SECURE 2.0: What 401(k) Plan Sponsors Need To Know
Hollywood loves sequels, it’s the opportunity to capitalize on a previous hit. The sad fact is that very few movie sequels can be Terminator 2 or The Godfather Part II, they are usually like Caddyshack 2 and Smokey and The Bandit Part 3. It appears that Washington likes retirement plan sequels too with SECURE 2.0, but there are enough things for plan sponsors to consider and how it will affect them.

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How To Encourage Your Participants To Defer More In Your 401(k) Plan
When I was growing up, my mother decided to make the living room a no man’s land (only for parties and special occasions) because she needed it to be the perfect room. I never understood that because things that serve a purpose are meant to be used. The same can be said about 401(k) plans. They are adopted by employers to encourage retirement savings by their employees by providing this wonderful employee benefit. The problem is that participant deferral rates are still mediocre and employers don’t do a whole lot to encourage their employees to contribute on their own. This article is about why you should encourage your employees to save for retirement and the ways you can encourage them to do so which benefits them and more importantly, benefits you as an employer/plan sponsor.

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401(k) Options You Should Pass On As Plan Sponsor
As a kid, I was a huge fan of Family Feud. The last show I’d watch before the bus would pick me up for PM Kindergarten was Family Feud with Richard Dawson. Players who won the initial Face-off were allowed to play or pass. In all my years watching, I don’t recall any winner passing. When setting up a 401(k) plan, you will get a lot of choices and options. There are some choices and options that you might think are good ideas, but have the potential of causing greater problems. This is what this article is all about, 401(k) options you should take a pass on.

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Multiple plans? Pick one TPA
Call me crazy, but I think less is more. If you have a 401(k) plan and another plan (usually a defined benefit or cash balance plan), there may be reasons why you would want multiple third-party administrators (TPAs). Speaking from experience, it’s difficult to place two plans with two different TPAs.

Often, there are communication issues and that is problematic because the two TPAs have to coordinate and work together. Recently, I’ve had to represent a plan sponsor because one TPA wouldn’t talk to the other and when there are potential compliance pitfalls, that puts the plan sponsor at risk for a business tax audit.
2024 and the long time, part-time provision is around the corner
Life goes fast. Feels about 10 years ago that I started as an ERISA attorney in practice and that was almost 25 years ago. It’s 2023 and before you know it, it will be 2024.

It is time for you to realize that the longtime, part-time exclusion will become law, where employees with 500 hours of service within 3 consecutive years of employment will be eligible to defer in a 401(k) plan. The problem is when you deal with split provisions, it will lead to administrative mistakes. In addition, if you forget to get these employees involved in the plan, you may have missed deferral opportunities and corrective contributions.

So I think it makes sense to identify who will be eligible right off the bat in 2024. Doesn’t hurt to prepare ahead of time.
The Solo 401(k) and Form 5500 trap
I think the Solo 401(k) plan is one of the great treats for sole proprietors. I have been using it for years. The problem is that there is so little help, that sponsors of these plans fall into a trap when they forget that there is a Form 5500 to file. It doesn’t help that most solo 401(k) plan providers get zero help from the custodians they work with.

Plans with no employees still have to file a Form 5500 when plans hit $250,000 in assets or more. When plan sponsors forget the 5500 deadlines, they then compound their error by filing the Form late, without using the Department of Labor’s self-correction program for late filings. Then they get a bill from the IRS for tens of thousands of penalties.

If you have a solo or know those that do, be aware of those Form 5500 obligations.
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