Don’t Miss Out: SECURE Act Tax Credits & 401(k) Plan Features

The most comprehensive pension reform in 20 years, the SECURE Act, is a step forward to allow people greater access to retirement plans.

 

The act hopes to expand retirement savings while alleviating administrative headaches. As such, the SECURE Act includes incentives such as:

  • Tax credits to encourage business owners to set up a workplace retirement plan
  • 401(k) plan design features to help employees better prepare for their futures
  • Administrative improvements for managing a retirement plan

 

Tax Credits for Small Businesses

Tax credits for eligible employers are designed to alleviate some of the 401(k) start-up costs and incentivize businesses with 100 or fewer employees to offer a retirement plan.

Two credits are available:

  • Startup costs. A tax credit of 50% of eligible startup costs up to $5,000 for each of the plan’s first three years.
  • Auto-enrollment credit. An additional tax credit of $500 per year for a three-year period for offering auto-enrollment into the plan.

This equates to up to $5,500 a year, or $16,500 over three-years for an employer who takes advantage of both tax credits.

 

401(k) Plan Design Features

There are countless ways to design a retirement plan, from the type of plan and available features, to who is eligible and how much they can contribute. Here we highlight a few of the SECURE Act provisions that may enhance your retirement plan design for today’s generationally diverse workforce.

  • Increased default savings cap. To help boost savings, the SECURE Act allows safe harbor plans with automatic-enrollment to increase the auto-escalation cap from 10% to 15% of an employee’s paycheck. This means that plans can be set to automatically increase each year until employees reach a retirement deferral rate of 15%. Of course, employees can opt out at any time.
  • Plan eligibility for part-time employees. Prior to the passage of the SECURE Act, part-time employees could be excluded from participating in the 401(k) plan. Now part-time employees who work at least 500 hours per year in the preceding three years are able to make elective deferrals. However, employers are not required to match these contributions.
  • Extended saving options for pre-retirees. With a quarter of the workforce made up of Baby Boomers,[1] many are looking to save longer. The SECURE Act has raised the required minimum distribution (RMD) age from 70 ½ to 72 (and this looks to be extended further with the pending passage of the SECURE Act 2.0). Participants born on or after July 1, 1949, can save longer without being required to withdraw from their tax-deferred retirement account.
  • Lifetime income illustrations. These projections are designed to give participants an idea of what their account balance would provide as a monthly income amount, beginning at age 67 if the balance was annuitized. The purpose of the illustrations is to help participants learn whether they’re on track to retiring comfortably.

 

Administrative Improvements

The SECURE Act also aimed to alleviate some of the administrative burdens that come with managing a company-sponsored retirement plan.

Plan sponsors can easily switch to a safe harbor with non-elective contributions:

  • At 3% at any time before the 30th day before close of the plan year,
  • On or after the 30th day before the end of the following plan year, but the contribution must be increased to 4%, and
  • Eliminates safe harbor notice requirements for plans, providing non-elective contributions.

 

Keeping Your Plan SECURE

While this is a sampling of the exciting and beneficial elements of the most comprehensive retirement plan reform in two decades, there is so much more in the original and the upcoming SECURE Act 2.0.

This is where we come in. Contact us to learn more about the current features, requirements and options to enhance your retirement plan.

 

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

[1] Bureau of Labor Statistics. “Labor Force Statistics from the Current Population Survey.” 2020.

Q2 2022 Newsletter: Current Trends + Projections Edition

Over the last few years, employees’ mindsets have changed, shifting to wanting more than just a raise every year.

Employees want a total rewards package that includes everything from a retirement plan to financial wellness and more work-life balance flexibility.

Read about the changes coming to the total rewards landscape such as guaranteed income, how to calm inflation concerns and the top total rewards opportunities this year.

Download the Newsletter >>

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance or tax/legal advice.

Guarantees are based on the claims paying ability of the issuing insurance company. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.

©401(k) Marketing, LLC.  All rights reserved. Proprietary and confidential.  Do not copy or distribute outside original intent.

