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.

Secure 2.0: What The New Legislation Could Mean For You

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The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 offers solutions for a range of issues, including Required Minimum Distributions and student loan debt.

The bill has the potential to strengthen the retirement system and improve your financial readiness for retirement. The law builds upon previous legislation that raised the age for required minimum distributions (RMDs) and permitted workplace savings plans to offer annuities, ultimately concluding a prolonged debate on enhancing retirement savings through employer plans and IRAs.

The key retirement provisions of the Secure 2.0 Act include:

  • Raising the age for retirees to begin taking RMDs from IRA and 401(k) accounts
  • Modifying the catch-up contribution limits for older workers with workplace plans
  • Matching for Roth Accounts
  • Assistance with student debt
  • Simplifying the process of transferring accounts from one employer to another
  • Saving for emergencies within retirement accounts. 

These new provisions will impact employees and employers alike. In this blog, we will discuss the key provisions of the Secure Act 2.0 and what these changes could mean for your retirement. 

Download Our Secure 2.0 Deck

Significant Changes For Retirement Accounts

Starting on January 1, 2023, the required age for taking money out of your retirement account (RMDs) will increase to 73, up from 72. However, if you turned 72 in 2022 or earlier, you will still need to take money out of your accounts as usual.

Penalties for not taking RMDs will decrease as well. Currently, if you don’t take an RMD, you will be charged a penalty of 50% of the amount you were supposed to take out. Starting in 2023, the penalty will decrease to 25% of the RMD amount not taken. If you take the missed RMD and file a corrected tax return in a timely manner, the penalty will be reduced to 10% for IRA accounts.

Additionally, starting in 2024, Roth accounts in employer retirement plans will be exempt from RMD requirements, and the Secure Act 2.0 pushes the age of RMD to 75 starting in 2033. And if you’re receiving annuity payments from your employer retirement plan that exceed the RMD amount, you can apply the excess payment to that year’s RMD.

Higher Catch-up Contributions

Starting January 1, 2025, people between 60 and 63 years old will be able to put an extra $10,000 per year into their workplace retirement accounts as catch-up contributions. This amount could increase each year based on inflation. Currently, the catch-up contribution limit for people 50 years or older is $7,500.

Keep in mind that if you make more than $145,000 in the previous calendar year, any catch-up contributions you make when you’re 50 or older will have to be put into a Roth account, meaning you’ll have to pay taxes on the money before it’s deposited. The income limit can also increase with inflation.

Starting in 2024, the catch-up contribution limit for IRAs for people aged 50 or older will be indexed to inflation, meaning it could increase each year based on cost-of-living adjustments.

Matching for Roth Accounts

Employers will be able to offer their employees the option of getting matching contributions for their Roth accounts. However, it may take some time for plan providers to offer this option and for payroll systems to be updated. Before, matching contributions in employer-sponsored plans were made before taxes were taken out. With Roth accounts, contributions are made after taxes, but the earnings can grow tax-free.

Unlike Roth IRAs, employer-sponsored Roth accounts will still require RMDs until the tax year 2024.

Qualified Charitable Distributions (QCDs)

Starting in 2023, if you’re at least 70 ½ years old you’ll be able to give up to $50,000 (adjusts annually for inflation) as a one-time gift to certain types of charities. This can include a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity as part of your Qualified charitable distributions (QCDs) limit. 

The Secure Act 2.0 expands the types of charities that can receive QCDs. This gift will count towards your annual RMD if you’re required to take one. It’s important to note that the gift must come directly from your IRA by the end of the calendar year and not all charities qualify for QCDs.

Retirement Plans for Employees with Student Debt

Starting in 2024, the SECURE 2.0 Act allows employers to make contributions to their employees’ workplace savings plans, even if the employees are still paying off student loans. 

 Workers will no longer have to choose between paying off their college loans or saving for retirement. Additionally, employers will be able to make contributions that match the amount of student loan debt repaid by the employee in a given year. This can be an effective way to attract and retain employees as they plan for retirement.

Emergency Savings

In 2024, defined contribution retirement plans will be able to include an emergency savings account as a designated Roth account that can accept participant contributions from non-highly compensated employees. Contributions will be limited to $2,500 per year, or lower if set by the employer. The first 4 withdrawals in a year will be tax and penalty-free. Depending on the plan’s rules, contributions may be eligible for an employer match. An emergency savings fund can help plan participants save for short-term and unexpected expenses, and also provides them with penalty-free access to funds.

Improved Legislation

The Secure Act 2.0 offers a variety of solutions to retirement-related issues, including raising the age for RMDs, modifying catch-up contributions, and allowing employers to match contributions for Roth accounts. These changes aim to strengthen the retirement system and improve Americans’ financial readiness for retirement.

