation in the plan.  Example: low dollar gift cards or promotional items.

Roth Tax Treatment for Employer Contributions (Sec 604) – OPTIONAL

  • Plans are permitted, but not required, to allow participants the option to receive employer matching or nonelective contributions on a Roth basis, providing that the employer contributions are vested when made.
  • Matching or nonelective contributions designated as Roth contributions are not excludable from income.  More guidance is needed although this is allowed as of the enactment date of December 29, 2022.

Hardship Withdrawal Self-Certification (Sec 312) – OPTIONAL

  • The plan administrator of a 401(k), 403(b) or 457(b) may rely on the employee’s self- certification that the distribution is because of an eligible hardship for one of the safe harbor reasons, that the amount does not exceed amount of need, and employee does not have any other reasonably available resources.

No Penalty for Individuals with Terminal Illness (Sec 326) – OPTIONAL

  • Distributions to a terminally ill individual will be exempt from the 10% early distribution penalty. Individual must be entitled to an in-service or termination of employment distribution.
  • Distributions are permitted on or after a doctor has certified an employee has a terminal illness that is reasonably expected to result in death within 7 years.
  • Repayment is allowed within 3 years (similar to QBADs).

Qualified Birth and Adoption Distribution (QBAD) Repayments (Sec 311) – OPTIONAL

  • If a plan does permit QBAD distributions, recipients can repay the distribution to the plan or an IRA.  Distributions taken under SECURE rules, which did not specify the time frame for repayment, must now be repaid before January 1, 2026, if the participant opts to repay it.
  • SECURE 2.0 limits repayments to 3 years, beginning on the day after the distribution is received for distributions made after 12/29/2022.

Expansion of Employee Plans Compliance Resolution System (EPCRS) (Sec 305)

  • SECURE 2.0 directs changes to EPCRS to reflect that eligible inadvertent failures can now be corrected without having to determine whether they are significant or insignificant.
  • The provision is also without a time limitation providing correction is completed “within a reasonable period” after the failure is identified and providing the IRS does not discover the failure before action to correct the failure has begun.

EPCRS Recovery of Overpayments (Sec 301)

  • Section 301 makes permanent the rules regarding recovery of inadvertent overpayments from plans.  Plan fiduciaries will generally not be required to recoup mistaken overpayments to a participant.  If a fiduciary chooses to seek repayment, certain limitations and restrictions apply. 
  • It does not allow the employer to reduce future funding payments to recoup overpayments.

Modification of Start-up Credit for Small Employers (Sec 102 and Sec 111)

  • This provision increases the 3-year small business start-up credit from 50% to 100% of administrative costs up to an annual cap of $5,000.  Employers with 50 or fewer employees are eligible.  DC and DB plans are eligible for this credit.  The credit for employers with 51-100 employees remains unchanged at 50% of administrative costs.
  • DC start-up plans are also eligible for a new tax credit for employer contributions.  The amount of the credit will generally be a percentage of the amount contributed by the employer on behalf of employees up to a per-employee cap of $1,000.  There is no credit for an employee in prior year whose FICA wages exceeded $100,000 (indexed).
  • Employers with 51-100 employees have a phased-out credit.  The credit starts as 100% of contributions (as limited to $1,000) in years 1 and 2, lowers for the next 3 years and phases out after year 5.
  • Note that Sec 111 clarifies that the start-up credit is available if an employer is adopting its first plan by joining an existing MEP.  Section 111 is retroactive for plan years beginning after 12/31/2019.

Permanent Disaster Relief (Sec 331) effective for disasters occurring on or after January 26, 2021

  • Provides permanent rules for qualified disasters where distributions are limited to $22,000 per disaster (down from $100,000).   The distribution request must be submitted within 180 days after the disaster. There is no 10% early distribution penalty and the tax on the withdrawal may be spread over 3 years.
  • The amount may be repaid, but is not required, in 3-year period (similar to QBADS).
  • Additional rules for unused first-time home buyer withdrawals.
  • Loan terms can be modified to increase the maximum loan amount (up to $100,000), use the participant’s full vested account balance as collateral, and loan repayments can be suspended for up to one year.

Notices to Unenrolled Participants (Sec 320)

  • Eliminates the need to provide notices and disclosures (both IRS and DOL) to unenrolled participants.  This includes QDIA and SH notices.  Employee must have received the SPD and notice of initial eligibility and then receive just an annual reminder notice that notifies the participant of their eligibility to participate and key benefits and rights under the plan.

403(b) Plans Maintained as a MEP or PEP (Sec 106)

  • A 403(b) plan is now permitted to be maintained as a multiple employer plan (MEP) or pooled employer plan (PEP).

Defined Benefit Changes at Enactment or January 1, 2023:

  • At enactment, the PBGC variable rate premium is now a flat $52 for each $1000 of unfunded vested benefits.  The deadline that allows overfunded plans to provide retiree health benefits has been extended from 2025 until 2032. As of 1/1/2023, a CB plan with variable interest crediting rates cannot use rates above 6% to prevent backloading of benefit accruals.

Effective January 1, 2024

Force-out Limit Increase (Sec 304)

  • The force-out amount is increased from $5,000 to $7,000 for distributions made after 12/31/2023.

Personal Emergency Withdrawal (Sec 115) – OPTIONAL

  • A new distributable event, not a hardship, is allowed for an unforeseeable or immediate financial need relating to necessary personal or family emergency expenses.
  • Permissible per year of up to $1,000 (or if the account is less than $2,000, the amount that exceeds $1,000) with the OPTION to repay the distribution within 3 years.
  • Distribution does not have to follow one of the six hardship rules; could be to purchase tires.  No further emergency distribution is allowed during the 3-year repayment period unless recontribution occurs.
  • Exemption from the 10% early withdrawal penalty.  The plan sponsor may rely on participant’s self- certification unless the plan sponsor has reason to believe otherwise.

Domestic Abuse Withdrawal (Sec 314) – OPTIONAL

  • Domestic abuse victims may withdraw the lesser of $10,000 (indexed) or 50% of their vested account.  No 10% early distribution penalty but is a distributable event.  Employee self-certifies eligibility for the withdrawal.
  • The amount can be repaid to the plan within 3 years (similar to QBADs).

Long-Term Part-Time Employee Changes (Sec 125)

  • The 3-year LTPT rule is reduced to 2 years (employees working 500+ hours in 2 consecutive years must be eligible to defer).  Years before 2021 are disregarded for 401(k) vesting.  LTPT rules are also extended to 403(b) plans as of 1/1/2024.
  • 2-year rule will apply to ERISA 403(b) plans.
  • Employers should be tracking hours.
Employee Works 500+ Hours Each YearConsecutive YearsEntry Date
Hours tracked for 2021, 2022 and 20233 years (2021-2023)2024
Hours tracked for 2023 and 20242 years (2023-2024)2025

Family Attribution Rule Fix (Sec 315)

  • Disregards community property ownership between spouses.  Allows couples in community property states to use non-involvement exception in controlled group determinations.
  • This change prevents parent-child attribution from creating controlled groups between businesses owned separately by spouses.
  • It’s important to note that if spouses have been sponsoring a joint plan because of this rule, that the plan will now become a MEP since they are no longer a controlled group.

Roth Excluded from Pre-Death RMD Calculation (Sec 325)

  • RMDs will no longer be required from Roth accounts.  The RMD calculation will not include the Roth balance for distribution calendar years after 2023.

Surviving Spouse RMD Election (Sec 327) – OPTIONAL

  • This election permits a surviving spouse beneficiary to be treated as the deceased employee for purposes of age in applying the RMD rules. 

Catch-ups Must be Roth (Sec 603)

  • Catch-up contributions for participants whose prior calendar year FICA wages exceed $145,000 (indexed) must be made as Roth contributions.  If a plan does not offer Roth, the plan cannot accept catch-ups.  Applies to both 401(k) and 403(b) plans but not to SARSEP or SIMPLE IRAs.

EPCRS Safe Harbor Correction of Elective Deferral Failures (Sec 350)

  • Section 350 creates permanent rules to allow employers to self-correct inadvertent automatic enrollment or automatic increase errors within 9 ½ months after the end of the year in which the error occurs without making up missed deferrals.
  • The employer must still give actively employed participants the 45-day notice to qualify for the safe harbor 0% QNEC amount.
  • The provision eliminates QNECs for terminated employees and permits self-correction even if first discovered by the IRS.

New Starter 401(k) (Sec 121)

  • Employers may adopt a deferral only 401(k) plan (or safe harbor 403(b) plan) with no ADP and no top-heavy testing. 
  • Must apply to all eligible employees who satisfy minimum age and service but can exclude union and nonresident alien and those that can be excluded by statue.
  •  Requires automatic enrollment at rate of 3% to 15% (uniform).  Deferral limit is the same as IRA contribution limits with catch-up allowed.  No employer contributions permitted.
  • Employer can’t have another qualified plan that year.  Seen as an alternative to state mandates.

Mid-Year SIMPLE IRA Conversion to Safe Harbor 401(k) (Sec 332)

  • Employers will be permitted to convert from a SIMPLE IRA to a Safe Harbor 401(k) mid-year.  The new plan must be a Safe Harbor 401(k) (not known what type of SH yet). 
  • If the employer terminates the SIMPLE IRA and establishes a 401(k), employees can now roll their SIMPLE IRA account into the plan without waiting for two years of participation.
  • Deferral limit is prorated between SIMPLE and 401(k).

