While some business owners may realize some distinct advantages of joining a PEP versus implementing their own 401(k) plan, there are some downsides to going this route, and at 401GO, we believe our Syndicate  option is a better choice.

How Does a PEP Work?

PEPs gained in popularity after Congress passed the SECURE (Setting Every Community Up for Retirement) Act in 2019, which made it easier for 401(k) providers to offer this multiple-employer plan.To be succinct, this federal law’s intention was to make it easier for workers in the U.S. to save for their own retirement. Many U.S. workers are employed by small and medium-sized businesses that don’t offer 401(k) plans, and that puts them at a disadvantage. Sure, they can (and do) open IRAs, but this method of saving for retirement falls short of a 401(k) in a number of ways.

With a PEP, a group of employers joins together and shares the costs and benefits of the plan in a way that a larger, more prosperous business is able to do on its own, similar to a purchasing co-op. A big difference is that with a PEP, employers from different industries and different geographic areas are free to band together. Before the SECURE Act was passed, businesses interested in this type of arrangement had to join a MEP (Multiple Employer Plan) comprised of businesses in the same industry. Now, with PEPs, companies have more freedom.

What’s the Draw of a PEP?

The bottom line with a PEP is that it may save some companies money. A PEP offers another advantage, which is that of relinquishing many fiduciary responsibilities to a third party. Instead of getting into the weeds of your 401(k) plan, your pooled plan provider takes tasks off your plate that can typically overburden you and your business, focused mostly on outsourcing many tasks to multiple service providers.  

On the other side, since 401GO assists with those same tasks by simplifying the process of starting and managing a 401(k) plan with features such as same-day setup, automatic notifications and no-hassle payroll integration, taking responsibility for your plan doesn’t need to be overwhelming.

If PEPs lower fiduciary risk as well as startup and management costs, why does 401GO offer our Syndicate?

What Is 401GO Syndicate?

Our Syndicate plan offers many of the same attractive benefits that MEPs and PEPs do. Syndicates are groups of participants looking to offer a great product to employees while spreading out the costs and responsibilities at the same time. Each member group gets to offload their plan management and administrative costs and functions. Additionally, it’s not just companies that can start their own Syndicate — it’s other entities as well, such as chambers of commerce.

Some of the perks that make Syndicate different from an ordinary PEP are the same ones that make 401GO such a great option for small-business owners.

Chief among them is quick setup. Other traditional 401(k) plans take weeks to set up, while at 401GO, you can become a plan sponsor in 15 minutes. Starting a Syndicate is fast and easy as well. Plus, when a business starts its own Syndicate, it sets the rules, such as when and what types of employees can join, what the vesting schedule is, how much the employer match will be and more. Being a sponsor gives you back some of the control you would give up by joining an established PEP. And there’s no guarantee of any particular applicant being granted membership in a PEP — who gets in and who doesn’t is up to the sponsor and/or the group itself. Additionally, sponsors pay no ongoing costs — only member entities pay. And because the fee is shared among members, it’s lower than each business would pay on its own. In fact, this is one of the major drawbacks with PEPs that not everyone is aware of: loss of control. 

What’s Bad About PEPs

Those who join PEPs thinking it’s a great way to offer their employees a valuable benefit while saving money at the same time may be sorely disappointed if they don’t understand the agreement fully, or if they don’t carefully read and digest the fine print before signing.

Worse, it can be extremely difficult to withdraw from a PEP once you’re in. Like any binding contract you sign, if you decide you don’t like the terms later and want to leave to sponsor your own 401(k), you may find that exiting is a long, drawn-out and expensive process. Additionally, if you ever close down your 401(k) plan in the PEP, you do not have control over the complete liquidation of assets and closure as it would fall on the PEP sponsor.

This is not necessarily because the PEP sponsoring group is untrustworthy or devious (although that is possible), but the sponsor makes the rules and the members must follow them, like it or not. You trade control and flexibility for monetary savings and reduced fiduciary responsibility (which may or may not be a good thing). These rules within the PEP can range from requirements to use the same payroll provider, same eligibility provisions (such as age and service), and additional costs relative to an audit.

Moreover, audit requirements have become easier to follow (starting in 2023) with the magic number that would require an audit (over 120) now being applied to those with an account balance, not those who are eligible to participate. For a PEP, this new counting rule does not apply. In fact, the PEP would require an audit if there are more than 1,000 participants overall. One clear and simple advantage of a Syndicate to the PEP is the reduced need for audits.

With a Syndicate, your plan is portable – or removable altogether, if you wish to dissolve the association. Additionally, employers retain the fiduciary control of their plan’s management with all the helpful automation to keep them informed to meet those responsibilities. While small business owners may not see this as a perk, it’s often because they don’t fully understand the process.

