401(k) plans must operate according to the terms of a written plan document to meet IRS qualification requirements. Most plans use an IRS preapproved document for this purpose. These documents must be fully rewritten (or restated) every six years to reflect recent law changes. The last 6-year restatement cycle was called “PPA” after the Pension Protection Act of 2006. A new cycle - called "Cycle 3" - opened last year. From August 1, 2020 to July 31, 2022, all pre-approved 401(k) plans must be restated onto a Cycle 3 document.
Each year, 401(k) plans must pass certain IRS-mandated nondiscrimination tests to confirm Highly-Compensated Employees (HCEs) do not disproportionately benefit and no IRS contribution limits are exceeded. These tests are often completed soon after the close of the year so test correction and tax deduction deadlines are not missed. For calendar-based 401(k) plans, that means now.
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401(k) providers can charge “direct” and/or “indirect” fees for delivering plan administration services such as asset custody, participant recordkeeping, Third-Party Administration (TPA), and professional investment advice. The difference between the fees is how they are paid. Direct fees can be paid by the plan sponsor or deducted from participant accounts, while indirect fees increase the cost of plan investments – reducing their returns. If you’re a business owner, I strongly recommend you avoid indirect fees for two reasons – 1) they lack the transparency of direct fees – which makes excessive 401(k) fees harder to avoid and 2) they could limit your access to top 401(k) investments - which often pay no indirect fees.
Happy Holidays from the Frugal Fiduciary! As 2020 comes to a close, we looked back through this year’s blogs to find the most read. It turns out our most popular blogs related to the following topics: Plan design – Basics about popular 401(k) features, including the factors business owners should consider when evaluating them for their plan. Plan establishment – The differences between popular retirement plan types, including the tax credits and deadlines for establishing either plan. Plan administration – The major 401(k) plan administration tasks, including their deadlines for completion. Plan legislation – Summaries of major retirement plan legislation that took effect in 2020, including the SECURE and CARES Acts.
If you have questions about Transamerica 401(k) fees – how they work, how much they cost on average, or how you can find & calculate them for your plan – you’ve come to the right place. In this guide, we’ll show you how to calculate the full cost of a Transamerica 401(k) plan using their DOL-mandated fee disclosure.
For nearly 10 years, the financial services industry lobbied Congress to permit “open” Multiple Employer Plans (MEPs) – a form of 401(k) plan that can be adopted by multiple unrelated employers with no association at all. They got what they wanted in 2019 when the SECURE Act created Pooled Employer Plans (PEPs). Supporters claim PEPs can offer lower fees for retirement savers and greater liability protection for business owners than a single-employer 401(k) plan (SEP). I think a SEP with leading index funds and flat administration fees will beat PEPs on both fronts.