Retirement 101: What Is a Record Keeper?

Retirement 101: What Is a Record Keeper?

When looking through retirement packages, you may notice that there are not only a lot of options, but there are a lot of people that are involved with the whole process. Understanding these different individual roles and the functions they play in your overall retirement package can help you make pivotal decisions in terms of your money and savings. The first of these participants is the record keeper. Read below as we explain what a record keeper is, what their specific functions are, and how they help your investments. 

 

What is a Record Keeper?

 

When it comes to the management of retirement plans, a record keeper’s primary function is to track your assets. They are responsible for monitoring how much money you have, where it is going, and what type of money it is. The record keepers are also primarily responsible for maintaining the accounting of the plan contributions and tracking what they have specifically earned.

 

Why Do You Need a Record Keeper?

 

With the complexity of retirement plans, a record keeper is essential in helping you keep track of your money and decipher which incoming dollar is which. The record keeper will know the specifics of your account and can relate to you how much you have invested and what you have earned from your investments. While the investment managers are there to manage the larger pool of money, the record keepers will be able to track your individual account and help split up the money if that is needed. 

 

Other Record Keeper Functions

 

The beauty of a record keeper is the many hats that they wear. They not only help keep track of your assets, but they also provide other services that can help you understand your overall investments. These functions include:

  • Providing individuals with retirement calculators and specific guidance.
  • They can request trades and other transactions within the participant accounts.
  • They will produce enrollment and educational materials.
  • They will review the operations and make sure everything complies with the various laws.
  • They will conduct specific research to improve services and stay competitive.
  • Record Keepers provide a crucial function in terms of your finances, and you must understand their role. By equipping yourself with this information, you will ensure that you are choosing the best retirement provider for you and your financial goals.

Have more questions about retirement administration? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with the retirement plan evaluator.

 

Sources:

What is the difference between a Recordkeeper and a Third Party Administrator (TPA)? (ND). By Justin Ladden. Bright Scope.

401(k) Recordkeeper: What They Do And What To Look For. (2016). By Esther Kim. For Us All 401k Blog.

 

 

Debunking Your Biggest 401k Fears

Debunking Your Biggest 401k Fears

 

Starting a new 401(k) match plan can be daunting. So many impactful questions arise when the time comes for a business to consider adding this benefit. If you find yourself thinking more and more about a 401(k) match, keeping the facts straight is important. Here are a few myths about 401(k) plans debunked.

 

Do I need to offer a match? 

 

Legally, no. The IRS does not require businesses to offer a matching plan. However, it is such a common practice now that employers should consider the positives of a 401(k) match. Many businesses use their matching percentage as an attraction for new workers. When considering who to choose from comparable companies, the benefits they each offer will be a huge factor.

 

Retirement Plans are expensive.

 

For a smaller business, the advent of 401(k) plan contribution matching can sound daunting. Allocating anywhere between 3% and 6% on average towards an employee’s plan could add up quickly, right? This myth can be debunked twofold.

First, these plans are much cheaper for the business in comparison to pension plans that were popular in the past. The burden of retirement falls upon the employee, with the employer taking a supporting role.

Secondly, 401(k) plans are tax-deductible! You can claim any matches when filing taxes. Not having to provide a pension plan and also being able to claim contributions when filing taxes makes a 401(k) plan the obvious choice.

 

Only larger companies offer a retirement plan.

 

Not true. According to the Bureau of Labor Statistics, 56% of businesses offer a 401(k) match. This number represents businesses of all sizes, therefore showing the popularity of 401(k) plans.

A 401(k) retirement program will be especially advantageous to a growing business that is looking to attract new employees and inspire current employee retention.

These are just a few of the many myths surrounding 401(k) matching. Look through our other blog posts to learn more about the benefits of starting up a 401(k) plan for your business.

 

Have more questions about retirement administration? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with the retirement plan evaluator.

 

 

How a Safe Harbor 401k Can Help Business Owners Save For Retirement

How a Safe Harbor 401k Can Help Business Owners Save For Retirement

 

When you are a business owner, your priority is to generate revenue in your company. You want to hire the best talent to maximize your profits through improved performance and productivity. One way to attract high-quality personnel is by offering an attractive retirement package.

You can reward your staff with high retirement contributions through a Safe Harbor 401(k). It also works for you by automatically passing the nondiscrimination test or avoiding it altogether. Therefore, business owners and highly compensated employees (HCE) can make considerably higher contributions.

Read on to see how you can grow your retirement fund using Safe Harbor 401(k).

 

How to Maximize Your Payments

A Safe Harbor 401(k) operates like a traditional 401(k) with a compulsory contribution by the employer. By dutifully contributing to your employees’ retirement savings, the IRS rewards you by exempting your 401(k) from nondiscrimination testing.