Total Rewards Programs Key to Recruiting & Retaining Top Talent

Total rewards programs are a vital part of workplace culture, employee performance and securing top talent. Learn how program enhancements can help meet the demands of a changing workplace and workforce.

Plan sponsors are often faced with a balancing act of what benefits to offer versus what employees actually value the most. To develop the best program, many look to a total rewards approach, which provides a holistic look at compensation plus the “hidden paycheck” of benefits and wellness and/or education programs to empower employees.

5 Main Components

The main components of a total rewards program generally include the following:

  • Compensation: Normally the base pay received by an employee is often the entry point for the overall employment package. This can be the baseline of how an employee sees their worth and value at the company. Compensation, along with regular pay raises, help an organization motivate employees and improve business productivity and effectiveness.
  • Benefits: The term “benefits” covers a wide range of perks available to employees. Some are considered bedrock benefits, while others fringe. But to boil it down, benefits are essential for recruiting and retention efforts. In fact, nearly 7 out of 10 employees say their benefits package is the reason they stay at their job.[1] Your benefits package should reflect the specific needs of your company and may include some of these most popular options:
    • Insurance Benefits: Medical Insurance, Dental/Vision Insurance, Telehealth, Mental Health Support
    • Financial Benefits: Retirement Plan, Financial Wellness, Student Loan Repayment, Emergency Savings Fund
    • Paid Time Off: Sick Leave, Flex/Vacation Time, Parental Leave
  • Work-life Balance: The effect of the COVID-19 pandemic on employers and employees was deeply felt, and yet, it highlighted the need for work-life benefits to become flexible and evolve. Several work-life features were ranked as extremely or very important by employees, including flexible work schedules (83%), leave of absence options (83%) and family-friendly work environments (76%).[2] The pandemic caused many employers to revisit and revise their employee benefits last year and expand them to support employees who needed more remote work options, flexibility to care for family members and more ways to protect their physical and mental health. Employer ingenuity to address these needs further shows a commitment to their employees’ overall well-being.[3]
  • Learning and Development: While educational training sessions can take employees away from their primary work, the intellectual capital gained from the practice are plentiful. Not only can these sessions contribute to employee morale and knowledge, but they also help to enhance efficiencies in one’s job, which can result in improvements to the company’s bottom line.
  • Performance and Recognition: Appreciation of employees’ actions can be monetary but also go beyond their paychecks. Recognition can increase employee self-worth and productivity, while it also highlights their value within a team as well as the company.

Total Rewards in 4 Steps

There are four primary steps to develop and maintain a total rewards program according to SHRM, the human resources non-profit:[4]

  1. Assessment of current benefits and compensation system to determine program effectiveness can involve surveying employees to gain opinions on pay, benefits and opportunities for growth and development, as well as examining current policies and practices. A summary of recommendations and solutions should be the desired outcome.
  2. The design of the total rewards program should involve senior management to identify and analyze various reward strategies, while determining what would work best in their workplace.
  3. HR departments implement and execute a rewards system. Employee communication and training is also necessary to measure relevant variables.
  4. Total rewards program effectiveness must be regularly evaluated with the results communicated to company decision makers. Based on these reviews, modifications can be proposed and implemented.

Build It and They Will Come 

Total rewards programs are critical for the workplace culture, employee performance and overall recruiting of top talent. And, as the workforce changes or becomes even more competitive, it’s important to evaluate, adjust and enhance your employee benefit package to remain competitive and continue to recruit and engage top talent.

This is where we can help. We are dedicated to helping our clients develop benefit plans that fit the needs of the business owner, focus on company goals and help employees feel confident in their financial future.

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

 

[1] Ameritas. “What Benefits Do Employees Value Most?” April 2021.

[2] Miller, Stephen. “SHRM Benefits Survey Finds Renewed Focus on Employee Well-Being.” SHRM.org. Sept. 2021.

[3] Miller, Stephen. “SHRM Benefits Survey Finds Renewed Focus on Employee Well-Being.” SHRM.org. Sept. 2021.