Top Heavy Modification (Sec 310)

  • Employees who do not meet the minimum age and service requirements under the Code (under age 21 and less than 1 Year of Service) may be ignored in determining whether the plan satisfies top-heavy minimum contributions.  It is now permitted to test non-excludable and excludable employees separately.   This aligns with coverage and non-discrimination testing rules already in effect.

Emergency Savings Accounts (ESAs) (Sec 127) – OPTIONAL

  • Plans MAY set up pension-linked ESAs for Non-highly Compensated Employees (NHCEs) and may automatically opt employees into the account at no more than 3% of salary.  Contributions are made as Roth deferrals and are treated as elective deferrals for any matching contributions.  Account is capped at $2,500 (indexed).  Once the cap is reached, contributions may be stopped or continue as Roth deferrals.
  • Withdrawals are allowed at least once per month, with no fees allowed on the first four withdrawals.  Withdrawals are treated as tax-free qualified Roth distributions and no 10% premature distribution penalty applies.  The participant self-certifies the request.
  • Other requirements include specific conservative investments, annual disclosure, separate source tracking.
  • Employer can terminate the arrangement at any time.  No anti-cutback right.

Treatment of Student Loan Payments as Elective Deferrals for Purposes of Matching Contributions (Sec 110) – OPTIONAL

  • Section 110 applies to 401(k), 403(b), governmental 457(b) and SIMPLE IRAs. 
  • Plan sponsor may elect, but is NOT required, to provide matching contributions on “qualified student loan payments”.
  • Broad definition of qualified student loan payment: payment to pay higher education expenses, must be carrying at least half-time full student loan, the employee certifies amount of loan payments annually, and employer may rely on employee certification.
  • If the plan matches student loan payments, it must do so at the same rate as a match on elective deferrals and the match related to the loan must vest in the same manner as a match on deferrals.
  • Different rules for testing purposes.

403(b) Plan Hardship Withdrawal Rules (Sec 602)

  • Under current law, hardship distribution rules have been varied for 401(k) and 403(b) plans. Section 602 changes the 403(b) rules to conform with the 401(k) rules.

DB Plan Changes effective January 1, 2024:

  • Annual funding notices have changes to content requirements to identify funding issues more clearly.  IRS must update funding mortality tables.

Effective January 1, 2025

Automatic Enrollment Mandate for 401(k) and 403(b) Plans (Sec 101)

  • Effective for plan years beginning after December 31, 2024, and for any plan established after date of enactment (December 29, 2022). 
  • Initial deferral percentage in first year is at least 3%, not to exceed 10%.
  • Automatic increase of 1% annually until rate reaches at least 10%, but not to exceed 15%.
  • Exemptions to the automatic enrollment are for: plans established before 12/29/2022, small employer (10 or fewer employees), new business (3 years or less), SIMPLE 401(k), and churches/governmental employers.
  • Contributions must be invested in a Qualified Default Investment Alternative (QDIA).
  • Participants may elect to opt out and/or request a refund of contributions subject to the 90-day withdrawal rule.
  • Existing plans are grandfathered.
  • MEPs/PEPS each employer is treated as a separate entity.  For example, a MEP is established in 2021 and XYZ employer joins the MEP in 2023.  XYZ is subject to the auto enroll provisions in 2025.

Increase in Catch-up Contribution Limits at Certain Ages (Sec 109)

  • Raises catch-up contribution to the greater of $10,000 or 150% of the regular 2024 catch-up limit for years in which the participant turns age 60, 61, 62, or 63.  Indexed after 2025.


  • No operational failure if amended by the last day of the plan year beginning on or after 1/1/2025.  Amendment must be retroactively effective (operate now and amend later to conform to what you’ve done and implemented).  Anti-cutback relief is also available.  This deadline also applies to amendments for SECURE 1.0, CARES, and Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Looking to the Future

Future Rulemaking by the DOL due by December 29, 2024:

Creation of Lost and Found Database

Consolidation of Plan Notices

Performance Benchmarking for Asset Allocation Funds

January 1, 2026:

Paper Statement Mandate

Saver’s Match: Enhancement of Saver’s Credit

February 2023 Newsletter

Winter 2023 – Benefit Insights Newsletter

SECURE 2.0 is a GO!, Is it already time to complete another year-end data request?, Stay tuned! Secure 2.0 Act of 2022 includes some action items that may produce beneficial changes in the future, Upcoming Compliance Deadlines for Calendar-Year Plans

SECURE 2.0 is a GO!

In 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act increased the Required Minimum Distribution (RMD) age for retirement plan participants from age 70 1/2 to 72. Additionally, it introduced opportunities for Long Term Part Time (LTPT) employees to make deferral contributions to retirement plans in situations where they have not yet met the plan’s eligibility requirements. An updated version of the SECURE Act—the SECURE 2.0 Act of 2022—was signed by President Biden on December 29, 2022, as part of the Consolidated Appropriations Act of 2023. While this omnibus spending bill covers a variety of topics, changes to qualified retirement plans were included to encourage earlier plan participation and a better retirement outcome. SECURE 2.0 modifies the original RMD and LTPT provisions while introducing new rules. Here is what lies ahead:Effective as of the date of enactment:

  • Distributions to terminally ill participants will be exempt from the 10% early withdrawal penalty tax.
  • Plan sponsors of a 401(k), 403(b) or 457(b) plan may permit participants to elect their company matching and non-elective contributions be treated as Roth contributions.

Effective for Plan years beginning on or after 1/1/23:

  • Required Minimum Distribution (RMD) age increases from 72 to 73.
    • If a participant turned 72 prior to 1/1/23 and they have begun receiving their RMD, they will continue to receive their RMD in 2023.
    • For participants who turn 73 in 2023, their 1st RMD is due by 12/31/23 or they may opt to delay it until 4/1/24. If they choose the latter, they will take both their 1st and 2nd payment in 2024.
    • The penalty assessed to the participant for not taking an RMD timely is reduced from 50% of the amount not distributed to 25%.
    • The age increases further to 75 in 2033.

Effective for Plan years beginning on or after 1/1/24:

  • RMDs will not be required from Roth 401k or Roth 403(b) balances.
    • Currently Roth IRAs are exempt from RMDs but Roth balances in qualified plans are included in the calculation of the required amount to be distributed. Calculations for 2023 RMDs will include Roth 401(k) balances but they will be excluded from future calculations.
  • Catch-up contributions to qualified retirement plans must be Roth deferrals.
    • This does not apply to participants with compensation under $145,000 in the prior year.
  • Matching contributions on student loan repayments.
    • Sponsors of a 401(k) Plan, 403(b) Plan or SIMPLE IRA will be able to match student loan repayments made by employees. This also applies to governmental employers who sponsor a 457(b) Plan.
    • The employee will make student loan payments on the loan that was taken to pay for qualified higher education expenses and the employer will be permitted to deposit a matching contribution into the qualified plan on their behalf.
  • Hardship rules for 403(b) plans will conform to the rules that apply to 401(k) Plans.
    • In addition to employee contributions being available as a hardship distribution, earnings on those contributions will be available as well.
  • Distributions will be available for domestic abuse survivors.
    • The available amount will be the lesser of $10,000 or 50% of the participant’s account and will be exempt from the 10% early withdrawal penalty tax.
    • The amount will be eligible to be repaid to the plan over 3 years.
  • Emergency distributions up to $1,000 will be available.
    • One distribution per year for unforeseeable or immediate financial needs relating to personal or family emergency expenses.
    • The distribution will be exempt from the 10% early withdrawal penalty tax.
    • The amount will be eligible to be repaid within 3 years.
    • No additional emergency distribution during the 3-year period will be available unless repayment has occurred.
  • Long Term Part Time (LTPT) Employees will be eligible to contribute elective deferrals to their employers’ 401(k) Plans.
    • LTPT Employees are those who have worked at least 500 hours a year for three consecutive years.
    • Plan Sponsors may opt to offer matching contributions (subject to vesting schedule).
    • Hours of service prior to 2021 are disregarded for both eligibility and vesting.
    • This provision does not apply to collectively bargained plans.

Effective for Plan years beginning on or after 1/1/25:

  • Long Term Part Time (LTPT) Employees will be eligible to contribute elective deferrals after TWO consecutive years of working 500 hours instead of three years.
    • This provision will now apply to both 401(k) Plans and ERISA 403(b) Plans.
    • Hours of service prior to 2023 are disregarded for 403(b) Plans.
  • Increased Catch-Up Contributions.
    • Participants aged 60 to 63 will be eligible to defer larger catch-up contributions.
  • Required automatic enrollment provisions.
    • New 401(k) and 403(b) plans must include automatic enrollment provisions where the default employee contribution rate is at least 3% but not more than 10%. Each following year, the amount is increased by 1% until it reaches at least 10% but not more than 15%.
    • This provision does not apply to businesses with 10 or fewer employees or new companies in business less than 3 years.
    • Plans that exist as of December 29, 2022 (date of enactment) are grandfathered and, therefore, are not required to include automatic enrollment provisions.
    • Plans that are established in 2023 and 2024 should pay attention to this provision, though, since the provision may apply to them for 2025.

