Big Birthdays After 50 – And Why They Matter

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So, you know how kids hit that age where they proudly declare they’re “eleven and a half” or some such? Well, guess what? Once you’re past the big 5-0, those half-birthday vibes start making a comeback. And here’s the twist – these birthdays and “half-birthdays” are not just about adding candles to your cake. Nope, they can seriously shake things up when it comes to your retirement game plan.

Age 50

Alright, let’s kick things off at the big 5-0. If you’re part of certain retirement plans, this is your cue to start making those annual catch-up contributions. Picture this: if you’re rocking a 401(k), 403(b), or 457 plan, you can throw in an extra $7,500 per year in 2024. Got a Simple IRA or Simple 401(k)? You’re looking at a cool $3,500 catch-up contribution. And don’t forget the traditional or Roth IRAs – you can stash away an extra grand annually. Sweet, right?

Age 59½

Now, we’re talking about the age where you can start dipping into your retirement plans without Uncle Sam slapping you with a 10% penalty. Say hello to withdrawals from your IRAs and employer-sponsored plans like the 401(k) and 403(b). Just a heads-up – traditional IRAs, 401(k)s, and the gang are taxed as ordinary income. But hey, no penalties? That’s a win.

Age 62 

So, 62 is the magic number to start cashing in on those Social Security retirement benefits. But hold up – if you’re still grinding away at work, your benefits take a hit. The deal is, they deduct a buck for every two you earn over the annual limit, which is $22,320 in 2024. It’s like Social Security’s way of saying, “We got you, but not all the way.”

Age 65

Hit 65, and guess what’s on the table? Medicare. The folks at Social Security suggest you get on it three months before the big day. Oh, and if you’re already soaking up those Social Security benefits, you’re in for automatic enrollment in Medicare Part A and Part B. No extra paperwork – sounds good to us!

Age 65 to 67

Now, here’s the scoop between 65 and 67. This is when you can start cashing in on the full 100% of your Social Security benefits. But here’s the kicker: the exact age depends on when you blew out your birthday candles. Born in ’55? Full benefits at 66 years and 2 months. Born in ’60 or later? Hold on tight till you hit 67.

Age 73

Fast forward to 73, and it’s time to start taking those required minimum distributions from your traditional IRA and other plans. And get this – you can still contribute to that traditional IRA past 70½, as long as you’re bringing in the bacon.

So, why does all this matter? Well, understanding these milestone birthdays is like having a secret map to navigate your retirement. It’s not just about celebrating another trip around the sun; it’s about making sure you’re on top of things and dodging those pesky penalties. Cheers to knowing when to blow out the candles and when to cash in on the perks! 🎉

As you embark on this next chapter, let RWM Financial Group be your co-pilot. When it comes to preserving your financial future, having a knowledgeable guide makes all the difference.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.

2024 Compliance Calendar

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Stay ahead of deadlines with help from our annual Compliance Calendar. If you have any questions about deadlines or the information requested, please get in touch with us to review today!

Download the 2024 Compliance Calendar

RWM Financial Group is committed to providing solutions and support for yours and your employees’ retirement. Here’s a handy checklist to keep your retirement plan running smoothly:

  • Review plan documents: Ensure all information is up to date and compliant with current regulations. Don’t let any outdated policies slip through the cracks!

  • Communicate with participants: Engage your employees by sharing important updates, educational resources, and reminders about upcoming deadlines. Let’s keep them informed and motivated!

  • Evaluate investment options: Take a close look at your plan’s investment lineup. Are there any adjustments needed to align with participants’ goals? Let’s ensure a diverse and appealing selection.

  • Assess plan fees: Scrutinize the fees associated with your plan. Can any be renegotiated or reduced? It’s time to optimize your plan’s cost-effectiveness!

  • Conduct plan audits: Regular audits are crucial to maintaining compliance and identifying any potential issues. Stay ahead of the game and ensure your plan is in tip-top shape.

  • Enhance financial education: Empower your employees with financial literacy tools and resources. Help them make informed decisions for a secure retirement future.

RWM Financial Group takes pride in our roles as your Plan Advisors; we are dedicated to you, your plan, and your employees. We are here to support you every step of the way.

Securities and advisory services offered through LPL Financial, a registered investment advisor, member FINRA/SIPC.

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.

Checking Under the Hood

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How to Perform a Six-Step Maintenance Checkup on Your Retirement Plan

Does your retirement plan make curious noises when it travels over a few market bumps? Are you getting enough mileage out of your savings rate? Is your diversification strategy as energy-efficient as it should be? Performing annual maintenance on your 401(k) can help make the road to retirement as smooth as possible. Here’s a six-step checkup that can be performed in just a couple of hours over a weekend.

STEP 1: Review Your Goals and Plans

Each year you should ask yourself if you’re on track to reach your retirement goals. Part of that process is imagining (in detail) what you would like to be doing during that stage of your life. Are your goals and plans realistic? Has your thinking changed at all — and why? The American Savings Education Council (www.asec.org) has a wealth of resources to help you review and adjust your goals and plans as needed, including their “Savings Goal Calculator” and other tools that can help you determine how much money you need to save for retirement.

