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.

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.

How Not to Get Sued 101: Fiduciary Responsibility For Business Owners

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As a business owner, you’re the captain of your ship, and fiduciary responsibility is like the lighthouse that guides you through the treacherous waters of legal liabilities.

Just like how a captain must always act in the best interest of their ship and crew, you have a duty to always act in the best interest of your company and its stakeholders.

If you fail to uphold your fiduciary responsibility, you could face legal action and criminal charges. That’s like running your ship aground on a reef – not a good situation!

So, make sure you understand and practice fiduciary responsibility like a seasoned sailor navigating the high seas. It’ll keep your business sailing smoothly and your stakeholders happy!

In this blog, we’ll discuss some of the key concepts related to fiduciary responsibility and provide some tips on managing it effectively. By the end, you should have a solid understanding of the basics of fiduciary responsibility and how to navigate it in the world of business. So let’s get started!

What is Fiduciary Responsibility for Business Owners?

A fiduciary is someone who has been given the authority to act on behalf of another person or entity. This person or entity has a legal obligation to act in the best interests of the person or entity they represent and to avoid any situation where their personal interests might conflict with the interests of the person or entity they represent. They must make decisions with great care, loyalty, and honesty when acting on behalf of the person or entity they represent.

In simple terms, a fiduciary is a person or entity that is trusted to act in someone else’s best interests.

The Three Main Duties of Fiduciary Responsibility

Duty of Care: The fiduciary has a duty to exercise reasonable care, skill, and diligence when managing their client’s finances and investments. This includes developing an investment strategy that aligns with the client’s goals and risk tolerance, selecting appropriate investments, monitoring performance, and making adjustments as needed. 

The fiduciary must also be aware of any potential conflicts of interest and take steps to avoid them. This means disclosing any conflicts of interest and ensuring that all investment decisions are made solely in the client’s best interests.

Duty of Loyalty: The fiduciary must remain loyal to their client, always acting in their best interests. This means putting the client’s interests before their own and avoiding any actions that could benefit themselves or others at the expense of the client. For example, a fiduciary cannot recommend investments that provide them with a higher commission or fees if those investments are not in the client’s best interests.

Duty of Good Faith: The fiduciary must act with honesty, integrity, and transparency when making decisions on behalf of their client. This means disclosing all material information that could affect investment decisions and avoiding any misrepresentations or omissions of material facts. The fiduciary must also act in a timely manner, keeping the client informed of any changes or updates. Finally, the fiduciary must be accountable for their actions, keeping accurate records and promptly addressing any concerns or complaints raised by the client.

Overall, these duties of fiduciary responsibility are designed to ensure that the fiduciary always acts in the client’s best interests, with care, skill, loyalty, and good faith. By following these duties, the fiduciary can help their client achieve their investment goals and build trust and confidence in their relationship.

How Can Business Owners Practice Fiduciary Responsibility?

To practice fiduciary responsibility as a business owner, it is important to prioritize the best interests of the company and its stakeholders. This involves maintaining high ethical standards and making decisions that align with the company’s mission and values.

One way to do this is by minimizing financial risks through responsible financial management. This includes being mindful of expenses, budgeting effectively, and seeking out potential opportunities for growth while weighing the associated risks.

Transparency is also key to practicing fiduciary responsibility. Business owners should make financial information readily available to stakeholders, including employees, investors, and customers. This includes being transparent about decision-making processes, financial reporting, and any potential conflicts of interest.

To protect the company from legal liabilities, business owners should consult with legal and financial experts when making important decisions. They should also educate themselves on relevant laws and regulations that apply to their industry.

In addition to personal responsibilities, business owners should ensure that their employees understand their own fiduciary duties and have the necessary resources to make informed decisions. This can include training programs, access to financial experts, and clear guidelines on how to handle financial matters.

By prioritizing fiduciary responsibility, business owners can build trust with stakeholders, ensure the long-term success of their company, and contribute to a healthier business ecosystem.

