Is Your 401(k) Plan on Course? Follow this Checklist

Estimated reading time: 5 minutes

Keeping your 401(k) plan on course requires vigilance, and a good plan sponsor navigates more than just the investment climate and daily maintenance of the plan. Tracking a 401(k) plan includes thorough reviews throughout the year, with employers focused on fees and performance, compliance, and participant communication. Here is a concise checklist to keep your 401(k) plan on course.

401(k) plan checklist

Fees and Performance

Routine reviews offer an opportunity to monitor fees and expenses related to the 401(k) plan, as well as identifying new features that may be incorporated into the plan. When examining the performance and fees of the plan:

  1. Consider the purpose and goals of the 401(k) plan

An assessment of the plan’s objectives is important to recognize whether the plan is meeting those goals for the sponsor and the participants. Achieving the objectives may include:

  • Determining if the original purpose of the plan remains relevant. If priorities have changed, the plan’s design may need to be revised
  • Measuring the success of the plan by setting specific goals and reviewing results, such as improving certain internal processes
  • Gathering feedback from participants through surveys and focus groups
  1. Review service provider fee disclosure requirements (and expense monitoring)

Monitoring expenses is one of the many duties of a plan sponsor and your review of provider’s service fees should include:

  • Reading their disclosures
  • Comparing fees to similar plans through a bench-marking study provided by a trusted consultant
  • Being prepared to explain the expenses paid and why they are reasonable and suitable options for your plan participants
  • Discussing concerns with service providers
  1. Review required participant fee disclosure regulations

Sponsors are responsible for reading and evaluating the materials the plan providers send to participants. As you review the information, consider:

  • Are the fees reasonable?
  • Is all of the required information included in the disclosure?
  • Can participants easily understand the information?
  • Are there other ways to present the information that would make statements more useful?
  1. Revisit plan administrative procedures and implement best practices

An administrative manual provides an organized method of documenting specific processes and procedures for administering the 401(k) plan. The contents can include:

  • Procedures for reconciling plan contributions
  • Details for calculating employer contributions
  • Process for funding contributions
  • Explanation of services provided by various providers, such as nondiscrimination testing, Form 5500 preparation, or plan document maintenance
  • A list of decisions made related to the interpretation of the plan document


With the assistance of your legal counsel and 401(k) service provider, you can ensure your plan complies with federal regulations by:

  1. Conducting a compliance review to identify potential issues

Compliance reviews can uncover issues and administrative gaps, including:

  • Services that should be provided but are currently not being performed
  • Changes in ownership, acquisitions or mergers
  • Changes to the plan’s controlled group status
  • Nondiscrimination tests and who performs the testing
  1. Assessing plan documents to ensure the plan complies with current regulations

Key reasons for this review include:

  • Ensuring the tax-qualified status of the 401(k) plan, which could be at risk if the plan document does not comply with current regulations
  • Conducting a document review annually also helps confirm restatement cycles are met and various administrative procedures are being performed as outlined in the plan document
  • Determining that all safe harbor requirements are met each plan year (for safe harbor plan designs)
  • Updating the plan’s summary plan description (SPD), if necessary. The SPD should be updated once every five years if the plan has been amended within the five-year period, and every 10 years if the plan has not been amended
  1. Confirming that your plan’s fiduciaries understand their responsibilities

The plan sponsor must know – and document – those who are considered fiduciaries for the plan. The fiduciaries should:

  • Receive appropriate training for their role and how to document the duties they perform
  • Adhere to the U.S. Department of Labor’s (DOL’s) fiduciary regulations
  1. Staying alert to legislative changes that may affect the 401(k)

Changes in legislation and regulations may affect your plan. Consider these methods for keeping abreast of updates and revisions:

  • Request that your 401(k) provider shares updates promptly
  • Assign an internal team to track legislation and guidance on existing regulations
  • Set action plans with your legal counsel and 401(k) provider for implementing changes that occur
  • Subscribe and review publications offered by professional organizations such as Findley


A myriad of communications is required to meet fiduciary obligations each year. Fee disclosures, safe harbor notices, automatic enrollment notices and summary annual reports are just a few of the communication requirements. Additional communications may be needed to promote features of the plan or changes to the plan. Your review of the communications should include:

  1. Evaluating the plan’s required communications to determine if they meet fiduciary obligations by:
  • Creating a list of the notices that are required, delivery options and the timing for each
  • Reviewing each communication piece for accuracy and readability
  1. Developing new communications for the plan to:
  • Target messages to groups of participants based on age, contributions rate, employment classification, compensation or other factors that affect participant behavior
  • Promote the idea of preparing for retirement through communication and education about saving and investment
  • Expand the ways messages are delivered by introducing smartphone applications and interactive websites

Questions regarding this checklist and your 401(k) plan? Contact Lauren Schlueter in the below form.