The test is a taxing struggle which businesses with the traditional 401(k) face every year. Its role is ensuring that employers treat all employees equally regardless of their pay or rank in the organization. The testing rules often limit the amount that owners and HCEs can save.

With nondiscrimination testing out of the way, you avoid the administrative roles and costs associated with running a 401(k). You’re also free to make heftier contributions for yourself and selected workers.

To meet the legal threshold of a Safe Harbor 401(k) plan, you must select any of the following strategies:

Elective Basic Match: Match 100% of all employee contributions up to 3% of their pay, and 50% match of the next 2% of the employee’s compensation
Elective Enhanced Match: Match 100% of all employee contributions up to 4% of their compensation
Non-Elective: Contribute 3% of every employee’s compensation whether or not they make contributions

 

The Bottom Line

To save up to $56,000 annually for yourself and the best employees, consider utilizing a Safe Harbor 401(K). Let Life Inc. Retirement Services oversee your 401(k) plan as you concentrate on managing your business.

Contact us today, and our team of 401(k) experts will happily address your concerns.

 

Have more questions about retirement administration? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with the retirement plan evaluator.

 

 

 

Retirement 101: Non-Discrimination Testing

Retirement 101: Non-Discrimination Testing

 

There are a lot of benefits that come with a 401(k) retirement savings plan. Not only is it a great incentive to retain employees, but it’s a great way to plan for retirement and save on taxes. However, because of the substantial tax benefits that go with a 401(k), the government has set up a series of annual tests that make sure that the 401(k) plans do not “discriminate” or unfairly benefit individual company owners or the highly-compensated employees.

 

Non-Discrimination Testing: What Is It?

 

Every year, the government issues nondiscrimination tests through the Employee Retirement Income Security Act (ERISA) to review the 401(k) plans of the highly compensated employees (HCEs) and the non-highly compensated employees (NHCEs). These tests are in place to ensure that the benefit plans are not discriminating against lower-income employees, and that all the employees are taking advantage of the retirement plan.

 

Basic Terms:

 

The HCE is defined by the IRS, as an individual who owns more than 5% of the interest in the company OR receives payment of more than $125,000 if the previous year is 2019; and $130,000 if the prior year was 2020 AND, was in the top 20% of employees when ranked by total compensation. If someone doesn’t meet these conditions, they are an NHCE.

 

The IRS defines Key Employees as someone making over $180,000 in 2019 OR anyone who owns more than 5% of the business, OR anyone who owns more than 1% of the company and makes over $150,000 for the plan year.

 

The Actual Deferral Percentage (ADP) Test

 

The IRS uses the ADP test to compare what the average deferral percentage is by HCEs compared to the average deferral percentage of NHCEs

 

The Actual Contribution Percentage (ACP) Test

 

Rather than tracking deferment, the ACP test compares the average employer contributions received by HCEs and NHCEs.

 

The Top Heavy Test

 

The Top Heavy Test focuses on a company’s “key employees” and tests the plan’s balance as of December 31st of the previous year (or current year, if it is the plan’s first year). A 401(k) plan will fail under this test if the value of the assets in it’s key employees’ accounts is more than 60% of all assets held in an employer’s 401(k) plan.

 

Passing The Tests

 

In order for the companies to pass these tests, the calculations must show that the deferred contributions of the HCEs and the key owners do not significantly exceed those of lower-paid employees. If a company fails these tests, they will be faced with corrective actions, which includes increased taxes and refunding some of the contributions made by the HCEs, or funding contributions to the NHCEs until the tests are passed.

 

How the Safe Harbor 401(k) Affects the Non-Discrimination Tests

 

The Safe Harbor 401(k) is a particular type of retirement plan that includes an employer match. However, because of the way the Safe Harbor 401(k) is structured, the plan allows the employer to automatically pass the non-discrimination test or avoid it altogether through the employer allocated contributions. It’s a great option, especially for small businesses, who may find it hard to pass these non-discrimination tests.

Have more questions about retirement administration? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with the retirement plan evaluator. 

Sources:

Is a Safe Harbor 401(k) Right for You? (2019) Employee Benefits Article. Paychex Worx

Safe Harbor 401(k) Plans: Answers To Common Questions. (2016) By Eric Droblyen. Employee Fiduciary
Safe Harbor FAQ: What Employers Should Know About 401(k) Compliance Testing. (2017). Employee Benefits Article. Paychex Worx
401(k) Plan Fix-It Guide – The plan was top-heavy and required minimum contributions weren’t made to the policy. (2019).Retirement Plans. IRS
What Is a Safe Harbor 401(k)? (2019). By Melissa Phipps. The Balance

 

 

How the SECURE Act Effects 401(k)s

How the SECURE Act Effects 401(k)s

How The SECURE Act Affects 401(k)s

Recently, Congress passed one of the largest changes to the retirement plan industry in a decade.

