All Things 401k | 6 Common Administrative Tasks That Can Morph Into 401(k) Plan Headaches

Managing a 401(k) plan can leave even the most seasoned administrators feeling overwhelmed. With proper support, you can simplify the complex task of retirement plan management. Top 401(k) Plan Headaches The first step is to understand the potential problems. Here are some common issues that can cause headaches for plan sponsors: • Uploading Payroll • Determining Eligibility • Over-Contributions • Investment Changes • Distributing Notices • Regulatory and Legislative Updates Navigating the labyrinth of retirement plan management can seem like a daunting challenge for any plan sponsor, employer or 401(k) plan administrator. The various administrative tasks, ranging from uploading payroll to handling investment changes, can often turn into 401(k) plan headaches. 1. Uploading Payroll A seemingly straightforward process can quickly turn into a minefield of errors. Incorrect data entry could lead to improper contributions, which could potentially result in legal and financial complications. One area of particular focus is the plan’s definition of compensation. When a special payroll cycle includes different types of compensation such as bonuses, commissions, or overtime, it’s important to know whether that compensation should be included or excluded from the 401(k) plan. This specific issue ranks #2 on the IRS’ Top Ten Failures Found in Voluntary Correction Program. 2. Determining Eligibility When an employee may enter your 401(k) plan is different for each employer. Common eligibility requirements include 21 years old and 1,000 hours of service. Then the employee is eligible to enter the plan on the next entry date: for example, January 1st and July 1st. However, effective January 1st, 2024, there are new eligibility rules for long-term, part-time employees. Under the SECURE Act, employees that have worked 500 hours for three consecutive years are eligible to participate in the 401(k) plan on January 1st, 2024. 3. Over-Contribution Quandary An employee might max out their savings, then end up getting money back due to annual contribution limits. This creates extra administrative work and potential confusion for both parties. Get ahead of this now by running a report to learn if any employees are close to – or have - maxed out their 401(k) plan. 4. Investment Changes Moving from one investment option to another can be a complex process, requiring professional guidance from a 3(21) or 3(38) investment fiduciary. Plan sponsors should work with a 401(k) advisor, like us, to evaluate watch list funds and then implement recommendations based on your plan’s Investment Policy Statement. Additionally, it’s critical to communicate these changes to plan participants. 5. Distributing Notices Ensuring that all employees receive timely and accurate information about their 401(k) plan can be a daunting task, especially for large companies. One idea is to work with your recordkeeper and instruct them to send out notices. Another idea is to hire a 3(16) plan administrator who will send out and track required plan notices. 6. Regulatory and Legislative Updates Staying informed and compliant with the ever-changing landscape of retirement plan regulations is a significant challenge. For example, the SECURE Acts are two long and lengthy pieces of legislation that greatly impact 401(k) plans. 401(k) Plan Headache Relief This is where a 401(k) advisor can give a helping hand. We can offer valuable support and guidance across several key areas: • third party administrator (TPA) communication • recordkeeper collaboration • investment strategy • plan design support • employee education • fiduciary and regulatory guidance While the role of managing a 401(k) plan can be fraught with potential pitfalls and headaches, the support of a specialized retirement plan advisor can significantly lighten the load. We can help streamline processes, establish compliance best practices, educate employees and foster an efficient retirement plan.

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

Meet Julia, a people-focused life-long learner with several years of experience in the retirement plan industry. Throughout her career, Julia has been committed to maintaining strong client relationships by providing incredible customer service. She is passionate about helping clients define and plan for their retirement goals. Julia’s daily role at the firm energizes and reinforces her commitment to client-focused work.

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Since 2012 at Rose Street, Scott has been responsible for helping the firm's individual wealth management clients with income strategies for retirement and consulting with employers with their employee retirement plans. In free time, he enjoys golf, biking, skiing, cooking, and traveling. Fun fact, Scott has a hobby of filling growlers with coins!

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #6006781.1

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.