Is it already time to complete another year-end data request?

When Plan Sponsors are asked to provide company and employee census information for a recent plan year, the details being collected affect the contributions that must be calculated and funded as well as which compliance tests the plan must satisfy. The same questions are asked year after year because changes in the company affect the plan a great deal. Information collected may include:

Employee census: Details about all employees on payroll must be provided, whether they are full time, part time or only worked a few weeks.

  • Employee information allows your retirement plan professional to determine who met the plan eligibility requirements, who is required to be included in compliance testing and who is eligible to receive employer contributions being funded for the plan year.
  • If your payroll information is collected per payroll, you may be asked to confirm its accuracy at year end to be sure that no payrolls were missed and that, for calendar year compensation years, the amounts tie to the Form W-3.
  • With the new rules for Long Term Part Time (LTPT) employees, it is very important to track hours worked for part time employees to determine who falls into this category.
  • If you are an owner only plan (sole proprietor and spouse, or partnership and spouses of partners), be sure to reach out to your retirement plan professional if you are considering hiring employees. Depending on the plan provisions, even seasonal or short-term hires could have an unexpected impact.

Ownership % and other businesses owned by those owners: Not only does it matter who owns a part of your business, how much they own makes a difference as well.

  • Ownership of more than 5% means they are a Highly Compensated Employee (HCE) for compliance testing purposes, and this may affect the contribution amount they are able to receive. If the spouse of the owner is also employed, the ownership attribution applies to them as well. This applies to parents, children, and grandparents of 5% owners.
  • If the owners of your company have ownership in another company, it could be a controlled group or affiliated service group situation and the employees of that other company may need to be included in the compliance testing for your qualified plan.
  • Changes in ownership should be communicated as they are being planned, rather than after the change takes effect. For example, if the owners plan to retire at year end with their children taking over, the compliance testing for the plan could be affected by the change in ages of the HCEs. There are ways to make this a smooth transition with plan provision changes if discussed in advance.

ERISA fidelity bond: The amount in place for your plan at year end is requested to determine if it is sufficient or needs to be increased.

  • The amount of the bond is reported on the Form 5500 filed for the plan year and the required amount is 10% of plan assets. Certain exceptions apply.
  • For the 1st year of the plan, the amount of coverage is to be based on 10% of the expected contribution amount for the year.

Stay tuned! Secure 2.0 Act of 2022 includes some action items that may produce beneficial changes in the future.

Within 18 months:

  • Effectiveness of notice provided for eligible rollover distributions: A 402(f) notice, often referred to as a Special Tax Notice, must be provided to the recipient of a distribution that is eligible for rollover. The notice must contain required language regarding rollover options and the tax implications that may apply. The Government Accountability Office must issue a report to Congress on the effectiveness of these notices.

No later than two (2) years after the date of enactment:

  • Retirement Savings Lost and Found: A national online database will be created to help connect former participants who are trying to reach a prior employer with Plan Sponsors who are trying to reach them regarding a remaining account balance.
  • Consolidation of defined contribution plan notices: Regulations are to be amended so that the individual notices currently provided to participants by the plan can be consolidated.

Within five (5) years:

  • Report on pooled employer plans: The Department of Labor (DOL) Secretary must conduct a study on the new and growing pooled employer plan industry and issue a report within five years. Subsequent reports will be completed every five years after.

Upcoming Compliance Deadlines for Calendar-Year Plans

February 28th
IRS Form 1099-R Copy A – Deadline to submit 1099-R Copy A to the IRS for participants and beneficiaries who received a distribution or a deemed distribution during the prior plan year. This deadline applies to scannable paper filings. For electronic filings, the due date is March 31, 2023.
March 15th
ADP/ACP Corrections – Deadline for processing corrective distributions for failed ADP/ACP tests without a 10% excise tax for plans without an Eligible Automatic Contribution Arrangement (EACA).
Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2022 S-corporation and partnership returns for filers with a calendar fiscal year (unless extended).
March 31st (April 1st falls on a weekend)
Required Minimum Distributions – Normal deadline to distribute a Required Minimum Distribution (RMD) for participants who attained age 72 during 2022.
April 14th (April 15th falls on a weekend)
Excess Deferral Correction – Deadline to distribute salary deferral contributions plus related earnings to any participants who exceeded the IRS 402(g) limit on salary deferrals. The limits for 2022 were $20,500 or $27,000 for those aged 50 and over if the plan allowed for catch-up contributions.
April 18th (April 15th falls on a weekend)
Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2022 C-corporation and sole proprietor returns for filers with a calendar fiscal year (unless extended).

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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© 2023 Benefit Insights, LLC. All Rights Reserved.

2023 IRS Benefit Limits

Each year, benefit and compensation limits are revised and published by the Internal Revenue Service. This year’s limits have been released with significant changes from last year. The chart below reflects these changes.

Now is a good time to review your current contributions to your 401(k), 403(b), or 457(b) plan to see if you can take advantage of additional deferrals for 2023.

IRS and Social Security Compensation, Tax, and Benefit Limits20232022Change
Defined Benefit Maximum Annual Pension Benefit
The maximum annual benefit that can be accrued by an individual at his social security normal retirement age in a qualified defined benefit plan is the lesser of this limit or 100% of the highest consecutive 3-year average of compensation as a plan participant (IRC §415(b)(1)(A)).
Defined Contribution Maximum Annual Addition
The maximum amount that can be contributed on behalf of an individual to one or more qualified defined contribution plans in a given year is the lesser of this limit or 100% of compensation for the year (IRC §415(c)(1)(A)).
Maximum Compensation Limit for Qualified Plans
This is the maximum annual compensation that can be taken into account for a defined benefit, defined contribution or simplified employee pension plan (IRC §§401(a)(17), 404(l), 408(k)(3)(C) and 408(k)(6)(D)(ii)).
Highly Compensated Employee
A 5% owner at any salary or an employee receiving compensation in excess of this limit for the prior plan year is considered a highly compensated employee under IRC §414(q)(1)(B).
Social Security Taxable Wage Base
Social Security taxes are paid for compensation up to this limit. Medicare taxes are paid on all compensation.
Key Employee – Officer Compensation
The definition of a key employee is any 5% owner, and any officer with compensation over $215,000.
Maximum Elective Deferral – 401(k), 403(b), 457(b)
This is the maximum elective deferral that participants can make in a calendar year to plans described in IRC §402(g)(1). This refers to contributions made by the employer on behalf of the employee under a cash or deferred arrangement described in IRC §401(k), contributions to an IRA under a simplified employee pension plan described in IRC §408(k) and salary reduction agreements (or tax deferred annuities) described in IRC §403(b). The maximum elective deferral which can be made to a SIMPLE 401(k) Plan described in IRC §408(p) is $15,500 in 2023.
Age 50 or older – Catch Up Contributions – 401(k), 403(b), 457(b)
Catch-up contributions are available to employees age 50 or older by the end of the year. Catch-up contributions are not subject to any other contribution limits or nondiscrimination testing.

NOTE: To be considered catch-up contributions the contributions must exceed some Code or plan limit.
$7,500$6,500+ $1,000

November 2022 Newsletter

Fall 2022 – Benefit Insights Newsletter

Cost of Living Adjustments for 2023, New Plan Year Checklist, Save or Toss? Proper Plan Record Storage a Must!, Deadline for CARES Act and SECURE Act Amendments Extended, Upcoming Compliance Deadlines for Calendar-Year Plans

Cost of Living Adjustments for 2023

Save even more for retirement in 2023 due to record breaking increases in limits. On October 21, 2022, the IRS announced the Cost of Living Adjustments (COLAs) affecting the dollar limitations for retirement plans for 2023. Retirement plan limits increased well over the 2022 limits, the largest increase in over 45 years. COLA increases are intended to allow participant contributions and benefits to keep up with the “cost of living” from year to year. Here are the highlights from the new 2023 limits:

  • The calendar year elective deferral limit increased from $20,500 to $22,500.
  • The elective deferral catch-up contribution increased from $6,500 to $7,500. This contribution is available to all participants aged 50 or older in 2023.
  • The maximum available dollar amount that can be contributed to a participant’s retirement account in a defined contribution plan increased from $61,000 to $66,000. The limit includes both employee and employer contributions as well as any allocated forfeitures. For those over age 50, the annual addition limit increases by $7,500 to include catch-up contributions.
  • The maximum amount of compensation that can be considered in retirement plan compliance has been raised from $305,000 to $330,000.
  • Annual income subject to Social Security taxation has increased from $147,000 to $160,200.
Annual Plan Limits202320222021
Contribution and Benefit Limits
Elective Deferral Limit$22,500$20,500$19,500
Catch-Up Contributions$7,500$6,500$6,500
Annual Contribution Limit$66,000$61,000$58,000
Annual Contribution Limit including Catch-Up Contributions$73,500$67,500$64,500
Annual Defined Benefit Limit$265,000$245,000$230,000
Compensation Limits
Maximum Plan Compensation$330,000$305,000$290,000
Income Subject to Social Security$160,200$147,000$142,800
Key EE Compensation Threshold$215,000$200,000$185,000
Highly Compensated EE Threshold$150,000$135,000$130,000
IRA Limits
SIMPLE Plan Elective Deferrals$15,500$14,000$13,500
SIMPLE Catch-Up Contributions$3,500$3,000$3,000
Individual Retirement Account (IRA)$6,500$6,000$6,000
IRA Catch-Up Contribution$1,000$1,000$1,000

New Plan Year Checklist

Each year, a great deal of attention is paid to the upcoming year end work: census gathering, compliance testing, 5500s, oh my! But the year-end also brings with it a host of items that may need attention before the year closes. Below are a few action items that may need to be considered.

