It’s not October yet when the Internal Revenue Service will announce its retirement plan limits for 2023, however, expects some major increases.
With high inflation, I can certainly see the 401(k) salary deferral limit increasing from $20,500 to $23,000. The compensation limit, as well as the annual addition limit should increase as well.
Rodney Dangerfield was one of my favorite comedians and his shtick was that he got no respect. Apparently, advisors working on 401(k) plans are getting respect these days from plan sponsors, based on a new survey from Morgan Stanley.
87% percent of plan sponsors reported that offering access to a plan advisor with a retirement plan delivers better retirement plan outcomes.
About 45% of plan sponsors with a plan advisor noted that 75–100% of eligible employees are enrolled in their company’s 401(k) versus only 33% of plan sponsors without a plan advisor.
In addition, 95% of plan sponsor who responded said the fees associated with a plan advisor is well worth the cost given the investment management (28%), fiduciary guidelines (67%), and compliance (75%) considerations.
With so much talk about crypto and 401(k), it’s pretty simple as to what plan sponsors should do: nothing. While this may be a buying opportunity for plan sponsors, you still have the Department of Labor warning plan sponsors that they will conduct investigations for plan sponsors that offer it to plan participants.
While litigation and congressional pressure may force the DOL to change their view, it’s ridiculous for any plan sponsor to consider it now.
People are flawed, except for saints and Popes. One of my many flaws is that I enjoy being right. I love predicting things and being right (such as the end of revenue sharing, and a former employer going out of business within 5 years by closing up within 2). But I will admit when I’m dead wrong (Apple opening up their stores wasn’t a bad idea and Amazon could sell stuff beyond books, CDs, and DVDs). One thing I was right about was automatic enrollment.
When I first heard of automatic enrollment, it was called a negative election and it was only recognized through some Internal Revenue Service guidance to a specific plan sponsor in around 1999. I hated it and the reason I hated it was because I saw it as something out of the Communist Soviet Union (I was an old red baiter). The negative election was a gimmick for a plan sponsor to goose up their deferral rates for non-highly compensated employees because the guidance and zero fiduciary protection because the 401(k) plan was an ERISA 404(c) plan meant that any negative election money was doomed to cash or stable value since the participant never directed their investments. My view of the negative election changed with the implementation of automatic enrollment in the Internal Revenue Code as part of the Pension Protection Act of 2006. I felt that the reliance on a Qualified Default Investment Alternative for fiduciary protection meant that participants automatically enrolled could have an account balance that just wouldn’t sit in cash or cash equivalent. As a highly opinionated ERISA attorney for a producing third-party administrator (TPA), I reached out to my bosses and some of the other decision-makers on why we should let our clients know why auto-enrollment was important. I felt it was an effective way to increase participation and to increase assets under management. I jokingly say that until this day, I never received a response to my email.
Studies have consistently shown that adding automatic enrollment to the plan increases participation in the plan and increases the retirement savings of plan participants. It’s more than a gimmick to help with testing, it’s an effective way to get employees involved in saving for retirement that they never would have done on their own.
Working hard to get participants saving is a never-ending battle. Just look at Vanguard’s 2021 How America Saves Survey to see how much money the average American in their 30s has saved up in their 401(k) account. Here’s what they found:
That’s not a whole lot of money and just eye opening. We clearly need to do more for participants to save more.
My latest article for JDSupra.com can be found here.
With small and medium-sized companies, multiple plans operated by multiple owned companies that are part of a controlled group, usually create a huge mess.
There may be a reason why similarly owned companies may operate more than one plan, It’s important to realize what that reason is. Sometimes, there are multiple plans for apparently, no reason. In addition, there may be companies that haven’t formally adopted a plan that they participate in.
As a plan sponsor, you need to identify the plans you have, and the companies involved. Too often, these situations lead to a tangled web and it’s your job to untangle them.
I always say that the reason I don’t have employees is because I was an employee too. One f the frustrating things was changing jobs. There was a two yearsstretch where I went through a couple of employers.
I will say that when considering a job offer, one of the big issues was 401(k) eligibility. Whether it was 6 months or a year, requiring me to stay out of a 401(k) plan was a big deal. As an employer trying to recruit employees, I would recommend considering eliminating the eligibility requirement for salary deferrals, while keeping it for employer contributions. With deferrals, you can still test the plan as if there is still a one year eligibility reuirement. I understand that turnover would mean more smaller account balances with immediate eligibility, but it serve as a huge recruitment tool, especially if you employe people making $75,000 or more.
There are a lot of reasons why people may reject a job offer, I just doin’t think eligibility for 401(k) salary deferrals should be one of them.
Maybe it’s the Larry David in me or the fact that I never had a job where I got a bonus, but excluding bonus from the definition of compensation is more trouble than it’s worth.
While I understand that plan sponsors may want to exclude bonuses from the definition of compensation because they don’t want to offer employer contributions on the bonus, I just think it’s just a pain. Why? Excluding bonuses would take the compensation definition outisde of safe harbor Section 414(s) compensation, which would require testing to determine whether the definition discriminates in favor of highly compensated employees.
While most testing I’ve seen for compensation has passed, I just think excluding bonuises involved more work and just not worth it, to save a few dollars.
As we are reminded daily by sad news that life is too short, I think it’s important to tell people that you love them. On the flip side, if people tick you off, tell them. Giving people the silent treatment or ghosting them because your feelings are hurt is kind of juvenile and passive-aggressive.
Many times, you might be offended by people and they may have no idea because they are unaware. I think in developing relationships with people, I think it’s important to let them know where you stand, rather than them following up with you on multiple occasions and not getting word back.
People aren’t mind readers and if you’re interested in maintaining a relationship, the silent treatment just doesn’t work.