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Less Tax for You. More Money to the Charity. Nothing for the Government. What’s not to love?

When you reach 73 years old, you are required to start taking minimum distributions from your traditional IRAs and certain other retirement accounts. These distributions are generally subject to income tax. If you are charitably inclined, you may be able to satisfy all or a portion of your required minimum distribution, lower your taxable income and give more to the charity by utilizing a special provision called a Qualified Charitable Distribution (QCD). A QCD allows you to donate funds directly from your traditional Individual Retirement Accounts (IRAs) to eligible charitable organizations. The donated amount counts towards your Required Minimum Distribution (RMD) for the year AND is excluded from your taxable income. This can result in a lower overall tax liability for you and potentially more money going directly to the charity.

As you seek ways to help to optimize your financial situation while making meaningful contributions to society, QCDs provide a versatile tool to achieve both objectives. Before making any decisions, it's important to consult with a professional advisor who can help tailor this strategy to your specific circumstances and charitable goals. With proper planning, QCDs can serve as a win-win solution for retirees and the charitable organizations you support.

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. File # 5922845.1

Jeremy Heavey

AIF ® | FINANCIAL ADVISOR

Jeremy is passionate about partnering with individuals and families to identify what is important in their lives and creating a comprehensive financial strategy to help them reach their life goals. This holistic approach allows Jeremy and the wealth management team to ensure the specific needs of the client are front and center as they make investment recommendations and collaboratively design custom-tailored financial plans.

Jeremy has a professional track record starting, leading, and managing for-profit and non-profit organizations. He is a graduate of Taylor University and has completed business programs at both Hong Kong Baptist University & Harvard Business School. Jeremy is also formally trained and certified in behavioral assessment, conflict management and life coaching. Jeremy, his wife Kim and their 4 kids reside in Kalamazoo. They love spending time exploring the outdoors, fixing up their farmhouse, and living life with friends and extended family.

Fun fact: Jeremy has been playing drums since he was 13 years old and made callbacks for the Blue Man Group.

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All Things 401k | Talent Management and Total Rewards Edition

The future of talent management and total rewards is changing. With the SECURE Act 2.0 now in effect, the field of plan design must keep pace with the ever-evolving employment landscape. There are a number of ways that can help you stay ahead of the competition, toward securing better outcomes for your workforce. Our plan sponsor newsletter focuses on:

· Total Rewards: Helping define and implement effective compensation strategies tailored to individual needs.

· Plan Design: Developing 401(k) plans that meet key requirements while allowing employees to save effectively.

· SECURE Act 2.0: Making sure your plans are up to date with the latest regulations for the upcoming 2024 year.

CTA: Download the Newsletter

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5787277.1

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.

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Guide to Retirement | Long-Term, Part-Time Overview for 2024

For part-time workers, saving for retirement can be a challenge. Many part-time employees are often excluded from 401(k) plans because they often don’t meet the plan’s eligibility requirements. This includes many students, parents and individuals with multiple part-time jobs. However, new legislation that goes into effect on January 1, 2024, is about to change that.

Effective on January 1, 401(k) plans must allow employees who have worked more than 500 hours of service in three consecutive 12-month periods to contribute elective deferrals to the plan. Let’s look at an example.

Example 1

Alex was hired in 2016 as a part-time employee. She has never been able to participate in the company’s 401(k) plan because she didn’t meet the 1000 hours requirement. In 2021, 2022 and 2023, she worked 600 hours per year. She has worked more than 500 hours and completed three consecutive 12–month periods, so she can enter the plan on January 1, 2024.

Example 2

Riley was hired on May 15, 2021 as a part-time employee. He worked 400 hours in 2021, 600 hours in 2022 and 600 hours in 2023. On May 15, 2024, he completed three consecutive 12-month periods; however, he did not work enough hours to be eligible.