  • Changes were made for the current plan year or upcoming plan year that required an amendment. Example: As of January 1, 2023, in-service distributions are available to participants at age 59 ½.
    • Do you have a signed copy of the amendment on file?
    • Have you revised your processes to ensure you are following the new terms of the plan?
  • Are there terminated participants with small balances?
    • If your plan is like most and permits force-out or mandatory distributions of terminated participant account balances, the distributions must be completed by the plan year end.
    • Check with your service provider to ensure the amounts will be paid out before the current plan year end.
  • If your plan includes automatic enrollment provisions, the following may help you keep on track.
    • Identify participants who will be eligible at the start of the plan year and be sure that deferrals are scheduled to begin on time for those that do not opt out.
    • For plans that include auto-escalation of contributions, create a list of participants whose deferrals need to be increased in accordance with the plan’s schedule.
  • With the significant increase in limits for 2023, it will be a great year for both participants and plan sponsors to take advantage of saving for retirement. It may make sense to review your current plan specifications to ensure that participants can take advantage of the higher limits. Some examples are raising your company match cap to a higher limit or letting employees enter the plan more quickly.
  • The 2023 COLAs significantly raised the annual compensation limit from $305,000 to $330,000. If you fund employer contributions during the year, be sure to adjust your calculations for the upcoming plan year based upon the new limit.
  • While some actions are needed ahead of the start of a plan year, the SECURE Act provided that a new plan can be added after the end of the year to which it applies. For example, if you maintain a 401(k) Plan and choose to add a Cash Balance Plan, the new plan can be implemented up to the due date of the company’s tax filing. This means that even if you choose to add a Cash Balance Plan for 2022, the plan document can be executed in 2023 if it’s adopted prior to filing the 2022 company tax return.

Be sure to speak with your TPA or service provider about any additional steps that need to be taken in order to be ready for a new plan year.

Save or Toss? Proper Plan Record Storage a Must!

As the year comes to a close, you may wonder what plan records must be kept and what items can be tossed. Historical plan records may need to be produced for many reasons: an IRS audit, a DOL investigation or simply questions from participants about their benefits or accounts to name a few.

The Internal Revenue Service (IRS) takes the position that plan records should be kept until all benefits have been paid from the plan and the audit period for the final plan year has passed. This additional audit period is important to note. It may seem that with the final payout the plan is gone, but the reality is that the plan can be selected for audit for 6 years after the plan assets are paid out and your final Form 5500 is filed. The items that are typically needed in the event of an audit are:

  • Plan documents and amendments (all since the start of the plan, not just the most recent)
  • Trust Records: investment statements, balance sheets and income statements
  • Participant records: Census data, account balances, contributions, earnings, loan records, compensation data, participant statements and notices

Under the Employee Retirement Income Security Act (ERISA), the following documentation should be retained at least six years after the Form 5500 filing date, including, but not limited to:

  • Copies of the Form 5500 (including all required schedules and attachments)
  • Nondiscrimination and coverage test results
  • Required employee communications
  • Financial reports and supporting documentation
  • Evidence of the plan’s fidelity bond
  • Corporate income

In addition, ERISA states that an employer must maintain benefit records, in accordance with such regulations as required by the Department of Labor (DOL), with respect to each of its employees that are sufficient to determine the benefits that are due or may become due to such employees. These items don’t necessarily have a set time frame, so you may want to consider keeping these items indefinitely. Documentation needed may include the following:

  • Plan documents, amendments, SPD, etc.
  • Census data and supporting information to determine eligibility, vesting and calculated benefits
  • Participant account records, contribution election forms and beneficiary forms Documentation related to loans and withdrawals

It is the plan sponsor’s responsibility to ensure documentation is kept regardless of which service providers are used during the life of the plan. Establishing a written process regarding how long to keep documentation is important as well as giving careful thought to whether the records will be electronic or paper. This ensures that, as staff members change over time, your processes will remain consistent and all necessary information will be handled appropriately. When storing plan records electronically, consider a naming convention that will make documents accessible to the proper personnel and easy to locate.

Security of the information should be considered as well to protect the confidentiality of personally identifiable information or PII. Many types of plan records include items considered PII, like social security numbers, dates of birth or account numbers. This information should be kept in a secure manner to avoid the possibility of identity theft and fraud. Take the necessary steps to ensure that the plan’s service providers also have adequate policies in place to protect participant’s PII as well.

Deadline for CARES Act and SECURE Act Amendments Extended

The original due date of the CARES Act and SECURE Act amendments for qualified plans, other than governmental plans, was the last day of the first plan year beginning on or after January 1, 2022, which means December 31, 2022, for calendar year plans. This has been extended to December 31, 2025, regardless of plan year end. However, the deadline for governmental plans (414(d) plans, 403(b) plans maintained by public schools or 457(b) plans) is 90 days after the close of the third regular legislative session of the legislative body with the authority to amend the plan that begins after December 31, 2023.

This does not restore the availability of Coronavirus Related Distributions or larger loan limits but refers to the amendments that document the provisions used to operate the plan. Check with your TPA or document provider to confirm if the amendments for your plan were already filed or if the extended deadline will apply to you.

Upcoming Compliance Deadlines for Calendar-Year Plans

December 1st
Participant Notices – Annual notices due for Safe Harbor elections, Qualified Default Investment Arrangement (QDIA), and Automatic Contribution Arrangements (EACA or QACA).
December 30th
ADP/ACP Corrections – Deadline for a plan to make ADP/ACP corrective distributions and/or to deposit qualified nonelective contributions (QNEC) for the previous plan year.Discretionary Amendments – Deadline to adopt discretionary amendments to the plan, subject to certain exceptions (e.g., anti-cutbacks).Required Minimum Distribution (RMD) – For participants who attained age 72 in 2021 (and attained age 70 on or after July 1, 2019), the first RMD was due by April 1, 2022. The 2nd RMD, as well as subsequent distributions for participants already receiving RMDs, is due by December 30, 2022.
January 31st
IRS Form 945 – Deadline to file IRS Form 945 to report income tax withheld from qualified plan distributions made during the prior plan year. The deadline may be extended to February 10th if taxes were deposited on time during the prior plan year.IRS Form 1099-R – Deadline to distribute Form 1099-R to participants and beneficiaries who received a distribution or a deemed distribution during prior plan year.IRS Form W-2 – Deadline to distribute Form W-2, which must reflect aggregate value of employer-provided employee benefits.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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© 2023 Benefit Insights, LLC. All Rights Reserved.

August 2021 Newsletter

Summer 2021 – Benefit Insights Newsletter

Missing Participants: Ready or Not Here I Come!, Safe Harbor: A Cure For Your Testing Headaches, Looking to Maximize Savings? Cash Balance Could Be the Answer!, Upcoming Compliance Deadlines for Calendar-Year Plans

Missing Participants: Ready or Not, Here I Come!

Most plan sponsors can relate to the trials and tribulations of having missing participants in their retirement plan. At times, it may feel like you are on the losing end of an intense game of hide-and-seek. Your opponents, the missing participants, may not have intended to pick the best hiding spots, but in many cases, they have surely succeeded. Now you are tasked with tracking them down and upping your game to avoid this scenario in the future.

So, what are missing participants, exactly? Missing participants are former employees who left an account balance in a retirement plan and did not keep their contact information up to date. In addition, they may no longer actively manage their accounts. There are a few factors that have led to an increase in the number of missing participants in retirement plans over the years. Unlike the generations of our parents and/or grandparents, employees do not typically work their entire career with one firm anymore. Another contributing factor is the mobilization of the workforce. The ability to work remotely has mobilized employees even more these days. Some have chosen to relocate across the country while others find themselves living in a new locale every few months. Many of us can relate to this, especially over the past 18 months. With these two factors alone, it can be difficult to keep track of plan participants once they leave your firm.

It is important to develop procedures to ensure contact information is up to date and to illustrate the proactive measures employed in this effort. Whatever steps you implement, you should relay to employees and participants why keeping these details current is important and how it can affect them. Ask any employee if they would be okay with losing track of their retirement account – the answer would probably be a resounding no. A few ideas based on the Department of Labor’s (DOL’s) Best Practices are included below.

  • Annual Review: Have plan participants verify their contact information on file at least annually. This includes addresses, phone numbers, and email addresses. You can also include a review of beneficiaries at this time. Keep in mind this does not only include current employees but terminated or retired participants as well. Also consider making the review part of your company’s exit interview.
  • Mailings: When completing a mailing, provide a form where recipients can update their contact information.
  • Returned Mail: Initiate searches for participants as soon as mail has been returned as undeliverable. This includes mail marked as “return to sender,” “wrong address,” “addressee unknown,” or otherwise.
  • System Log In: If participants regularly log into a system, set a reminder or pop-up directing users to verify their contact information.

