5 changes to retirement plans you should know - Wipfli

 Compliance with retirement plans is always changing. How can you ensure that your plan remains current and in line with the new rules and laws? It is a matter of having a thorough understanding of your employee's demographics, plan documents as well as official policies and procedures for the execution of plan rules communicating with your participants, constant monitoring and a close connection with the administrator of your 3rd party.

There are new regulations which could require modifications to your process and there are new threats that need more attention. Here are five things to be aware of recent developments in retirement plan compliance as well as operation.

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1. Relief from the distribution rules for hardship

Some retirement plans permit participants withdraw funds of the plan prior to when reaching retirement age in certain financial hardship situations. In the Bipartisan Budget Act of 2018, a number of changes became effective for hardship distributions made during plan years that began after December 31, 2018.

In general the event of plans that allow hardship distributions, the new rules will allow participants to take advantage of a larger distribution and ease some of the administrative burden associated with processing distributions for hardship. These changes will include the removal of the suspension for six months of contributions to deferrals that are elective after the distribution of a hardship as well as the elimination of the obligation that a participant exhaust all loan options prior to taking a hardship distribution , and giving participants access to the income from the deferrals they elect to make (in addition to the elective deferral contributions) as well as qualified non-elective and eligible matching contributions, such as the safe harbor contribution.

Additionally to this, the hardship event was extended to include qualifying expenses caused by events that occurred in disaster areas declared by the federal government as well as the addition of the principal beneficiary of this plan to be an eligible person with qualifying expenses that could be paid. The application of these rules might necessitate a plan amendment to be adopted. It is important to be aware that the hardship requirements for 403(b) plans may be slightly different.

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2. Student loan match contribution

Many employees in their early years delay participating in their company's retirement plans due to their burdensome student loan payments. The expense of beginning saving for retirement later on in the careers reduces the chances of having a good retirement.

Additionally that many employees of middle age are taking out loans from the retirement account at higher rates to help their kids to pay for college. This results in the same dull retirement scenario.

In a private letter ruling in August of 2018 An unnamed employer was allowed to make "matching" contributions to the retirement accounts of employees who are making eligible student loan repayments instead of 401(k) donations. Although the employer's contribution isn't affected by an employer's 401(k) deferrals however, the regular match employees are eligible for is decreased in the event that the employer matches the student loan payment. The IRS decision is directed towards the employer who demanded it, but isn't a universal decision that applies to every employer, but it is a hint of what could be in the future. In the meantime, until the IRS provides new guidance, companies wishing to set up a program like this should speak with their legal counsel for a review of possible liability.

3. Qualified participant Loan offsets

A provision in the Tax Cuts and Jobs Act (TCJA) of 2017 grants pension plan participants with certain plan loan offset amounts an extended time frame to roll-over the amount of loan offset. The distribution of a plan loan offset amount happens when the accrued benefit of the participant is reduced to pay back the plan loan.

Prior to the rule change prior to the new rule, the period for rollovers for loan offset and distribution amounts was 60 calendar days following the distribution. The new rule allows people with the ability to roll across the entire amount of offset to the tax deadline, which includes extensions for the tax year during which the offset is made (if the offset was made in 2018, the person must wait till the date of due for their tax return for 2018 to finish their rollover). Extension of 60 days for the rolling over period is only applicable to offsets that are the result of plan termination or employee's resignation from the service.

4. SECURE Act approved by House of Representatives

On May 23rd in 2019 on May 23, 2019, the House of Representatives passed the "Setting Every Community Up for Retirement Enhancement (SECURE) Act." The main provisions of the act includes an expansion of the tax credits offered to businesses who implement the new retirement plan. The credit ranges of $500 up to $5,000, and an additional $500 tax credit for small-sized employers who have the automatic enrolling feature.

Other features include an increase in the minimum age of distribution to 70.5 and 72. the simplification in the 401(k) Safe Harbor rules and notification requirements, and the inclusion of part-time workers with long-term contracts within 401(k) programs.

Furthermore the proposed law permits companies to establish qualified retirement plans prior to the deadline for filing taxes for tax-deductible year. The plan will be treated as in effect as of the last day of the calendar year, as is the case with creating the SEP.

 As as this article was written the same legislation is currently in the Senate as known as the "Retirement Enhancement Securities Act (RESA)". If RESA is approved by the Senate the bill will be in line with the SECURE Act and then sent to President Trump for his signature.

5. Cybersecurity security threats

In the current climate of cyber-attacks and attempted fraud retirement plans aren't protected. False requests for distributions from plans and loans are increasing. Hackers have gained access to accounts of participants by using weak or stolen login credentials or weaknesses in software or organizational controls applications. They then demand the distribution or loan of their accounts' balances, using the money going to a fake account.

The increased security of access to plan information Multifactor authentication patches and software updates which protect information of participants secure passwords, challenging questions that are unique to the plan can reduce security risks. 

Make sure that the providers of your plan are equipped with various security measures in place to prevent possible fraud. This includes notifying account changes to both new and old contact information, or making freeze-times for account distributions in the event of any change to the email or home address of the user address or issuing loans or distributions only with the mail of a physical check to the address of the participant of the record.