For Plan Sponsors
The SECURE Act – Putting Retirement in Reach
According to the Government Accountability Office, nearly half of all households led by someone 55 or older do not have enough money for retirement. A bipartisan effort to address this crisis passed in the U.S. House of Representatives by an overwhelming majority in May and is awaiting action in the Senate. The Setting Every Community Up for Retirement Enhancement Act, (SECURE Act) is based on the fact that one of the most effective ways to get people to save for retirement is through a workplace plan. Some of the ways the Secure Act may help include:
- Making it easier for long-term, part-time employees to have access to retirement plans.
- Letting small businesses work together in a Multiple Employer Plan to offer retirement plans to their employees.
- Letting people contribute to Individual Retirement Accounts for more years than currently allowable.
- Increasing the age when Americans must start taking money from their retirement accounts (known as a Required Minimum Distribution) from 70½ to 72.
- Making it easier for employees to transfer retirement assets when they change jobs.
- Expanding lifetime-income options in workplace plans.
What really happens with the SECURE Act, though, remains to be seen as the bill is currently stalled in the Senate. To succeed, it needs to first get to the floor for a vote—either on its own merit, as an updated Senate bill, or as an attachment to another bill.
Are You Protected Against an Audit?
Trust Point reaches out at the end of each plan year to confirm that a fidelity bond is in place for each plan and discover the coverage amount, in dollars or as a percentage of assets.
Why? This amount must be listed on the plan’s annual Form 5500 government filing because the Employee Retirement Income Security Act (ERISA) requires every fiduciary and anyone else who handles plan funds for a pension, profit sharing, or welfare plan subject to the Act to be bonded. These bonding requirements protect the plan against loss of plan funds through fraud or dishonesty of people handling plan funds.
Who is a plan fiduciary? A retirement plan fiduciary is a person or entity that:
- Exercises control over the management of the plan or its assets
- Has discretionary authority over plan administration
Fidelity bonds are purchased through corporate insurance brokers and required to cover a minimum of 10% of plan assets, not to exceed $500,000. There are several types of fidelity bonds and you should choose the type that best fits your circumstances:
- Individual Bond – covers a named individual in a stated amount.
- Name Schedule Bond – covers several named individuals with respective amounts listed beside their names.
- Some fidelity bonds, known as “blanket fidelity bonds,” do not require individual employees to be listed as bonded; anyone who handles plan assets is automatically covered. Other types of fidelity bonds do require a list of the name of any employees who exercise control over plan assets. Regardless of the type of bond, it’s important to note that a fidelity bond protects plan assets and, therefore, participants against fraud. However, it does not protect the listed fiduciaries from personal liability for breach of fiduciary responsibility or errors in plan administration.
Fiduciary Liability Insurance—Fiduciary liability insurance is another type of coverage, one not required under ERISA and often confused with the fidelity bond. This type of insurance protects plan fiduciaries from personal liability should there be a breach of fiduciary responsibility or error in plan administration; however, it does not protect plan assets or participants from fraud. Plan fiduciaries can be found personally liable under ERISA, so it is important to know the difference between the fidelity bond and fiduciary liability insurance and determine if it’s in the company’s best interest to purchase just one or both of the coverage options.
Regardless of your decision on fiduciary liability insurance, make sure you have a fidelity bond that covers at least 10% of plan assets and that the plan name is listed as the insured party, not just the company or Plan Administrator. This will ensure that your participants are protected and that your plan is less likely to be flagged for an audit for failing to meet bonding requirements.
Compliance Corner – Year-End Data Collection and Plan Testing
During the last few months, your Relationship Manager sent you an email with the compliance testing results from the 2018 plan year. The Employee Retirement Income Security Act (ERISA) requires that each 401k plan completes several tests annually to prove that the plans do not discriminate in favor of owners or employees with higher incomes.
To complete the required tests for your plan, we partner with you to gather plan and employee data. This year, all information was delivered to us through a secure portal known as YEDC or Year End Data Collection. This was the first year we offered the portal. As such, we have appreciated your cooperation in learning the new system, as it offers enhanced security for uploading your materials and, in the future, access to prior year’s data.