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Copyright © 2021 by Findley, a Division of USI. All rights reserved.

Is it Time to Restate Your Defined Contribution Plan?

Whether your defined contribution plan is a 401(k) plan, a profit-sharing plan, a money purchase pension plan or an employee stock ownership plan, and whether your plan is a mostly “run of the mill” individually designed plan or a plan already in a pre-approved format, you should consider the advantages of restating it in an IRS pre-approved plan format now. 

In IRS Announcement 2020-7, the IRS confirmed that the next restatement cycle for defined contribution plans, using a pre-approved format, is a 24-month period that began August 1, 2020. This restatement cycle is generally referred to as the “Cycle 3”. The deadline for this Cycle 3 pre-approved plan restatement is July 31, 2022.

Here are some reasons to consider restating your defined contribution plans using the IRS pre-approved Cycle 3 plan document formats:

Is it Time to Restate Your Defined Contribution Plan?

Simplicity in Form

Because pre-approved plans are submitted for IRS approval prior to their adoption by a particular employer, they are set in form to a certain extent. Nevertheless, they still allow for provisions unique to each employer’s plan. A pre-approved plan provider will electronically input the unique provisions of your plan, and software systems generate the documents required for the plan. In this case, the format is an Adoption Agreement that is paired with a Base Plan Document (a common format for 401(k) plans). The software generally also creates a summary plan description (SPD) and resolutions for the restated plan’s approval and adoption. As a reminder, SPDs must be amended and distributed every five years if the plan has been amended since the most recently issued SPD, and every ten years even if there have been no amendments.

IRS Approval

Under the revised determination letter program, a plan sponsor of an individually designed defined contribution plan can no longer get IRS assurances on the qualified status of the plan document between its inception and termination, except under very limited circumstances. However, a pre-approved plan provider gets an IRS opinion letter on the Cycle 3 pre-approved plan, and the adopting employer can generally rely on this letter. Moreover, the plan provider will get a new letter on the pre-approved plan every six years, the pre-approved plan restatement cycle, to reflect changes in the plan and changes in applicable statutes, regulations, and other guidance. If your plan is headed for termination, restatement on the IRS pre-approved plan format should reduce the time the IRS takes to review the document during the plan termination process.

Streamlined Services

If the plan provider you choose also administers your defined contribution plan, the pre-approved Cycle 3 plan document will be very familiar to it. The plan provider will be able to point a plan administrator to applicable plan provisions for their consideration more quickly and more cost-effectively when the plan sponsor is looking for answers to its questions about plan administration.


Every six years or so the IRS will require restatement of the pre-approved defined contribution plan document and will issue a new opinion letter upon which an adopting employer can rely. This cycle’s amendment and restatement is referred to as the Cycle 3 restatement. The subsequent restatements on the revised pre-approved documents will be more cost-effective than drafting amendments to each individually designed plan for each required change since the provider will be inputting virtually the same information to generate the new restated documents.

Required Interim Amendments

If the IRS requires amendments to the pre-approved Cycle 3 defined contribution plan documents that don’t require employer elections, they will be adopted by your plan provider for all adopting employers, and the adopting employer will be given a copy. Otherwise, the provider will issue a pre-approved amendment, with elections, that the adopting employer will complete and execute.

For sponsors of individually designed plans, including employee stock ownership plans, now is the time to consider restatement in a pre-approved format. Not every defined contribution plan is going to fit into an IRS pre-approved Cycle 3 plan document format. The provider of your choice will need to look at your current plan documents to determine if this kind of restatement is possible. With the number of plans that will need to be restated between now and July 31, 2022, the time to consult with your trusted advisors is now.

If you have any questions, please contact Sheila Ninneman in the form below.

Published August 13, 2020

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Developing a Strategy for Moving from Pension to 401(k) Benefits

Budgeting for next year’s cost of employer-provided benefits can seem daunting, especially when an organization sponsors both a defined benefit pension plan and a 401(k) defined contribution plan. Is it time to consider moving away from the defined benefit pension plan to avoid the volatility and risk? If so, plan sponsors should develop a well-thought-out process for analyzing the alternatives and impact to both employer costs and participant benefits. The overall strategy and objectives should be reviewed.

Each year, an actuary provides projections for the defined benefit pension plan and the amount required to fund seems to be ever-increasing. It feels like there’s no end in sight. Becoming fully funded seems to be a dream instead of a reality. Even in years when the assets in the plan had double-digit returns, there was either a new mortality table that needed to be adopted or the required interest rates dropped – all increasing the plan’s liability. This can be very difficult to manage going forward.

