LinkedIn Live Recap: SECURE Act with Doug Hoefer of DWC

On my latest LinkedIn Live: Planology for Plan Sponsors, I pulled in Doug Hoefer of DWC to talk about the SECURE Act, what plan sponsors need to know prior to year-end, and a few other topics. Here are some highlights from our chat.

Last Minute Plan Set-Up

With the SECURE (Setting Every Community Up for Retirement Enhancement) Act, companies can establish a profit-sharing only or cash balance plan after the plan year is over! This wasn’t possible in the past.  

Made money last year, want to start up a plan and make a company contribution for employees? You can do that now -- do it before you file your corporate taxes to take the corporate tax deduction. 

Tax Credits for Start-Up Plans

Not well known is the ability to take a tax credit for start-up plans, and SECURE increased the size of the credit!  Plan-related expenses like recordkeeping and document fees are typically paid and deducted by the employer; now half may qualify for a tax credit for the first 3 years the plan is in place. 

Curious to find out how much your tax credit might be? DWC offers a handy downloadable tax credit calculator here. 

Safe Harbor & the SECURE Act

You now have choices on making your plan Safe Harbor thanks to the SECURE Act. If you know you’ll fail non-discrimination testing or top heavy testing, you can forgo testing by making a safe harbor contribution to the plan. 

While the deadline for safe harbor matching contributions hasn’t changed - employers must still provide notice 30 days prior to the beginning of the plan year - there are new deadlines for non-elective contributions. Let’s call these the Retroactive Safe Harbor options, shall we?

• For 3% non-elective contributions - employers have until 30 days before the end of the plan year (i.e. you have until 11/30/2020 to decide on safe harbor for 2020 for calendar year plans)
• For 4% non-elective contributions - employers have until the end of the following plan year (You read that right; you’ll have until 12/31/2021 to do it for 2020.)

Also, if you don’t want to use Safe Harbor (or you removed it) and failed testing is in your future, it’s time to talk about a non-qualified deferred compensation plan to catch those refunds.

Part-Timers & the SECURE Act

Another new provision in the SECURE Act is that long-term part-time employees are now eligible to participate in employer retirement plans. The employee must be 21 years of age or older, and they must have worked at least 500 hours for 3 consecutive 12-month periods. When that’s the case, you must allow them to make salary deferrals to the plan. (FYI - no match/employer contributions, and no testing on these folks.)

This provision goes into effect in 2021, which means that the earliest they will be able to access a retirement plan is 2024. However, this also means that you’ll need to start tracking hours worked for ALL employees now in 2021. If you’re not submitting hours and all employees to your recordkeeper, get that set up.

Fees & Plan Design Review

For most small employers, paying plan fees by writing a check makes the most sense tax-wise, since they can deduct those expenses (or get a tax credit), Doug noted. For those that you pay from the plan, it’s important to keep in mind that in general only those fees for services required to keep the plan in compliance (e.g. recordkeeping, testing) can be deducted from plan assets. Ask your provider for help on this.

Finally, remember that as a company grows and changes over time, so should its retirement plan. Many employers tend to go the “set it and forget it” route when it comes to their retirement plan and end up with costly surprises down the road.

Doug had two pieces of advice for those plan sponsors who want to stay on top of their plan design:

• Work with service providers who are proactively consultative in nature
• Work with service providers that will review your plan every year, not just every 3 or 5 years

(Ahem, work with us.)

Here are my two pieces of advice: 

• When considering plan design and any tweaks you’d like to make to it, it’s important to take a step back and ask yourself, “What is this retirement plan supposed to do for us?” FYI: That will probably change at each new stage of business growth.
• Also remember to take a hard look at your plan provisions and operations each year so that errors won’t sneak up on you or get out of control.

Got any questions for Doug? He can be reached at [email protected], and you can also check out the DWC website.

Got any questions for us or want to run through SECURE scenarios for your business? Contact us!

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Courtenay Shipley, CRPS, AIF, CPFA has a diverse background in the retirement plan industry providing a unique foundation for her clients in the areas of fiduciary responsibility, investment analysis, and participant education. During her career she has provided institutional investment consulting to qualified retirement plans, developed business strategy for a boutique third party administrator and recordkeeper, conducted over 9,000 education meetings to groups and individual employees, and served the nonprofit market.

Courtenay is a graduate of Vanderbilt University, and is licensed as an investment advisor representative (Series 66). She holds the Accredited Investment Fiduciary? (AIF?) designation through the Center for Fiduciary Studies, the Chartered Retirement Plan Specialist (CRPS) designation from the American College of Financial Planning, the Certified Plan Fiduciary Advisor (CPFA) from National Association of Plan Advisors, and the Certified Health Savings Advisor (CHSA) designation. Since 2015 she has been featured in the Financial Times Top 401 Retirement Plan Advisors annual list, named a Top Women Advisor All-Star by the National Association of Plan Advisors (2015, 2017-2019), and named a 2018 NAPA Young Gun: Top 75 under 40. Click here for award descriptions and criteria.