Automatic Enrollment Provisions May Impact Your 401(k) Plan


Beginning January 1, 2025, most new 401(k) plans must include an automatic enrollment feature. Newly-eligible employees will be automatically enrolled in the plan at a contribution rate of at least 3% and not more than 10%. This contribution rate will be escalated at the beginning of each plan year by 1% until it reaches 10% and not more than 15%.


Automatic enrollment provisions apply to plans established after December 29, 2022. For purposes of this, “established” means the date on which the plan was adopted. That means that a new 401(k) plan effective January 1, 2023 that was adopted November 15, 2022 would not be subject to the new rules. Plans established prior to December 29, 2022 are grandfathered and currently exempt from mandatory automatic enrollment requirements.


Automatic enrollment does not mean mandatory enrollment. Employees can opt out of the plan by proactively making an election not to participate in the plan or by electing a different contribution rate than the default percentage.


Why is automatic enrollment a trend?

It’s no secret that Americans are poor savers. Most of us would much rather spend money on current needs and wants than save for the future. That’s where automatic enrollment comes in – it’s more convenient to save if retirement plan contributions automatically come out of an employee’s paycheck. It takes effort for the employee to opt out of the plan, just like it takes effort for the employee to enroll in the plan.


Automatic enrollment in retirement plans isn’t new. You may already be familiar with these types of provisions, as more and more states require private employers to either offer a retirement plan for their employees or facilitate the state-mandated plan, most of which include some sort of automatic contribution feature.


What are the employer’s responsibilities?

Employers are required to provide employees with information about the plan, including the automatic contribution rate, investment options, and the procedure for opting out of participation.


There are a handful of plans that are exempt from the automatic enrollment requirement. These include 401(k) plans established by new businesses which have been in existence for less than three years, small businesses with 10 or fewer employees, church plans, and governmental plans.


Where did this change come from?

The SECURE 2.0 Act was signed into law in late 2022 and made sweeping changes to retirement plans both for companies and individuals. We’ll be discussing additional changes affecting 401(k) plans in a future newsletter.


What do I do now?

If your organization has a 401(k) plan that falls under these requirements, visit with your plan’s administrative firm for more information. If your organization utilizes TAG Resources, they have indicated they will be sending information to affected clients within the next couple of months.


If your plan is not required to include automatic enrollment provisions but you would like to do so, visit with your plan’s administrative firm to add those provisions to your plan’s document.


If you’re considering offering a new 401(k) plan, be aware that these provisions will apply to your new plan. Even though the requirement only applies to plans beginning January 1, 2025, it’s likely that even plans established in 2024 will begin with automatic enrollment provisions this year rather than switching a few months from now.

Payroll Prep: We’re Beyond the Halfway Mark!


It’s not too early to start planning for year-end 2024 . . .


First, scrub your data. Here are a couple of items to review for accuracy:


🞅 Avoid special characters in employee names such as dashes and

apostrophes. Mize runs a special character audit before printing W2s and 1095s to assist with this task.


🞅 Verify Social Security Numbers:

  1. Run the SSN Audit report and start by filtering the SS# column in the below formats. If your return results an incorrect Social Security number, please contact us immediately. This will prevent incorrect filing and potential need for W2C’s.
  2. In the SS# column change the filter to "Starts with" in the box below the drop-down filter enter one of the below numbers and then hit enter.

  Social Security numbers cannot start with the below numbers so you

will be running the audit for each by changing the filter and running

the report for each one:

  • 000
  • 666
  • 900-999 (For these number filter for "Starts with" and enter 9 in the box below) 

  Social Security Numbers also cannot be one of the following (filter

for "=" and the exact number below:

  • 123-45-6789 
  • 111-11-1111, 222-22-2222, etc.

◾ Social Security Numbers also cannot have the below format, to audit for

these formats you can change the drop-down filter to "Like" and in the

box below enter 00, this will pull any SS# that has 00 within it, so you

will have to look through these manually to verify.

  •  ***-00-****
  • ***-**-0000


🞅 Use the Recommend feature when inputting new addresses.


🞅 If you have started using Harri or Lifelenz, you should also review those reports for SSN, name and GEID consistency with your payroll records.


