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Already during this legislative session, lawmakers have introduced three bills — two in the Senate and one in the House — designed to reform America's complex retirement saving system. Of these, H.R. 2954, the 'Securing a Strong Retirement Act of 2021,' has advanced the farthest. Intended to build on the SECURE Act of 2019 , this so-called 'SECURE Act 2.0' contains 45 provisions that would simplify and expand access to retirement savings. Published analysis of the SECURE Act 2.0 has mainly focused on provisions pertaining to automatic 401(k) enrollment, required minimum distributions, catch-up contributions and student loans. This article instead focuses on some of the bill's less-talked-about provisions that could nonetheless have a significant impact on plan compliance.
401(k) eligibility rules are changing — again
Until recently, retirement plan sponsors weren't required to track hours for part-time employees who work less than 1,000 hours per year. But the original SECURE Act introduced new eligibility rules dictating that part-timers who work 500 hours for three consecutive years must be allowed to participate in 401(k) plans alongside full-time employees. Plan sponsors began counting hours under the new system January 1, 2021. If the SECURE Act 2.0 passes, payroll processes may require further adjustment, because the new bill would further reduce the 401(k) service requirement to include part-timers who work 500 hours for only i consecutive years. Counting hours for part-time employees is not always straightforward. To relieve themselves of the administrative burden of counting hours, some plan sponsors may decide to extend eligibility to all part-time employees, regardless of hours worked. Others may choose to simpliy timekeeping by crediting part-time employees a fixed number of hours for each day or pay period worked. Regardless of their approach for tracking hours or using equivalencies, plan sponsors who have not already done so will need to coordinate with their recordkeepers, payroll providers and HR information system (HRIS) providers to make a plan for crediting part-time employees who work 500 hours or more.
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Retirement plan overpayments no longer must be recouped
Plan sponsors nearly always find themselves in a difficult position when participants have been paid more than the plan's provisions stipulate. Recovering overpayments is easier said than done, especially if the error has accumulated over several years, and the ill will generated from doing so can run counter to a company's other objectives. Yet up to this point, the IRS has mandated that, in the case of an overpayment, the plan should be made whole so it is preserved for all retirees who rely on its funds.
If the SECURE Act 2.0 passes into law, plan sponsors will have the latitude to decide not to recoup accidental overpayments. The provision is meant to safeguard innocent retirees from the hardship of unexpected claw backs. Having the option to write off overpayments could simplify plan administration, but it could also cost plans a lot of money. To limit their write-off risk, plan sponsors should check their plans for potential errors and institute a policy of reviewing plans on a regular basis. More and more plan sponsors are hiring an independent third party to check a percentage of their participant calculations on an annual basis. In addition, plan sponsors may choose to schedule periodic compliance reviews at opportune times, such as when transitioning to a new plan administrator or payroll system, or when making changes to plan provisions.
Lost participants could get easier to find
Every year, plan sponsors around the country who are ready to pay benefits find themselves unable to locate certain retirees whose names or addresses have changed. Plan sponsors' handling of lost participants has increasingly become a focal point of the U.S. Department of Labor (DOL) and its audits. The SECURE Act 2.0 could simplify things by creating a central data repository for information on lost participants, aka the 'Retirement Savings Lost and Found.'
The nuts and bults of the proposed online system have yet to be hammered out. For instance, in addition to locating lost participants, plan sponsors have a fiduciary obligation to identify spouses who may be owed a benefit. It is not yet clear if the Retirement Savings Lost and Found would track missing beneficiaries. Building and testing a system that reliably relieves plan sponsors of the administrative burden of tracking down lost participants will take time. Until then, plan sponsors will remain "on the hook" for performing this fiduciary responsibility.
Plan sponsors will have more latitude to correct plan errors
Finally, the SECURE Act 2.0 would give plan sponsors greater flexibility in correcting plan errors. Plan sponsors would have more time — nine and a half months after the end of the plan year in which the mistakes were made — to correct missed contributions to employees' retirement accounts without penalties. In addition, the bill would expand the scope of the Employee Plans Compliance Resolution System (EPCRS), which allows plan sponsors to self-report errors to the IRS and correct those errors without significant penalties. The expanded scope would include a broader array of errors such as plan loan errors and certain failures to make required minimum distributions. This change should come as welcome news to plan sponsors and administrators who must otherwise go through the IRS to correct common, honest mistakes.
With industry analysts nearly unanimous in their expectation that Congress will pass either the Securing a Strong Retirement Act or the similar Retirement Security and Savings Act, now is the time to prepare. With proper planning and coordination with plan administrators and payroll providers, plan sponsors can achieve SECURE Act 2.0 compliance with minimum business disruption.
Andrew A. Adams is founder and principal of Strategic Benefits Advisors, an independent, full-service employee benefits consulting firm that solves benefits issues for clients with 1,000 to 300,000-plus employees. Adams has 34 years' experience in benefit plan administration and consulting. He can be reached at [email protected].
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