Changes in the law make the home stretch of the year an important time for retirement plan sponsors to be diligent about ensuring adherence to regulations. It’s wise, for example, to check in on operational compliance vis a vis both IRS regulations and SECURE 2.0 provisions that became effective this year. Read on for specifics.
Operational Compliance
As 2024 winds down, Groom Law Group attorneys, Randy Bunnell, Elizabeth Thomas Dold and Malcolm Slee remind plan sponsors “to review their plan documents and plan operations to ensure compliance with increasingly complex qualification requirements and moving deadlines.” Specifically, although plan amendments are not mandated for this year, plan sponsors are advised to pay attention to oversight related to “discretionary amendment deadlines, operational compliance with changes in law, and ensuring later-adopted plan amendments accurately reflect plan operations.Toward operational compliance, Groom Law Group’s ERISA experts specifically note that it is wise for plan sponsors to brush up on IRS protocols and remind us to utilize these handy resources:
The IRS maintains an Operational Compliance List (“OC List”) (last updated February 2023) that describes statutory and regulatory changes in requirements for 401(a) and 403(b) plans. Plan sponsors should review this list to ensure their plans are operationally compliant with the relevant provisions….There are no additions to the OC List that are effective in 2024. However, the OC List does not include annual, monthly, or other periodic changes that routinely occur (such as cost-of-living increases, spot segment rates, and applicable mortality tables.) You can find these on the Employee Plans Recent Published Guidance webpage.
Given the scale and scope of SECURE 2.0, it’s also key for plan sponsors to stay on top of related compliance markers. While the 2024 year-end does not bring a requirement for generally applicable amendments, discretionary changes made during the year must be reflected in an updated plan document. ERISA attorneys also encourage plan sponsors to think ahead, evaluating “whether future plan changes may require a prospective amendment and stay in front of changes that may require advance notice to participants and changes to service-provider agreements and related fees.” Meanwhile, note that a number of SECURE 2.0’s operational provisions have become effective this year, including these:
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Pre-death required minimum distribution exemption for Roth contributions (Sec. 325).
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Matching of student loan payments (Sec. 110).
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Increase in involuntary cash-out limit to $7,000 (Sec. 304).
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Penalty-free withdrawals of up to $1,000 for certain emergency expenses (Sec. 115).
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Penalty-free withdrawals of up to $10,000 in cases of domestic abuse (Sec. 314).
Pay Attention To The Basics
While attending to the changes ushered in by SECURE 2.0 and tuning into the evolving regulatory landscape, it’s essential for plan sponsors to remain active on basic compliance matters. For example, a common error is failure to ensure that the plan is actually run in alignment with the plan document. Another is failed ERISA Bond compliance. Relatedly, Rosenbaum Law Firm, attorney Ary Rosenbaum offers this advice for plan sponsors seeking to avoid audit surprises:
One of the first things that an IRS agent wants from a plan sponsor is the copies of all plan documents and a failure to have the requisite timely adopted amendments will trigger a nice sized penalty … .Passing the… deadline by a few days can cause grief. A plan sponsor should make sure all plan documents are up to date by contacting an ERISA attorney and/or their TPA.
Make sure the ERISA bond is correct Every retirement plan subject to ERISA requires that every fiduciary of the plan be bonded. Except for two exceptions, the fidelity bond must be at no less than 10% of plan assets with a minimum of $1,000 and a maximum of $500,000. Plans that don’t have a fidelity bond in place or don’t have enough coverage are supposed to note that on Form 5500 and that alone could be a trigger for an audit by the government….
Heightened audit procedures, regulatory investigations, class action lawsuits, and courtroom precedence all point to fiduciary risks–the kind that no plan sponsor wants to be held personally liable for. Experts point out that even while rolling up their sleeves around fiduciary duties, it’s wise for retirement plan sponsors to mitigate their personal risks, with coverage: “Fiduciary liability insurance is an indispensable measure to ensure sponsors and their businesses are protected with defense costs and penalty limits.” Colonial Surety Company makes it easy and affordable for plan sponsors to maintain ERISA Bond compliance and protect themselves with fiduciary liability insurance. Armed with our coverage, if you face claims of alleged or actual breaches of duty in connection with the employee retirement plan, you’ll be protected with defense costs and penalty limits up to $1,000,000. Uniquely, Colonial even includes Cyber Liability Insurance, locks in multi-year rates and offers installation payments. Conveniently, our Fiduciary With Cyber liability package is now available with just a one year commitment. Protect yourself, your business and plan, for a few dollars a day, now:
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