STEP 2: Maximize Your Contributions

If you’re not contributing the maximum possible to your plan, increase your contributions by at least 1% each year, with a general goal of eventually reaching around 15% of your salary. Try to contribute at least enough right now to get the full employer match (if offered). It’s one thing to read this and say to yourself “yes, I can definitely increase by 1%.” But it’s only going to happen if you stop everything you’re doing right now, log into your account on your recordkeeper’s website and make the change!

STEP 3: Review Your Investment Strategy

Given all the market turmoil over the past few years, including inflation and economic events beyond our control, it’s smart to ask yourself each year if your asset allocation is still appropriate. Or, if your tolerance for risk has fundamentally changed. Your plan recordkeeper likely has a risk tolerance assessment exercise you can access on their website. In addition, consider working with a financial advisor to help you determine if your investment strategy is in sync with your current personal situation.

STEP 4: Rebalance

Rebalancing is the process of adjusting your portfolio’s investments so they match your original allocation. When your portfolio gets out of balance, you may stray from your original risk comfort zone. For example, due to ongoing market volatility, your portfolio may have drifted toward either a more aggressive or conservative allocation than you are comfortable with. Rebalancing keeps your portfolio risk within your tolerance limits.

STEP 5: Check Beneficiaries

Your spouse is automatically the primary beneficiary of your 401k plan. But, if you are divorced, widowed or remarried, you should review your beneficiary designations to make sure the correct person is named. Also, if you want to name someone else (such as a child) as your primary beneficiary, and you are married, your spouse needs to sign a waiver of rights to your 401(k) benefits.

STEP 6: Check on Retirement Plan Changes

Does your retirement plan offer any new plan features, tools, or resources? What can you do to take advantage of these opportunities? Also, be sure you have a copy of the Summary Plan Description for your plan (available for free from Human Resources). The Summary Plan Description defines, in plain language, how your plan works and what its features are.

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.

Kmotion, Inc., 412 Beavercreek Road, Suite 611, Oregon City, OR 97045; www.kmotion.com

©2023 Kmotion, Inc. This newsletter is a publication of Kmotion, Inc., whose role is solely that of publisher. The articles and opinions in this newsletter are those of Kmotion. The articles and opinions are for general information only and are not intended to provide specific advice or recommendations for any individual. Nothing in this publication shall be construed as providing investment counseling or directing employees to participate in any investment program in any way. Please consult your financial advisor or other appropriate professional for further assistance with regard to your individual situation.

RP-840-0523 Tracking #1-05376250

Exciting Announcement: Introducing Our New Chief Investment Officer and Operations Team

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We have some thrilling news to share! Brahm Rossiter is stepping into the role of Chief Investment Officer (CIO). Brahm Rossiter will be overseeing all investment strategies and decision-making processes, ensuring the utmost level of expertise and attention to detail in managing your accounts. Brahm will be working with each team member behind the scenes. As always, Brahm is available by phone and in person.

To ensure a seamless transition and uninterrupted day-to-day operations, we’ve assembled a powerhouse team. They will be responsible for handling all administrative tasks, client inquiries, and operational aspects of your accounts. Allow us to introduce you to the members of our operations team:

Jake Taylor

Jake brings a wealth of experience in financial operations and client service. He will be a key point of contact for your account-related inquiries and will work diligently to ensure your needs are met promptly and efficiently.

Marcus Sasaki

Marcus is a seasoned professional with a strong background in investment management. He will play a crucial role in supporting the execution of investment strategies and monitoring market trends to optimize your portfolio.

Kirby Moreno

Kirby is a highly organized individual with a keen eye for detail. She will be responsible for the administrative aspects of your accounts and facilitating smooth operations.

Desiree Jacobs

Desiree is a dedicated professional with extensive experience in business operations. She will work closely with our team to ensure streamlined processes and effective communication, ultimately enhancing your overall client experience.

Rest assured, Brahm Rossiter will lead with unparalleled expertise, and our team will guide you toward financial success.

RWM Financial Group consultation
401K INVESTMENT ADVISORY SERVICES Brahm going over papers

Our team remains dedicated to understanding your unique financial goals and tailoring strategies to help you achieve them.

If you have any questions or concerns regarding this transition, or if you would like to schedule a meeting to discuss your portfolio, please do not hesitate to reach out to us. We are here to address any queries and provide you with the support you need.

We are thrilled about this positive change and the enhanced capabilities it brings to our firm. Thank you for entrusting us with your financial journey, and we look forward to continuing our partnership with you.

Addressing Common Employee Questions and Concerns about 401(k) Plans

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As an employer offering a 401(k) plan, it is important to provide your employees with the necessary information and support to help them make informed decisions about their retirement savings. In this blog, we will address common questions and concerns that employees often have regarding 401(k) plans. By proactively addressing these issues, you can promote employee engagement, boost participation rates, and enhance overall satisfaction with your retirement benefits program.

What is a 401(k) plan, and how does it work?

We’ll start by providing a clear and concise explanation of what a 401(k) plan is and how it functions. We’ll cover topics such as employee contributions, employer matching contributions, vesting schedules, investment options, and the tax advantages of participating in a 401(k) plan.

How much should I contribute to my 401(k) plan?

This section will guide employees on determining an appropriate contribution level based on their individual circumstances and financial goals. We’ll explain concepts like the power of compounding, maximizing employer matching contributions, and the potential long-term benefits of consistent contributions.