Unfortunately, even with the best of plans in place, plan sponsors may still have participants who go missing. So, not only do you need to incorporate procedures for ensuring contact information is up-to-date, but you also need to document procedures for locating participants once they go missing. The DOL provides a list of search methods that should be used to locate missing participants. Some of these methods are included below.

  • Send a notice using certified mail through USPS or a private delivery service with similar tracking features.
  • Check the records of the employer or any related plans of the employer.
  • Send an inquiry to the designated beneficiary or emergency contact of the missing participant.
  • Use free electronic search tools or public record databases.

At some point, most plan sponsors will find themselves with participants who have gone missing. It’s important to remember plan sponsors have a fiduciary responsibility to follow the terms of the plan document and ensure participants are paid out timely. Having a well-documented, organized process which addresses missing participants, along with proof the process is followed, will prove worthwhile.

More information regarding the Department of Labor’s Best Practices can be located on their website.

https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-and-compliance/retirement/missing-participants-guidance/best-practices-for-pension-plans ■

Safe Harbor: A Cure For Your Testing Headaches

A crucial requirement for 401(k) plans is that the plan must be designed so it does not unfairly favor highly compensated employees (HCEs) or key employees (such as owners) over non-highly compensated employees (NHCEs). To satisfy this requirement, the IRS requires that plans pass certain nondiscrimination tests each plan year. These tests analyze the rate at which HCE and key employees benefit from the plan in comparison to NHCEs. Failed tests can result in costly corrections, such as refunds to HCEs and key employees or additional company contributions. Luckily for plan sponsors, there is a plan design option – a safe harbor feature, that allows companies to avoid most of these nondiscrimination tests.

To be considered safe harbor and take advantage of the benefits afforded to safe harbor plans, there are several requirements that must be satisfied. Below we will take a look at the key characteristics of a safe harbor plan.

The plan must include one of the following types of contributions. The chosen formula is written in the plan document, and with the exception of HCEs, must be provided to all eligible employees each plan year. Please note that additional options, not covered here, are provided for plans that include certain automatic enrollment features.

  • Safe Harbor Match: With this option, the company makes a matching contribution only to those employees who choose to make salary deferral contributions. There are two types of safe harbor matching contributions:
    • Basic Safe Harbor Match: The company matches 100% of the first 3% of each employee’s contribution, plus 50% of the next 2%.
    • Enhanced Safe Harbor Match: Must be at least as favorable as the basic match. A common formula is a 100% match on the first 4% of deferred compensation.
  • Safe Harbor Nonelective: With this option, the company contributes at least 3% of pay for all eligible employees, regardless of whether the employee chooses to contribute to the plan.

Unlike company profit sharing or discretionary match contributions, safe harbor contributions must be 100% vested immediately. In addition, the contribution must be provided to all eligible employees, even those who did not work a minimum number of hours during the plan year or who are not employed on the last day of the plan year.

In most cases, an annual safe harbor notice must be distributed to plan participants within a reasonable period before the start of each plan year. This is generally considered to be at least 30 days (and no more than 90 days) before the beginning of each plan year. For new participants, the notice should be provided no more than 90 days before the employee becomes eligible and no later than the employee’s date of eligibility. The safe harbor notice informs eligible employees of certain plan features, including the type of safe harbor contribution provided under the plan.

If all safe harbor requirements have been satisfied for a plan year, the following nondiscrimination tests can be avoided.

  • Actual Deferral Percentage (ADP): The ADP test compares the elective deferrals (both pre-tax and Roth deferrals, but not catch-up contributions) of the HCEs and NHCEs. A failed ADP must be corrected by refunding HCE contributions and/or making additional company contributions to NHCEs.
  • Actual Contribution Percentage (ACP): The ACP test compares the matching and after-tax contributions of the HCEs and NHCEs. A failed ACP must be corrected by refunding HCE contributions and/or making additional company contributions to NHCEs.
  • Top Heavy Test: The top heavy test compares the total account balances of key employees and non-key employees. If the total key employee balance exceeds 60% of total plan assets, an additional company contribution of at least 3% of pay may be required for all non-key employees. It is important to note that a plan will lose its top heavy exemption if company contributions, in addition to the safe harbor contribution, are made for a plan year (e.g., profit sharing or discretionary matching contributions).

So, how do you know if a safe harbor plan is a good fit for your company? As discussed above, the primary benefit of a safe harbor plan is automatic passage of certain annual nondiscrimination tests. If your plan typically fails these tests, resulting in refunds or reduced contributions to HCEs and key employees, your company may benefit from a safe harbor feature. Predictable annual contributions also provide a great incentive for employees to save for their retirement. However, if you do not currently offer an annual match or profit sharing contribution to your employees, a safe harbor formula may significantly impact your company’s budget. Except for a few limited exceptions, safe harbor contributions cannot be removed during the plan year, so it’s important that a company is able to fund these required contributions. As with all things qualified plan related, the key is working with an experienced service provider who can design a plan to suit your company’s needs! ■

Upcoming Compliance Deadlines for Calendar-Year Plans

15th September 2021
Required contribution to Money Purchase Pension Plans, Target Benefit Pension Plans, and Defined Benefit Plans.
Contribution deadline for deducting 2020 employer contributions for those sponsors who filed a tax extension for Partnership or S-Corporation returns for the March 15, 2021 deadline.
Deadline for certification of the Annual Funding Target Attainment Percentage (AFTAP) for Defined Benefit Plans for the 2021 plan year.
15th October 2021
Extended due date for the filing of Form 5500 and Form 8955.
Due date for 2021 PBGC Comprehensive Premium Filing for Defined Benefit Plans.
Contribution deadline for deducting 2020 employer contributions for those sponsors who filed a tax extension for C-Corporation or Sole-Proprietor returns for the April 15, 2021 deadline.

Looking to Maximize Savings? Cash Balance Could Be the Answer!

So, you established a 401(k) plan for your company and have been contributing consistently for years. The plan has likely afforded your company significant tax savings and has allowed you to attract and retain quality employees. While a 401(k) plan is a great savings vehicle, did you know there is a type of qualified retirement plan that will allow you to contribute significantly more than the maximum allowed in a stand-alone 401(k) profit sharing plan?

We are all familiar with defined contribution plans (e.g., 401(k) and profit sharing plans). You are probably also familiar with traditional defined benefit plans, or pension plans, historically sponsored by large companies to provide monthly retirement benefits to their retirees. For business owners that are looking for large tax deductions, accelerated retirement savings, and additional flexibility, another type of defined benefit plan, a cash balance plan, may be the perfect solution.

How does a cash balance plan work?

As mentioned above, a cash balance plan is a type of defined benefit plan. In general, defined benefit plans provide a specific benefit at retirement to participants. While traditional defined benefit plans define an employee’s benefit as a series of monthly payments for life to begin at retirement, cash balance plans state the benefit as a hypothetical account balance. Each year, this hypothetical account is credited with following:

  • A pay credit, such as a percentage of annual pay or a fixed dollar amount that is specified in the plan document.
  • A guaranteed interest credit (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate).

The accounts in a cash balance plan are referred to as hypothetical because, unlike defined contribution plans, the plan assets are held in a pooled account managed by the employer, or an investment manager appointed by the employer. The hypothetical account balances are an attractive feature of cash balance plans because these accounts tend to be easier for participants to understand, as the annual benefit statements reflect the value of their account, similar to 401(k) profit sharing plan account statements.

Unlike a 401(k) profit sharing plan, a defined benefit plan guarantees the benefit each participant will ultimately receive. The plan’s actuary calculates the benefits earned each year based on the terms of the plan document, which in turn determines the required employer contribution due to the plan.

When a participant becomes entitled to receive their benefit from a cash balance plan, the benefits are defined in terms of an account balance and can be paid as an annuity based on that account balance. In many cash balance plans, the participant also has the option (with consent from his or her spouse) to take a lump sum benefit that can be rolled over into an IRA or to another employer’s plan.

What if I already sponsor a 401(k) profit sharing plan?

In most cases, cash balance plans work best when paired with a 401(k) profit sharing plan. To optimize the combined plan design, it’s possible that certain provisions in your current plan may need to be amended. This is especially true if the cash balance plan covers non-owner employees. Due to the large benefits that are typically earned by the owner and/or other key employees, the combined plans must pass certain nondiscrimination tests. These tests are more easily passed when employer contributions are provided to the staff under the 401(k) profit sharing plan as safe harbor nonelective and profit sharing contributions. While company contributions in a stand-alone 401(k) profit sharing plan may be discretionary, when combined with a cash balance plan, these contributions become required as well, since without them, the combined plans will likely not pass all required nondiscrimination tests.

Are cash balance plans a good fit for everyone?

Unfortunately, the answer to this question is no. The first question to ask yourself is if you wish to make contributions in excess of the defined contribution limit ($58,000 or $64,500 for participants over age 50 for 2021). If the answer to this is yes, then the demographics of the employer must be considered. Since the maximum contributions are age dependent, cash balance plans typically work best when targeted employees are older than the average age of other staff members. And maybe most importantly – do you anticipate consistent profits that will allow you to fund all required contributions for the foreseeable future?