Strategy for Moving from Pension to 401(k) Benefits

While it is challenging to deliver an equivalent benefit in a defined contribution plan at the same level of contribution, defined contribution plans provide a predictable level of employer contribution each year. If plan sponsors are considering a transition to a replacement 401(k) plan, an analysis should be conducted to:

  • Determine the level of benefit desired for employees
  • Set a budget that provides the desired level of benefit when considering a defined benefit pension plan freeze

Performing the Analysis

When performing this type of analysis, we encourage companies to start by thinking of both the defined benefit pension and defined contribution plans together as a total retirement benefit. This allows the plan sponsor to contemplate its philosophy and develop a strategy related to short- and long-term goals for the retirement program.

Pension to 401(k) Benefits Flowchart

Establish Guidelines

Plan sponsors should start with a well-defined and proven process, taking the time to establish guidelines and understand the financial strategy. Begin by discussing the organization’s philosophy and define objectives for the retirement program to guide decision-making. These guidelines should include how the plan sponsor feels about management/budgeting of retirement plan costs, willingness to take on risk, providing benefits based on the organization’s ability to fund – discretionary vs. mandatory, the level of employees’ retirement benefits, and the competitiveness of benefits.

Determine Affordability

By evaluating all the current retirement plans and the projected cost and benefits, organizations will better understand the current and projected state of the plans and be able to determine the affordability of current plans over the long-term. The evaluation also allows them to discuss acceptable benefit levels and a cost strategy. A thorough analysis of the current and projected costs should include an outline of the current state of the program, including five-year projections under three scenarios for the defined benefit pension plan:

  • Ongoing plan
  • Closed to new entrants
  • Frozen accruals

In addition, the termination liability estimate under agreed upon assumptions should be calculated.

Determine Competitive Position

The guidelines and budgets are then coordinated with competitive market benchmarking to identify relevant alternatives to evaluate. Benchmarking the retirement plan benefits with competitive norms relative to the market allows the organization to measure the competitive position of benefits and expenses compared to industry/geographic region/employer size based on revenue or number of employees. The benchmarking helps the plan sponsor make informed decisions on the:

  • Form of benefit to be provided
  • Desired level of benefit for new hires/newly eligible participants
  • Impact on total compensation and the benefits package
  • Desired contribution allocation structure – pro-rata on pay, position-based, or based on age and/or length of service

Evaluate Alternate Strategies

Potential plan design alternatives including utilizing the current defined contribution plan should be developed based on previous discussions related to the organization’s philosophy, objectives and strategic direction for the retirement program. Alternative strategies can be assessed to determine the final strategic direction of the retirement program, such as modifying the current level of pension benefits or reduction/elimination of the defined benefit pension plan by freezing pension benefit accruals for all participants and moving toward a defined contribution plan only strategy.

Other strategies such as grandfathering selected participants or providing participants a “choice” between defined benefit and enhanced defined contribution benefits should be considered. If providing enhanced defined contribution benefits, determination of how the benefit will be provided – either with matching contributions and/or non-elective contributions in a fixed amount, performance-based, or based on a tiered age and/or service allocation – should be evaluated as well.

Modeling different plan designs that include variations of both defined benefit pension and defined contribution structures helps the plan sponsor compare costs and benefits. Based on the guidelines set upfront, these plan designs reflect the organization’s philosophical principles for providing these benefits to employees. The results of this analysis and each alternative are compared to the current plan(s) to show the overall impact on the employer-provided cost and level of employee benefit. Be prepared to study supplemental alternatives at this point because the first set may provoke additional thoughts or refinements.

Plan sponsors must be aware of compliance testing restrictions and be sure that any alternative considered will satisfy compliance rules — there is no point in studying an alternative that cannot be adopted due to nondiscrimination or coverage issues.

Making and Implementing the Decision

When all alternatives are reviewed, a final recommendation that ultimately links the retirement strategy with the philosophy and desired objectives is presented. Any potential transition issues or challenges should be outlined and a communication strategy should be developed. Establishing a formal communication plan is very important.

Develop and Document the Retirement Plan Strategy and Implementation Plan

The end result of the review should include a proposed retirement plan strategy to be presented to the board of directors. The proposed strategy should document the findings and conclusions of the review process and identify the steps necessary to carry out the recommendations within the strategy.

Change Management: Communicating to Employees

After the decision is made to change retirement benefits, communication to those impacted is key. This is the perfect time to remind employees of the retirement program and its overall value. In addition to government-required notices, you should also consider proactively sending out an individualized statement outlining the changes and providing the impact on participant’s benefits. It is important to make sure the changes are communicated clearly and that each participant understands the changes. Sometimes plan sponsors will hold group or one-on-one meetings with those impacted.