Importantly, employers must properly track employee hire dates and hours worked to determine eligibility. Tracking hours is crucial to determining employee eligibility for the plan, including tracking periods starting from January 1, 2021 (since that date going forward determines eligibility). Additionally, employers should be aware of the administrative burden involved in operating their plans and how these changes will affect plan operations under the Long-Term, Part-Time provisions.

According to these rules, employers are not required to make employers contributions to the accounts of LTPT employees, which includes contributions under safe harbor 401(k) plan provisions and top heavy minimums but if employers want, they can. Additionally, employers can choose to exclude employees from nondiscrimination testing related to elective deferrals, employer match and nonelective contributions. See your TPA for more specifics.

2025 and Beyond

For 2025 and with the modifications in SECURE 2.0, the rules change again. An employee only needs two consecutive 12-month periods with more than 500 hours of service to be eligible to participate in the company’s 401(k) plan.

Example 3

Riley was hired on May 15, 2021 as a part-time employee. He worked 400 hours in 2021, 400 hours in 2022, 600 hours in 2023 and 600 hours in 2024. He has completed two consecutive 12-month periods with more than 500 hours; he is eligible to participate in the company’s 401(k) plan on the next entry date.

Understanding Plan Eligibility

In summary, the LTPT provisions are a significant change to retirement plan eligibility requirements. While the SECURE 1.0 and 2.0 Acts offer solutions, employers must take action to properly track employee hours and ensure those employees become aware of their eligibility to join the 401(k) plan.

Employers should also evaluate their plan design and consider whether allowing all employees to contribute immediately upon hire would be worthwhile. By working closely with your third party administrator and plan advisor, employers can ensure that they are meeting the requirements of the SECURE 1.0 and 2.0 Acts and offering employees the best possible retirement savings opportunities.

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5787251.1

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.

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Guide to Retirement | Stock Markets Impact on Retirement Savings

The stock market’s movements can cause a bit of anxiety and stress for investors. One of the keys to a successful retirement is to keep saving, no matter what the stock market is doing. It’s always beneficial to connect with an advisor to help understand your investments whether the stock market is up or down. Watch the Video

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5787304.1

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.

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All Things 401k | Unlock Employee Potential with Effective and Appealing Total Rewards Program

You may have heard of a Total Rewards Strategy. It is a recruiting and retention strategy given that it goes beyond the traditional salary benefits by providing holistic rewards that entail added motivation for employees. This strategy allows companies to improve employee satisfaction without compromising business goals – it's an all-around win! CTA: Download the Guide

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5787273.1

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.

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All Things 401k | SECURE Act 2.0: What 401(k) Managers Need to Know for 2024

Required for 2024

Luckily, the required changes for 2024 are minimal.

Requirement Summary

Long-term, part-time employees become eligible to participate in the 401(k) plan. Catch-up contributions are required to be Roth if the participant earns more than $145,000 in W-2 compensation.

Long-term, Part-time Employees

As part of SECURE 1.0, there is an important provision about long-term, part-time employees and retirement plan eligibility. In short, effective January 1, 2024, 401(k) plans must allow employees who have worked 500 hours or more in the past three consecutive 12-month periods to contribute elective deferrals to the plan.

Changes for High Earning Pre-Retirees

Employees looking to maximize their retirement savings with catch-up contributions should be aware that if they earn more than $145,000 in W-2 wages, their contributions are now required to be Roth. If the employee earns less than $145,000, they can choose either pre-tax or Roth contribution type. Note that plans need to allow for Roth contributions for this option to be available. UPDATE as of August 25, 2023: The IRS announced a two-year transition period that extends until 2026 this provision requiring higher-income participants to make catch-up contributions as Roth. In addition, the IRS clarified that plan participants who are age 50 and over can continue to make catch-up contributions after 2023, regardless of income. These required provisions may need additional explanation. Contact us to discuss your specific plan.

Optional for 2024

While this is not a complete list of the optional provisions to consider in 2024, this short list includes several of the most anticipated. We want to focus on the provisions that may reduce your administrative hassle, provide employees relief during compromising situations and could encourage positive savings behaviors.

