New Compliance Requirements Added by the Secure Act

The Secure Act or Setting Every Community Up for Retirement Enhancement Act is a bipartisan reform bill that increases access to benefit plans and expands retirement savings for employees. As of January 1st, 2020, most of the provisions have already come into effect. This legislation will help small businesses in particular to set up employer-sponsored plans and significantly expand coverage across the spectrum to ensure that every hardworking citizen will be able to prepare for a more secure financial future. Several compliance requirements have been added recently that companies across the nation have to abide by. Here are some of the changes when it comes to:

1) Part-Time Employees

Part-time employees who either worked at least 500 hours in 3 consecutive 12-month periods or reached the age of 21 by the end of the before mentioned period must be eligible to participate in a 401(k) plan. The change includes both mandatory substantive and administrative changes. The plan year after 12/31/2020, i.e. the 12-month period beginning before 1/1/2021 will not be taken into account.

2) 401(k) Safe Harbor Changes

Automatic deferral rate for QACA’s or Qualified Automatic Contribution Arrangements has been increased to 15 percent. The requirement to have a notice for participants when adopting a non-elective employer has been removed as well. These changes were made effective from 12/31/2019.

3) Qualified Births and Adoptions

Retirement plan withdrawals up to $5000 for a qualified birth or adoption won’€™t be subject to 10 percent withdrawal tax, which is a huge relief for expecting parents. As of 12/31/2019, these changes have come into effect.

4) Post-Death Minimum Distribution Rules

Once a participant dies, the remaining account balance must be distributed to the designated beneficiaries within 10 years. This rule will be applied regardless of whether the participant dies before or after the RBD date.

5) High Increase in IRS Civil Penalties

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Failure to file Form 5500 will now incur a penalty of $250 per day with a cap of $150,000 per annual report. Not providing withholding notice will lead to $100 penalty fee per failure with a cap of $50,000 per year. If Form 8955-SSA is not filed for terminated vested participants, a penalty fee of $10 per participant per day will be levied up to $50,000. If the IRS is not notified of registration changes such as plan name, plan administrator address, plan termination, etc., a penalty of $10 per day will be incurred. If the failure continues after the deadline, then the penalty fee will be multiplied by the number of days missed beyond the last date, until a maximum of $10,000 per failure.

In addition to the above changes, there are several more which employers need to be aware of to ensure proper compliance. The complete list of changes can be found on the official government website. The penalties for not complying with the new requirements may be severe, but in the long run, it will benefit not only employees but employers as well. Top-tier talents will always be attracted to the companies that provide the best benefits after all.

Retirement Plan Compliance Guidelines You Must Know

The Employee Benefits Security Administration or EBSA is responsible for assuring that all 401k plans are in compliance with the Employee Retirement Income Security Act (ERISA). In recent years, the number of compliance audits conducted by both the IRS and the DOL has increased exponentially. It is the duty of the plan administrator to maintain, understand and ensure compliance to minimize the risk of their plan being audited. Given below is a retirement plan compliance guide that may help you to prevent any compliance issues from arising.

retirement plan compliance time

1) Reviewing Key Documents

There are three main documents that must be maintained, reviewed and retained every year at all costs. One of them is the most recent plan document that includes updated agreements. The other is the plan amendments document that includes any changes as per ERISA. The third one is the latest service agreements with TPAs. It is important for the administrator to not only review these files but also have signed copies of them.

2) Understanding the Plan Document

Every retirement plan will have a set amount of provisions that define the eligibility of participants and the benefits they can gain from it. The administrator must always go through the plan document to understand every aspect of eligibility from age requirements, service requirements to employee classification to ensure that all eligible employees get included in the plan. The document will also contain key information pertaining to the sources of compensation such as bonuses, severance pay, and taxable benefits, etc.

3) Understanding TPA Duties

Misunderstanding TPA’s duties is another reason why a retirement plan compliance issue may arise. To prevent errors from occurring, it is vital to keep a signed copy of the latest service agreements and read them fully to understand its full scope. Calculations related to employer contributions are mostly done by the TPA but some service agreements might indicate that it is the responsibility of the plan administrator to do so. Therefore, it is important to ensure that there is no confusion regarding the duties or it might lead to negligence and compliance issues in the end.

4) Adherence to Regulations

Retirement plans have a ton of rules and regulations to follow and sometimes a few of them might slip through the crack and never get enforced. For instance, most plans have a provision where employees who leave and then get rehired within a set amount of time can gain eligibility for participating in a 401k plan but it is often overlooked by a lot of companies. When it comes to an audit, even the tiniest detail will be under heavy scrutiny.

5) Ensuring Consistency of Day to Day Operations

It’s not sufficient to just have a plan document that meets all the required compliance needs. Day to day operations of the plan must be consistently upheld to all the rules and regulations as per the law. Sometimes, regulations may change before the sponsor is required to make changes to the plan. In such cases, operations might vary from the written terms of the plan. By maintaining consistency in the day to day operations of the plan, both the administrator and the sponsor can better prepare for any hurdle that may come their way.

By ensuring that there aren’t any issues when it comes to retirement plan compliance, everyone benefits, including the business owner and his/her employees. A happy workforce will always be a productive one too. We provide a number of different services such as Form 5500, ERISA compliance, benefits compliance, 401k and our specialty wrap form planning aimed at helping companies keep all their plans in accordance with the rules and regulations set by the IRS and DOL.

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