In Perspective

A change in the retirement program is a significant decision that affects the organization and its employees significantly. A thoughtful approach to a change like this can lead to better alignment of the overall program with organizational philosophy and goals, while still providing employees with competitive benefits.

If you have any questions regarding your options with transitioning from pension to 401(k) benefits, please contact Amy Kennedy at or Kathy Soper at

Published May 14, 2020

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Breaking Down the SECURE Act – 401(k) and Other Defined Contribution Plans

Benefits experts are still poring through the SECURE Act’s various mandated provisions, optional provisions, and effective dates, some of which may be retroactive. This series of articles will break down the implications that the Act has for existing tax-qualified retirement plans. This article will focus on the Act’s impact on 401(k) and other defined contribution plans. Related articles address required minimum distributions, which impact defined contribution plans and defined benefit plans, and future articles will discuss changes for tax-qualified defined benefit plans only; as well as other changes to the retirement plan landscape.

Remedial Amendment Period

Plan sponsors generally have until the last day of the 2022 plan year to adopt amendments that reflect the Act’s required revisions.  For calendar year plans the last day is December 31, 2022. Governmental plans have until the 2024 plan year to amend. Remember that operational compliance is still required during the period from the effective date for the Act’s required changes and the date the plan is amended.

401(k) Plans: Part-time Long-term Workers – MANDATORY

Prior law:  An employer-sponsored 401(k) was permitted to exclude employees who did not complete a year of service, defined as the completion of 1,000 hours of service during a 12-month measurement period.

Under the SECURE Act: Part-time long-term workers must be eligible to make salary deferrals (pre-tax, Roth and catch-up, as applicable) under a 401(k) plan if they (a) obtain age 21; and (b) work at least 500 hours in three consecutive 12-month measurement periods. For purposes of vesting, a year of vesting service is a 12-month measurement period during which a participant works at least 500 hours.

Purpose: This change expands retirement savings opportunities for an employer’s long-term part-time workers.

Effective date: The new inclusion and vesting rules are effective for plan years beginning after December 31, 2020.

What to do and when: 401(k) plans sponsors should begin to track part-time workers on the first day of the plan year after December 31, 2020. For calendar year plans, that means January 1, 2021. If part-time workers under a calendar year plan provide at least 500 hours of service in plan years starting January 1, 2021, January 1, 2022 and January 1, 2023, then such part-time workers must be permitted to make deferrals under the 401(k) plan beginning January 1, 2024.

Now is the time for employers and their service providers to plan for tracking part-time employees beginning in 2021 for possible inclusion and for purposes of vesting under the 401(k) plan in 2024.

Special notes: Plans are not required to include these part-time long-term workers in matching or other employer contributions. Additionally, these workers are excluded from non-discrimination (ADP, ACP, 401(a), 410(b)), safe harbor plan and top-heavy testing. Remember that if otherwise eligible part-time employees provide 1,000 or more hours of service and meet any age requirement, they must be included in the retirement plan for all contribution purposes.

The SECURE Act has implications for 401(k) and other defined contribution plans

Safe Harbor 401(k) Plans: QACA Maximum Deferral Rate Increase – OPTIONAL

Prior law: A Qualified Automatic Contribution Arrangement (“QACA”) is an employer-sponsored retirement plan that provides for automatic enrollment. Among the strict requirements applicable to a QACA is a maximum automatic deferral rate of 10% of compensation.

Under the SECURE Act: A QACA plan can now provide a new maximum deferral rate of 15% of compensation, except for the participant’s first year, which remains 10%. The minimum thresholds of 3% to 6%, depending on the year of participation, remain in place.

Purpose: This change encourages more retirement savings by permitting higher 401(k) deferral rates for safe harbor plans which provide automatic increases.

Effective date: The new maximum deferral rate can be effective for plan years after December 31, 2019. That is January 1, 2020 for calendar year plans.

What to do and when: Plan sponsors should review the pros and cons of raising the maximum deferral rate, including its impact on matching and other employer contributions. Changing the deferral rate will also impact other plan documentation including a summary of material modifications, safe harbor notices and other employee communications.  Remember, plan sponsors must adopt an amendment to change the maximum deferral rate. If you are considering a mid-year change, service providers will need to be consulted to ensure it can be operational as intended.

Prior law: In order for a tax-qualified 401(k) plan to rely on the 3% nonelective contribution safe harbor, participants had to be provided (definitive or contingent) notice of the plan’s safe harbor status by the 30th day before the end of the plan year. In addition, the safe harbor provision had to be in the plan document.