Cash balance plans sound too good to be true. What’s the catch?

If you’ve decided setting up a cash balance plan sounds like the perfect way to meet your retirement goals and attract and retain quality employees, you may be right! However, as good as this sounds, there are many important factors to consider before jumping in. Here are a few key considerations:

  • Cash balance plans can be designed with some flexibility, such as setting up pay credits using a percentage of annual pay, but the annual contribution calculated by the actuary is required. When paired with a 401(k) profit sharing plan to pass nondiscrimination testing, the employer contributions to that plan become required as well.
  • Because the annual interest credit is guaranteed, the employer bears the investment risk for the plan. If the rate of return on investments is less than expected, the required contribution may increase to make up for the shortfall.
  • Qualified retirement plans must be established with the intent of being permanent. Many service providers recommend maintaining the plan for at least three to five years to satisfy this requirement.
  • Cash balance plans are often more complex, and as a result, more costly to establish and maintain than defined contribution plans.

For employers that desire increased retirement savings and tax deductions, cash balance plans may be the perfect addition to their employee benefit program. However, as previously mentioned, they are not a good fit for everyone. It’s important to work with an experienced service provider to determine if a cash balance plan is right for you. ■

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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© 2023 Benefit Insights, LLC. All Rights Reserved.

May 2021 Newsletter

Spring 2021 – Benefit Insights Newsletter

Retirement Planning is a Team Sport, Congratulations! It’s a Retirement Plan!, Department of Labor Issues Cybersecurity Guidance, Upcoming Compliance Deadlines for Calendar-Year Plans

Retirement Planning is a Team Sport

Some would say that retirement plan administration is a team sport! Putting together technical and compliance competence with ongoing investment and fiduciary expertise is key to keeping your plan healthy and participants happy. So, what roles and responsibilities should you look to fill for your firm to have a successful and compliant plan?

The first and most important role is you, the Plan Sponsor. Plan Sponsors elect to establish the plan and offer it to their employees. Though many employers act as the named Plan Administrator of the plan, to ensure a successful outcome, they assemble a team of professionals to fulfill the key roles that keep a plan on track. The team’s goal, following the direction of the Plan Sponsor, is to deliver a program that provides retirement security for the plan participants.

Key Team Players

Beyond the sponsorship and ultimate oversight of the plan, the following are key roles which are vital to a well-run plan.

Third Party Administrator (TPA) – Not to be confused with the named Plan Administrator, the TPA plays a critical role in the maintenance of the plan and the coordination of the team. The TPA is typically the “go-to” resource for HR personnel for questions regarding the day-to-day operation of the plan and the coordinator among other service providers in the plan’s ecosystem. More than reliable customer service, TPAs are trained professionals that provide technical expertise to ensure the plan complies with current regulations governing retirement plans. ERISA, DOL regulations, and case law are complex and frequently change. Compliance is daunting, and penalties and back taxes can be significant. So, it is important that a dedicated TPA is engaged. Common duties include:

  • Providing guidance on plan design.
  • Preparing and maintaining legal plan documents.
  • Performing compliance testing.
  • Preparing annual valuations and benefit statements.
  • Completing and filing all forms with the government.
  • Performing non-discrimination testing.

Financial Advisor – An equally important counterpart to the TPA role is the plan’s financial advisor. In tandem with the TPA, advisors help Plan Sponsors decide the goals for the retirement plan. These goals are then translated, with the TPA, into a plan design and ultimately a written plan document that guides the operations of the plan from year to year. The financial advisor also helps the Plan Sponsor select and monitor the investments in the retirement plan. In a 401(k) plan, where participants may direct their account balances, the advisor will assist the Plan Sponsor in selecting a recordkeeping platform and a line-up of investment options from which the plan’s participants will choose. The advisor may also:

  • Oversee investment meetings.
  • Act as a guide and educator to the plan’s participants through the initial enrollment process and subsequent enrollment meetings.
  • Act as a co-fiduciary to the plan.

Recordkeeper/Custodian – The recordkeeping platform in a participant directed 401(k) plan keeps track of the participant’s investment selections and account balances. The plan’s custodian holds the plan’s assets and handles buying and selling of investments for contributions, investment exchanges, and distributions. These services can be provided as a bundle or independently offered.

Other important members of the team:

  • Payroll Providers – Payroll providers play a key role in 401(k) plans by recording participant salary deferral percentages and calculating the deductions and appropriate taxes on the contributions to the plan.
  • Plan Auditor – For plans over 100 participants, a financial statement audit is performed by a certified public accountant.
  • Retirement Plan Fiduciary – Though not a requirement, many advisors have migrated to taking on a fiduciary role in retirement plans by acting in a 3(21) or 3(38) capacity.
  • ERISA Attorney – Many Plan Sponsors and TPAs may need the assistance of an ERISA attorney in certain areas of retirement plan administration such as QDROs, voluntary compliance programs, or in the event of a legal action against the plan.
  • 3(16) Fiduciary – A Plan Sponsor may hire a firm to fill the role of the Plan Administrator as stated in the plan document.

Bundled vs Unbundled Servicing Options

As with most things in life, there is no perfect answer that fits everyone in every situation. Many of the services mentioned in this article can be linked together and offered in “bundles.” On the surface, this may seem the easier route, but bundled does not give the Plan Sponsor the ability to evaluate each component on its own, so many trade-offs in services and expertise may occur.

An unbundled approach strives to offer the Plan Sponsor a more a la carte approach to the services they use to design their plan. With a good TPA and advisor relationship, the Plan Sponsor can be easily guided through the selection process by relying on the experience of these professionals. Many believe this approach ultimately ends up with the design and structure that works best for their employees. Be aware that, though cheaper fees and overall costs may be offered through bundled providers, it is possible that recordkeeping or compliance costs are being offset in other areas like investment management fees.

Ultimate Oversight

Ultimately, the Plan Administrator and Plan Sponsor must ensure that the service providers are fulfilling their duties. By relying on a close relationship with their TPA and Financial Advisor, Plan Sponsors can feel confident that they are creating a plan that will serve the retirement needs of their employees and steer clear of any issues with governing entities. ■

Congratulations! It’s a Retirement Plan!

So, you’ve sold your business and now you’re asking the question “What happens to the retirement plan?” You are not alone. In the world of mergers and acquisitions, it is not uncommon for retirement plans to be overlooked in the process. The options available depend upon the type of transaction taking place and the timing, that is — has the transaction already occurred, or is it set for a prospective date? The transaction that takes place is typically classified under one of two categories, an asset sale or a stock sale. We will explore each of these transaction types along with the options available under each below.

Asset Sale

In an asset sale, the assets of an entity are purchased by another company. Some examples of assets include equipment, licenses, goodwill, customer lists, and inventory. While the seller’s assets have been purchased, their entity will continue to exist until properly closed down. The buyer generally does not acquire the liabilities of the seller in this scenario. This includes the retirement plan. Once the sale takes place, the seller can terminate the retirement plan and distribute all assets, or they can continue operating the plan as long as the sponsoring entity continues to exist. Employees who transition to the buyer will be considered new hires and terminated under the seller’s firm. In most cases, the terminated employees will have the option to roll over their account balances to the retirement plan of the buyer. It is common for the buyer’s plan to be amended, allowing for immediate eligibility for these new employees. If it is not amended, the new employees will need to satisfy the eligibility requirements defined under the buyer’s plan.

Stock Sale

In a stock sale, the buyer purchases the stock of the seller’s company. The company is absorbed by the buyer, becoming part of the buyer’s firm. The buyer becomes the employer and assumes all liabilities tied to the seller. This includes the retirement plan unless specifically addressed in the purchase agreement. Under this scenario, there are generally three options available with regard to the seller’s retirement plan. First, the buyer could require the seller’s plan be terminated prior to the effective date of the sale set forth in the purchase agreement. In this case, with the proper board resolution, the seller would be responsible for completing the termination of the plan. It is important that the termination process set forth by the IRS be followed in order to avoid violating successor plan rules.

Another option is to maintain both plans. As long as both plans satisfy coverage rules immediately before the transaction and there are no significant changes in the terms or coverage of the plan, the sponsor may rely on the transition rule where coverage requirements are considered satisfied. This means the plans can be separately maintained through the end of the transition period. This period runs through the end of the year following the year in which the transaction took place. After the transition period has expired, if the sponsor continues to maintain both plans, they must be tested together.

The third option available is to merge the plans. This is typically the option most plan sponsors choose. In this case, the seller’s plan is usually merged into the plan of the buyer. This is accomplished through a resolution and amendment to the surviving plan. It is important the seller’s plan be reviewed for any protected benefits. These benefits, such as vesting and certain distributable events, cannot be eliminated. It is also important to note that with the merging of the two plans, the surviving plan inherits any compliance issues or failures that exist. The buyer should complete their due diligence with regard to review of the seller’s plan before going this route. Any deficiencies will need to be addressed and corrected accordingly. This review and the subsequent documentation will prove beneficial should the seller’s plan be selected for audit, as the IRS can audit a plan up to three years from the date the final Form 5500 was filed.