With a PEP, when you relinquish fiduciary responsibility to the pooled plan provider, you are not fully divested of liability. When you try to tease out the particulars, you will find that IRS rules on MEPs and PEPs are murky, difficult to interpret and constantly undergoing changes and revisions. Further, PEP sponsors are allowed to set certain rules regarding fiduciary responsibility, and each PEP can be different. Too often, employers learn that their PEP has all the power to make fiduciary decisions and changes, but leaves too much of the responsibility for what happens as a result of these decisions to the powerless members.

Syndicate & Financial Advisors

Financial advisors can help business associations and chambers of commerce get started with Syndicate, and ease the setup process for participating small businesses. You can help mitigate some of the fear that companies face when joining a group plan. Businesses want to be sure they can trust the person who’s taking the reins. Your clients already know and trust you, so you are the perfect person to facilitate the establishment of their Syndicate plan.

Assuming a pooled plan provider is honest isn’t the same as assuming they are good at their job, and both are critically important when managing MEPs, PEPs and Syndicates. Additionally, one of the most arguably widespread problems with PEPs is that members have no control over what type of investments they will be offered. It’s not unlike the Health Insurance Marketplace, which is so important to providing care for those who otherwise couldn’t get it, but in some locations may force subscribers to choose from among marginal, second-rate or downright bad plans. No one wants choices like that. 401GO offers Syndicate financial advisors excellent fund options — choices your members will appreciate.

Add to that the low cost, bundled automated services and live support when you need it, and you’ll see why so many financial advisors and small and medium-sized business owners choose Syndicate. Chat with 401GO today to learn more about Syndicate and our other retirement plan solutions.

The post The Hidden Dangers of PEP Retirement Plans appeared first on Fast and Affordable 401k for growing businesses.

Why Roth IRAs?

Some people wonder why, if an employee has access to a traditional 401(k) plan, they would opt to open a Roth IRA as well. The main advantage for investors is that contributions to a Roth IRA are taxed as they are made, meaning that once the investor reaches retirement age and starts drawing on these benefits, they are tax-free. This is attractive to investors for a number of reasons. One is that if you start making contributions to a Roth IRA when you are just entering the workforce in your 20s and are likely in a lower tax bracket, you will save money later when you retire in a higher tax bracket.

Originally, when Roth IRAs became available in 1997, there were a lot more rules and a lot fewer options. Later, in 2006, the government made Roth 401(k)s available, and now many employers offer traditional and Roth 401(k)s.

The New IRS Regulation: Secure 2.0

Until now, employees and employers alike have been familiar with the drill — traditional 401(k) contributions are deducted before payroll taxes are taken out and Roth contributions are done after. Now, with Secure 2.0, the employer can contribute to the employee’s Roth account, after taxes, if the employee so chooses this option. This new feature can add up to significant savings as well as earnings for the employee, depending upon the size of the employer match and the number of years the employee can take advantage of this new law.

One important caveat is that employees must be fully vested in the plan in order to benefit from taxed employer contributions. Whether you’re a startup or a long-standing company that is just now beginning to offer a 401(k) plan or IRA to your employees, your vesting schedule matters — to your employees and to you. Common vesting schedules are between two and five years. When you’re thinking about offering the Secure 2.0 Roth option, you’ll want to consider your typical employee’s longevity with the company and the vesting schedule you’ve chosen. This will help you determine if it makes sense to offer Roth matching. If, over the years, the majority of your employees leave for other opportunities before they are fully invested, this option might not be for you.

If you decide that Roth matching contributions would be valuable to offer your employees, you must set up a system by which the taxes owed on these contributions come out of the employee’s paycheck. Falling behind on paying these taxes or allowing any lapse or lag can result in fines and penalties levied by the IRS.

The changes included in Secure 2.0 also apply to both SIMPLE and SEP IRAs. Previously, employees and employers could only contribute pre-tax dollars to these accounts.

If you determine that your employees could benefit from the Roth provisions of Secure 2.0, you must take action to amend your plan before attempting to implement the changes to the program. Your financial advisor should be able to help you with the details of the transaction.

Why Secure 2.0?

You may wonder why the IRS has gone to the trouble of creating this new regulation. According to a CBS News report in March of 2023, the IRS currently has a backlog of 10 million tax returns. Getting a live employee at the IRS on the phone is an almost unheard-of achievement these days. Yet they have time to create new regulations to benefit Americans.

They do, but keep in mind — this regulation will benefit the government too. When employee investors choose to receive employer contributions to their Roth accounts, the government immediately begins collecting taxes from them, thereby sweetening the pot sooner rather than later.