[4] SHRM.org. “What are total rewards strategies? Can you give me some idea on how to develop a total rewards strategy?” 2022.

How Could Inflation Impact Corporate Retirement Plans?

 

Increasing prices may put pressure on employers and delay workers from retiring.

Inflation is the increase in the general price of goods and services, which can decrease the purchasing power of American workers. So how does this recent upward trend affect your workplace benefits, employees and retirement plan?

Salaries, Flexibility and Savings

When inflation goes up, the same paycheck doesn’t stretch as far. With the increased costs of food & beverage, transportation, housing, apparel, medical care, recreation, education & communication and other goods & services, your employees might not be able to afford the same lifestyle.

To maintain a similar standard of living, your employees may request salary increases and it might be more than the typical 2% raise (year-to-date salary increases have been more than 4%).[1]

Other employers, however, are considering shortening the work week as opposed to a salary increase.[2] Benefits like flexible schedules may be appreciated more than a raise.

Another employee benefit that is gaining interest is the emergency savings account. Sixty percent of employers said they are interested in offering emergency funds and 1 out of 4 employees said they’d consider a job change if a new employer offered this benefit.[3]

Robbing Peter to Pay Paul

Increased costs may cause your employees to redirect funds designed to be saved for retirement. Whether it is reducing their current retirement deferrals and/or an increase in loan requests, it may be a way to keep up with the rise of inflation.

Delaying Retirement

Starting this year, all participants will receive a statement that includes a monthly income projection. The income illustration will be based on their retirement savings and lifetime payout assumptions. But what happens when those numbers are much lower than anticipated?

For older employees, they may feel additional savings worries, inflation stress and they could potentially delay their exit from the workforce. It is projected that 79% of older generations will react negatively to their predicted monthly retirement income.[4]

To prepare them, education is key. Emphasize the financial resources that come with your retirement plan, including our services and resources like participant infographics.

Hedging for Inflation

Companies and workers are likely to feel instability during this time of inflation-driven economic swing and may need extra support.

Here are some helpful solutions for your company’s retirement plan:

  • Explore portfolio diversification to include investments that may be correlated to inflation[5]
  • Consider a financial wellness program that educates employees on topics like inflation
  • Get creative with contributions — 70% of workers support a 3% 401(k) contribution over a salary increase[6]
  • Stay in close contact with our team to track evolving trends

 

Here are suggestions for participants of all generations to keep retirement savings on track, despite inflation:

  • Utilize budgets for each area of monthly spending
  • Prioritize where extra funds are allocated
  • Promote healthy savings habits because 9/10 employees believe their workplace retirement plan is one of the most important benefits[7]
  • Speak with a financial advisor to review current investments and goals

On the Horizon

To calm inflation fears, employers can provide financial wellness resources to help employees focus on their long-term financial objectives, which in turn can also improve retention rates and onboarding new hires.

Other benefits to consider include flexible work arrangements, remote work options, additional sick time and/or access to emergency savings so employees can concentrate on the present.

Inflation, unfortunately, is a part of our society and most likely will be a factor for the foreseeable future. Whether it’s high or low, a best practice is to continually explore ways of improving and protecting plan assets for your retirement plan and its participants.

How We Can Help

Employers, contact us to discuss how your plan can meet business goals and motivate employees to save more for retirement.

Reach out to us today to explore opportunities.

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

 

[1] Kropp, Brian, and Emily Rose McRae. “11 Trends That Will Shape Work in 2022 & Beyond.” Harvard Business Review, 13 Jan. 2022.

[2] Kropp, Brian, and Emily Rose McRae. “11 Trends That Will Shape Work in 2022 & Beyond.” Harvard Business Review, 13 Jan. 2022.

[3] Dhue, Stephanie. “No Emergency Savings? New Workplace Benefits Aim to Help.” CNBC, 7 Jan. 2022.

[4] Cohen, Josh. “Lifetime income illustrations: Preparing for participant reactions.” PGIM. Summer 2021.