In Summary

Overall, understanding and practicing fiduciary responsibility as a business owner is of the utmost importance. Fiduciary responsibility is a legal obligation that must be taken seriously, and a breach of fiduciary responsibility can lead to legal action. By understanding and practicing the duties of care, loyalty, and good faith, business owners can protect themselves and their businesses from potential legal action.

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.

401k Communication Plan For Employers

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Having a 401k plan for your employees is an important part of overall employee benefits and can be a great way to motivate them. However, employers must ensure that they have effective communication strategies in place to properly educate their workers on the 401k plans offered and the benefits associated with contributing to them. 

In this blog, we’ll discuss some tips employers should consider when communicating their 401k plans to employees.

Steps to Effectively Communicate 401K Plans to Employees 

1. Explain the Benefits: Employers should clearly explain what benefits their 401k plan provides, such as tax advantages and potential savings for retirement. It is important that employers make sure to provide detailed information on the features and benefits of their plan in order to help employees understand why contributing to a 401k is beneficial.

2. Provide Easy-to-Understand Information: Employers should make sure that their 401k plan communications are easy to understand, with clear language and simple explanations. Documents such as brochures, handouts, or slideshows can be helpful in providing comprehensive information about the 401k plan in an understandable way. 

3. Offer Guidance: Employers should also provide employees with guidance on how to manage their 401k contributions and investments, and when appropriate offer advice for things such as selecting funds or planning for retirement.

4. Encourage Participation: In addition to providing helpful information about the 401k plan, employers should also take steps to encourage participation. Employers should highlight incentives such as employer match programs or potential tax advantages, and provide opportunities for employees to ask questions about the plan.

5. Regularly Audit/Review Plan: Finally employers should also review their 401k plans regularly to ensure that they meet the needs of their employees and are up-to-date with the changing regulations. This will help employers ensure that their 401k plans are competitive and attractive to current and future employees.

By considering these tips employers can create effective communication strategies for their 401k plans, helping to educate and motivate their workforce while also ensuring that they have a competitive plan in place. Employers should make sure to provide detailed information about the features and benefits of their 401k plan, offer guidance on how to manage contributions and investments, highlight incentives for participation, and regularly audit/ review their plan. Taking these steps will help employers communicate effectively with their employees about 401k plans while also ensuring that they have a competitive offering in place.

Questions to Ask Employees When Discussing Retirement Savings 

As employers strive to create a workplace that provides the best 401k plans for their employees, effective communication is essential. To help employers start conversations with their employees about retirement savings, here are a few starter questions employers can ask:

  • Do you understand compounding interest? 
  • How much do you think you’ll need for retirement?
  • Are you familiar with different investment options?  
  • Do you know the difference between a 401k and traditional IRA? 
  • Are you aware of your current 401k plan options?
  • How comfortable do you feel about contributing to your 401k?
  • Do you know the amount of money that employers are matching for employee contributions?
  • Are you familiar with how investments work in a 401k plan?
  • What other retirement savings options do you have available to you outside of your 401k plan?

An employer should also consider adopting a plain language approach to communicating their 401k plan. This would involve:

  • Providing employees with clear explanations of key terms, such as matching contributions, vesting schedules, and loan features
  • Making sure employees understand their options for diversifying investments in their 401k plan
  • Establishing a culture of open communication with employers frequently checking in on employee progress towards retirement savings goals

Review Your Current 401k Offerings

Employers should also audit/ revisit their current 401k offerings to ensure they are competitive, accessible and cost-effective for employees. This includes reviewing: 

  • The overall investment choices available
  • Matching contributions employers are offering
  • Any fees associated with their 401k plans

Create a Communications Plan

Creating a 401k communication plan is an important step employers can take to help employees understand their retirement savings options and make the most of their 401k plans. By taking the time to review their current offerings and communicate with employees, employers can create an effective 401k communication plan that employees will benefit from.  Encouraging employers to audit/ revisit their current 401k offerings will also help ensure they are providing their employees with the best retirement savings opportunities.  

