401k Audits

A recent analysis by Abernathy Daley 401(k) Consultants suggests that around 80% of companies with more than 100 employees may be overpaying on administrative fees for the defined contribution (DC) retirement plans. This finding, based on a review of over 6,500 Form 5500 filings submitted annually to the Department of Labor and IRS, highlights a widespread issue across industries.

The IRS recently issued Notice 2024-73, providing updated guidance for 403(b) retirement plans regarding the inclusion of long-term, part-time employees. A 403(b) plan is a retirement savings plan typically offered to employees of public schools, tax-exempt organizations, and certain religious institutions. Effective for plan years beginning after December 31, 2024, this guidance requires plan sponsors to expand plan eligibility to include long-term, part-time employees who meet specific criteria. These changes stem from the SECURE 2.0 Act, which introduced reforms aimed at enhancing retirement security for Americans, including part-time workers.

For years hardship distributions have helped participants deal with unexpected downturns that present serious financial challenges.  While these distributions have been available for several years, the SECURE Act 2.0 made important changes that streamline the administration process by allowing plan sponsors to accept participant self-certification. The change reduces the amount of paperwork and compliance hurdles for plan administrators.

The SECURE 2.0 Act of 2022 introduced several updates to retirement savings plans, including a new provision (Section 109) that allows employees ages 60 to 63 to make higher catch-up contributions starting in 2025. This change is designed to help individuals boost retirement savings during the critical final years leading up to retirement.

The SECURE 2.0 Act of 2022 has introduced important changes to retirement plans, particularly for long-term part-time (LTPT) employees. These changes will impact how companies manage retirement benefits, making it essential for plan sponsors to understand and implement the new requirements. With the 2025 deadline approaching, plan sponsors must take action now to ensure compliance and optimize their retirement plans.

Individuals facing emergency personal expenses or domestic abuse can now access retirement plan savings without the 10% penalty for early withdrawals. This useful option is available only for plans which have adopted this optional feature. The new feature, which became effective January 1, 2024, was ushered in through the SECURE Act 2.0 and was recently clarified in IRS Notice 2024-55. The recently published update provides important guidance for those considering enacting this optional feature as part of the company retirement plan.

The SECURE 2.0 Act, enacted in 2022, significantly enhances the original Setting Every Community Up for Retirement Enhancement Act. To improve retirement savings opportunities across the United States, it introduces over 90 provisions designed to expand access, improve flexibility, and encourage participation in employer-sponsored retirement plans. In light of this legislation, the IRS has released new guidance (Notice 2024-2) that targets critical facets of the legislation. This guidance is crucial for plan sponsors, ensuring they can both comply with the new regulations and optimize their retirement plan offerings. As the IRS is expected to issue more updates, plan sponsors must stay informed and prepared to adapt to these changes ahead.

The SECURE Act 2.0 passed into law in December 2022 calls for several updates to plan operations. Due to the comprehensive nature of the legislation, many updates are set to phase in over five years. Provisions effective in 2024 include introducing Starter 401k plans, student loan matching payments, deferral failure corrections, and introducing a new emergency savings account (PLESA). These accounts are limited to $2,500 in annual contributions and the first four withdrawals are tax-free. While regulations guiding all new provisions have yet to be issued, the IRS recently released Notice 2024-22 which provides important details on PLESA anti-abuse rules.

Over the past decade, the Department of Labor (DOL) has expressed growing concern about the quality of employee benefit plan audits. When there are deficiencies or other issues, it means that plan participants may not be receiving the important protections offered by a properly conducted audit. To better understand the issue and identify contributing factors, the DOL has published several plan audit quality reports in 1997, 2004, and 2015. Key details about deficiencies, quality by size of CPA firm, and other important information have been reviewed and analyzed. The findings have been useful to regulators and companies when hiring a new plan auditor.

Over the past few years, Congress has passed various legislation designed to make it easier to participate in and save money in an employer sponsored retirement plan. The growing retirement savings gap has long been an issue the government has been working to address. Efforts to change retirement savings started with the  SECURE Act of 2019 and mostly recently included additional reforms that culminated in the SECURE Act 2.0. The latter included many changes designed to encourage employers to start workplace plans and to make it easier for workers to participate. Many of the updates are significant and are scheduled to become effective over a 5-year period.