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:
|
2022 |
2023 |
401(k)/403(b) Deferrals (Under 50/50 or Older) |
$20,500/$27,000 |
$22,500/$30,000 |
Profit Sharing (Under 50/50 or Older)
(includes 401(k) deferrals and “catch-up”)
|
$61,000/$67,500 |
$66,000/$73,500 |
Defined Benefit Plan (Annual Benefit) |
$245,000 |
$265,000 |
Maximum Annual Compensation |
$305,000 |
$330,000 |
"Highly-Compensated” Employee Compensation
(for following plan year)
|
$135,000 |
$150,000 |
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).
* * *
There are several proposals floating through Congress (aka SECURE 2.0)
that could have major implications for employer-sponsored retirement plans.
If any such legislation is passed, we’ll provide you with the applicable
details in separate correspondence.
If you have any questions regarding these or other issues relating to
retirement plans, please feel free to contact our office. We would also
be happy to schedule a call or Zoom meeting to discuss any questions that
you may have regarding your retirement plan or other retirement plan options
that may be available.