Read the full SECURE Act 2.0 here.

Need Help Preparing for Retirement?

Preparing for retirement can be a complex and overwhelming process. You need to have a thorough understanding of how to make the most of your distributions and avoid potential pitfalls to ensure a comfortable and secure retirement. It can be beneficial to seek guidance from a team of financial experts to develop a personalized plan that aligns with your specific needs and goals.
Contact RWM today to learn more about retirement plan distributions and how we can help you get ready for retirement.

Retiring with a Spending Plan: How to Prepare Financially for Retirement

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Retirement is a major milestone in life and a time when you’ll have the freedom to enjoy your hard-earned leisure time. However, it’s also a time when you’ll be relying on your savings and investment income to support your lifestyle. 

Retiring with a spending plan starts with just that: planning. Let’s take a look at how you can begin planning for your retirement today. 

Determine Your Income Sources

Determining your income sources in retirement is an important first step towards creating a spending plan that will allow you to live comfortably during this new stage of your life. There are several different types of income that you may have in retirement, and it’s important to consider all of them when creating your plan.

Social Security is a government-run program that provides financial assistance to retired Americans. If you’ve paid into the system through payroll taxes during your working years, you’ll be eligible to receive Social Security benefits when you retire. These benefits are based on your earnings history, and the amount you’ll receive will depend on how much you’ve paid into the system and how long you’ve worked.

A pension is another type of income that you may receive in retirement. A pension is a regular payment that you receive from an employer or other organization in exchange for your past service. Pensions can be either defined benefit plans, which provide a set amount of income each month, or defined contribution plans, which provide a set amount of money that you can use to invest in a retirement account.

Retirement savings accounts, such as 401(k)s and IRAs, are another important source of income in retirement. These accounts allow you to save money for retirement on a tax-advantaged basis, and the money you save in them can be used to generate income in retirement through investments in stocks, bonds, and other assets.

Finally, you may also have other investments, such as stocks, bonds, or real estate, that can generate income in retirement. It’s important to consider all of these income sources when creating your spending plan, as they can all play a role in helping you to maintain your desired lifestyle during retirement.

Estimate Your Expenses

When creating a spending plan for your retirement, it’s important to make a comprehensive list of all of the expenses that you expect to have. This may include things like housing, healthcare, food, transportation, and entertainment. Be sure to include both fixed and variable expenses in your plan, as well as any one-time expenses that you may have. 

Fixed expenses are those that stay the same each month, such as a mortgage payment or car insurance premium, while variable expenses may vary from month to month, such as the cost of groceries or entertainment. One-time expenses are expenses that only occur occasionally, such as home repairs or travel. 

By considering all of these types of expenses, you can get a more accurate picture of your financial needs in retirement and create a spending plan that will allow you to live comfortably. It’s a good idea to review your expenses periodically to ensure that your spending plan is still on track and to make any necessary adjustments.

Determine Your Retirement Budget

Once you know your income sources and expenses, you can determine your retirement budget. This is the amount of money you have available to spend each month. If your income is less than your expenses, you’ll need to make adjustments to either your income or your expenses (or both). On the other hand, if your income is more than your expenses, you may be able to save the excess for future needs or splurge on a special treat.

Consider Inflation 

Inflation is the gradual increase in the cost of goods and services over time. It’s important to consider inflation in your spending plan because it can impact your budget over the course of your retirement. For example, if you’re planning to spend $50,000 per year in retirement, but inflation increases the cost of goods and services by 3% per year, your expenses will actually be closer to $58,000 after 10 years. To account for inflation, you may need to increase your income or make adjustments to your spending plan.

Review and Adjust Your Spending Plan

 It’s a good idea to review your spending plan regularly to ensure that it’s still on track. This may involve making adjustments to your income, expenses, or both. For example, if your investment portfolio isn’t performing as well as you’d hoped, you may need to reduce your spending or find ways to increase your income. On the other hand, if your investments are doing well, you may be able to increase your spending or save more for the future.

Final Thoughts

By creating a spending plan for your retirement, you can ensure that you have a solid financial foundation to support your desired lifestyle. This can help you relax and enjoy your golden years, knowing that you have a plan in place to support you financially.

The purpose of RWM Financial Group is to promote plan success via our knowledgeable team and a robust set of tools. 

RWM will lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.

For a better understanding of retirement savings plans, read our article here.

Five Things to Do Five Years Before You Retire

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Retiring can be an uncertain time, but with the right planning and preparation, it can also be an exciting and enjoyable new chapter in your life. Here are five things you should consider doing five years before you retire:

  1. Look at your income
  2. Think about your home
  3. Keep control of your debt and taxes
  4. Plan for healthcare expenses
  5. Imagine your ideal retirement

Let’s talk about each of these in detail. 

