TIMELY ISSUES & IMPORTANT REMINDERS

ANNUAL PLAN LIMITATIONS

The IRS has issued the updated retirement plan limitations, many of which have increased for the 2023 Plan Year. Following is a summary of the most relevant limitations for the 2022 and 2023 Plan Years:

NEW UPDATES

Long-Term Part-Time Employees (LTPTEs): Starting in 2024, 401(k) Plans will be required to offer LTPTEs the opportunity to make their own 401(k) Deferral Contributions from pay. LTPTEs are those who don’t otherwise satisfy a plan’s eligibility, but who work over 500 hours in three consecutive years. This means that, starting in 2021, employers will need to track hours of their part-time employees to ensure that any such employees who work 500+ hours for three consecutive years (e.g., 2021 – 2023) will be offered that option in 2024. Notably, LTPTEs will not have to receive any employer contributions. Please ensure that you are tracking all part-time employee hours.

Missing Participants: The account balances for plan participants who cannot be located must remain in the plan. In cases where participants cannot be located by the investment platform, we can coordinate searches through an independent company at the rate of $50 per participant. To expedite this process and to avoid any fees, it’s advisable to retain updated records for all former employees, including home addresses, email addresses and cell phone numbers. You can also speak with the former employee’s colleagues to try to obtain more current information.

New York State Retirement Plan Mandate: New York State has joined other states and municipalities, including New York City, in mandating that employers adopt some sort of employer-sponsored retirement plan. The New York State mandate applies to employers with ten or more employees. This mandate also restricts an employer’s option to terminate existing plans.

Retroactive Plan Adoption: Employers can now adopt a retirement plan retroactively, as long as they do so by their tax filing due date, with extension. This allows employers to decide after the end of a year to adopt a plan for the prior year, including a Defined Benefit, Cash Balance, or Profit Sharing Plan.

Annual Reminders

I. 401(k) Deferral and Loan Repayment Deadlines- Sponsors of 401(k) plans must ensure that all employee 401(k) deferrals and loan repayments are deposited as soon as possible, but no later than the seventh business day following the day such deferrals or loan repayments are withheld from pay. The IRS and DOL can assess substantial fees for noncompliance.
II. Plan Distributions and Loans- It is important that employers do not permit distributions or loans to be made to participants without the input of Heller Pension Associates, Inc. Employers should contact us if any participant requests a distribution or loan of his or her plan benefits.
III. Reducing Potential Fiduciary Liability- There are several methods to reduce potential fiduciary liability for plan sponsors and trustees. However, plan sponsors should be wary of companies that promise “complete protection,” as there is no way to completely eliminate plan sponsor responsibilities as fiduciaries. Regardless of whether a plan offers participants the option of choosing their own investments, plan sponsors should use prudence in selecting and monitoring the plan investments, should build an “audit file” documenting the regular review of the investments and any changes thereto, and should ensure that the plan investments are diverse.
IV. Related Businesses- Even subtle changes to the ownership structure of a business, or to the other businesses owned by any individuals (or their family members) who have ownership in the business that sponsors your retirement plan, could result in two or more businesses being deemed to be related for retirement plan purposes. This could have a substantial impact on the operation of the plan and contributions thereto. Please contact us with any changes in the ownership structure of any of your businesses or those of your immediate family members.
V. Prohibited Transactions- The law prohibits individuals and companies related to the plan or plan sponsor from participating in certain transactions with the plan or its assets. Substantial penalties and possible plan disqualification could occur if these rules are not followed. If there is a question with respect to a contemplated transaction, please contact us prior to the commencement of such transaction.
VI. Unrelated Business Taxable Income- Certain investments made in retirement plan accounts and IRAs can trigger a special tax, known as the “Unrelated Business Income Tax.” This tax is applicable, even though the plan is exempt from normal income taxes until the assets are distributed. It is imperative that you inform us of any of the following investments in your plan accounts: (i) any non-publicly traded business (especially any entity that could be deemed to hold inventory), (ii) any nontraditional investment (e.g., real estate) where the plan obtained financing for part or all of the investment, or (iii) partnership interests (for which you should be receiving K-1s and should provide them to us).
VII. QDROS (Qualified Domestic Relations Orders)- When a participant in a retirement plan goes through a divorce, his/her plan benefits may become subject to division. There are special rules that must be followed to properly comply with applicable law. Please contact our office when you are notified that a participant’s plan account needs to be divided.
VIII. Identity Theft and Cyber Security- With the rise of identity theft threats, we’re taking increased precautions to help our clients combat these threats. For plans where we handle the distribution process, we now require participants who are withdrawing more than $5,000 to provide a copy of their driver’s license or other government-issued photo ID along with their withdrawal paperwork. If you ever get distribution instructions from us and you have any concerns that the withdrawal paperwork might have been submitted by an imposter, please contact us immediately.
IX. Qualified Birth or Adoption Distributions (QBADs)- Certain plans can now offer participants the opportunity to take up to $5,000 from their plan accounts to pay for expenses related to the birth or adoption of a child. These QBADs are provided special tax treatment, including no premature distribution penalty and the ability to repay the distributed amounts back into the plan or an IRA. There are certain requirements to being eligible to receive a QBAD. Participants should contact our office to determine their eligibility.
X. Roth Conversions- 401(k) Plans can offer participants the option to convert all or a portion of their pre-tax plan account balances to after-tax (also known as Roth) assets inside of the plan. The plan document must allow for these conversions. Participants who elect to convert are taxed in the year of such conversion. If you would like to add this type of provision to your 401(k) Plan, please contact us.
XI. Plan Documentation- Our firm maintains the plan documentation for your plan and creates all required restatements and amendments. Please be sure to execute all documentation that we send to your company and return copies to our office. These plan document maintenance services are part of our annual services.
XII. Secure Portal- We have installed a new Secure Portal backed by Citrix to upload information to our firm. Please use the portal to provide any sensitive information to us electronically (e.g., Form W-2s with Social Security Numbers).