PLANSPONSOR - June - July 2022 - 37

BEST PRACTICES | PLAN ADMINISTRATION
Design LLC, a TPA firm headquartered
in Tucson, Arizona.
" Approximately every six years, the
IRS requires qualified retirement plans
be restated, " she explains. " During the
restatement process, the service provider
and sponsor review the plan to determine
whether any plan-design changes need to
be incorporated into the plan document.
In addition, the restated plan document
must
incorporate legislative and regulatory
changes since the prior restatement
[which was in 2016]. "
New part-timer-eligibility. The Setting
Every Community Up for Retirement
Enhancement Act of 2019 requires that
employees who work at least 500 hours a
year in each of three consecutive years be
eligible to participate in their employer's
401(k) plan, as of January 1, 2024. This
new requirement " will be a huge issue for
sponsors, especially if whoever is helping
them with their compliance work has not
tracked the hours of part-time employees
for eligibility, " Edwards says.
Employers also should consider
how this provision will influence participant
notifications, says Adam Pozek, a
partner in DWC - The 401(k) Experts,
a national TPA with headquarters in St.
Paul, Minnesota. The SECURE Act does
not demand that
these long-term parttimers
receive an employer match, so if
an employer opts to exclude them from its
match, it will need to be mindful of what
communications it sends to whom, he says.
" That certainly creates a potential
communication challenge, to make sure
the right employees receive the right
message at the right time, " he says. " If
employees will only be able to contribute
for themselves, the employer will need to
make sure they understand that they won't
be eligible to share in any company contributions.
You'll have to 'split' the message. "
The new provisions will have to be
dealt with in the plan document, Pozek
says. " However, we will have to wait for the
preapproved document providers to release
their 'good faith' amendments to know
exactly what will be available, " he says.
Required notifications missed.
Depending on the type of plan, and new
and changing legislation, there are many
notices that sponsors must provide to their
plans' participants. Sometimes, though,
the sponsor does not even realize what
communications must be distributed to
the participants, or when those communications
must be sent, Iverson says. Her
advice to avoid problems: Plan sponsors
should start by understanding which participant
communications are applicable
to their plan. The plan document service
provider can explain to the sponsor what
notices need to be distributed, and when.
goes into default, notify the plan's recordkeeper
that a 1099 should be issued to that
participant. Otherwise, as Pozek says, " it
turns into a hassle for everyone involved. "
Payments are usually, but not always,
made through payroll deduction, and
some plans allow participants to continue
making payments via check after termination
of employment, Pozek says. " So,
dealing with loan defaults is more common
when participants leave, but it can certainly
come up in other situations as well. "
RMD withdrawals for beneficiaries.
The SECURE Act's change from age 70.5
to 72 for starting required minimum
" The SECURE Act does not demand
that these long-term part-timers
receive an employer match ... "
Once the sponsor understands which
participant communications are required,
it should create a process to ensure the
communications are done on time, Iverson
suggests. " A best practice is to develop an
annual calendar of required plan communications
and create reminders prior to the
notice due date to ensure they are distributed
in a timely way, " she says.
Loan default follow-up. When a participant
defaults on a loan by neglecting to
make payments, this can call for administrative
oversight, Pozek says.
The IRS rules say that a participant
has until the end of the following quarter
to make up the payment, to avoid the
outstanding balance being treated as a
taxable distribution. But defaulting participants
sometimes mistakenly believe that if
they receive no Form 1099 for that distributed
money until early the next year, this
means the income is not taxable until that
next year, Pozek says. In reality, it is taxable
during the year when the participant
defaulted on his loan repayment.
So the
employer or
a designated
provider needs to track this issue on an
ongoing basis and, once a loan officially
distributions " is pretty clear-cut " for sponsors
administratively, Edwards says. " The
biggest changes and challenges come from
the new proposed IRS RMD regulations
regarding beneficiaries and when they
have to take money out of a participant's
account when the participant dies before
reaching the RMD age, " she says. " The
SECURE Act changed the rules to say that
beneficiaries need to take all the money
out within 10 years of the original account
owner's death. At one point, it was thought
that a beneficiary could postpone taking
distributions and then take one lump-sum
distribution after 10 years. Now, the IRS'
proposed regs clarified that, for certain
beneficiaries, a portion of the account has
to be taken each year. "
Edwards says sponsors must ensure
that, each year, those certain beneficiaries
receive at least the required
minimum distribution needed to meet
the RMD rules-even if the person
intends to delay taking all of the money
for the maximum allowed 10-year
period-rather than simply being certain
the individual takes a full distribution by
the final deadline. -Judy Ward
PLANSPONSOR.COM June - July 2022 37
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PLANSPONSOR - June - July 2022

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