Gathering this information in a timely fashion is critical, because if the plan fails the required annual tests, corrections are needed and most must be done within 2 ½ months after the end of the plan year. This means the sooner we get testing done, the easier it is to stay in compliance.
Sometimes, after you submit your disclosures and census file, we may come back to you with additional questions. These may involve incomplete information, differences in contribution amounts between what you sent us each payroll and what you reported on the census file, eligibility questions, termination dates, or incorrect calculation of employer contributions. Together, we will work to find the answers.
Once testing is complete, plan failures and corrections are addressed (if needed), and we send results via email. At that point, be sure to ask any questions you may have on the results. And remember, you should always retain a copy of these tests and report any discrepancies to us.
What Can You Do on Your Web Portal?
In addition to uploading your plan’s payroll files, the Trust Point Web Portal offers many useful features that allow you to:
- Make address or other personal information changes for participants: Under the “Payroll” menu, select “Transaction Entry,” search by participant, and select “Edit Personal Information.” You can enter an address change, phone number, or email address. Make sure to click submit after entering the changes. You will see a green check mark along with the message, “Your changes have been saved.”
- Run reports: There are several reports available that can be run on demand. Select the “Forms & Reports” menu, choose “Reports,” click on the report you want to run, then choose the options on the right including date range, and click submit. You will see a new window open while the report is being built. Once the report is ready, you will see “Your report is ready to be saved or viewed. Open Report.” Note that pop-ups may be blocked by your Internet browser. Most-used reports include:
- Terminated participants with balances: This is useful for sending out plan notices. The report lists names and addresses of terminated participants who still hold a balance in the plan.
- Contribution rate changes: Used by plans with online enrollment, this report should be reviewed prior to each payroll to ensure all participant rate changes are implemented. If there are no changes for the time period, you will see a message that indicates the report cannot currently be viewed.
- Access paper forms: Choose “Forms & Reports” and then “Forms” from the toolbar. Here you will find:
- Notice of Termination—use this to report when employees end their employment with your company. Return it to Trust Point so we can verify vesting and send distribution paperwork.
- Beneficiary Designation—for participants who are making a non-spousal beneficiary election or for plans using paper enrollment forms.
- Rollover Form—used when an employee is rolling funds into the plan from their former employer’s plan or an IRA. This must be completed and returned to Trust Point.
- View investment performance: Trust Point receives monthly performance updates from Morningstar. The returns can be viewed under the toolbar by choosing “Plan” and then “Investment Returns.”
For more information on the Plan Sponsor Web Portal, contact your Relationship Manager.
For Plan Sponsors and Participants
Copy and paste into your company’s employee communication!
When Does Roth Make $en$e?
“To Roth or not to Roth?”—that is the question on the mind of many retirement savers. For younger savers, Roth often makes sense as they tend to be in a lower tax bracket with greater earnings potential (and thus increased taxes) as they advance in their careers. In addition, they have a long time until they need that retirement income, which translates into a significant number of years for the earnings to compound—tax-free if they choose the Roth source.
For the rest of us, tax brackets are currently at historic lows (see table below), so the answer doesn’t come easily. Short of a crystal ball, there’s no way to determine whether taxes will stay this low or increase or whether or not our individual income will be taxed more or less now than at retirement. Despite the uncertainty, there is still a pretty good reason to consider adding Roth dollars to your portfolio—tax diversification. Having Roth and pre-tax dollars grants a certain degree of flexibility during our drawdown days—particularly if we are bridging the gap to or delaying drawing from Social Security.
No matter what choice you make—Roth, pre-tax, or both—any company contributions to your retirement plan will be to a pre-tax source. So, does Roth make sense for you? In the end, that is a question that only you (with maybe a little help from your accountant) can answer.
Is This Your Time to Catch Up? (Good news for the 50+ crowd)
Who doesn’t want a large 401(k) retirement savings balance? One sure way to position for it is to increase the contributions. If we’re behind, it might mean a large bump up is required. Luckily, 401(k)s allow for significant calendar-year contributions. In 2019, the standard individual 401(k) contribution limit is $19,000 and the catch-up (available in most plans) is $6,000—for a total allowable contribution of $25,000 for those 50 and older.