What investment options are available in a 401(k) plan?

Employees often have concerns about choosing the right investments within their 401(k) plan. We’ll provide an overview of common investment options such as mutual funds, target-date funds, and individual stocks. Additionally, we’ll emphasize the importance of diversification and the benefits of consulting with a financial advisor for personalized investment advice.

Can I access my 401(k) funds before retirement?

This section will address common questions about accessing 401(k) funds in case of financial emergencies or other unexpected circumstances. We’ll explain the rules and potential implications of early withdrawals, loans, and hardship distributions. It is crucial to educate employees about the potential impact on their long-term retirement savings and encourage them to explore alternative options before tapping into their 401(k) funds prematurely.

What happens to my 401(k) if I leave my job?

Employees often express concerns about their 401(k) funds when changing jobs. We’ll explain the available options, such as leaving the funds in the current plan, rolling them over to a new employer’s plan, or transferring them to an individual retirement account (IRA). By providing clear guidance, employees can navigate these transitions and make informed decisions regarding their retirement savings.

​​What is the difference between a traditional 401(k) and a Roth 401(k)?

Employees may have questions about the distinction between these two types of 401(k) plans. In response, explain that a traditional 401(k) allows pre-tax contributions, reducing taxable income in the year of contribution, while a Roth 401(k) allows after-tax contributions, with tax-free withdrawals during retirement. Discuss the advantages and considerations of each option to help employees determine which is more suitable for their needs.

How can I monitor and track the performance of my 401(k) investments?

Employees may express concerns about tracking the performance of their 401(k) investments. Provide guidance on accessing online portals or tools offered by the plan provider for monitoring account balances, investment performance, and contribution history. Explain the importance of regularly reviewing investment performance and making adjustments as needed to align with long-term goals.

What are the penalties for early withdrawals from a 401(k) plan?

Discuss the penalties associated with early withdrawals from a 401(k) plan. Explain that if funds are withdrawn before the age of 59 ½, they are generally subject to income tax and a 10% early withdrawal penalty. Emphasize the long-term impact of early withdrawals on retirement savings and encourage employees to explore other options, such as loans or hardship distributions, only as a last resort.

Are there any limits on annual contributions to a 401(k) plan?

Inform employees about the annual contribution limits set by the IRS. Explain that for 2023, the limit for employee elective contributions is $19,500, with an additional catch-up contribution of $6,500 for individuals aged 50 and older. Discuss the benefits of maximizing contributions up to these limits to take full advantage of the tax benefits and potential employer matching contributions.

Can I roll over funds from a previous employer’s retirement plan into my current 401(k) plan?

Explain the process of rolling over funds from a previous employer’s retirement plan into the current 401(k) plan. Discuss the benefits of consolidation, such as simplified account management and potential access to a broader range of investment options. Encourage employees to consult with their plan administrator or a financial advisor for guidance on the rollover process.

Final Notes

Addressing common employee questions and concerns about 401(k) plans is essential for fostering a sense of financial security and well-being among your workforce. By providing clear and accessible information, you empower your employees to make informed decisions about their retirement savings. Remember to encourage employees to seek professional guidance from financial advisors and periodically review their retirement strategies to ensure they stay on track towards a financially secure future.

By proactively addressing these questions and concerns, you can create a positive and supportive retirement benefits program that helps your employees achieve their long-term financial goals.

Learn More About RWM

There are many moving parts when designing, implementing, and administering a retirement plan. However, when you focus on the key areas in your initial design or partner with a professional specializing in retirement plans and administration, you can strive to avoid the common challenges and unnecessary costs while helping your employees succeed.

At RWM Financial Group, we help commercial businesses and governmental agencies design and oversee well-managed retirement plans in non-tribal and tribal organizations. Learn more about building a custom, cost-effective strategy that is compliant and promotes success for you and your employees.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does the advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

The Inflation Reduction Act’s Impact on 401(k) Plans

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The Inflation Reduction Act (IRA) was signed into law by President Joe Biden on August 16, 2022. It addresses various important topics like healthcare, climate change, corporate taxation, and retirement plans. This blog specifically focuses on how the IRA affects 401(k) plans, providing an overview of the key provisions and offering insights for employers to ensure they comply with the new rules.

Understanding the Inflation Reduction Act:

The IRA was created to deal with the increasing inflation rates and minimize their negative impact on the economy and individuals’ financial well-being. The Act includes specific measures that directly affect retirement savings plans, such as 401(k) plans. It recognizes the importance of retirement planning, especially in an environment with rising prices.

In simpler terms, the Inflation Reduction Act was passed to address inflation’s effects and how it impacts people’s ability to save for retirement. It introduces changes to retirement plans, including 401(k) plans, to help individuals cope with inflation and secure their financial future.

Impact on 401(k) Contributions:

One notable effect of the IRA on 401(k) plans is the adjustment in contribution limits. To preserve the purchasing power of retirement savings, the legislation introduces changes that align with the effects of inflation on the economy. Typically, these changes result in an increase in contribution limits, allowing individuals to save more for retirement and protect their financial security from erosion due to inflationary pressures.