Under the SECURE Act: A 401(k) plan can be amended as late as 30 days prior to the end of the plan year to provide for a 3% nonelective contribution safe harbor for that plan year, without any notice to participants. A plan can also be amended as late as the last day for distributing excess contributions for a plan year, which is generally the last day of the following plan year, if a plan sponsor provides for a 4% nonelective contribution.

Purpose: This change takes away one more hurdle for employers to adopt safe harbor plans that provide a minimum employer contribution that encourages retirement savings.

Effective date: The changes to safe harbor notice requirements are effective for plan years after December 31, 2019.

What to do and when: Plan sponsors must amend their tax-qualified retirement plans in order to effect these changes. Note that the permitted retroactive amendment may be of special interest to plans which experience ADP/ACP test failures.

Special notes: The Act did not eliminate the notice requirement for matching safe harbor contributions.

In-service withdrawals for birth and adoption expenses – OPTIONAL

Prior law: There were no special provisions for plan distributions related to birth or adoption expenses.

Under the SECURE Act: A defined contribution plan may permit withdrawals of up to $5,000 within one year following the birth or legal adoption of a child.  The withdrawal will not be subject to either the 10% penalty for withdrawals by participants under age 59-1/2 or the 20% mandatory withholding for federal income tax. The plan may provide for repayment of the withdrawal.

Purpose: This change provides an opportunity for families to ease some of the immediate financial burdens associated with becoming parents.

Effective date: The new in-service withdrawal opportunity is available for withdrawals after December 31, 2019.

What to do and when: Plan sponsors may amend their plans now to permit these in-service withdrawals. Employers should work with their service providers to implement these new withdrawals. In light of the current lack of guidance from the Internal Revenue Service (IRS), plan sponsors should consider acting conservatively by requiring documentation and certain representations as to the birth or adoption, and setting forth clear repayment provisions. Other operational considerations include updating distribution forms, summary plan descriptions (SPDs), participant communications and reporting requirements.

Lifetime income disclosures – MANDATORY

Prior law: ERISA requires periodic employee benefit statements from defined contribution plans that detail vesting status and account investments.

Under the SECURE Act: A “lifetime income disclosure” has been added as an annual disclosure. The new disclosure must describe a monthly annuity amount that could be obtained with the balance of the participant’s account. The monthly amount will be based on assumptions specified by the Department of Labor (DOL) in interim rules to be issued by December 20, 2020, which will include a model disclosure statement. Disclosures that meet legal requirements will protect plan sponsors and other plan fiduciaries from liability based on the information provided in the statements.

Purpose: This change gives participants more information to help them assess their current retirement savings status so they can make appropriate changes for retirement readiness.

Effective date: The disclosure will be required 12 months after the latest of the DOL’s issuance of the assumptions to be used, the model disclosure and the interim final rules. The earliest date this requirement will be effective is sometime in 2021.

What to do and when: Plan sponsors should stay in contact with their service providers to timely implement this new requirement. Plan sponsors should anticipate that this requirement will increase plan expenses.

Lifetime income contract portability – OPTIONAL

Prior law: In-service distributions from defined contribution plans are subject to certain restrictions that vary by plan type.

Under the SECURE Act: 401(k) plans, 403(b) plans and governmental 457(b) tax-qualified plans can be amended to provide for the in-service distribution of in-plan annuity contracts if the plan stops offering that investment option. Portability options include direct rollover of the contract to an eligible retirement plan that will continue the investment, or distribution to the participant or beneficiary. Distribution must take place in the 90-day period prior to the investment option becoming unavailable under the plan.

Purpose: This change encourages investment in lifetime income options by expanding portability, and enhances the possibility of retirement readiness.

Effective date: The new distribution option for lifetime investments is available for plan years beginning after December 31, 2019.

What to do and when: Plan sponsors must amend their plans in order to effect this change.

403(b) plan termination and treatment of custodial accounts

Prior law: Under IRS guidance, individual annuity contracts could be distributed to participants, but the guidance did not address individual custodial accounts.

Under the SECURE Act: Individual custodial accounts may be distributed in-kind from a terminating 403(b) plan, without causing immediate taxation to the participant or beneficiary. The IRS has until June 20, 2020 to issue guidance which will include that the distributed custodial account will be maintained by the custodian on a tax-deferred basis until amounts are actually paid.

Purpose: This change conforms the treatment of annuity contracts and custodial accounts in terminating 403(b) plans, and makes it easier for employers to terminate plans with custodial accounts.

Effective date: The treatment of custodial accounts from a terminating 403(b) plan is retroactively effective for taxable years beginning after December 31, 2008. By adopting this retroactive effective date, the in-kind distributions of custodial accounts to participants or beneficiaries to complete a termination during the retroactive period will not be treated as having been taxable distributions.