It’s important to remember this when it comes time to implement this new benefit at your workplace. That’s when you may notice some ambiguities regarding this new regulation. For instance, does an employee have to be 100% vested at the time the employer contributions begin, or can they start earlier in the same calendar year? Can the employee transfer employer contributions from a traditional 401(k) to a Roth account after becoming fully vested?

Even without these ambiguities, the new rules will create more paperwork for small business owners. However, it may be well worth it. After all, offering a 401(k) plan is extra work too — like anything that is worth having. And being able to offer your employees more options to save more to invest in their retirement can only make you more attractive as an employer.

Stay up to date on important changes like this by bookmarking 401GO’s blog page — it’s your source for useful, practical — and lucrative — information about retirement investing for small business owners.

The post New Roth Employer Contributions Law appeared first on Fast and Affordable 401k for growing businesses.

If you’re in the 401(k) industry, you’ve probably heard so much about this that it’s become a monotonous drone at the back of your head. Let me add to that droning, but hopefully with succinct and digestible information.

The purpose of this article is to highlight what changes are immediately effective, what is on its way, and the future landscape we can expect from the recent SECURE 2.0 Act, which was part of the $1.7 trillion behemoth spending bill that went through congress and was signed into law in December 2022. 

Keep in mind, even if these changes are effective right now or the near future, business owners may need to specifically adopt them into their 401(k) plan in order for them to directly apply. Also, there are many items in this legislation that I will not list here as they don’t necessarily apply at the moment, and updates will assuredly occur throughout this year. 

2023 Updates 

Effective 2023

• Increased tax credit for business under 50 employees of 100% of their costs in the 401(k) Plan. This is capped at $5,000 per employer.
  • A tax credit of up to $1,000 per employee for employer contributions the first year of the 401(k) plan
  • The $1,000 credit does not apply for employees making more than $100,000
  • This credit phases out each year by 25%
  • This credit only applies to businesses with less than 100 employees
• Required Minimum Distributions (RMDs) are no longer required for Roth accounts. 
• Financial incentive (de minimis amounts) can be provided to employees by an employer to help persuade employees to participate in the 401(k) plan (more information will come out about what is considered “de minimis”)
• Employer match and non-elective contributions can be submitted as Roth. This would need to be added to the plan by the plan sponsor, and elected by the employee.
• Reduce excise RMD tax from 50% to 25%
• 403(b) Multiple Employer Plans (MEPs) now allowed (401GO offers a 403(b) Syndicate, but Congress probably didn’t know that!)
• Hardship distribution documentation no longer required from participants. In other words, they can self-certify the financial need. 
• Solo-k plans can now make employee elective deferrals in the following year before filing their taxes. (It used to only apply to employer contributions.)
• The RMD age has been pushed forward even more. Those who turn 72 in 2023 or later will not have to take the RMD until age 73. Those who turn 74 in 2023 or later can wait until age 75.
• Disaster distributions, or participants taking a distribution impacted by disasters can take up to a maximum of $100,000 or 100% of their account. Early withdrawal penalties do not apply to those requests under $22,000.

2024 Updates 

Effective 2024

• Long-term, part-time employees who have worked at least 500 hours each year for three years (started in 2021) will be eligible to participate in the 401(k).
• Starter-k plans are now available to businesses with fewer than 50 employees. These function as an employee-deferral 401(k) plan with IRA limits. No required nondiscrimination testing. Automatic enrollment is required starting at 3% to 15%. 
• SIMPLE IRA and SIMPLE 401(k) plans can now end mid-year and adopt a 401(k) plan (no longer needing to wait until the end of the year). The 401(k) plan must be Safe Harbor mid-year, otherwise they’ll have to wait until the following year.
• Emergency distributions allowed up to $1,000 each year, with the option to pay back the distribution within three years. The 10% early withdrawal penalty has been removed. Participants can self-certify the need.
• Increased catch-up for those ages 60-63 to contribute a higher amount ($10,000). Catch up for 2023 is currently $7,500.
• Catch-up contributions must be Roth for employees that make over $145k+. More guidance will be provided with regard to compensation on this one.
• Employees’ student loan payments can count as 401(k) deferrals. This allows them to receive an employer match, even though the participant’s contribution went to the loan rather than the 401(k). This is not required, but is an option employers can adopt.
• Loosening top heavy testing rules to allow for separate testing on excludable and non-excludable employees (those who reach statutory requirements and those who don’t with regard to eligibility)
• Ownership control group no longer required between spouses who own two separate unrelated businesses (removing requirements to have to test these together)
• Plan cash-out rules can be increased from $5,000 to $7,000
• Government lost & found for retirement accounts will be available online
• No-penalty 401(k) withdrawals for domestic abuse victims 
• Optional emergency savings accounts can be linked to a 401(k) plan. These will be employer-elected, can allow up to $2,500, and must be Roth. Employees may be automatically opted in at no more than 3% of their pay. Withdrawals from this account would be penalty-free.
• Discretionary amendment to increase benefits to employees would be allowed at any date in the preceding year. This does not apply to increasing matching contributions.
• Hardships allowed (like 401(k)) for ERISA 403(b) plans. The employer would have to elect to have it in the plan, but it can come from all money sources like what is allowed in a 401(k) plan.