The Setting Every Community Up for Retirement Enhancement Act, also known as The SECURE Act, has been years in the making.

The SECURE Act covers a lot of territory for retirement plans and 401(k)s and it’s fairly clear that the objective was to motivate employers to offer a retirement plan to their employees in order to give them an easy way to start saving for their retirement.

Below, we cover 3 main areas of how The SECURE Act affects 401(k)s through tax-credits, extensions, and increases.

Increase In Tax-Credits

Previously, employers who had implemented a 401(k) for their company received a flat $500 tax-credit.  For many, this wasn’t enough incentive to offer a 401(k) plan due to the associated costs of administration.

Under The SECURE Act, employers will enjoy a minimum of $500, with a maximum of $5,000 for up to three years.  The final amount depends on how many employees sign up for the plan. With each eligible employee, whether they participate or now, the employer will receive a $250 tax-credit, no less than $500.

Unfortunately, the calculation does not include Highly Compensated Employees, also known as HCEs.

In addition, The SECURE Act offers an additional $500 tax-credit for those 401(k) or Simple IRA plans who use automatic enrollment for their participants.

Automatic enrollment, often called auto-enrolment, shifts the process of the employee from opting into a plan to opting OUT of the plan.  The idea behind this is to urge the employees to make a quicker decision on their retirement savings.

Often, employees want to sign up for the plan, but never actually sign up because of a hectic work or family life.

Extension of the Implementation Deadline

This is another significant change derived from The SECURE Act.

Employers now don’t need to worry about a December 31st deadline to decide if they want to implement a 401(k) or Cash Balance plan. They now have up until their tax filing date (including extensions) to decide whether they would like to implement a plan for the previous year.

Simply put, this is a tax play, but be careful, as the employee deferrals portion likely won’t be able to be made retroactively since W-2’s will already be filed.

Previously, if you wanted to get any tax deductions through 401(k) contributions for the current year, you would need to start the retirement plan by the end of that year.  With the passing of The SECURE Act, employers are now able to contribute up until the filing date for the previous year.

This rule goes into effect for plans starting in 2020 for the 2020 tax year.

This won’t be eligible for the 2019 tax year.

Eligible Part-Time Employees

Prior to the passing of The SECURE Act, employers could exclude part-time employers when offering a 401(k) plan for their company.

Now, employers are required to maintain dual eligibility requirements in order to include their part-time employees.  This means that along with their eligibility requirements they set for full-time employees, they are allowed to have a second set of eligibility requirements for their part-time employees.

The rules for part-time employees can be either of the following:

  1. The employee is required to complete one year of service with at least 1,000 hours.
  2. The employee is required to have at least 500 hours of service for three consecutive years.

If the employee completes the latter, then the employer is able to exclude them from any nondiscrimination and coverage rules.  This helps with distributing excess contributions to HCEs. Employers can always be more generous and include part-time employees and have shorter eligibility, but many small businesses choose not to to help lower costs.

In Summary

We see the passing of The SECURE Act as a positive for small businesses.

These incentives give the employer a way to offset the costs associated with a retirement plan that helps with recruiting high-quality employees, employee retention, and tax management.

Contact us for a free consultation or head over to the Retirement Plan Evaluator to see which plan is best for your business.

How Often Should You Be Benchmarking Your 401k, and Why You Need to Know

How Often Should You Be Benchmarking Your 401k, and Why You Need to Know

The Department of Labor requires you to benchmark your 401K at least once every three years, but it’s actually recommended that you benchmark your 401K more frequently. Benchmarking is important because you’ll need to evaluate your current 401K plan against other options to ensure that you’re adhering to best practices. In order to avoid fiduciary liability, most experts suggest it’s important to benchmark your 401K every 1-2 years.

Why is benchmarking so important?

Benchmarking protects you and your employees and is required by law by the department of labor at a minimum of once every three years. Benchmarking practices are in place to ensure that the retirement plan that you offer your employees has appropriate investment options and fees that are not unreasonable. By benchmarking, you’ll be comparing your 401K against other plans to ensure that you’re within your legal bounds and providing your employees with the right options.

Why benchmark more frequently than the required minimum?

Because your business is not stagnant and changes over time, it can be important to benchmark every 1-2 years to make sure your plan remains appropriate. Standards for how a 401K should look change based on things like the size of your business. As your business grows, it’s important that your retirement plan keeps up.

Your benchmark report is an important tool for protecting your business. Adhering to best practices by benchmarking every year to two years will ensure that you’re not caught unprepared, and this will safeguard you as your business changes and grows. Benchmarking at this slightly increased frequency will also ensure that you’re never on the wrong foot with the Department of Labor, and it’s incredibly helpful to have a clear assessment of how your 401K is evaluated when compared to other similar plans.

For more information on how we can help you with your businesses’ needs contact us today.