The Rosenbaum Law Firm Review

My latest newsletter can be found here.

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How To Encourage Your Participants To Defer More In Your 401(k) Plan

My latest article for JDSupra.com can be found here.

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401(k) Options You Should Pass On As Plan Sponsor

My latest article for JDSupra.com can be found here.

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2024 and the long time, part-time provision is around the corner

Life goes fast. Feels about 10 years ago that I started as an ERISA attorney in practice and that was almost 25 years ago. It’s 2023 and before you know it, it will be 2024.

It is time for you to realize that the longtime, part-time exclusion will become law, where employees with 500 hours of service within 3 consecutive years of employment will be eligible to defer in a 401(k) plan. The problem is when you deal with split provisions, it will lead to administrative mistakes. In addition, if you forget to get these employees involved in the plan, you may have missed deferral opportunities and corrective contributions.

So I think it makes sense to identify who will be eligible right off the bat in 2024. Doesn’t hurt to prepare ahead of time.

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The Solo 401(k) and Form 5500 trap

I think the Solo 401(k) plan is one of the great treats for sole proprietors. I have been using it for years. The problem is that there is so little help, that sponsors of these plans fall into a trap when they forget that there is a Form 5500 to file. It doesn’t help that most solo 401(k) plan providers get zero help from the custodians they work with.

Plans with no employees still have to file a Form 5500 when plans hit $250,000 in assets or more. When plan sponsors forget the 5500 deadlines, they then compound their error by filing the Form late, without using the Department of Labor’s self-correction program for late filings. Then they get a bill from the IRS for tens of thousands of penalties.

If you have a solo or know those that do, be aware of those Form 5500 obligations.

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Multiple plans? Pick one TPA

Call me crazy, but I think less is more. If you have a 401(k) plan and another plan (usually a defined benefit or cash balance plan), there may be reasons why you would want multiple third-party administrators (TPAs). Speaking from experience, it’s difficult to place two plans with two different TPAs.

Often, there are communication issues and that is problematic because the two TPAs have to coordinate and work together. Recently, I’ve had to represent a plan sponsor because one TPA wouldn’t talk to the other and when there are potential compliance pitfalls, that puts the plan sponsor at risk for a business tax audit.

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In 2021, people were deferring more

The Plan Sponsor Council of America’s (PSCA)65th Annual Survey of 401(k) and Profit Sharing Plans showed record savings in retirement plans.

In 2021, participant and employer contribution rates combined to produce an average savings rate of 13.9% of pay, which apparently is an all-time high.

2021 also had the highest employer contribution rate in that survey’s history, at 5.6% of pay.

Thirteen percent of employers increased their profit-sharing contributions in 2021, while 5% percent increased their match.

Plan participation of eligible employees rose to 89.2% in 2021, up from 88.5% in 2020. The average deferral also increased at 8.3% of pay, up from 8% in 2020.

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Advisors Advantage

My newsletter for retirement plan providers can be be found here.

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SECURE 2.0: What 401(k) Plan Sponsors Need To Know

My latest article for JDDSupra.com can be found here.

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Bad Plan Provider Behaviors You Shouldn’t Emulate

My latest article for JDSupra.com can be found here.

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