[5] Chalk, Steff. “Retirement Planning Trends on the Horizon for 2022.” 401kTV.com , 15 Dec. 2021.

[6] American Century Investments. “8th Annual Survey of Retirement Plan Participants.” 2020.

[7] American Century Investments. “8th Annual Survey of Retirement Plan Participants.” 2020.

Guide to Paying Down Student Loans

Help your employees find ways to manage their student debt with:

  • Refinancing options
  • Repayment plans
  • Forgiveness Programs
  • Loan Consolidation

These strategies can ease your employee’s financial headaches so they can focus on being productive in the workplace.

Download the Infographic >>

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC.  All rights reserved. Proprietary and confidential.  Do not copy or distribute outside original intent.

Pros and Cons of Guaranteed Lifetime Income

Annuities and similar products may help address retirement readiness in an aging workforce.

People are living longer, which means they may need their retirement savings to last decades. As a result, nearly half (48%) of participants are concerned about outliving their retirement savings.[1] Many Americans don’t know how to transform their savings into retirement income.

Guaranteed income offerings can help ease this concern by providing consistent, predictable payments for life. Research shows a majority of 401(k) participants (75%) are “very” or “somewhat” interested in putting some or all of their savings into a guaranteed income option.[2]

Employers are on board, too — 4 in 5 believe employees want guaranteed income products in their retirement plans.[3] However, with new retirement strategies comes opportunities, uncertainty and risks. Here are some of the benefits and risks of in-plan guaranteed income.

What is Guaranteed Lifetime Income?

Think of it as a “paycheck for life.” Essentially, it is a retirement income strategy guaranteed every month once a 401(k) participant reaches retirement (generally speaking at 65 years old). These investment solutions are gaining in popularity because they are easy for employees to understand, which helps instill more confidence in their retirement outlook.

Retirement Income Hurdles

For decades, workplace plans have helped workers save, invest and accumulate as much as possible. Yet, few plans offered a decumulation strategy to provide a steady, predictable flow of retirement income.

Guaranteed income solutions aim to solve three primary participant concerns:

  1. Running out of money: The average American retiree could potentially outlive their savings by nearly 10 years.[4] Guaranteed income products help address this risk by delivering a steady, predictable lifetime income stream.
  2. Reducing or eliminating early withdrawals: Taxes and penalties alone may not discourage participants from tapping into their retirement savings early.
    Guaranteed income products may be a deterrent, as pre-retirement withdrawals will notably reduce retirement income.
  3. Lacking flexibility: Guaranteed income options can be tailored to an individual’s needs, from the type of product to the way they receive payments, who is covered and for how long.

Key Benefits and Risks

As with any investment solution that has various pros and cons, guaranteed lifetime income is no different.

Advantages include:

  • Potential for increased retirement confidence because participants can more readily project their anticipated retirement income which can help them retire on time.
  • Enhancing motivation and desire to save because participants will know their real monthly payouts, which may prompt them to save more proactively to reach their goals.
  • It could help reduce employer healthcare costs since older employees may retire earlier and, thus, exit the health insurance plan.
  • This strategy may improve your company’s competitiveness, boosting recruiting and retention.

Disadvantages include:

  • Each guaranteed income contract is different and the terms need to be clearly understood.
  • Contracts may not be ported (moved from one employer to the next).
  • Participants must elect guaranteed income far in advance of retirement; this decision typically cannot be reversed.
  • Payouts may end when the participant dies.
  • Participants may incur additional costs.

 

Your Fiduciary Role

The SECURE Act and pending SECURE Act 2.0 were designed to help Americans save for retirement; and while the law and pending update seek to improve our retirement system, it can be hard to decode.

To boil it down, selecting a guaranteed income provider is still considered a fiduciary duty, so this should be done with care and diligence. Contact us for support.

Lifetime Income Illustrations

Another SECURE Act requirement goes into effect this year; lifetime income illustrations will begin appearing on participant statements. These projections may motivate your employees to save, or they could instill a sense of dread if the illustration paints a bleak picture. Either way, this may prompt some employees to knock on your door and ask questions about the company’s retirement plan.