Second, encourage your employees to electronically consent W2 and 1095. This will provide self-service access to year-end forms. Plus, it saves printing and mailing costs. To understand how many of your employees have electronically consented, run the W2 Electronic Consent report and the 1095 Electronic Consent report. Use the drop-down filters on the W2 and 1095 Consent Given columns and run for both Yes and No to get a current estimate.


Use the Communicate function to email a reminder to employees from Payroll 2.0 on how to provide their electronic consent. Mize can help build a template you can use to send out explaining this process.

 

Finally, create a Personal Information Verification packet and send to employees to verify current payroll information. This will reduce incorrect filings and reduce the number of returned year end documents that are mailed.


Reach out to your Mize payroll processor if you need assistance with these year-end tasks!

National Payroll Week is Coming Up!


September 2-6, 2024 is National Payroll Week – an event that celebrates hard-working payroll professionals. Here at Mize CPAs, we’re proud of the 63 members of our payroll staff who serve clients in nearly all 50 states across the country. Happy Payroll Week!

State By State News

Alabama


Beginning January 1, 2024, overtime pay received by a full-time hourly wage paid employee for hours worked above 40 in any given week are excluded from gross income and exempt from Alabama state income tax. Effective from October 1, 2024 through June 30, 2025, this exemption has been amended to be based on overtime paid in accordance with the Fair Labor Standards Act (FLSA). For more information visit the state’s website on this topic by clicking here.

Illinois


Employer requirements for pay stubs and recordkeeping have been amended. Itemized pay stubs must be furnished to employees each pay period, with copies maintained for at least three years after the date of payment.

 

Employees and former employees can request copies of their stubs within specific parameters. Employers must offer departing employees a record of their pay for the preceding year if electronic access in not available.

Kansas


The Kansas Department of Revenue (KDOR) has issued an updated Form K-4, Kansas Employee’s Withholding Allowance Certificate along with revised withholding tables. Both of these are in response to state tax law changes that took effect July 1, 2024. Because employees had taxes withheld during the first six months of the year at a higher rate, KDOR recommends that employees review their withholding amounts for the remainder of 2024 and provide their employer with a revised Form K-4 if they want to make changes.

Louisiana


Meal breaks for minors. Beginning August 1, 2024, employees who are 15 years old or younger will be required to receive a 30-minute meal break during each 5-hour interval of hours worked. The previous requirement applied to all minors 18 years and younger.

Amounts due upon termination of employment. Effective August 1, 2024, commissions, incentive pay, and bonuses will only be considered an amount due to be paid to an employee at termination, if, at the time of separation, the compensation has been earned and not modified in accordance with a written policy. Where bonuses are determined by financial information reflecting the employee’s or employer’s performance on an annual, quarterly, or other periodic basis, a reasonable amount of time (not to exceed 120 calendar days from the end of the period) will be allowed so the employer can determine whether a bonus is due and the amount of the bonus. 

Massachusetts


Two new employer requirements go into effect in 2025:


State EEO Reporting. Beginning February 1, 2025, employers with at least 100 employees who are already subject to federal EEO reporting must also file a wage data report with the Commonwealth of Massachusetts. The state will establish a web portal for employers to use in submitting wage data reports. Here’s the schedule for submitting each type of EEO report:

  • EEO-1 – Employers required to submit an EEO-1 pay data report must submit it yearly.
  • EEO-3 or EEO-5 – Employers required to submit an EEO-3 or EEO-5 report must submit it each odd-numbered year.
  • EEO-4 – Employers required to submit an EEO-4 report must submit it each even-numbered year.


Pay Transparency. Beginning July 31, 2025, employers with 25 or more employees must disclose the annual salary range or hourly wage range reasonably expected for a posted job.

Michigan


Beginning February 21, 2025, the state’s original rules regarding the Earned Sick Time Act (ESTA) and Improved Workforce Opportunity Wage Act (IWOWA) will be reinstated. 


Earned Sick Time Act (ESTA)

All Michigan employers with at least one employee are subject to ESTA. Small employers (with fewer than 10 employees) must provide employees up to 40 hours of paid sick leave and an additional 32 hours of unpaid sick leave.