Look At Your Income 

Determine how much income you’ll need in retirement and consider moving some of your money into income-producing investments to provide a steady stream of income.

 It’s also important to consider inflation and the potential for rising costs of living in the future, as this could impact your overall income needs. Reviewing your income and expenses can help you create a retirement budget that is realistic and feasible for your needs. It may also be helpful to work with a financial professional who can help you create a retirement plan that is tailored to your specific financial situation and goals.

Think About Your Home

There are a few key things to consider when thinking about your home in the years leading up to retirement. First, consider your current and future needs. Do you need a larger home to accommodate your family, or would a smaller home be more suitable for your lifestyle in retirement? If you’re considering downsizing, think about the cost of selling your current home and the potential cost of purchasing a new home. You may also want to consider the location and any potential maintenance costs of a new home.

Additionally, it may be helpful to think about the potential tax implications of selling your home. Depending on your situation, you may be able to exclude some or all of the capital gain from the sale of your home from your taxable income. It’s a good idea to review your options with a tax advisor to see if selling your home could potentially benefit you tax-wise.

Finally, consider the cost of living in different areas. Moving to a location with a lower cost of living could help reduce your expenses in retirement, but it’s important to carefully weigh the pros and cons of a move before making a decision. You may want to visit potential new locations and consider factors like the availability of healthcare, access to amenities, and proximity to friends and family.

Keep Control of Your Debt and Taxes

Paying off as much debt as possible before retirement is a smart financial move because it can help reduce your expenses and increase your cash flow in retirement. This can be especially important if you’re relying on fixed income sources, such as Social Security or a pension, as these sources of income may not increase over time to keep up with inflation. It’s a good idea to prioritize paying off high-interest debt first, as this can save you the most money in the long run.

One way to lower your taxable income is to work with a tax advisor to see if converting a traditional IRA to a Roth IRA is a viable option for you. With a traditional IRA, you contribute pre-tax dollars, but you’ll pay taxes on the money when you withdraw it in retirement. A Roth IRA, on the other hand, is funded with after-tax dollars, so you won’t pay taxes on the money when you withdraw it in retirement. This can be a good option for people who expect to be in a higher tax bracket in retirement, as it allows you to pay taxes on the money at your current, potentially lower tax rate. However, it’s important to carefully consider the potential tax implications of a Roth IRA conversion, as it may not be the right choice for everyone. A tax advisor can help you weigh the pros and cons of a Roth IRA conversion and determine if it’s a good option for your specific financial situation.

Plan for Healthcare Expenses

Planning for healthcare expenses in retirement is an important consideration because healthcare costs can be a significant portion of your budget in retirement. Here are a few things to consider when planning for healthcare expenses:

Make sure you have the proper healthcare insurance. This may include enrolling in Medicare if you’re eligible and considering supplemental insurance policies to help cover out-of-pocket costs. It’s a good idea to review your options carefully and consider factors like your current and future healthcare needs, the cost of premiums, and the coverage offered by different plans.

Consider long-term care options. Long-term care costs, such as nursing home care or home healthcare, can be a major expense in retirement. It’s a good idea to consider your potential need for long-term care and explore options for paying for it. Options may include purchasing long-term care insurance, setting aside money in a dedicated savings account, or including long-term care provisions in your estate plan.

Think about how healthcare expenses will fit into your budget. It’s important to consider how healthcare expenses will fit into your overall retirement budget and make sure you have enough savings to cover these costs. This may involve setting aside money in a dedicated healthcare savings account or factoring in healthcare costs when creating a retirement budget.

It’s a good idea to review your healthcare options and plan for healthcare expenses well in advance of retirement to ensure that you have the coverage and resources you need to meet your healthcare needs in retirement.

Imagine Your Ideal Retirement

Here’s the fun part: paint the picture of your ideal retirement. You can do this by asking questions such as:

  • What do you want your retirement to look like? Do you want to travel the world, spend more time with your family and friends, or take up a new hobby? Do you want to stay in your current location or move somewhere new?
  • How will you spend your time? Do you want to be active and stay engaged with your community, or do you prefer a more laid-back lifestyle?

Take some time to think about your goals and aspirations for retirement and consider how you might continue to pursue your current interests and passions in your daily life.

Make sure your assets are structured in a way that will allow you to have the retirement you envision.

Final Thoughts

Retirement planning can be confusing but  can have many benefits for any individual. 

Not sure where to start? We got you covered. 

The purpose of RWM Financial Group is to promote plan goals via our knowledgeable team and a robust set of tools. 

RWM can help lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.

For a better understanding of retirement savings plans, read our article here.