How We Can Help

If you are curious about guaranteed income options or other ways to enhance your retirement plan, we can help. Whether you need plan assistance or help getting your employees on track toward retirement, we support our clients through every step of the journey.

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

 

[1] Nationwide Retirement Institute. “2021 In-Plan Lifetime Income survey.” Sept. 2021.

[2] Employee Benefit Research Institute. “2021 Retirement Confidence Survey.” June 2021.

[3] Nationwide Retirement Institute. “2021 In-Plan Lifetime Income survey.” Sept. 2021.

[4] World Economic Forum. “Investing in (and for) Our Future.” June 2019.

Video: Building Turnover Resistant Benefits

If you’ve noticed that recruiting and retaining is becoming more difficult by the day, you’re not alone.
Note that 66% of employees have their foot out the door.[1] Why?

  • Better compensation and corporate benefits
  • Better work-life balance
  • Lack of recognition

However, it’s the same reasons they choose to stay. How can employers enhance and combine compensation and benefits, the work-life balance and recognition? Here’s how to work toward building turnover resistant benefits.

Watch the Video

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC.  All rights reserved. Proprietary and confidential.  Do not copy or distribute outside original intent.

 

[1] Achievers. “Workforce Institute 2021 Engagement and Retention Report.” Achievers, 10 Mar. 2021.

Cybersecurity: Protect Your Retirement Data

With trillions of dollars in America’s retirement savings plans, your employee’s hard-earned savings are not immune to cybercriminals. Hackers are getting smarter every day, and all they need to drain an account is a name, SSN, date of birth, address and social media intel.

Take a peek at our easy-to-use checklist of online security tips that can help your participants keep their retirement savings safe from cyberthieves.

Download the Checklist

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC.  All rights reserved. Proprietary and confidential.  Do not copy or distribute outside original intent.

Diversity, Equity and Inclusion and its Impact on Retirement Plans

Today’s workforce spans a variety of abilities, skills, experiences and cultural backgrounds that bring exceptional value. It is beneficial to understand and recognize these differences to achieve exceptional results. This remains true when offering, communicating and promoting your company’s retirement plan.

 

Raising Awareness

Thankfully, your retirement plan is no stranger to reporting. From participation rates, deferral percentages, asset allocation mixes, benchmarking analysis, investment reviews and other slice and dice metrics, retirement plan information is often shared based on your plan’s specific numbers and peer group comparison.

However, those calculations seldom include the lens of Diversity, Equity and Inclusion (DEI). Now all that is changing.

 

Expanding the Scope

Nearly two—thirds of plan sponsors have noticed an increased demand for retirement plans to align with DEI efforts.[1] So, now is a good time for employers and retirement plan committee members to revisit and re—evaluate how their 401(k) plans align with the workplace climate.

Four primary areas to review your workplace retirement plan DEI may include:

  • Participant cohorts: Participants save and accumulate assets differently. Take a look at your company’s demographics to spot under savers (participation, deferral, asset allocation, etc.). Then implement a targeted strategy to help all groups take advantage of the opportunities offered by your plan.
  • Committee composition: To foster a deeper understanding of your employees’ savings experience, reassess and consider expanding the retirement plan committee to include a representative structure that mirrors your workforce, potentially bringing greater insights that enhance retirement savings.
  • Investment offering: Consult with us for a review of your investment menu and discuss how a DEI strategy could be reflected throughout your retirement plan’s investment offerings.
  • Holistic mindset: For the majority of Americans, the workplace retirement plan is their primary savings and accumulation vehicle for retirement. Employers and committee members should address the current financial state of plan participants to ensure the diverse needs of their workplace are being addressed. Boosting the financial wellbeing of plan participants can drive the improvement of plan outcomes and allow all demographic groups to better engage with the benefits offered to them.