Tax Advantages and Withdrawals:

The IRA maintains the tax advantages of 401(k) plans while introducing adjustments to align with changing economic conditions. Individuals can continue to enjoy tax-deferred growth on their contributions, and the benefits of pre-tax contributions and potential tax-free growth remain intact. However, the Act may introduce changes to the tax treatment of withdrawals to strike a balance between preserving retirement savings and addressing inflationary pressures. This may include penalties for early withdrawals and the potential expansion of options such as Roth 401(k) plans, which offer tax-free withdrawals.

Additional Minimum Tax on Corporate “Book Income”:

The Act introduces an additional minimum tax of 15% on corporate “book income” for companies with income exceeding $1 billion. To determine if a company meets the “book income test,” its average annual adjusted financial statement income (AFSI) for the past three taxable years must exceed $1 billion. Corporations must exclude qualified retirement plan asset and income changes when calculating AFSI. Employer retirement plan deductions for 401(k) contributions and plan-related expenses should be subtracted, but if 401(k) assets revert back to the employer, they must be included in the AFSI calculation.

Additional Tax on Corporate Stock Repurchases:

The Act imposes a 1% excise tax on the fair market value of corporate stock repurchases that are not contributed to a 401(k) plan. When a company repurchases its stock from shareholders for cash, the excise tax applies. However, if the repurchased stock is contributed to an employer-sponsored retirement plan like a 401(k), the excise tax does not apply.

Compliance Considerations for Employers:

Employers, particularly large corporations, need to understand how to calculate “book income” and exclude relevant 401(k) plan expenses and deductions to ensure compliance with the additional minimum tax provisions. It is crucial to accurately calculate AFSI and evaluate potential tax consequences. Employers engaging in stock repurchases should be aware of the excise tax implications and carefully assess their strategies.

Financial Planning Considerations:

The IRA’s impact on 401(k) plans highlights the importance of thoughtful financial planning. Individuals should reassess their retirement savings strategies considering the adjustments to contribution limits, tax treatment, and potential penalties. Maximizing savings potential and taking advantage of tax benefits require collaboration with financial advisors to determine appropriate contribution levels aligned with long-term financial goals. Retirees must understand potential changes in withdrawal rules and engage in comprehensive retirement planning to navigate complexities and make informed choices.

Final Notes

The Inflation Reduction Act’s impact on 401(k) plans represents a significant development for retirement savings in an inflationary economic environment. By adjusting contribution limits, preserving tax advantages, and addressing withdrawal rules, the legislation seeks to protect individuals’ long-term financial security. As with any major policy change, it is vital for individuals to stay informed, evaluate their financial strategies, and seek guidance from professionals to optimize their retirement planning in light of the IRA’s provisions. By staying proactive and adaptable, individuals can navigate the evolving landscape and ensure a solid foundation for their future retirement.

Learn More About RWM

There are many moving parts when designing, implementing, and administering a retirement plan. However, when you focus on the key areas in your initial design or partner with a professional specializing in retirement plans and administration, you can strive to avoid the common challenges and unnecessary costs while helping your employees succeed.

At RWM Financial Group, we help commercial businesses and governmental agencies design and oversee well-managed retirement plans in non-tribal and tribal organizations. Learn more about building a custom, cost-effective strategy that is compliant and promotes success for you and your employees.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does the advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

How to Stay Compliant with Discrimination Testing ADP/ACP: 401(k) and 401(m)

Discrimination testing is a crucial component of maintaining compliance with Internal Revenue Service (IRS) regulations for 401(k) and 401(m) plans. These tests are performed to ensure that the plans do not unfairly benefit highly compensated employees (HCEs) at the expense of non-highly compensated employees (NHCEs). Failure to comply with IRS regulations can result in significant penalties for the plan sponsor.

ADP Test

The average deferral percentage (ADP) test is used to ensure that HCEs do not contribute a disproportionate amount to the plan. Under the IRS regulations, HCEs are subject to limitations on the amount they can contribute to the plan, based on the amount contributed by NHCEs. The ADP test calculates the average percentage of salary that HCEs and NHCEs contribute to the plan, and if the difference between the two is too large, the plan may be considered discriminatory.

If the plan fails the ADP test, HCEs may have to return some of their contributions to the plan. Therefore, it is crucial for employers to regularly perform discrimination testing to ensure compliance with IRS regulations and avoid any potential penalties.

ACP Test

In addition to the ADP test, the average matching contribution percentage (ACP) test is used for 401(m) plans. These plans require the employer to match a portion of the employee’s contributions, and the amount of the match must be the same for all employees. However, the plan can be discriminatory if the match disproportionately benefits HCEs.

The ACP test compares the average matching contribution percentage of HCEs to that of NHCEs. If the difference between the two is too large, the plan may be considered discriminatory, and HCEs may have to return some of their matching contributions. Like the ADP test, it is crucial for employers to regularly perform discrimination testing to ensure compliance with IRS regulations and avoid any potential penalties.

Automated Discrimination Testing

Collection and Storage of Data

Automated discrimination testing involves the collection and storage of data necessary for the ADP/ACP test. This information is crucial for calculating contributions and identifying highly compensated employees (HCEs).

Real-Time ADP/ACP Test

Automated discrimination testing allows for real-time ADP/ACP testing to ensure that the plan remains compliant with IRS regulations. This helps plan administrators to quickly identify issues and take corrective action.