Reduce Administrative Hassle

Account Transfers for Former Employees

Retaining 401(k) accounts of former employees can be onerous for plan sponsors, particularly if the accounts are small and inactive. However, there is a new solution available that helps facilitate the transfer of accounts to the ex-employees' new employers. Automatic portability is a transaction process that allows 401(k) accounts with balances between $1,000 and $7,000 to be transferred to the new employer's retirement plan automatically, without involving the former employee. This can save plan sponsors time and resources, while also ensuring that former employees' retirement savings remain safe and intact. Fortunately, many recordkeepers and service providers can help facilitate smooth 401(k) account transfers. From locating missing plan participants to handling necessary paperwork, the right partner may help reduce costs, improve efficiency and enhance employee satisfaction.

Safe Harbor IRA Upgraded

Previously, plan sponsors could only transfer former employees' 401(k) accounts to a Safe Harbor IRA if the balance was not more than $5,000. The revised provision increased that amount to $7,000. This may help improve plan administration by helping sponsors avoid large plan audits, additional fees and issues caused by missing participants.

Provide Employees Support

Help Workers Access $1,000 for Emergencies

SECURE Act 2.0 offers a simple solution for employees who need to access retirement savings for personal or family emergencies. This provision allows workers to withdraw up to $1,000 from their retirement savings without incurring the typical 10% excise tax penalty. Even better, the withdrawal is not a loan and requires little additional paperwork or administrative burden. Employees can take advantage of this one-time distribution and optionally repay it within three years. This feature could prove particularly useful for busy HR professionals and 401(k) administrators, looking to streamline processes and save time.

Payroll Deducted Emergency Savings

This "side-car" emergency account can provide employees with further security and peace of mind in the face of financial uncertainty. Under this provision, employers can automatically enroll their employees in a savings account that allows up to 3% of their wages to be saved for emergencies. Account contributions are made on a Roth-like basis and are capped at $2,500. Once the cap is reached, additional contributions can be directed into a Roth-defined contribution plan or stopped altogether. The accounts are also subject to annual matching contributions. Additionally, the first four withdrawals from the account each year are not subject to any fees or charges. These emergency savings accounts are for non-highly compensated employees. This new feature helps employers support their workers' financial well-being and to become more confident and secure in their financial lives.

Penalty-Free Withdrawals Available for Victims of Domestic Abuse

Domestic abuse survivors can withdraw up to $10,000 (or 50% of their retirement fund, whichever is lesser) without penalty. This initiative provides much needed financial security for survivors.

Natural Disasters and Financial Response

In the unfortunate event of a natural disaster, this new measure provides relief for those dealing with it. Individuals can withdraw up to $22,000 from their retirement plan or IRAs without facing the 10% early withdrawal tax penalty. This amount can be paid back over three years or the recipient can pay taxes on the distribution, if not repaid, spread out over three tax years.

Encourage Positive Savings Behaviors

Auto-Features and Honest Mistakes Are Now Protected

Auto-features have been proven over and over to help all workers save for retirement. In that spirit, this provision provides a grace period for correcting certain retirement plan errors. Plan sponsors now have 9 ½ months after the close of each plan year to rectify mistakes related to default enrollment or matching contributions without facing any penalty. This is beneficial for HR executives, who often have to deal with a large number of employees and may occasionally make innocent mistakes. The extension offers them peace of mind from potential fines and allows them to focus on more important tasks rather than worrying about errors made when administrating their retirement plans.

Next Steps

As a 401(k) manager or employer, you have the opportunity to take advantage of the SECURE Act 2.0 provisions to reduce administrative hassle, encourage positive savings behaviors and enhance financial confidence for your employees. Reach out to us today to learn more about how the new legislation can benefit your plan. Don't miss out on this chance to make a real impact on your employees' future!

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5787251.1

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.

