Wrapping Up Year-End For Retirement Plans
2024 is here! Have you dotted your i’s and crossed your t’s where your retirement plan is concerned?
We get it…the pull to procrastinate amid the year-end hustle and bustle is strong. But for retirement plans, there are some things that are okay to procrastinate on, and others you definitely shouldn’t.
In this article, we’ll discuss what you can put off and what you can’t, along with a few other topics, such as the new audit rules, the new overtime compensation threshold that may be put into effect this year, and additional guidance on long-term part-time employees.
Let’s go into some more detail on each of these!
Can You Purposely Procrastinate When It Comes To Your Retirement Plan?
You can procrastinate on some retirement plan tasks, but not on others. Pre-January: if you still need to send out notices, you need to do it NOW (if it’s not too late already!). Non-discrimination testing and end-of-year compliance work is approaching, so reviewing contributions now is a good idea. Also, if you have an enrollment period in your plan that starts January 1st, you need to make sure your employees have signed up in time. Everything else you can probably procrastinate on.
Post-December: It’s time to do your internal audit on the plan and review all compensation, deferrals, and deposits. And, see the self-audit below.
The Audit Rules Have Changed - Are You Going To Need One Next Year?
The way that participants are now counted in the plan is a bit different than it was in the past (we discussed this with Mark Blackburn here); if in doubt, check with your auditor. If you don’t need one, great! The caveat here, though, is that without a third-party audit you might miss mistakes that are being made in your retirement plan. Take some time to review your plan with a fine-toothed comb as though you were an auditor, and be on the lookout for errors regarding the following:
Eligibility - Check and see if new hires that were permitted to participate in the plan have been enrolled (hopefully they were auto-enrolled)
Definition of Compensation - If your plan says that all W2 compensation is used as eligible money, great; if not, make sure that any contributions or matches are not made on any excluded compensation
Employer Contributions - Make sure any employee or employer contributions were received by the plan’s custodian
Distributions - Some employees might have had to take money out of retirement plans due to some kind of financial hardship; it’s important to make sure these payouts were not done fraudulently. Hopefully, you know your employees well enough to know if they needed the money or not.
Forfeitures - Was there any matching that was accidentally made? Does it need to be reused to offset future matching? Any forfeiture money in the plan should be spent soon, so this is a good time to review your forfeiture balance and see if you need to offset any plan fees or employer contributions going forward.
The New Overtime Rule
The Department of Labor has proposed that the threshold for exempt employees be raised; the new minimum threshold is now in the neighborhood of $55,000. What does this mean for retirement plans? Well, you may need to make some adjustments to your matching if this proposal actually goes through, possibly in 2024. If you have employees who are now salaried but will be bumped down to hourly with the passage of the new rule, and they end up working overtime at time-and-a-half, your employer matching contributions could be higher. Now is a good time to review how that would affect your compensation packages.
Long-Term Part-Time Employees And Retirement Plans
Within the original SECURE Act (“SECURE 1.0”) and SECURE 2.0, there are two different provisions that cover long-term part-time employees:
Under SECURE 1.0, in an effort to get more Americans covered by an employer-sponsored retirement plan, employees that work at least 500 hours per year for three consecutive years would now be able to participate in a company’s retirement plan.
Under SECURE 2.0, the number of consecutive years was reduced from three to two.
So how do you count this? DWC wrote a great article that explains, but basically, it’s similar to how you calculate eligibility. If you’re using equivalency to count hours of service rather than counting actual hours, you can continue to do so. Also, as with eligibility, start with date of hire, then switch to the calendar year one year after the date of hire.
If you need help on guidance for this, you’ll want to go to your recordkeeper, third-party administrator, etc. with a list of those you’ve hired after January 1, 2021 along with the hours they’ve worked each year since then, and get their help in accurately determining who is eligible for the plan.
The new year is here! If one of your resolutions for 2024 is shopping for a new retirement plan advisor, reach out to us - we’d love to help you get your retirement plan in shape in the next year and beyond!