Delivery of Annual ADP/ACP Compliance Testing Package

Automated discrimination testing provides an annual ADP/ACP compliance testing package for plan administrators. This package contains information on compliance requirements and test results.

Quarterly ADP/ACP Testing and Corrective Action

Automated discrimination testing includes quarterly ADP/ACP testing to ensure that the plan remains compliant throughout the year. If issues are identified, corrective action can be taken immediately.

Monitoring of Elective Deferrals

Automated discrimination testing includes monitoring of elective deferrals to ensure that they meet IRS regulations. This helps to identify and correct any issues before they become problematic.

Top-Heavy Testing

Automated discrimination testing includes top-heavy testing, which ensures that the plan does not favor highly compensated employees. This helps to maintain compliance with IRS regulations.

Identifying HCEs

Automated discrimination testing helps to identify highly compensated employees (HCEs) by using data such as salary and ownership percentages. This information is used to calculate contributions and ensure compliance with IRS regulations.

Coverage Testing for Controlled Groups

Automated discrimination testing includes coverage testing for controlled groups, which ensures that all employees within the group have equal access to the plan. This helps to maintain compliance with IRS regulations.

Compensation Definition Testing

Automated discrimination testing includes compensation definition testing, which ensures that compensation is properly defined and calculated for the ADP/ACP test. This helps to maintain compliance with IRS regulations.

Cross Testing

Automated discrimination testing includes cross testing, which helps to identify whether contributions made to one group are proportionate to the contributions made to other groups. This ensures compliance with IRS regulations and helps to maintain fairness among plan participants.

How to Stay Compliant with Discrimination Testing ADP/ACP: 401(k) and 401(m)

Staying compliant with Discrimination Testing ADP/ACP for 401(k) and 401(m) plans is critical to avoid penalties and maintain the plan’s tax-qualified status. Here are some tips to stay compliant:

Regular Discrimination Testing: Conduct regular ADP/ACP testing, preferably quarterly, to identify any discrepancies between HCEs and NHCEs’ contribution rates.

Corrective Action: If the plan fails the ADP/ACP test, take corrective action to bring the plan into compliance. Corrective action can include returning excess contributions, adjusting contribution rates, or implementing a qualified non-elective contribution (QNEC) to meet the minimum contribution requirements.

Monitor Elective Deferrals: Keep a close eye on the elective deferrals made by HCEs to ensure they don’t exceed the annual contribution limits set by the IRS.

Top-Heavy Testing: Perform annual top-heavy testing to ensure the plan doesn’t favor HCEs and meets the minimum contribution requirements for NHCEs.

Coverage Testing for Controlled Groups: If the plan is part of a controlled group, perform coverage testing to ensure that all eligible employees have access to the plan.

Compensation Definition Testing: Ensure that the compensation definition used in the plan document is consistent with the IRS’s definition of compensation for ADP/ACP testing.

Cross Testing: Consider implementing cross-testing to allocate contributions based on projected benefits rather than contribution percentages. This can help the plan meet the minimum contribution requirements for NHCEs while still providing meaningful benefits to HCEs.

By following these tips, plan sponsors can help ensure their 401(k) and 401(m) plans remain compliant with ADP/ACP testing requirements and avoid costly penalties.

Final Notes

In conclusion, discrimination testing is a necessary step to ensure that 401(k) and 401(m) plans are in compliance with IRS regulations. The ADP and ACP tests are used to prevent plans from unfairly benefiting HCEs, and failure to comply with these regulations can result in significant penalties for the plan sponsor. Therefore, it is essential for employers to regularly perform discrimination testing and take corrective action as needed to avoid any potential penalties.

Any Questions?

If you are a plan administrator or employer, staying compliant with IRS regulations for 401(k) and 401(m) plans is crucial. Regular discrimination testing is essential to ensure that your plan is not discriminatory and to avoid any potential penalties.

At RWM Financial Group, we understand the importance of compliance and can help you navigate the complexities of discrimination testing. Our team of experienced professionals can assist with automated discrimination testing, monitoring of elective deferrals, and quarterly testing and corrective action.

Contact us to learn more about our services and how we can help you stay compliant with IRS regulations for your 401(k) and 401(m) plans. Don’t wait until it’s too late, contact us today to have our team review your current retirement plan. 

Retirement Planning: Q&A For Employers

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Ah, retirement. It’s that magical time in life where you can finally kick up your feet and relax after years of hard work. But let’s face it, retirement planning can be a bit overwhelming, especially for employers who want to ensure their employees are taken care of.

Retirement planning, in a nutshell, is the art of squirreling away some of your hard-earned cash into investments that will provide financial security when you decide to call it quits. It may not sound like the most exciting thing in the world, but trust us, it’s important!

As an employer, offering retirement benefits is not only a way to attract and retain top talent, but it also shows that you care about the financial well-being of your employees. Plus, it’s a win-win situation since it can also have tax benefits for you as the employer.

So, whether you’re an employee dreaming of the day you can retire to a beach somewhere, or an employer wanting to do right by your staff, understanding retirement planning is key. Let’s dive in and learn more about retirement plans, obligations, and all the fun stuff that goes along with it!

Types of Retirement Plans

Retirement plans come in all shapes and sizes, but don’t worry, we’ll break them down for you in a fun and easy-to-understand way!