By establishing a culture of open communication employers can build trust with their employees and ensure they are on track with their retirement savings goals.  By investing in a 401k communication plan employers can help empower employees to make the most of their 401k plans and ensure they are well prepared for retirement.

In Summary

Employers should strive to create an effective 401k communication plan that helps employers and employees understand their 401k plans and make the best decisions for retirement savings. With proper communication employers can confidently ensure that their employees are well-informed about their 401k options and employers’ 401k offerings, resulting in more beneficial retirement savings for employers and their employees.

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

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 advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

How to Attract and Retain Employees with a 401(k) Plan

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With circumstances such as low employment and the labor shortage, business owners are looking for new ways to attract and retain top talent. An emerging solution for these recent hiring issues is implementing a 401(k) plan for employees.

According to a recent survey, four out of five employees indicate they want benefits and perks more than a pay raise, and a 401(k) ranks in the top five requested benefits. 

Additionally, millennials and members of Generation Z find benefits even more appealing than their Gen X and Baby Boomer counterparts. In fact, 90% of employees 18 to 34 years old state they would prefer benefits over pay. 

So what does all this mean for business owners? A 401(k) plan can help business owners to attract and retain top talent as well as provide a host of other financial benefits. Let’s discuss.

How Can a 401(k) Plan Attract Top Employees?

According to Forbes, 62% of candidates seriously consider the availability of a retirement plan when deciding whether to accept or remain in a job. Further, 76% of employees are likely to be attracted to another company that cares more about their financial well-being. 

Millions of workers do not have access to an employer-based retirement plan. Therefore, by implementing such a plan at your business, you are automatically setting your business apart from its competition in the eyes of your candidates.

How Can a 401(k) Plan Help with Employee Retention?

A study done by the Society of Human Resource Management (SHRM) found that it typically costs 50%-75% of an employee’s annual salary to replace them. If your business has higher than average turnover rates, it might be time to look at the benefits of a 401(k) plan.

For instance, consider these factors when deciding whether or not to invest in a 401(k) plan for your employees: 

Appreciation

A 401(k) plan grows in value over time. When employment ends, the retirement account means the employee will leave with something of value. 

Compensation

Employees that feel that they are being compensated fairly for their work are more likely to stay in their current positions instead of searching for a new job. A 401(k) plan, or a lack thereof, is an important part of an employee’s compensation and contributes significantly to their decision to stay or leave their current organization. 

Employee Engagement and Team Morale

Leaders who invest in the well-being of their employees are often rewarded with higher employee engagement, satisfaction, productivity as well as a thriving work environment.

Remote work, in particular, can cause employees to feel disengaged from their team and organization. Employers are utilizing 401(k) plans as a method to combat these challenges. Why? Many remote employees would prefer additional benefits over a pay raise. 

What Are the Benefits of Using a 401(k) to Attract and Retain Employees? 

Tax Credits

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in December 2019. This act became law as of January 1st,  2020. 

The SECURE Act proposes raising the current Retirement Plans Startup Costs Tax Credit. The SECURE Act  permits an eligible small business to claim a tax credit for adopting a new 401(k) plan and a new automatic enrollment feature. 

Tax Deductions

All businesses can claim a tax credit deduction for paying 401(k) plan-related expenses. For example, these expenses can include:

  • Employer contributions
  • Administration fees

Employer contributions to employees’ 401(k) accounts may qualify as ordinary business expenses. In this case,  these contributions may be tax deductible up to the annual corporate deduction limit on all employer contributions (25% of covered payroll).

Interested in Setting Up a 401(k) Plan for Your Business?

Setting up a 401k retirement savings plan for your business is a great way to save money on taxes and provide your employees with a valuable benefit. 

Consider contacting our team for assistance. At RWM, we provide a clear path to secure retirement for employers and employees of successful businesses. Learn more about us and why we do what we do, here. 

Then, check out our blog for all the retirement savings jargon you should know, here. 

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 advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.