Financial Wellness

DEI is an essential part of a financial wellness program. A financial wellness program’s purpose is to help employees improve their overall financial situation. The best way to do this is by gaining an understanding of the differences that may exist between diversity groups (e.g. age, race, ethnicity, gender, physical abilities, sexual orientation, etc.), followed by viewing plan data to identify cohorts that could benefit from receiving additional resources. Sponsors can also use the data presented to look at demographic groups and see if they have different engagement levels in the plan.

One idea to address participation gaps is auto—enrollment. It is agnostic across all employees; it has been found that when auto—enrollment is implemented with Black, Latinx and White Americans, the participation rate remains 80% across the board.[2] Interestingly, when given the same auto—enrollment default, everyone saves the same when they have access. This is one example of how employers can address a coverage issue and, if applicable, address a racial disparity within 401(k) plan participation.

 

Financial Education

Diversity can extend not only to different cultural groups but varying generations as well. As such, employers should offer financial education resources that appeal to the different learning preferences (and languages) of each cohort along with best way to communicate with them about retirement, all while working to improve experiences through effective DEI.

As the lifestyles and stages of employees evolve, so do their financial needs and priorities. For a retirement program to be successful, employers should take these changes into consideration.

One size doesn’t fit all. Plan sponsors should seek to employ a mix of communications — utilizing brochures, emails, videos, infographics, blog articles and online calculators — to get the message out to different demographics within the plan.

 

Next Steps

To get started with your DEI strategy, consider these best practices:

  • Know your employees: Seek to understand their differing demographics and assess participant behaviors from multiple perspectives.
  • Talk with your service providers: Set up a meeting to learn what resources are readily available (e.g. financial wellness programs, plan data, different language options, etc.).
  • Communicate with purpose: Your communications should highlight your retirement plan as a valuable benefit. Help your diverse workforce understand why it is important to save and how your company is helping to promote retirement preparedness.

Using DEI to guide plan decisions can help ensure your company’s retirement plan is working to positively impact the different cohorts of your employees. DEI used wisely can increase the retirement engagement and security of all.

 

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

[1] Willis Towers Watson. “Moving the needle on defined contribution plans.” Willis Towers Watson. 27 May 2021.

[2]  American Retirement Association. “Building on Bipartisan Retirement Legislation: How Can Congress Help?” 28 July 2021.

Guide to DOL Audits

DOL Audits happen, are you prepared?

By taking proactive measures, conducting due diligence and documenting your plan actions, you can help position your 401(k) plan to pass an audit. To help you prepare, here are 8 key steps and a list of fiduciary documents to have on hand.

Get our Guide to Understanding DOL Audits below and share it with your retirement plan committee.

Download the Guide

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC.  All rights reserved. Proprietary and confidential.  Do not copy or distribute outside original intent.

Do ESGs Fit Into Our Retirement Plan?

The value-driven workplace and its implications for retirement plans

 

Your workplace may be evolving in many facets, from remote options to new generations coming into the workforce. These changes reflect those of the larger social climate and, in turn, employee priorities, values and expectations. Many professional and financial decisions are being influenced by these trends, as 53% of consumers are now “value-driven.”[1]

Some of the progressing values represent environmental, social and governance factors, known collectively as ESGs. These factors correspond to an array of investments that reflect a company’s interest in sustainability efforts; they can be offered to employees as part of their 401(k) lineup. ESG funds are becoming increasingly present, with nearly $20 billion in annual flows during 2020.[2]

  • Environmental: greenhouse gas (GHG) emissions, climate change, renewable energy, energy efficiency, waste management, etc.
  • Social: human rights, labor standards, workplace health and safety, employee relations, diversity, consumer protection, etc.
  • Governance: board structure, size, diversity, skills and independence

Companies frequently look to display their devotion to the environment around them and in the workplace, ranging from efforts like Diversity, Equity and Inclusion (DEI) within the workforce to issues regarding climate change.

Efforts that reflect a company’s commitments, like ESG investments and sustainable purposes, can project not only a positive brand image but also continually work to align company goals with investments and employer loyalties with employee values.