Defined Benefit Plans

First up, we have defined benefit plans. These are the granddaddy of retirement plans and have been around for ages. They’re typically offered by government entities or large corporations and provide a fixed, monthly benefit to retirees based on a formula that takes into account factors like salary and years of service.

Defined Contribution Plans

Next, we have defined contribution plans, which are a bit more common these days. These plans allow employees to contribute a portion of their paycheck into an account that is then invested in a variety of options. The two most popular defined contribution plans are the 401(k) and the IRA.

401(k) Retirement Savings Plan

The 401(k) is a retirement savings plan that is offered by employers. Employees can contribute a portion of their pre-tax income into the plan, and in some cases, employers will match a portion of those contributions. The funds in a 401(k) plan are invested in a variety of investment options, such as stocks, bonds, and mutual funds.

IRA

An IRA, or individual retirement account, is a personal retirement savings account that individuals can set up on their own. There are two types of IRAs – traditional and Roth. Traditional IRAs allow individuals to contribute pre-tax income, while Roth IRAs allow individuals to contribute after-tax income. Both types of IRAs provide tax benefits and offer a range of investment options.

Others

Last but not least, there are other retirement plans that employers may offer, such as profit-sharing plans, employee stock ownership plans, and cash balance plans. These plans are a bit more specialized, but can be a great option for some employers.

Understanding Employer Retirement Plan Obligations

Employers have certain obligations when it comes to offering retirement plans to their employees. Let’s dive into these obligations and break them down into four sections:

Eligibility and Participation

Employers must establish eligibility requirements for their retirement plans, such as age and length of service. Once an employee meets the eligibility requirements, they must be allowed to participate in the plan.

Vesting

Vesting refers to the amount of time an employee must work for an employer before they are entitled to the employer’s contributions to their retirement plan. Vesting can be immediate, where an employee is immediately entitled to all employer contributions, or it can be graded, where an employee becomes increasingly vested over time.

Contribution Limits

Contributions to retirement plans are subject to limits set by the IRS, and employers must ensure that they are adhering to these limits. Exceeding contribution limits can result in penalties for both the employer and employee, so it’s important to stay on top of this.

Fiduciary Responsibilities

Employers who offer retirement plans are considered fiduciaries and have a legal obligation to act in the best interests of plan participants. This means employers must carefully choose investment options, monitor plan fees, and provide regular communication about the plan to participants.

By understanding these obligations, employers can ensure they are providing their employees with a valuable benefit while avoiding any potential legal issues. It may seem like a lot to handle, but with proper planning and management, offering a retirement plan can be a win-win for both employers and employees.

Common Retirement Planning Questions for Employers: What Employers Need to Know

As an employer, you play a key role in helping your employees plan for retirement. Here are some common retirement planning questions that employers should be aware of.

What retirement plans should I offer my employees?

The retirement plans you offer will depend on your business and budget. Common options include 401(k) plans, pension plans, and SIMPLE IRAs. It’s important to do your research and choose the plan(s) that work best for your employees.

How do I encourage my employees to save for retirement?

One way to encourage retirement savings is to offer an employer match. This means that you contribute a certain percentage of your employee’s salary to their retirement plan, which can incentivize them to save more. You can also provide education and resources about retirement planning to help your employees make informed decisions.

What are my obligations as a retirement plan sponsor?

Employers who offer retirement plans are considered plan sponsors and have certain obligations under ERISA (Employee Retirement Income Security Act). These obligations include providing plan information to employees, adhering to contribution limits, and acting in the best interests of plan participants.

How do I monitor the performance of our retirement plan?

It’s important to regularly review and evaluate the performance of your retirement plan. This includes monitoring fees, investment options, and participation rates. You can work with a third-party administrator or investment advisor to help with this process.

What happens if our retirement plan is not compliant?

If your retirement plan is not compliant, it can result in penalties and legal issues. It’s important to stay up-to-date on any regulatory changes and to work with a professional to ensure your plan is in compliance.

How do I handle employee turnover and their retirement accounts?

When an employee leaves your company, they may have vested funds in their retirement account. As an employer, it’s important to have a process in place for handling these funds, such as allowing the employee to keep the funds in the plan, rolling them over into a new retirement account, or distributing the funds.

How can I help employees who are behind on retirement savings?

Some employees may be behind on their retirement savings, which can lead to financial stress and uncertainty. As an employer, you can provide education and resources on catch-up contributions, encourage them to meet with a financial advisor, and explore offering financial wellness programs.

Can I make changes to my retirement plan?

Yes, employers can make changes to their retirement plan, but it’s important to follow certain guidelines and procedures. Changes should be communicated to employees in advance and should not violate any legal requirements or affect employees’ accrued benefits.

Should I offer a Roth option in my retirement plan?

A Roth option allows employees to contribute after-tax dollars to their retirement account, which can be withdrawn tax-free in retirement. It’s a good option for employees who expect to be in a higher tax bracket in retirement. Employers should consider whether a Roth option would benefit their employees and be feasible for the business.

By understanding these common retirement planning questions, employers can help their employees save for their future while also meeting their obligations as plan sponsors. It’s important to stay informed and seek professional guidance when needed to ensure your retirement plan is a success.