Large employers with 10+ employees must allow employees to accrue and use up to 72 hours of paid sick leave per year.


Sick leave is accrued at the rate of 1 hour for every 30 hours worked. Front-loading is not allowed, and employees must accrue paid sick leave as they work. Leave must carry over from year to year with no cap. Employees who are rehired within 6 months of separation of service must have their leave balance reinstated.


Improved Workforce Opportunity Wage Act (IWOWA)

Schedule of minimum wage increases and tip credit percentage of state minimum wage:


🞅 February 21, 2025

  • Minimum wage will increase to $10.00 plus the state treasurer’s inflation adjustment
  • The tip credit will be 48% of the minimum wage

🞅 February 21, 2026

  • Minimum wage will increase to $10.65 plus the state treasurer’s inflation adjustment
  • The tip credit will be 60% of the minimum wage

🞅 February 21, 2027

  • Minimum wage will increase to $11.35 plus the state treasurer’s inflation adjustment
  • The tip credit will be 70% of the minimum wage

🞅 February 21, 2028

  • Minimum wage will increase to $12 plus the state treasurer’s inflation adjustment
  • The tip credit will be 80% of the minimum wage

🞅 February 21, 2029

  • The state treasurer will calculate the inflation-adjusted minimum wage in accordance with the revived law.
  • Tip credits are prohibited and tipped employees must be paid the full minimum wage


Tips are the property of the employee unless there is a valid and voluntary tip sharing agreement

Vermont


Child Care Contribution. Beginning July 1, 2024, employers are required to pay .44% on all employee wages earned in Vermont. Up to a quarter of this contribution (.11%) may be withheld from employee wages, but employers may choose to withhold a smaller portion or choose not to withhold. There is no requirement for employers to withhold the same amount from every employee.

Withholding is remitted in the same manner and frequency as state income tax but reported on a quarterly basis. The first report is due September 30, 2024 when filing Form WH-436, Quarterly Withholding Reconciliation for the third quarter.


More details are available here.

Washington, D.C.


The employer tax rate for Washington, DC Paid Family Leave is increased for Q3 2024 to .75%, up from .26% for previous quarters in 2024. The maximum PFL rate is set by law, and was recently increased from .62% to .75%. The Department of Employment Services has the discretion to set the PFL rate up to the maximum, which is the level they have elected for the third quarter of 2024.

Wisconsin


The state will offer a permanent voluntary disclosure program for unclaimed property, including unclaimed wages beginning June 1, 2024. To be eligible for the program, an employer must have unclaimed property to report from any of the five most recent reporting periods and not have been audited nor received notice of an upcoming audit, nor have a balance due on the unclaimed property holder’s account.

More information about the voluntary disclosure program can be found here.

Tools You Can Use

Electronic Pay Solutions


Employees like to get paid on time. Sometimes that’s harder than it might seem. With delivery issues, severe weather, and wildfires frequently in the news and maybe even your back yard, getting paychecks to employees can be difficult. That’s where electronic payroll solutions like direct deposit and pay cards can be a great solution.


Electronic pay solutions can also save you money. The costs of both printing and delivery are going up, which increases your payroll fees. With direct deposit and pay cards, employees can access their pay stubs and year-end Forms W-2 and 1095 online through the Mize payroll portal.


Read more about the benefits of electronic pay from our Insights blog by clicking here.  

Earned Wage Access

 

Even if employees get paid on time, sometimes that money doesn’t stretch until the next payday. Stuff happens – the washing machine overflows, the car breaks down, or somebody gets sick. Sometimes employees need money sooner than later, but there aren’t a lot of great options. Payday loans, overdrawing their checking account, and incurring credit card debt can chock up high fees. The employer can give a pay advance or loan, but that can put you in a difficult position.


That’s where an Earned Wage Access (EWA) program can help. EWA programs are a new employee benefit that advances employees a certain amount or percentage of their accrued wages. The employee’s next paycheck is automatically reduced by the advanced amount, with no risk or liability to the employer.


For more information about ZayZoon, the EWA program offered through Mize CPAs, click here or visit with your Mize professional.

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