 

Four Types of Involvement

Now, don’t feel like you need to adjust your investment lineup right this moment. As a fiduciary, you have a duty to act in the best interest of the plan and its participants. ESG funds can also be considered at different levels of involvement. Before diving into sustainable investing, decide on which, if any, of the four approaches your investment lineup might want to take.[3]

ESG Integration is the most conservative option for firms entering the landscape. This approach considers ESG factors along with others when creating investment profiles, with the primary goal of achieving promising returns.

Exclusionary Investing entails the exclusion of certain companies or sectors that do not reflect a company’s sustainability values. An example would be not investing in the tobacco industry, as many have done in response to health concerns and the related environmental impact.

Inclusionary Investing focuses on actively seeking out ESG-centered entities to invest in as opposed to rejecting certain companies or sectors.

Impact Investing is the most engaged strategy, where a company dedicates its investing practices to achieving a positive difference in an environmental or social arena in addition to producing returns for its employees.

 

What Do You Believe In?

To get an idea of what sustainable topics you, your firm and your employees may resonate with and consider investing in, the United Nations Sustainable Development Goals (SDGs) can help.[4] These goals “address the global challenges [the world] face[s], including poverty, inequality, climate change, environmental degradation, peace and justice”, and are the focus of many ESG funds.[5]

Examples of the SDGs:

  • Good Health and Well Being
  • Gender Equality
  • Affordable and Clean Energy
  • Decent Work and Economic Growth
  • Sustainable Cities and Communities
  • Climate Action

Identifying your firm’s values and objectives can help reveal the best ways to align with those of current and future employees and learn how they want their benefits packages to be structured.

Looking to the Future

As new generations enter the workforce, they expect diverse and sustainable portfolios. More than 85% of all investors now express interest in ESG investments, specifically those addressing global warming and climate change.[6] This percentage increases with each younger generation – the future of the American workforce. Sustainability, the impact of plastic on the oceans and data fraud and theft are also top considerations for consumers interested in ESG fund investment.[7]

ESG funds may be a promising element of 401(k) investment lineups for plans, employers and employees in the coming years. Consider if and how they represent your firm and its employees, but more importantly, how they may or may not fulfill your fiduciary duty to act in the best interest of your plan and its participants.

As ESGs become more readily available and your company continues to evolve, we are here to help by discussing your options and identifying efforts that may help align your company with future goals and employee values.

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

 

[1] “Sustainable Investing for a Sustainable Business.” New York Life Investments, 2019.

[2] Hale, Jon. “Sustainable Funds U.S. Landscape Report.” Morningstar Direct, 10 Feb. 2021.

[3] “New York Life Investments Guide to ESG Investing.” New York Life Investments, 2020.

[4] “The 17 Goals | Sustainable Development.” United Nations, United Nations, 2015.

[5] “Take Action for the Sustainable Development Goals – United Nations Sustainable Development.” United Nations, United Nations, 2015.

[6] “Sustainable Investing for a Sustainable Business.” New York Life Investments, 2019.

[7] “Sustainable Investing for a Sustainable Business.” New York Life Investments, 2019.

How to Prepare for a 401(k) Audit

If the term ”audit” makes you uncomfortable, anxious or even scared, you are not alone. Last year, the Department of Labor (DOL) closed 1,122 civil investigations with 754 (67%), resulting in fees, repayments or corrective actions.[1] The agency collected over $3.12 billion in direct payments to plans, participants and beneficiaries. This represents a whopping 300% increase in just five years.[2]

From this perspective, you might think there is no chance that you’re walking out of an audit unscathed. However, the outlook is a little less bleak when you realize that in the US, there are nearly 722,000 retirement plans and only 1,122 escalated to investigation.

So instead of viewing the DOL as the boogey monster or fearing a 401(k) audit, let’s take a look at the utility behind audits, identify red flags and establish best practices to help demystify the process.

 

What is a 401(k) Audit?

Retirement plan audits are normal; in fact, they happen all the time. Generally speaking, a plan audit is the review of a company’s retirement plan with the primary objective of ensuring that it meets guidelines and regulations set by the DOL and IRS. For large companies with over 100 participants, audits are an annual occurrence, but small plans can also be under scrutiny if a red flag is raised.

