The Rosenbaum Law Firm P.C. Blog

SECURE 2.0 allows employers the opportunity to offer matching contributions and profit-sharing contributions on an after-tax basis for participants who elect such treatment. Why would any employer offer that? I require separate accounting by the TPA and there is this aspect of payment of taxes that has to be addressed since a participant pays taxes on the contributions and gets tax-free earnings.

Notice 2024-2 from the Internal Revenue Service let us know about the tax reporting aspect of these designated Roth employer contributions. Originally, I thought it would be added to the W-2 and taxed, but I suppose the IRS didn’t want to give more headaches to payroll companies, the same group who successfully complained enough that the IRS delayed the implementation of Roth catch-up contributions for Highly Compensated Employees.

Designated Roth matching contributions and designated Roth nonelective contributions to a plan must be reported using Form 1099-R for the year in which the contributions are allocated to the individual’s account. The total amount of designated Roth matching contributions and designated Roth nonelective contributions that are allocated in that year are reported in boxes 1 and 2a of Form 1099-R, and code “G” is used in box 7. That means that no taxes will be withheld from a participant’s paycheck to pay for these contributions, possibly causing an amount due to the government. It seems a lot of jumping around and working for a provision that won’t be that popular.

When I was in college, I would run events, and one of the ways to do it, was free food. A slice of pizza could get people In the door. I think getting people to defer, the same rules could apply.

The contingent benefit rule said that other than matching contributions, you can’t incentivize people to defer or not defer in a 401(k) plan. SECURE 2.0 changed that.

SECURE 2.0 authorized plan sponsors to provide “de minimis” financial incentives to employees who elect to participate in the plan. Notice 2024-2 revealed some guidance on this change. A financial incentive qualifies as a de minimis financial incentive only if its value does not exceed $250. De minimis financial incentives apply only to employees without an existing election to defer. So people like my wife, who defer the maximum or currently defer, get nothing. A de minimis financial incentive is maintained even if provided in installments contingent on the employee’s continued deferral. Matching contributions aren’t considered a de minimis financial incentive. Of course, any financial incentive like a gift card, will be a taxable fringe benefit.

Years ago, legislation allowed a sidecar IRA account where participants could add an IRA contribution to their 401(k) plan. That was as popular as AfterMASH. Some provisions have been added over the years by Congress, that will not gain traction.

According to an MFS survey, about 45 percent of defined contribution plan sponsors say they’re considering implementing emergency savings features. The survey said 23 percent of plan sponsors said they’d take advantage of new rules under the Secure 2.0 Act that allow plan members to take out $1,000 from their retirement accounts once every three years with no distribution tax charge. 22 percent said they’ll introduce the ability to withdraw $2,500 from a separate in-plan emergency savings account and 16 percent are considering adding an option to match student loan payments.

While 45 percent think they will add that emergency savings, less than half will. I also think that when plan sponsors are told what they have to do, to offer it, a lot just won’t. It seems a lot of work for provisions with limited value. $2,500 isn’t much of an emergency if you ask me.

Recently, an economist blamed 401(k) plans for the retirement crisis in this country and I’ve heard the arguments on how 401(k) plans killed defined benefit plans.

401(k) plans are merely a scapegoat. A scapegoat for employers who wanted to save money funding the retirement of their employees, who were just living a little too long. 401(k) plans were merely a mechanism for them to shift the funding of their employees’ retirement from the employer to the employees. With no 401(k) plans, they still would have made the cuts to save money. Let us not forget, so many companies never had pension plans.

That 401(k) Conference returns this year at Globe Life Field in Arlington, Texas, on May 3rd, and Yankee Stadium in Bronx, New York on June 7th. The events took a sabbatical in 2022 because of me.

I initially announced events for Oakland and Detroit. These were two cities I’ve never been to, and purposely, both connected games would be against my Mets. As my buddy Larry, said, “Go where the people are.” I learned that no one wants to go to Oakland or Detroit. I also had some issues in getting Yankee Stadium to accept my booking last year.

So hopefully, I’ve corrected my ways and we can resume the events with 2-3 a year. For 2025, hopefully, we can make it back to Anaheim, Chicago, and for the first time, D.C. It’s all dependent on attendees and plan provider sponsors, not where I want to go. Remember you need an audience and find where it is, and avoid where it isn’t.

There is a “nebbish” who has been on the local school board for 12 years. Both of his daughters are in college. Yet, he is running for re-election. More importantly, in his re-election announcement, he announced no accomplishments in 12 years. I can tell you, that as a parent in the district for the past 14 years, the district has gone down the toilet. He will have no opposition because people fear running (the school district is our biggest employer). Yet, he will not step aside because he doesn’t think he’s done a bad job. He thinks he’s great.

When dealing with plan sponsors and their plans, the poor decision-makers are still in their jobs, probably because they own the business. Some have it in, with their bosses, if they’re just the head of Human Resources. If these poor decision-makers made the decisions that landed their plan in trouble, they will go to great lengths to deny it, even rejecting some of your suggestions out of spite. When dealing with the egos of the incompetent, you have to walk on eggshells because something innocuous you say, may be too insulting.

The IRS announced that the amendment deadline for most qualified retirement plans, including 401(k) plans, for several recent pieces of federal legislation generally has been extended by up to one year. The Notice, generally applies to plan amendments that are required to be made in response to applicable provisions contained in the following new laws: Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”); Coronavirus Aid, Relief and Economic Security Act (“CARES”); Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Relief Act); and SECURE 2.0 Act (“SECURE 2.0”).

SECURE 2.0 had previously coordinated the amendment deadline for these laws, to December 31, 2025, for calendar year plans.

However, per the Notice, for most 401(k) plans, plan amendments must now be made by no later than December 31, 2026.

Timing is everything in life. When plan providers were trying to push Crypto in 401(k) plans, it took months for them to come to the market and the market crashed. I had Bitcoin at $69k with a $45k basis and saw it crash down to the teens. My basis is a lot lower now, and Bitcoin is rallying, many thanks for your support that the Securities and Exchange Commission will approve some Bitcoin and Ethereum-related exchange-traded funds.

If the ETFs get approved, I think the Department of Labor will have to rethink its opposition to crypto in 401(k) plans. There may be some concern left, but I think an exchange-traded fund will eliminate most of the hard opposition against offering it.

While there have been a few lawsuits over the use of forfeitures in retirement plans, it’s important to follow what the plan document says.

The Department of Labor (DOL) filed a complaint in the Federal District Court, Western District of Kentucky, stating that Sypris Solutions Inc. members of its retirement savings plan advisory committee failed to follow its own governing documents regarding the use of forfeiture funds for several of its 401(k) plans.

The DOL claims that from 2012 through 2015, the 401(k) plans’ plan documents required defendants to use forfeiture funds to pay plan expenses—but the plan sponsor used the forfeiture funds to reduce employer contributions to the plans.

The DOL argued that by doing so, the plan sponsor benefited by reducing its contributions to the plans, but plan participants who saw their plan account balances reduced by payments of plan expenses from plan assets and not from forfeitures.

Judge Benjamin Beaton issued a consent order and judgment ordering the plan sponsor to restore $575,000 to the plan participants who were harmed by the defendants’ use of the forfeiture funds.

Pooled Employer Plans (PEPs) are an attractive opportunity for small plans to mitigate the liability and hassle of a plan of their own.

Many PEPs, including some that I run, were budgeted as if there would be no required audit until the plan had 1,000 participants with account balances. The Department of Labor had other plans and no0w requires PEPs with 100 or more participants with an account balance to have an audit. That $10k to $20k cost of an unexpected audit will lead to some PEPs shutting down their doors.