While every transaction is unique, some advance planning with regard to retirement plans can save you from quite a few headaches down the road. Take the time to consult with your advisors, including your CPA, attorney, etc., when considering buying or selling a business. As a buyer, if you don’t, you could suddenly find you are the proud sponsor of a retirement plan! ■

Upcoming Compliance Deadlines for Calendar-Year Plans

15th May 2021
Quarterly Benefit Statement – Deadline for participant-directed plans to supply participants with the quarterly benefit/disclosure statement including a statement of plan fees and expenses charged to individual plan accounts during the first quarter of this year. Note that May 15th falls on a weekend in 2021. No clear guidance allows extending the deadline to the next business day.
30th June 2021
EACA ADP/ACP Corrections – Deadline for processing corrective distributions for failed ADP/ACP tests to avoid a 10% excise tax on the employer for plans that have elected to participate in an Eligible Automatic Enrollment Arrangement (EACA).
29th July 2021
Summary of Material Modifications (SMM) – An SMM is due to participants no later than 210 days after the end of the plan year in which a plan amendment was adopted.
2nd August 2021
Due date for calendar year end plans to file Form 5500 and Form 8955-SSA (without extension).
Due date for calendar year end plans to file Form 5558 to request an automatic extension of time to file Form 5500.
Quarterly Benefit Statement – Deadline for participant-directed defined contribution plans to provide participants with the quarterly benefit/disclosure statement and statement of plan fees and expenses that were charged to individual plan accounts during the second quarter of 2021. Note that August 14th falls on a weekend in 2021. No clear guidance allows extending the deadline to the next business day.

Department of Labor Issues Cybersecurity Guidance

On April 14, 2021, the DOL’s Employee Benefits Security Administration (EBSA) issued long-awaited guidance designed to protect participants from both internal and external cybersecurity threats. The guidance is far-reaching and is directed at plan sponsors, plan fiduciaries, recordkeepers, and plan participants. This is the first time the DOL has issued guidance on cybersecurity for employee benefit plans and is a welcome step forward as it provides best practices and tips to help mitigate cybersecurity risks.

The guidance is set forth in three parts:

Tips for Hiring a Service Provider: Provides practical steps plan sponsors and fiduciaries can take when selecting retirement plan service providers.

  • Ask about the service provider’s information security standards, practices, and policies, as well as audit results, and compare them to the industry standards adopted by other financial institutions.
  • Ask the service provider how it validates its practices, and what levels of security standards it has met and implemented. Look for contract provisions that give you the right to review audit results demonstrating compliance with the standard.
  • Evaluate the service provider’s track record in the industry, including public information regarding information security incidents, other litigation, and legal proceedings related to vendors’ services.
  • Ask whether the service provider has experienced past security breaches, what happened, and how the service provider responded.
  • Find out if the service provider has any insurance policies that would cover losses caused by cybersecurity and identity theft breaches (including breaches caused by internal threats, such as misconduct by the service provider’s own employees or contractors, and breaches caused by external threats, such as a third-party hijacking a plan participant’s account).
  • When you contract with a service provider, make sure that the contract requires ongoing compliance with cybersecurity and information security standards – and beware of contract provisions that limit the service provider’s responsibility for IT security breaches. Also, try to include terms in the contract that would enhance cybersecurity protection for the Plan and its participants.

Cybersecurity Program Best Practices: Includes best practices designed to assist plan fiduciaries and recordkeepers in managing cybersecurity risks.

  • Have a formal, well documented cybersecurity program.
  • Conduct prudent annual risk assessments.
  • Have a reliable annual third-party audit of security controls.
  • Have clearly defined and assigned information security roles and responsibilities.
  • Have strong access control procedures.
  • Ensure that assets or data stored in the cloud or managed by a third-party service provider are subject to appropriate security reviews and independent security assessments.
  • Conduct cybersecurity awareness training at least annually for all personnel and update to reflect risks identified by most recent risk assessment.
  • Implement a Secure System Development Life Cycle Program (SDLC).
  • Have a business resiliency program that addresses business continuity, disaster recovery, and incident response.
  • Encrypt sensitive data stored and in transit.
  • Have strong technical controls implementing best practices.
  • Take appropriate action to respond to cybersecurity incidents and breaches.

Online Security Tips: Directed at plan participants and beneficiaries who check their retirement accounts online. It provides basic rules to reduce the risk of fraud and loss.

  • Register, set up, and routinely monitor your online account.
  • Use strong and unique passwords.
  • Use multi-factor authentication.
  • Keep personal contact information current.
  • Close or delete unused accounts.
  • Be wary of free Wi-Fi.
  • Beware of phishing attacks.
  • Use anti-virus software and keep apps and software current.
  • Know how to report identity theft and cybersecurity incidents.

Additional information on the tips and best practices summarized above can be found in three documents provided by the DOL.

If you have any questions about the guidance and how it may impact your plan, please contact your representative. ■

Did You Know?

As of 2018, the Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) estimates that there are 34 million defined benefit plan participants in private pension plans and 106 million defined contribution plan participants covering estimated assets of $9.3 trillion.

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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© 2023 Benefit Insights, LLC. All Rights Reserved.

February 2021 Newsletter

Winter 2021 – Benefit Insights Newsletter

The MEP/PEP Debate: Are We Better Together? Terminated Employees? Important Relief is Here. Is There Pandemic Relief For Late Deposits?Upcoming Compliance Deadlines for Calendar-Year Plans

The MEP/PEP Debate: Are We Better Together?

When we talk about retirement plans, many employers think of single employer retirement plans. A single employer retirement plan is simply a plan sponsored by one employer (or a related group of employers) for the benefit of its employees. In contrast, a multiple employer plan (MEP) is a retirement plan that is sponsored by two or more unrelated employers. Historically, MEPs have allowed employers, who may not have the resources to handle a retirement plan independently, to pool together to share the administrative burden of offering a retirement plan to their employees. Although they may sound similar, MEPs are not the same as multi-employer plans. A multi-employer plan is a collectively bargained plan maintained by more than one employer, usually within the same or related industries, and a labor union.

Prior to the enactment of the Setting Every Community Up for Retirement Enhancement (SECURE) Act on December 20, 2019, all employers participating in the MEP had to share a nexus or common interest other than the retirement plan. The DOL had previously taken the position that if adopting employers did not share a common interest, the MEP was not considered to be a single plan for ERISA and Form 5500 purposes. The SECURE Act essentially reversed the DOL position by creating a new type of MEP, the Pooled Employer Plan (PEP). PEPs allow two or more unrelated employers who do not meet the regulatory commonality requirements to come together under one retirement plan.

Another welcome change provided under the SECURE Act is the elimination of the IRS’ “one bad apple” rule. In the past, the IRS took the position that if one employer ran afoul of the IRS qualification requirements, the entire MEP could be disqualified. Eliminating the one bad apple rule shields participating employers from liability from failures of the actions of a non-compliant MEP member.

While there are similarities between MEPs and PEPs, there are also many fundamental differences. A few of the key features are contrasted below.


  • Participating employers are treated as a single employer for certain purposes, such as crediting of eligibility and vesting service and plan qualification purposes.
  • Participating employers are treated as separate employers for coverage, non-discrimination, and top-heavy testing purposes, and employer deduction limitations.
  • In most cases, only a single Form 5500 needs to be filed. The 5500 must include an attachment that lists all participating employers along with an approximate percentage of total contributions for the year and the account balances attributable to each.


  • MEPs are adopted by two or more unrelated employers that share a nexus or interest other than the retirement plan, while a PEP is adopted by unrelated employers that do not share a common interest.
  • A MEP is made up of the MEP sponsor, or lead employer, and one or more participating employers, while PEPs must be operated by pooled plan providers (PPP), likely to be a financial services company, third-party administrator, insurance company, recordkeeper, or similar entity.
  • The MEP sponsor generally serves as the primary administrative fiduciary for the plan, while with a PEP, the PPP is responsible for performing most administrative and fiduciary functions for the plan. In a PEP, employers retain only limited responsibility, such as selecting and monitoring the pooled plan provider, any other named fiduciaries, and investment managers. The SECURE Act requires pooled plan providers to register with both the DOL and the Treasury Department.

Proponents of MEPs are encouraged by recent changes and are hopeful that the availability of PEPs will greatly increase the number of employees covered by employer sponsored retirement plans. However, it is unclear whether they will have a significant impact on the MEP landscape. While MEPs can be attractive to employers that want to provide a retirement plan to their employees but lack the financial and administrative capacity to do so, there are potential disadvantages of which employers should be mindful. Examples of some disadvantages include the potential for increased costs due to the involvement of multiple service providers and conflicting participating employer priorities. It is important for employers to be well informed of the potential benefits and pitfalls related to participating in a MEP. It is also important to work with an experienced service provider who can provide guidance on this complex issue. ■

Upcoming Compliance Deadlines for Calendar-Year Plans

1st February 2021
IRS Form 1099-R – Deadline to distribute Form 1099-R to participants and beneficiaries who received a distribution or a deemed distribution during the prior plan year.
IRS Form 945 – Deadline to file IRS Form 945 to report income tax withheld from qualified plan distributions made during the prior plan year. The deadline may be extended to February 10th if taxes were deposited on time during the prior plan year.
15th March 2021
ADP/ACP Corrections – Deadline for processing corrective distributions for failed ADP/ACP tests without a 10% excise tax for plans without an Eligible Automatic Contribution Arrangement (EACA).
Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2020 S-corporation and partnership returns for filers with a calendar fiscal year (unless extended).
1st April 2021
Required Minimum Distributions – Normal deadline to distribute a required minimum distribution (RMD) for participants who attained age 70 ½ during 2020 (for participants with birthdays July 1, 1949 and later, the SECURE Act changed the RMD age to 72). Important note: The 2020 RMD requirement was waived under the CARES Act.
Excess Deferral Correction – Deadline to distribute salary deferral contributions plus related earnings to any participants who exceeded the IRS 402(g) limit on salary deferrals. The limits for 2020 were $19,500, or $26,000 for those age 50 and over if the plan allowed for catch-up contributions.
Employer Contributions – Deadline for contributing employer contributions for amounts to be deducted on 2020 C-corporation and sole proprietor returns for filers with a calendar fiscal year (unless extended).