What to do and when: For plan sponsors that are considering terminating a 403(b) plan with individual custodial accounts, this new flexibility may provide a deciding factor. In addition, plan sponsors should watch from new guidance from the Secretary of the Treasury regarding this change. The guidance must be issued within six months of December 20, 2019.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at, or 216.875.1927.

Looking for how the SECURE Act impacted Required Minimum Distributions (RMDs), see our article here.

Published March 31, 2020

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Copyright © 2020 by Findley, Inc. All rights reserved.

Breaking Down the Secure Act – Required Minimum Distributions

Benefits experts are still poring through the SECURE Act’s various mandated provisions, optional provisions, and effective dates, some of which may be retroactive. This series of articles will break down the implications that the Act has for existing tax-qualified retirement plans. This article will focus on the Act’s impact on required minimum distributions (RMDs) for both defined benefit and defined contribution plans. Related articles will address (1) changes that impact 401(k) and other defined contribution plans only, (2) changes for defined benefit plans only; and (3) other changes to the retirement plan landscape.

Remedial Amendment Period

Plan sponsors generally have until the last day of the 2022 plan year to adopt amendments that reflect the Act’s required revisions.  For calendar year plans the last day is December 31, 2022. Governmental plans have until the 2024 plan year to amend. Remember that operational compliance is still required during the period from the effective date for the Act’s required changes and the date the plan is amended.

Delay of Lifetime RMDs – MANDATORY

Prior law: Distributions from an eligible employer retirement plan must be made by April 1 of the calendar year following: (a) the calendar year in which the participant turns age 70-1/2, or (b) for a participant who is not a 5% owner, the calendar year in which he or she terminates employment after age 70-1/2.

Under the Act: The required age for RMDs is raised from 70-1/2 to 72. Participants who are not 5% owners and who work beyond the required age for RMDS, under the Act still don’t trigger RMDs until the calendar year in which they retire. The Act did not change the way in which 5% owners are determined. In addition, post-death distributions to a participant’s surviving spouse are not required to begin before the calendar year in which the participant would have obtained age 72 (formerly 70-1/2). 

Effective date: The new age applies to employees who turn age 70-1/2 after December 31, 2019; that is, for those born after June 30, 1949. For those born on or before June 30, 1949 (already obtained age 70-1/2 prior to January 1, 2020), the prior law applies.

What to do and when: Plan sponsors should work with their service providers to track two populations: those born on and before June 30, 1949 (for whom age 70-1/2 is the RMD trigger date), and those born after that date (for whom age 72 is the RMD trigger date). Distributions of RMDs for the latter population therefore need not begin until April 1 of the calendar year following the year they attain age 72.

This change to tax-qualified retirement plans will necessitate updates to distribution forms, SPDs, 402(f) notices, and participant communications.

Post-Death RMDs are accelerated – MANDATORY

Prior law: In general, distributions are permitted to be paid annually over the beneficiary’s life expectancy. In general, if the participant died before RMDs began, distributions could be made at various times, provided the entire account was distributed by the end of the fifth year following the participant’s year of death.

Under the Act:  Following the death of the participant, distributions must generally be made by the end of the 10th calendar year following the year of death. The determination of the 10-year period is presumably calculated in the same way that the 5-year period was calculated. Payments can be made over the beneficiary’s life expectancy provided the beneficiary is an “eligible designated beneficiary”, which can be the surviving spouse, a disabled/chronically ill individual, a minor child of the participant or a beneficiary no more than 10 years younger. Prior rules still apply to a beneficiary that is not a “designated beneficiary”.

Effective date: The rule regarding the acceleration of post-death RMDs is effective for deaths that occur after December 31, 2019. Special delayed effective dates apply to collectively bargained and governmental retirement plans. 

What to do and when: Sponsors of tax-qualified retirement plans should be working with their service providers to implement these rules now.

This change will impact beneficiary designation forms, distribution forms, SPDs and other participant/beneficiary communications.

Special Note for Defined Benefit Pension Plans

The Act does not change actuarial increases required by Internal Revenue Code 401(a)(9)(C).  For individuals who continue working and choose to retire late, a defined benefit plan must provide actuarial increases beginning at age 70-1/2.  

General Thoughts

Commentators anticipate IRS guidance to provide self-correction relief for plans that fail to implement the new rules correctly during the remedial amendment period and clarify the Act’s impact on current regulations. Tax-qualified plan sponsors considering an amendment prior to the remedial amendment deadline, for the sake of clarity for itself and its service providers, may want to wait to see how further guidance may affect that amendment.

Questions? Please contact the Findley consultant you regularly work with or Sheila Ninneman at, or 216.875.1927.

