Mid-Year Compliance Check

It's hard to believe we're more than halfway through 2023. And yet, here we are.

For employers with calendar-year 401(k) plans, some deadlines are fast approaching. Keep reading to learn which deadlines may apply to you.

Also, read until the end to catch some 401(k) plan best practices for HR and benefits professionals during this time of year.

July 20, 2023:

• Deadline for sending Summary of Material Modifications (SMMs) to participants for calendar year plans.
• SMMs must be sent 210 days after the end of the plan year in which the amendment was adopted (unless it’s been provided in an updated Summary Plan Description (SPD)).

July 31, 2023:

• Deadline for filing the 401(k) plan’s Form 5500 with the IRS (unless the plan administrator applied for an extension).
• To file for an extension, the plan administrator must file Form 5558 (requesting an extension to file Form 5500 until October 15, 2023).
• This Form 5558 must be filed with the IRS by July 31, 2023.

July 31, 2023:

• Deadline for filing Form 5330, which reports excise taxes related to employee benefit plans, with the IRS.
• This typically involves excise taxes applying to prohibited transactions and excess 401(k) plan contributions that occurred in the prior year.

Some best practices for HR professionals:

• Confirm which deadlines apply to your 401(k) plan (hint, most of them depend on your plan year and the type of plan you have).
• Calendar all applicable dates giving yourself (and your team) enough notice of the upcoming deadline.
• Check with your plan’s recordkeeper to confirm that these tasks are handled timely.?Document these tasks (and their completion) for your fiduciary files.

Congress says they'll fix it. SECURE Act 2.0, that is. As you can probably imagine, when drafting hundreds of pages of new legislation, drafting errors will occur.

Here are some notable drafting errors found in SECURE Act 2.0:

Catch-up Contributions

The Act inadvertently eliminated catch-up contributions -- no matter if made pre-tax or through a Roth option -- beginning in 2024.

This is a HUGE oops. This was not Congress's intention, but alas, here we are.

Required Minimum Distributions (RMDs)

Congress intended to increase the age at which RMDs are required from 72 to 73 (for those who turn 73 after December 31, 2022) and then again from 73 to 75 (for those who turn 73 after December 31, 2032).

It's this second jump in age that's unclear. The Act can be read to apply to 74-year-olds in 2033 instead of those who are 73.

SIMPLE IRA and SEP Plans

The Act permits both SIMPLE IRA and SEP plans to include a Roth IRA. However, it's unclear that SIMPLE IRA and SEP contributions will be included toward the Roth IRA annual contribution limit.

This was not Congress's intent. The intent was that Roth contributions made to a SIMPLE IRA or SEP plan should NOT be taken into account when applying the Roth IRA contribution limit.

Start-up Tax Credits for Small Employer Retirement Plans

For small employers, the Act increases the start-up tax credit from 50% of the start-up costs for the retirement plan to 100%, up to a maximum of $5,000.

Additionally, for new plans sponsored by employers with 100 or fewer employees, the employer can enjoy a tax credit of up to a per-employee maximum of $1,000 for matching contributions made in the first five years of the plan's life.

Here, it's confusing as to whether the $5,000 limit applies to matching contribution credits as well or whether the $1,000 per employee limit contributes to the $5,000 limit.

Congress did not intend for the $5,000 credit to apply to the employer matching contributions -- only to the start-up costs.

So fast forward to the end of May . . .

On May 23, 2023, the chairs and ranking members of the House Ways and Means Committee and the Senate Finance Committee wrote a letter to Treasury Secretary Janet Yellen and IRS Commissioner Daniel Werfel clarifying Congress's intent regarding these four drafting errors.

The joint letter goes on to say that Congress intends to introduce technical corrections legislation clarifying these four items and potentially others as well.

But no timeline was mentioned.

Want to read the joint letter? You can find it?here.

A new wave of ERISA litigation may be underway – although it’s been percolating for years.

Jerry Schlichter – the ERISA litigation attorney who’s known for suing retirement plans based on their "unreasonable" investment fees – is at it again.?But this time, he’s got his eyes on ERISA health plans.

So much so that he’s looking for potential plaintiffs who have participated in the company-sponsored ERISA health plans at?Kohl’s, Target, Nordstrom, State Farm, T-Mobile, Walgreens, and Pet Smart.

Why now?

Because the Consolidated Appropriations Act of 2021 (“CAA ‘21”) creates quite a compliance quagmire, including tracking the “reasonableness” of health plan vendor fees.?And throw in prescription drug reporting.

As recently quoted in a?National Association of Plan Advisors?article, Mr. Schlichter stated:

“The fiduciary duty for a healthcare plan sponsor is essentially the same duty as a retirement plan sponsor of a 401(k) or 403(b),” Schlichter said. “That duty is to work for the sole benefit of the employees and to make sure fees are reasonable. And that applies to healthcare as well.”?

Want to learn more??Check out the full NAPA article?here.

Let's talk about participant retirement plan education.

According to a recent Schwab Retirement Plan Services study, in 2022, employees attended retirement plan educational sessions (in addition to other financial wellness sessions) virtually at record levels.

Specifically, virtual live and on-demand sessions drove the most participation. Participant attendance was up by 5.4% year-over-year, with virtual live meetings accounting for 65% of attendance, while 28% of participants went to on-demand meetings and 7.4% attended in person.

Some thoughts from Schwab on these increased attendance numbers:

“As remote and hybrid work arrangements become permanent realities for many, it’s now easier for workers to integrate virtual education sessions into their schedules,” said Marci Stewart, Director, Communication Consulting and Participant Education for Schwab Workplace Financial Services.

“At the same time, workers are also looking for more interpersonal opportunities to connect and learn, making virtual live and onsite in-person sessions good opportunities for employers to deliver that engagement.”

Like other things, I think the pandemic accelerated employee and retirement plan participant demand for increased education -- online or otherwise. Not only did we (as a collective) learn more about how to integrate online tools (hello Zoom and Teams) into our daily lives, but also, we went toe-to-toe with our finances as jobs expanded and waned while the economy bounced around during the pandemic (and to be fair . . . we’re all still feeling the ripples).

Want to read more about the Schwab study? You can find it?here.

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