 

What are Audit Red Flags?

The following red flags can prompt the DOL to take a closer look at your retirement plan.

Employee Complaints

Individual complaints from employees are a frequent source of DOL investigations. From a total of 171,863 inquiries from workers, 357 resulted in the opening of new investigations and more than half of all monetary recoveries relate to benefits of terminated vested participants of defined benefit plans.[3] The simple lesson here is that plan sponsors must establish clear protocols for how participants can communicate questions or complaints about their benefits to the plan sponsor before filing complaints with the DOL. Quick and effective responses are critical.

DOL Enforcement Priorities
Examinations may also relate to enforcement priorities launched by the DOL.  As of this publication, the agency “continues to focus its enforcement resources on areas that have the greatest impact on the protection of plan assets and participants’ benefits.”[4]  Just like the old story about why a robber goes to a bank, this translates to the DOL likely focusing more on large plans because that’s where the money is.

Delinquent Contributions
Delinquent contributions are pursued as part of an ongoing national priority. These are easy pickings for the DOL and a clear violation of the most basic fiduciary standards. No employer should deduct contributions from employees’ wages and fail to contribute those deferrals to the plans without fear of significant and swiftly administered reprisals.

Plan sponsors are encouraged to review their Form 5500 and other records to spot trouble points, such as:

  • Missed contributions
  • Assets not held in trust
  • Paying unreasonable compensation to service providers (conduct regular fee benchmarking to avoid this)
  • Paying expenses from the plan that are actually expenses of the employer (known as “settlor expenses”. These costs include consulting services regarding plan design or plan termination.)

Other areas of interest include lost or missing participants, and, of course, the DOL often accepts referrals from other agencies such as the IRS.

 

A Knock at the Door

If you happen to receive a notice from the DOL about an audit or an investigation, your response should be the same:

  • Take a deep breath.
  • Put your team together and choose a qualified primary contact person.
  • Strongly consider engaging ERISA counsel. Expert help may avoid missteps and provide an intermediary for difficult conversations.
  • Consider requesting an extension of time to respond. Many initial deadlines can be short for complex exams. Extensions, if reasonable, are routinely granted.
  • Review all documents prior to production. Be ready to report any issues found.
  • Deliver documents in neat and organized fashion.
  • Prepare employees for interviews. Treat it like a deposition. Caution them to take their time, thoughtfully consider their responses and ask for clarification of any questions they do not understand.
  • Always be truthful and respectful.

 

What Documents are Typically Requested?

The sheer volume of documents requested may at first seem overwhelming, but the requests will be for documents you should have readily available in your files. They include:

  • Plan document, Investment Policy Statement, plan records of fees/expenses
  • Form 5500, Summary Plan Description (SPD), Summary Material Modification (SMM), participant fee disclosures and benefit statements
  • Service provider contracts and fee disclosures
  • Participant claims and benefits data
  • Bonding and fiduciary liability insurance
  • Fiduciary committee charters, committee meeting minutes and other records
  • Organizational documents about your company and organizational charts
  • More recently, cybersecurity practices

 

Stay Prepared

Whether you are subject to a routine audit or a red flag prompts an investigation, it is important to remember that fiduciary vigilance is key. The best preparation is to follow sound operational procedures every day and don’t fall behind.

 

 

Larry Kavanaugh, Jr. AIF®, CPFA, CLU, ChFC

950-A Union Rd. Suite 31

West Seneca, NY 14224

716.674.7200

L.Kavanaugh@nebstpa.com

www.nebstpa.com

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

©401(k) Marketing, LLC. All rights reserved. Proprietary and confidential. Do not copy or distribute outside original intent.

[1] Department of Labor. “Fact Sheet. EBSA Restores Over $3.1 Billion to Employee Benefit Plans, Participants and Beneficiaries.”  2020.

[2] Ibid.

[3] Ibid.

[4] Employee Benefits Security Administration. “Enforcement.” DOL.gov. Accessed 2021.