Learn More About RWM

There are many moving parts when designing, implementing, and administering a retirement plan. However, when you focus on the key areas in your initial design or partner with a professional specializing in retirement plans and administration, you can strive to avoid the common challenges and unnecessary costs while helping your employees succeed.

At RWM Financial Group, we help commercial businesses and governmental agencies design and oversee well-managed retirement plans in non-tribal and tribal organizations. Learn more about building a custom, cost-effective strategy that is compliant and promotes success for you and your employees.

This information is not intended as authoritative guidance or tax or legal advice. You should consult your attorney or tax advisor for guidance on your specific situation. In no way does the advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Benchmarking: Guidance for Retirement Plan Sponsors for 2023 and Beyond

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Every retirement plan has fees – that’s a given. When 401(k) plans are provided by employers as part of their employee benefits, it becomes their duty as a fiduciary to ensure that the fees are maintained at reasonable levels.

Why? As an employer offering a 401(k) plan to your employees, it’s important to ensure that the fees associated with the plan are reasonable and competitive. Not only is this a fiduciary responsibility, but it also affects the overall success of the plan and the financial well-being of your employees.

In 2023, there are new fee benchmarking requirements that employers need to be aware of to ensure compliance and avoid potential penalties.

What Does it Mean to Benchmark a 401k?

401k benchmarking involves reviewing and assessing a company’s retirement plan to ensure that it complies with industry and ERISA standards, thereby serving as a due diligence process to verify that the plan provider is fulfilling their fiduciary responsibilities.

Moreover, given the evolving landscape of investing and retirement planning, it’s crucial to keep a 401k plan current. This involves evaluating the plan’s design, different service providers, investment options, and associated fees.

How 401(k) Benchmarking Works

401(k) benchmarking is a critical process for ensuring that a company’s retirement plan remains competitive and meets the necessary standards. While a 401(k) plan offers convenience and is a popular option for retirement investing, it is the company’s responsibility to ensure that the plan is performing well. 

Through an annual check-up, the firm assesses the plan’s design, evaluates its fees, and reviews the services provided by the plan provider. 

Preventing Costly Mistakes in 2023: Your 401(k) Benchmarking Checklist

This process reduces the risk of violating ERISA rules, protects plan participants and beneficiaries, and can ultimately save the firm money. The Employee Retirement Income Security Act (ERISA) mandates minimum standards for retirement plans and requires the plan sponsor to verify that the 401(k) plan has reasonable fees.

Review the Plan’s Fees 

Employers should review the fees associated with their 401(k) plan to determine if they are reasonable and competitive. This includes investment-related fees, administrative fees, and any other fees associated with the plan.

Benchmark the Fees 

Employers should benchmark the fees associated with their plan to those charged by other similar plans in the marketplace. This can be done using a third-party benchmarking service or by conducting a survey of other plans.

Evaluate of Plan Features

While the primary goal of any 401(k) plan is to help employees meet their retirement goals, recent years have seen a shift in what employees want from their benefit plans. Conducting a full review of your plan will allow you to evaluate current plan features and make changes as necessary based on your employee demographic. Analyze plan participation numbers and engagement rates, and consider implementing automatic enrollment or offering an employer match, Roth, and additional after-tax contributions to incentivize employee participation. 

Additionally, ensure that employees can easily access information on how to take full advantage of the retirement plan, such as financial wellness resources and access to licensed representatives who can help with investment selection, debt management, home buying, and saving for college education.

Ensure You Maintain Proper Documentation

When faced with an audit, how can you prove that you’ve met your fiduciary obligations? The answer lies in having documented processes based on facts.

As an employer, it’s your responsibility to offer a variety of investment options to your employees, each with different cost levels, in their best interests. Active funds, for instance, are usually more expensive than passive index funds. However, it’s important to assess the overall benefits to your company and employees before making a decision.

Your plan must have an investment policy statement that directs investment decisions. After the IPS is established, you can select a list of fee-friendly investment options that align with the IPS. As a sponsor, you must document this process, as well as the following aspects as they relate to fees:

  • What is the total cost?
  • What is the record keeper’s fee?
  • What is the advisor’s fee?
  • What is the fee charged by individual investment companies?

Employers have often been penalized or required to reimburse employees for mismanaged fees due to a lack of documentation and process in litigation. As an employer, you don’t have to have the cheapest fees; you just need to ensure that you’re “acting with loyalty and prudence” and that the fees are justified.

Review Compliance Procedures

The effects of inflation are being felt across the board, including by plan sponsors and advisors who are experiencing rising costs for managing and operating retirement plans. In anticipation of increased Employment Retirement Income Security Act (ERISA) penalties due to inflation, plan sponsors and advisors should take action now to prevent and mitigate potential impacts. This involves a review of compliance procedures, such as automated collection of funds and information, notifications, and compliance report filing. 

With penalties for non-compliance on the rise, ensuring that automated systems are functioning properly can help prevent unexpected and unwelcome penalties. It’s important to budget accordingly for the possibility of having to pay inflation-increased penalties in case mistakes occur.

Provide Fee Disclosures 

Employers should provide fee disclosures to plan participants annually. These disclosures should be clear and concise and include the investment-related fees and administrative expenses associated with the plan.

Take Action as Needed 

If the benchmarking process reveals that the fees associated with the plan are not reasonable or competitive, employers should take action to address the issue. This may include renegotiating fees with service providers, changing service providers, or taking other steps to reduce plan costs.