2025 Updates 

Effective 2025

• Automatic enrollment will be required for any employer starting a new 401(k) or 403(b) plan after December 31, 2024, if it has more than 10 employees, and has been in business for at least three years.
  • Automatic enrollment starts at 3% (not less) to 10% and will automatically increase by 1% per year up to 15%. Any election (including opt-out) would exempt employees from the automatic enrollment and escalation feature.
• Long-term, part-time employees who have worked at least 500 hours each year for two years will be eligible to participate in the 401(k). 
• Catch-up increases even more to the greater of $10,000 or 150% of the 2024 limit for those ages 60-63.

2026 Updates

Effective 2026

• Required annual paper statement to be mailed to participants

Additional SECURE 2.0 Details

Now, since you’ve gotten this far through reading all of this, I’m sure you’re wondering if there are any SECURE 2.0 details that aren’t included in this article. The answer is most certainly yes. Multiple factors affect all facets of retirement plans and accounts. The above are those that I felt to be the most applicable.

If these changes have made you consider starting a new 401(k) plan, or making updates to your existing plan, please contact the team at 401GO. We would be happy to walk you through the process.

Now, carry on and keep saving your own world!

The post SECURE 2.0: The Highlights You Need to Know appeared first on Fast and Affordable 401k for growing businesses.

401GO offers a group 401(k) plan called Syndicate. This product comes with many attractive features for the organization, the business owner as well as the participants.

Feature 1: No Cost to the Sponsoring Organization

Most group retirement plans come with big expenses. They can cost thousands of dollars to set up and maintain. A Syndicate costs the sponsoring organization nothing, giving you a free benefit to utilize to help attract businesses to your group.

For businesses, their costs are some of the lowest in the industry. They’ll only pay a small base fee, plus a low fee per active participant (not per employee!), so they won’t pay for employees who are not using the plan. And, the pooled pricing available using a group plan means businesses can get much lower pricing through your organization than they could find anywhere on their own.

Pooled pricing is the biggest advantage for businesses to join the group plan. Taking advantage of economies of scale, employers can receive pricing as low as $4/participant.

Feature 2: Extremely Fast Setup Time

Most group plans take weeks, even months, to set up. A Syndicate can be up and running the same day.

It’s a game-changer for organizations who are anxious to get started.

Employers can set up their plans quickly too. Using our automated setup process, they can complete their onboarding process in just 15 minutes, and have a plan in place that is ready to use. Compare that to legacy providers, who often require 4-6 weeks to get a plan started.

This is particularly valuable for participants. Using our guided strategy builder, employees spend just 5 minutes answering a few questions about their time horizon and risk tolerance, and we help them build a customized portfolio that will suit their needs perfectly. They can make changes to the portfolio at any time.

Feature 3: No Fiduciary Liability

The sponsoring organization incurs no fiduciary liability or responsibility for plan management at all. 401GO provides the investment lineup, and individual businesses provide a sponsor for their plan, so that responsibility remains with the business owners, and not with the association or chamber.

While each business will need to provide a plan sponsor to carry the responsibility for their plan, most of the work is outsourced, so the only job business owners (and their admins) need to do is oversee that work is being done appropriately. This is made easy on the 401GO portal, which comes with reporting to provide awareness.

Feature 4: No Administrative Duties

All the day-to-day work of managing a group retirement plan is offloaded to 401GO. We manage the contributions and distributions, we provide employee notifications, we monitor compliance and file required reports, we provide customer support, and our partner Matrix Trust holds the plan assets.

None of this work will need to be performed by either the sponsoring organization or the individual businesses. Once setup is completed, the only work typically required of business owners is an annual review to ensure information is accurate and up to date, which takes about 10 minutes.

Feature 5: Co-Branding for Organization Recognition

A Syndicate plan comes with co-branding opportunities, so that when business owners and their employees log in to their accounts, they will see the logo of the sponsoring organization. This lends credibility to your organization, and helps remind the business owner of the valuable benefit they are receiving.