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Guide to Retirement | Demystifying Social Security Benefits and Taxation in Retirement Planning

Social Security benefits serve as a vital source of income for millions of retired and disabled individuals in the United States. While these benefits are designed to provide financial security, it’s important to understand how they are taxed. Let’s break down the basics of Social Security benefit taxation, including when and how it occurs, ensuring you have a clearer picture of how this impacts your overall retirement income. When Social Security Benefits are Taxed: Not all recipients of Social Security benefits are required to pay taxes on their benefits. The taxability of these benefits is determined by a combination of your income and fling status. The Internal Revenue Service (IRS) uses a formula known as “provisional income” to calculate whether your benefits are subject to taxation. Provisional income is calculated by adding up your adjusted gross income (AGI), non-taxable interest, and half of your Social Security benefits. Based on this provisional income, the IRS established certain income thresholds to determine whether your benefits are taxable. These thresholds are as follows for the tax year 2023:

1) Single filers:

· If your provisional income is below $25,000, your benefits are generally not taxable.

· If your provisional income falls between $25,000 and $34,000, up to 50% of your benefits may be subject to taxation.

· If your provisional income exceeds $34,000, up to 85% of your benefits may be taxable.

2) Married couples filing jointly:

· If your provisional income is below $32,000, your benefits are generally not taxable.

· If your provisional income falls between $32,000 and $44,000, up to 50% of your benefits may be subject to taxation.

· If your provisional income exceeds $44,000, up to 85% of your benefits may be taxable.

It’s important to note that these income thresholds may change over time due to inflation or adjustments in tax regulations, so it’s always wise to consult the latest information provided by the IRS. In addition, social security benefits may be subject to a reduction of benefits if receiving benefits while still working prior to you full retirement age. This topic will be covered in a later article. How Social Security Benefits Are Taxes: If a portion of our Social Security benefits is subject to taxation, the IRS uses a multi-tiered system to determine the specific tax liability. The taxable portion can be added to your other sources of income to determine your overall tax bracket. However, it’s crucial to understand that the maximum taxable amount of Social Security benefits is limited to 85% of the total benefit amount. In other words, even if you fall into the higher tax bracket, you will not pay taxes on more than 85% of your Social Security benefits. Reporting and Paying Taxes: To account for the taxation of Social Security benefits, you are required to report the taxable portion of your benefits on your federal income tax return. This is done using IRS Form 1040 or 1040A. If you receive a Form SSA-1099 (Social Security Benefit Statement) from the Social Security Administration, it will provide you with the necessary information to determine the taxable portion of your benefits. If you anticipate owing taxes on your Social Security benefits, you have the option to make quarterly estimated tax payments or have taxes withheld from other sources of income, such as pensions or retirement account distributions. To have taxes withheld from your Social Security benefits themselves, you can complete IRS Form W-4V. Understanding the taxation of Social Security benefits is essential for retirees and those nearing retirement age. By grasping the basic principles outlined in this article, you can better navigate the complex tax rules surrounding these benefits. Remember, not all Social Security income is taxed, and the taxability depends on your provisional income. Consult with a tax professional to determine the specific tax implications based on your personal circumstances. Stay informed, plan ahead, and make the most of your Social Security benefits. The tax and legal references attached herein are designed to provide accurate information with regard to the subject matter covered and are provided with the understanding that Rose Street Advisors is not engaged in rendering tax, legal, or actuarial services. If tax, legal or actuarial advice is required, you should consult your accountant, attorney, or actuary. Rose Street Advisors does not replace those advisors.

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5829024.1

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.