To learn more about the passage of the Secure Act and changes to retirement plans, click here

Published March 19, 2020

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Year-End Spending Bill includes the SECURE Act and other Retirement Plan Changes


With the passage of the 2020 federal government spending bill less than a week before Christmas, Congress has gifted us with the most significant piece of retirement legislation in over a decade. This newly enacted legislation incorporates the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) that was overwhelmingly passed by the House of Representatives earlier this year but never considered by the Senate. The spending bill even has a few additional retirement-related tidbits that were not part of the SECURE Act.

Here are some of the key changes:

Frozen Defined Benefit Plan Nondiscrimination Testing

Currently- Defined benefit plans that were frozen to new hires in the past and operate with a grandfathered group of employees continuing to accrue benefits have ultimately run into problems trying to pass nondiscrimination or minimum participation requirements as the group of benefiting employees became smaller and normally higher paid. This problem for frozen defined benefit plans has been around for a while and the IRS has been providing stop-gap measures to deal with it every year.

Effective as of the date of enactment of this legislation and available going back to 2013 – plans may permit the grandfathered group of employees to continue to accrue benefits without running afoul of nondiscrimination or minimum participation rules so long as the plan is not modified in a discriminatory manner after the plan is closed to new hires. This special nondiscrimination testing relief also extends to:

  • defined benefit plans that close certain plan features to new hires,
  • defined contribution plans that provide make-up contributions to participants who had benefits in a defined benefit plan that were frozen.

Increasing the 10% Limit on Safe Harbor Auto Escalation

Currently – a safe harbor 401(k) Plan with automatic enrollment provisions cannot automatically enroll or escalate a participant’s contribution rate above 10%.

Effective for Plan Years beginning after Dec. 31, 2019 – the 10% cap would remain in place in the year the participant is enrolled but the rate can increase to 15% in a subsequent year.

Simplifying the Rules for Safe Harbor Nonelective 401(k) Plans

Currently – All safe harbor plans must provide an annual notice prior to the beginning of the year that provides plan details and notifies employees of their rights under the plan. Also, any plan sponsors that want to consider implementing a safe harbor plan generally must adopt the safe harbor plan provisions prior to the beginning of the plan year.

Effective for Plan Years beginning after Dec. 31, 2019 – the notice requirement for plans that satisfy the safe harbor through a nonelective contribution has been eliminated. Also, sponsors can amend their plan to become a nonelective safe harbor 401(k) plan any time up until 30 days prior to year-end. The safe harbor election can even be made as late as the end of the next year if the plan sponsor provides for at least a 4% nonelective contribution.

Open Multiple Employer Plans (Open MEPs)

CurrentlyMultiple employer plans (MEPs) are legal and actually quite common, but a couple of limitations have stunted the development of a concept called open MEPs. An open MEP is a situation where the employers within the MEP are not tied together through a trade association or some common business relationship. In 2012 the DOL issued an Advisory Opinion provided that a MEP made up of unrelated employers that did not have “common nexus” must operate as a separate plan for each of these unrelated employers and not as a single common plan. This advisory opinion took away much of the perceived advantages of operating an open MEP. Additionally, the IRS has followed a policy that provides if one employer within the MEP makes a mistake, that the error can impact the qualified status of the entire plan; this is known as the “one bad apple” rule, this policy is clearly a negative selling point for any plan sponsor that might consider signing up to participate in a MEP.

Effective for Plan Years beginning after Dec. 31, 2020 – the “common nexus” requirement and the “one bad apple” rule are eliminated. The new open MEP rules provide for a designated “pooled plan provider” that would operate as the MEPs named fiduciary and the ERISA 3(16) plan administrator. The open MEP will be required to file a 5500 with aggregate account balances attributable to each employer. These changes are expected to create a market for pooled plans that will offer efficient retirement plan solutions to smaller plan sponsors.

Required Minimum Distribution Age Now 72

Currently Required Minimum Distribution from a qualified plan or IRA must begin in the year the participant turns 70 ½.

Effective for Distributions after 2019, with respect to individuals who attain 70 ½ after 2019. – This is a simple change to age 72 for computation purposes, but note the effective date means that if the participant is already subject to RMD rules in 2019 they remain subject to RMDs for 2020 even though the person may not be 72 yet. Also, plan sponsors should be aware that distributions made in 2020 to someone that will turn 70 ½ in 2020 will not be subject to RMD rules and therefore would be eligible for rollover and subject to the mandatory 20% withholding rules.