An Approach to Benchmarking 401(k) Plans

Benchmarking 401(k) plans is an essential step in ensuring that you offer a competitive package to your employees. An independent review can help you compare your plan with other similar plans and provide recommendations if necessary. It’s important to document valid reasons if your fees appear to be high, such as providing additional services like a 24/7 help desk, educational programs, or translators for non-English-speaking employees. These factors may be important to employees and result in higher costs.

However, it’s not always ideal to have the lowest fees, as this can indicate a lack of quality services or a limited investment lineup. Therefore, it’s crucial to have an advisor who can bid out your plan to several providers every three years, compare the options, and negotiate on your behalf to ensure you don’t change plans unnecessarily.

In Summary

The new fee benchmarking requirements for 401(k) plans in 2023 are designed to ensure that plan fees are reasonable and necessary for the administration of the plan. Employers should take the necessary steps to comply with the regulations, including reviewing the plan’s fees, benchmarking the fees, documenting the benchmarking process, providing fee disclosures, and taking action as needed. By doing so, employers can fulfill their fiduciary responsibilities and help their employees achieve financial success in retirement.

Learn More About 401(k)Plans

Employers should create an effective 401k communication plan that helps employees make informative decisions for retirement.

Contact RWM today to review your existing 401k or talk through a plan of action to offer retirement savings to your employees. 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does the advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations. 

Administering a 401(k) Plan: Who Does What?

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Managing a workplace retirement plan is a team effort. Everyone needs to understand their roles and responsibilities to ensure the retirement goals of all employees.

The key players in administering a 401(k) or similar employer-sponsored plan include:

  • The plan sponsor, who appoints an officer or employee of the company as the named fiduciary (plan administrator).
  • The plan administrator, who may outsource certain tasks to service providers, but still retains ultimate responsibility for any outsourced activities.
  • The plan participants, who play a key role in the administration of the plan.
  • Service providers and regulators, who have specific responsibilities related to the plan.

Read on to learn more about how this team functions and how each member plays an important role in ensuring the success of the 401(k) plan.

The Plan Sponsor (The Employer)

The plan sponsor has a legal obligation to act as a fiduciary. This means they must act in the best interest of the plan’s participants, and make informed decisions. 

One of the key responsibilities of the plan sponsor is to conduct regular audits of the plan. This includes reviewing the plan’s financial statements, ensuring compliance with legal and regulatory requirements, and monitoring the performance of the plan’s service providers.

The plan sponsor should also have a process in place for selecting and monitoring service providers, such as investment advisers or recordkeepers. This includes conducting due diligence, reviewing contracts, and monitoring performance on an ongoing basis.

In addition, the plan sponsor should verify the plan has adequate insurance coverage and that all necessary documents, such as the summary plan description and trust agreement, are up to date and in compliance with applicable laws.

It’s important for the plan sponsor to keep themselves informed about the current laws and regulations and make sure that the plan is in compliance. They should also take steps to educate their employees about the plan and the responsibilities of all parties involved.

Named Fiduciary/Plan Administrator

The Named Fiduciary/Plan Administrator is the person chosen by the employer to manage and run the 401(k) plan. 

As a fiduciary, they have a legal duty to act in the best interest of the plan’s participants and make informed decisions. This includes choosing and monitoring service providers like investment advisers or recordkeepers and making sure the plan is following all laws and regulations.

The Named Fiduciary/Plan Administrator’s duties may also include:

  • Filing annual reports and other paperwork
  • Communicating with plan participants and giving them information about the plan
  • Approving transactions and investments
  • Checking financial statements and other reports
  • Keeping the plan’s records and documents
  • Working with service providers to make sure the plan is being run correctly
  • Communicating With the employer, service providers, and participants to make sure the plan is working in their best interest.

Plan Participants

401(k) plan participants have certain rights and responsibilities related to the plan, including the right to contribute, receive information, and direct the investment of their contributions.

Participants can choose how much to contribute, subject to any limitations established by the plan sponsor. They also have the right to change their contribution amount at any time and to direct the investment of their contributions among the options offered under the plan.

401(k) plan participants also have the right to receive certain information about the plan, including the summary plan description,  financial statements, and information about investment options. They also have the right to file a complaint or appeal if they believe their rights under the plan have been violated.

It’s important for 401(k) plan participants to communicate with the plan sponsor and administrator to stay informed about their rights and responsibilities.

Service Providers and Regulators

Service providers and regulators play an important role in the administration of a 401(k) plan. Service providers are companies or organizations that provide various services to the plan, such as investment management, recordkeeping, and trustee services. Regulators are government agencies that oversee and enforce compliance with laws and regulations governing 401(k) plans.

Service providers may include:

  • Investment managers, who manage the plan’s investment options and provide investment advice to the plan sponsor and plan administrator;
  • Recordkeepers, who maintain records of the plan’s assets, transactions and participant account balances;
  • Trustees, who hold the plan’s assets in trust and are responsible for safekeeping the assets;

Learn More About 401(k)Plans

Employers should create an effective 401k communication plan that helps employees make informative decisions for retirement.

Contact RWM today to review your existing 401k or talk through a plan of action to offer retirement savings to your employees. 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does the advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.