Terminated Employees? Important Relief is Here.

On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. The Act combines the $1.4 trillion omnibus federal spending package for the 2021 fiscal year and a $900 billion COVID-19 stimulus package that enhances and expands certain provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. In addition to direct stimulus payments, extending unemployment benefits to many workers, and another round of Paycheck Protection Program (PPP) loans, the COVID stimulus package includes important retirement plan relief.

Partial Plan Termination

Perhaps the most significant element of the stimulus package for plan sponsors impacted by the COVID-19 pandemic is the temporary rule preventing partial plan terminations. In general, a plan may experience a partial plan termination when turnover among plan participants exceeds 20% in a particular year, resulting in full vesting of all accounts of participants affected by the partial plan termination. Whether a partial termination has occurred is not always an easy call. The IRS makes it clear that the determination is based on the facts and circumstances of the particular scenario.

The IRS previously provided guidance to clarify that generally, employees who had been furloughed or laid off due to COVID-19 but were rehired by the end of 2020 would likely not be treated as having an employer-initiated severance for the purposes of determining a partial plan termination. However, the Consolidated Appropriations Act includes the following temporary rule regarding partial plan terminations:

“A plan shall not be treated as having a partial termination during any plan year which includes the period beginning on March 13, 2020, and ending on March 31, 2021, if the number of active participants covered by the plan on March 31, 2021 is at least 80% of the number of active participants covered by the plan on March 13, 2020.”

It is important to note that the 80% count does not have to be comprised of the same participants that were initially terminated. However, the plan’s eligibility requirements should be taken into consideration.

The new relief is based on 80% of the “active participants.” If the employees include new hires (e.g., the laid-off employees found other jobs), whether they count towards the 80% depends on the eligibility conditions of the plan. If the new hires do not satisfy the plan’s eligibility conditions by March 31, 2021, they cannot be included in the active participant count.

Active participants were not defined in the bill. Presumably, active participants include employees eligible to defer, even if they choose not to do so.

Qualified Disaster Distributions Extended

The Act includes a temporary extension for individuals to take a retirement plan distribution or loan if they reside in a presidentially declared disaster area. The extension is effective for 60 days after the date of enactment and applies to individuals residing in presidentially declared disaster areas (other than COVID-19) declared after Dec. 31, 2019. Participants in 401(k), 403(b), money purchase, and government 457(b) plans may take an aggregate distribution up to $100,000 without incurring the 10-percent additional tax on early distributions. Income tax on these distributions may be spread ratably over a three-year period, and participants may repay the distribution into a plan that accepts rollovers within three years.

Note that qualified disaster areas are areas where a qualified disaster was declared, but do not include areas that are disaster areas solely due to the COVID-19 pandemic.

Qualified Disaster Loans

The Act also enables qualified individuals to receive plan loans up to $100,000 or 100% of the participant’s vested account balance. Additionally, the repayment period is extended for up to one year (or up to 180 days after enactment of the Act, if longer) if repayment of the loan normally would be due during the period beginning on the first day of the disaster period and ending 180 days from the last day of the incident period.

Paycheck Protection Program (PPP) Round 2

The Act provides increased PPP funding and eligibility to those small businesses that have been hit hard by the COVID-19 pandemic. The Act extends the PPP through March 31, 2021 and allocates additional funds for forgivable loans. Among other important changes, the law allows eligible borrowers a second PPP forgivable loan for small businesses and non-profits with 300 or fewer employees that can demonstrate a 25% loss of gross receipts in any quarter during 2020 when compared to the same quarter in 2019. ■

Is there Pandemic Relief for Late Deposits?

Proper handling of employee 401(k) deferral contributions and loan repayments is one of the most important responsibilities a plan sponsor undertakes. Failure to timely deposit employee deferrals and participant loan repayments is considered by many service providers to be one of the most commonly made retirement plan errors. Although it may be a common error, the IRS and DOL consider timely deposits a top priority. If loan repayments and/or salary deferrals are deposited outside of the timeframe described below, the company is considered to have committed a “prohibited transaction” by being in possession of plan assets. The DOL treats this as a loan from the plan to the employer which is prohibited by law and requires a documented correction process.

What is the deadline to deposit employee deferrals and loan repayments?

Once withheld from the participant’s pay, deferrals and loan payments become plan assets as soon they can be “reasonably segregated” from the employer’s general accounts. As a result, employee deferrals must be deposited by the earlier of the date that the contributions can be reasonably segregated from the company’s general assets, or the 15th business day of the month following the month in which the pay date occurs.

For plans with fewer than 100 participants on the first day of the year, the DOL created a safe harbor standard that states that any deposits made within seven business days of a pay date are considered timely even if the deposits could have been made earlier. Unlike small plans, large plans cannot rely on the safe harbor deadline. For large plans, the DOL states that elective deferrals must be deposited “as soon as administratively feasible.” It is important to note that the DOL will often look at the actual deposit history when determining the deposit deadline and, if the company made deposits more quickly, will set that as the deadline for all other deposits. For example, if a company ever made a deposit within one or two days following a pay date, the DOL may take the position that all of the deposits should have been made within one or two days.

Was relief provided due to the COVID-19 pandemic?

On April 29, 2020, the DOL issued EBSA Disaster Relief Notice 2020-01 in response to the COVID-19 pandemic. The Notice provided guidance intended to relax the rules related to the required timeframe to deposit employee salary deferral contributions and loan repayments.

The Notice states that “the Department recognizes that some employers and service providers may not be able to forward participant payments and withholdings to employee pension benefit plans within prescribed timeframes during the period beginning on March 1, 2020 and ending on the 60th day following the announced end of the National Emergency. In such instances, the Department will not – solely on the basis of a failure attributable to the COVID-19 outbreak – take enforcement action with respect to a temporary delay in forwarding such payments or contributions to the plan. Employers and service providers must act reasonably, prudently, and in the interest of employees to comply as soon as administratively practicable under the circumstances.”

If an employer was unable to deposit elective deferral contributions timely “solely on the basis of a failure attributable to the COVID-19 outbreak,” it is important that documentation related to the late deposits (e.g., dates and amounts of each late deposit, names of affected participants, record of the specific situation(s) that resulted in the late deposits, etc.) is retained with the plan records in the event of an IRS or DOL plan audit.

What happens if deferrals were not deposited timely?

When employee deferrals are not deposited timely, there are two available correction methods. The error can be corrected under the IRS’ self-correction program, which allows plan sponsors to correct certain plan failures without contacting the IRS or paying a user fee, or by completing a filing through the DOL’s Voluntary Fiduciary Correction Program (VFCP). It is important to note that the DOL does not recognize self-correction for late deposits. However, in certain circumstances, the DOL may accept self-correction if the following steps have been completed.

  • Determine which deposits were late and calculate lost investment earnings.
  • Deposit any missed elective deferrals, along with lost earnings, into the trust.
  • File Form 5330 with the IRS to pay an excise tax.
  • Report the late deposits on the Form 5500.
  • Review procedures and correct deficiencies that led to the late deposits.

What can be done to avoid late deposits in the future?

Plan sponsors can implement the following internal procedures to ensure that deferrals are deposited consistently.

  • Establish a procedure requiring that elective deferrals be deposited with or after each payroll, subject to the terms of the plan document. If deferral deposits are late because of vacations or other disruptions, keep a record of why those deposits were late.
  • Coordinate with your payroll provider to determine the earliest date you can reasonably make deferral deposits.
  • Implement practices and procedures that you explain to new personnel to ensure that they know when deposits must be made.

As with many retirement plan compliance matters, the rules related to depositing employee deferrals and the related corrections are complex topics. If you have questions regarding the general rules or plan corrections outlined above or would like to discuss how these rules impact your plan, please contact your plan representative. ■

This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.

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Auto Enroll 401(k) (3.5% Safe Harbor Match)


Auto-Enroll “QACA” 401(k)
(3.5% Safe Harbor Match) 

All Employees Auto-Enrolled at 6% Deferral (From their own paychecks)

Employer Match is capped a 3.5%
(Graded match from 1% – 3.5%) 

Match Vesting is delayed until 2 Years from Date of Hire to Retain employees. Best Option

Safe Harbor plan which satisfies annual ADP/ACP Compliance Testing. Details in pdf.