Increase Retirement Savings Access to Long-Term Part-Time Workers

Currently– Plans can exclude employees that do not meet the 1,000 hours of service requirement

Effective for Plan Years beginning after Dec. 31, 2020 – Plans will need to be amended to permit long-term part-time employees who work at least 500 hours over a 3 year period to enter the plan for the purpose of making retirement savings contributions. The employer may elect to exclude these employees from employer contributions, nondiscrimination, and top-heavy testing.

Stretch IRAs are Eliminated

Currently– If Retirement plan or IRA proceeds are passed upon death to a non-spouse beneficiary; the beneficiary can set up an inherited IRA and “stretch” out payments based upon the beneficiary’s life expectancy. Depending upon the age of the beneficiary and the size of the IRA this strategy potentially provided significant tax advantages.

Effective for distributions that occur as a result of deaths after 2019 – Distributions from the IRA or plan are generally going to need to be made within 10 years. There are exceptions if the beneficiary is (1) the surviving spouse, (2) disabled, (3) chronically ill, (4) not more than 10 years younger than the IRA owner or plan participant, or (5) for a child that has not reached the age of majority, the ten year rule would be delayed until the child became of age.

Increased Penalties for Failure to File Retirement Plan Returns and Other Notices

Current Penalty Structure:

Failure to file Form 5500$25 per day maximum of $15,000
Failure to report participant on Form 8955-SSA$1 per participant, per day maximum of $5,000
Failure to provide Special Tax Notice$10 per failure up to a maximum of $5,000

New penalty structure:

Failure to file Form 5500$250 per day maximum of $150,000
Failure to report participant on Form 8955-SSA$10 per participant, per day maximum of $50,000
Failure to provide Special Tax Notice$100 per failure up to a maximum of $50,000

Other Retirement Plan Changes Effective for Years Beginning After December 31, 2019

  • Phased retirement changes – defined Benefit Plans can be amended to provide voluntary in-service distributions begin at age 59 ½, down from the current age 62 requirement.
  • Start-up credits – the cap on tax credits that small employers (up to 100 employees) can get for starting up a new retirement plan has gone up from $500 to $5,000.
  • Auto-Enroll credits for small employers – small employers can get an additional $500 tax credit for adopting an automatic enrollment provision.
  • More time to adopt a plan – currently a qualified plan must be adopted by the end of the employer’s tax year to be effective for that year. The new rule will permit a plan to be adopted as late as the due date of the employer’s tax return for the year.
  • Plan annuity provisions – in recognition that defined contribution plans typically do not offer lifetime income streams two changes have been added to encourage in-plan annuity options.
    • A fiduciary safe harbor standard that if followed, would protect plan sponsors from potential liability relating to the selection of an annuity provider.
    • Plans may permit tax-advantaged portability of lifetime income annuity options from one plan to another.
  • 403(b) changes include providing a mechanism for the termination of a 403(b) custodial account and clarification that non-qualified church controlled organizations (e.g. hospitals and schools) can participate in Section 403(b)(9) retirement income accounts.
  • Penalty free distribution for birth or adoption expenses – up to $5,000 could be distributed from a defined contribution or 403(b) plan to cover costs relating to birth or adoption of a child.
  • Special tax penalty relief and income tax treatment for distributions for qualified disaster distributions from qualified plans up to $100,000.  Additionally, plan sponsors can permit the $50,000 participant loan limit to be increased to $100,000 with increased repayment periods for participants that suffered losses in a qualified disaster area.

Other Changes with a Delayed Effective Date

  • Lifetime income disclosure – this provision will require a defined contribution plan to provide all participants with an annual statement that discloses the projected lifetime income stream equivalent of the participant’s account balance.  This requirement will become effective for benefit statements furnished one year after applicable DOL guidance has been issued that will be necessary to provide the prescribed assumptions and explanations that will be used to create this disclosure.
  • Combining 5500 – IRS and DOL have been directed to permit a consolidation of Form 5500 reporting for similar plans. Defined contribution plans with the same trustee, same-named fiduciary and same plan administrator using the same plan year and same plan investments may be combined into one 5500 filing. This is scheduled to begin no later than January 1, 2022, for 2021 calendar plan year filings.

What to Do Now

Obviously the SECURE Act is bringing a lot of changes to retirement plans. Many of the operational aspects to this new retirement legislation will need to be implemented immediately, in particular, tax withholding related items that will change in 2020 will necessitate plan sponsors and their recordkeepers act immediately to review tax withholding and distribution processes. Plans do have until the end of the 2022 plan year to adopt conforming amendments to their documents. The amendment deadline is the 2024 plan year for governmental plans.

If you have any questions about the SECURE Act and this new retirement plan legislation we encourage you to contact the Findley consultant you normally work with, or contact John Lucas at 615.665.5329 or

Published December 23, 2019

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