The Frugal Fiduciary Small Business 401(k) Blog
Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.
To meet IRS qualification requirements, 401(k) plans must pass nondiscrimination testing annually to ensure plan contributions do not disproportionately benefit Highly-Compensated Employees (HCEs) or exceed legal limits. While most employers hire a professional third-party administrator (TPA) to complete this work, all employers should understand the deadlines that apply to the process – which generally relate to failed testing and contribution funding. This basic knowledge can help avoid the often painful consequences of late testing – including missed tax deductions, IRS penalties, and plan disqualification.
On December 20, 2019, the President signed the Further Consolidated Appropriations Act, 2020 into law. This year-end spending package included the most extensive retirement plan legislation in over a decade - the Setting Every Community Up for Retirement Enhancement (SECURE) Act. After the SECURE Act was passed by the House, I judged the bill a mixed bag of good, bad, and ugly – the good representing welcome reform, the bad representing undue complexity, and the ugly representing handouts to the financial industry. That view has not changed now that the bill is law.
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Happy Holidays from the Frugal Fiduciary! As 2019 comes to a close, we looked back through this year’s blogs to find our most-read blogs. It turns out our most popular blogs related to the following topics:
401(k) plans are popular today because they offer generous tax benefits to employers and employees. However, to qualify for these benefits, 401(k) plans must complete a myriad of plan administration tasks each year. It’s ultimately up to employers to ensure each task is completed timely. Meeting this important fiduciary responsibility can seem overwhelming, but it doesn’t need to be. The key is hiring a 401(k) provider willing and able to do three things - 1) summarize all required tasks, 2) complete the more difficult and time-consuming ones, and 3) provide simple direction for the rest.
It’s impossible to complete annual 401(k) plan testing accurately without a clear understanding of the plan sponsor’s ownership structure. This information is used to determine the company’s controlled or affiliated service group status as well as the Highly Compensated Employee (HCE) and key employee status of plan participants. To make these determinations properly, certain “family attribution” rules must be applied correctly. These IRS rules exist to thwart ownership structures that would otherwise permit a 401(k) plan to discriminate in favor of business owners.
On October 22, 2019, the Department of Labor (DOL) proposed new regulations that would supplement the agency’s current rules for the electronic distribution of 401(k) disclosure notices to plan participants. Specifically, the proposal would add a new “notice and access” rule that permits employers to post notices to a website when certain requirements are met. This common-sense 401(k) plan reform is long overdue.