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All Things 401k | Supercharge Your Company's Retirement Benefits: The Ultimate Guide to Cross-Tested Profit Sharing Plans for Plan Sponsors

A Cross-Tested Profit-Sharing Plan is a type of 401(k) profit-sharing plan that allows employers to allocate contributions unequally among employees based on certain predetermined factors. These plans are particularly attractive for businesses with a diverse workforce, varying compensation levels, and different age groups. By using this design, employers can strategically allocate contributions to favor specific groups of employees, such as highly compensated employees (HCE) or older employees, while still satisfying the nondiscrimination testing requirements set by the Internal Revenue Service (IRS). Here's how a 401(k) Cross-Tested Profit-Sharing Plan works:

1. Establishing Plan Criteria: The employer identifies specific factors to classify employees into different groups. Common criteria included job classification, compensation levels, age, and years of service. Employees are grouped based on these criteria.

2. Setting up Contribution Groups: Once the employee groups are established, the plan sponsor creates contribution groups that consist of employees with similar characteristics. These groups may include HCEs, non-highly compensated employees (NHCEs), different departments, or any other relevant segments of the workforce.

3. Allocating Contributions: The employer determines the total employer contribution to be made to the plan for a particular year. The allocation of contributions is based on a percentage of each employee’s compensation, typically expressed as a fraction of the employee’s salary.

4. Passing Nondiscrimination Testing: One of the critical aspects of a Cross-Tested Profit-Sharing Plan is passing the nondiscrimination testing requirements imposed by the IRS. These tests ensure that the plan does not unfairly favor HCEs and discriminate against NHCEs.

a. Coverage Testing: The plan must cover a sufficiently broad group of employees, including both HCEs and NHCEs, to ensure it does not disproportionately benefit higher-paid employees.

b. Actual Deferral Percentage (ADP) Testing: The ADP test compares the average deferral percentages of HCEs to those of NHCEs. If the difference between these two groups is substantial, corrective actions may be necessary.

c. Actual Contribution Percentage (ACP) Testing: The ACP test examines the employer matching and profit-sharing contributions made to HCEs versus NHCEs. Like the ADP test, any significant disparities may require corrections.

5. Corrective Actions: If the plan fails any of the nondiscrimination tests, the plan sponsor has options to correct the imbalance. Corrective actions may include returning excess contributions to HCEs, implementing a Qualified Non-Elective Contribution (QNEC) for NHCEs, or adopting a Safe Harbor 401(k) plan design to bypass the testing altogether.

6. Annual Review and Adjustment: Cross-Tested Profit-Sharing Plans should be reviewed annually, considering the company’s financial situation, workforce composition, and retirement objectives. Adjustments may be made to the contribution allocation to remain compliant and align with the company’s goals.

It's important to note that implementing a Cross-Tested Profit-Sharing Plan requires careful planning and consultation with retirement plan experts, as the design can be complex and must comply with IRS regulations. Plan sponsors should work closely with a qualified retirement plan advisor to ensure proper plan design, administration, and compliance with all regulatory requirements.

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

The tax and legal references attached herein are designed to provide accurate information with regard to the subject matter covered and are provided with the understanding that Rose Street Advisors is not engaged in rendering tax, legal, or actuarial services. If tax, legal or actuarial advice is required, you should consult your accountant, attorney, or actuary. Rose Street Advisors does not replace those advisors. #5829025.1

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5829025.1

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.

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All Things 401k | Should You Add an Automatic Safe Harbor IRA to Your Plan?

High employee turnover could lead to a rise in small 401(k) accounts. Explore how adding a Safe Harbor IRA provision to your plan may help reduce plan costs and potential fiduciary risks. In 2022, more than 50 million Americans left their jobs and in the last two years, there has been record-breaking employee turnover.[1] While the number of employee departures has begun to decrease, it still remains higher than pre-pandemic levels. Employee turnover can cause problems for employers, such as many small 401(k) accounts being left behind in the company's plan. Such accounts can amplify plan costs and fiduciary risks, making it essential for plan sponsors to address these orphaned accounts. So much so that the Department of Labor (DOL) has made missing participant search and uncashed check processes a focus of audits in recent years.