There are a few other contribution rules worth mentioning.
- There’s more than one limit: The Internal Revenue Code (IRC) limits the combined contributions of employer and participant to $56,000 in 2019, plus the $6,000 catch-up—for a total of $62,000 for those age 50 and older (including your contributions, employer 401(k) contributions, and any profit-sharing contributions). That means, for example, if you are 50 or older and contribute the allowable $25,000 limit in 2019 ($19,000 individual limit plus the $6,000 catch-up), your employer contributions should not exceed $37,000. Please note that if you are contributing to two different 401(k) accounts from two different employers, you still only have the one limit for both combined.
- Contributions must be made through payroll deduction: Let’s assume you have inherited money and would like to put it into your 401(k) account. This money is unrelated to work earnings and, therefore, cannot be directly put into the 401(k). However, you may be able to increase the amount you put into your 401(k) from your paycheck, temporarily, while living off of the inheritance until your savings goal is met or you reach the allowable limit. Check with your Human Resources department first, to discover what your plan allows as a deferral limit, whether or not catch-up contributions are allowed, and how frequently the plan allows contribution changes.
The Road to Retirement-Medicare and Social Security
Retirement should be a time for us to wind down, do what we want when we want, explore, and have the adventures we were too busy to have when working. However, getting there can be stressful—two of the stoplights we encounter on our way are Medicare and Social Security. The green lights for these involve knowing when to apply.
Medicare: Unless we’re covered under a qualifying employee plan (not COBRA), we’re eligible for Medicare at age 65. There is a seven-month window during which we can sign up for Part A (hospital insurance) and/or Part B (medical insurance). That period of time:
- Begins three months before the month you turn 65
- Includes the month you turn 65
- Ends three months after the month you turn 65
Don’t celebrate yet. There are a few potholes along the way:
- If you aren’t automatically enrolled and are eligible, you can sign up for free Part A any time during or after the initial enrollment period. Your coverage start depends on when you sign up. If you have to buy Part A and/or B, you can only sign up during an enrollment period.
- If you wait to enroll until after the month you turn 65, Part B coverage will be delayed.
- In most cases, if you don’t sign up for Part B when you’re first eligible, you will face a late enrollment penalty, which you will have to pay for as long as you have Part B—plus you could have a gap in your health coverage.
To learn more, visit www.Medicare.gov. The site will help you determine whether or not you’re eligible, calculate your premium, and more. If you plan to retire before age 65 and need healthcare coverage to tide you over, sign on to your spouse’s health plan if possible; secure COBRA coverage from your employer (generally good for 18 months, but you pay the premiums); or explore an individual plan.
Social Security: You can begin receiving Social Security benefits as early as age 62 or as late as age 70. Keep in mind that your benefit is reduced by 25% if you take retirement at age 62. At full-retirement age (depending on your date of birth, between ages 66 and 67), you receive 100% of your benefit. If, however, you delay taking Social Security until age 70, you will receive 132% of your benefit. The decision to take or delay your benefit is a personal one and depends on how long you choose to work, your retirement savings, how long you think you will receive benefits, whether anyone else in your family can get benefits on your record, and even your health.
If you plan to work while receiving Social Security benefits before you reach full retirement age, keep in mind that it can impact your benefits:
If you are under full retirement age for the full year, your benefit will be reduced by $1 for every $2 you earn above the annual limit ($17,640 in 2019).
When you reach full retirement age, the benefit is reduced by $1 for every $3 you earn above a different limit ($46,920 in 2019—however only earnings before the month you reach your full retirement age are counted).
After you reach full retirement age, your earnings no longer reduce your benefit.
When you do decide to apply for Social Security, you can start the process up to four months before you want your benefit to start. You must be, however, at least 61 years and nine months old. If you want your benefit to begin in a particular month, you must apply at least the month before. Apply online at www.ssa.gov or by calling Social Security at 1-800-772-1213.
The RPS Team – Here When You Need Us
At Trust Point, we serve and assist our clients as a team. There are a number of professionals available to field the questions you have regarding your retirement plan. For assistance, please call the Retirement Plan Services Team at 800-658-9474.