Consider A Safe Harbor IRA Provision

One potential solution to this challenge is to add a Safe Harbor IRA (a.k.a. automatic rollover IRA) provision to your plan. This enables plan sponsors to remove smaller accounts from their plans automatically by rolling them into a Safe Harbor IRA. This provision allows plan sponsors to automatically roll former participant’s accounts with balances between $1,000-5,000 into an IRA — and in 2024, the upper limit increases to $7,000, thanks to SECURE 2.0. Automatic rollover IRAs can be advantageous for plan sponsors and participants. Plan sponsors benefit because removing small account balances can help: •Keep plan data clean •Reduce missing participant issues •Manage plan costs •Simplify participant disclosures and reporting •Limit fiduciary risk In addition, these provisions help plan sponsors address challenges associated with uncashed checks. And, if the plan document allows it, unvested employer profit sharing contributions can be applied to help plan sponsors pay for plan expenses and/or offset contributions.

Safe Harbor IRAs Help Participants

With a Safe Harbor IRA provision, the small accounts belonging to former employees periodically and automatically rollover into IRAs. It’s a feature that benefits participants in a variety of ways, and can: •Keep the former employee’s retirement savings intact •Preserve tax advantages •Provide more straightforward access to savings

Auto-Portability Networks: A Look into the Future of 401(k) Transfers

Automatic portability is a new option that was legitimately established under SECURE 2.0. This innovative feature allows a former employee's 401(k) account to be seamlessly transferred into the worker's new company's 401(k) without requiring the participants' express consent. Today, there are new Auto-Portability Networks being established, and the range of participating recordkeepers is expected to increase, which should facilitate the implementation of automatic portability for more workers.

Safe Harbor IRAs Complement Automatic Enrollment Features

Many 401(k) plans have automatic enrollment and escalation features – and soon all new plans will be required to have these features. While the push to add automatic savings features is likely to help Americans save more for retirement, it also has the potential to sharply increase the number of retirement plan accounts left behind. When an employee leaves, plan distribution options typically allow participants to: •Rollover into an IRA or a new employer’s plan. Rollovers help improve lifetime retirement outcomes because they preserve retirement savings and tax advantages, among other benefits. •Leave assets in the plan. Typically, participants with more than $1,000 in a plan account can opt to leave the savings in a previous employer’s plan. Some large defined contribution plans like to keep these assets in their plans because they provide scale, which can lower fees. The drawback is that plan sponsors have a fiduciary responsibility to keep track of former employees and must have a process in place to find missing participants. In contrast, sponsors of smaller plans often prefer not to keep the assets of former employees because having more accounts may increase plan costs and administrative responsibilities. •Take distributions in cash. About 41% of plan participants choose to cash out when they leave an employer, and the majority drain their savings.[2] It’s one of the most significant threats to retirement security. Safe Harbor IRA provisions offer a possible solution. When former employees fail to make distribution decisions, a Safe Harbor IRA enables the plan sponsor to remove those accounts from the plan, keeping plan data clean and costs low.

Is This Right for Your Plan?

In the world of 401(k) options, adding a Safe Harbor IRA provision to a company's plan can be an excellent arrow in its quiver. Especially for employers with high turnover rates. This option may help to reduce the number of small orphaned accounts left behind, potentially resulting in reduced plan costs and fiduciary risks. Safe Harbor IRAs are a friendly solution that may help to keep plan data clean, manage costs, reduce risks and improve retirement outcomes of former employees. [1] “Job Openings and Labor Turnover Archived News Releases.” U.S. Bureau of Labor Statistics. 6 Apr. 2023. [2] Wang, Yanwen, et al. “Cashing Out Retirement Savings at Job Separation.” 7 Nov. 2022.

JULIA SANDERS

AIF®, CPFA® | Retirement Relationship Manager

SCOTT HIGGINS

AIF®, CFP®, CPFA® | Financial Advisor

Securities and Investment Advisory Services offered through M Holdings Securities, Inc., a Registered Broker/Dealer and Investment Advisor, Member FINRA/SIPC. Rose Street Advisors, LLC is independently owned and operated. #5787251.1

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.

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