A Step Above Traditional Group Plans

If you’re researching the benefits of a group 401(k) plan for your organization, consider these important plan design features.

• Does the plan require specific design features of participating employers?
• Does the plan come with complications that cause difficulty for employers, employees or admins?
• Does the plan require employers to be connected in some way?
• Does the plan require admin work to be done by the sponsoring organization?
• Does the plan require the businesses to be a certain size?

Syndicate doesn’t. It doesn’t require specific design features, complications, business sizes or connections. And it requires no work by the sponsoring organization.

401GO aims to be your preferred partner in retirement planning. We’ve developed our platform to be automated, easy to use and smart, so that it meets the needs of every small business, their employees, and the organizations they belong to.

Talk to us today about how we can benefit your team.

The post 5 Reasons to Offer a Group 401(k) Plan to Your Organization appeared first on Fast and Affordable 401k for growing businesses.

Let’s first look at one thing that is actually a pretty big deal when it comes to offering a 401(k) Plan. That’s the nondiscrimination testing and how it affects you and your retirement benefit.

Nondiscrimination Testing & Its Importance

Quite simply, every year, every 401(k) plan must go through nondiscrimination testing. There are multiple tests within this that we don’t necessarily need to unpack, but two of these tests, in particular, are important to know.

The two prominent nondiscrimination tests are the following:

I’ll only provide a short summary here for these tests to give you perspective.

ADP/ACP – Average Employee Deferrals/Employer Contributions

The ADP/ACP looks at all those highly compensated employees (anyone that earned over $125,000 in 2019 would be considered highly compensated) and/or has over 5% ownership in the company. This test then compares the average contribution by these highly paid individuals to those that don’t fit that criteria (we’ll refer to those as “staff employees”). This test happens every year. If the participation from the highly compensated employees exceeds a certain percentage of those staff employees, we’ll say by 2%, this test will fail.

• E.g. If the average of the highly paid employees and/or owners is 8%, while those staff employees is 4%, the plan would fail this test. The 2% threshold would mean the highly paid and ownership group couldn’t exceed 6% for their average.

The result? There would need to be a refund of some (perhaps all) contributions made by those highly compensated employees (this includes owners regardless of pay). OR you can make an employer contribution to all employees that are not highly compensated. It isn’t exactly this cut-and-dry, but I think you should know that possible refund or mandatory contribution is required if this test is failed.

Top Heavy Testing

The Top Heavy test looks at those “key” employees, which are your executives and owners. If at the end of the year the total 401(k) plan balance (everyone) has over 60% from these key employees (executives, owners, etc.), then the plan fails the Top Heavy test and would have to make a contribution up to 3% to all non-key employees (this could even include some of those highly compensated employees) in any year afterward that those key employees make contributions.

More info can be found in this article HERE.

• E.g. If the total 401(k) plan assets are $200,000, and $122,000 (61%) of those total assets are key employee assets, then it is a Top Heavy failure.

Now that we have the confusing testing portion out of the way, let’s look at the Safe Harbor option and why they are great for a small business.

A Safe Harbor 401(k) Plan is one in which you, as the employer, agree to using a certain formula to match or provide contributions to your employees that participate in the plan. The biggest perk to having this Safe Harbor provision is that it gives you an exemption from the tests previously mentioned. Yes, that’s right, EXEMPTION. So, if you fail any or both of those tests, you’re exempt from the results if you are Safe Harbor.

Safe Harbor Choices

What are your options for Safe Harbor? Here are the different Safe Harbor options by name:

Let’s go through each one of these so you can understand how they work and more fully know the options and costs.

Basic Safe Harbor

This is the lowest cost Safe Harbor if you don’t add an auto-enrollment. Essentially, you only match what is deferred into the 401(k) plan by employees participating.

Formula – Match 100% up to 3% of employee deferred pay and 50% after up to 5%. Total expense is 4% if an employee puts in 5% or more.

• E.g. – An employee is paid $1,000 on a pay check and wants to put in 5% of pay. This is a total of $50. As an employer using this Safe Harbor you would match 4% (max), and it would be $40 in this example.

Any employer matching contribution is 100% vested. That means, once it goes into the employee’s 401(k) account, it is theirs.

Enhanced Safe Harbor

This is considered a very rich employer match for your employees.

Formula – Match 100% up to 4% OR 5% OR 6% of employee deferred pay. You would have to pick one of these formulas, you couldn’t switch between them.

• E.g. If you selected Enhanced Safe Harbor 4%, an employee paid $1,000 and wanting to contribute 4% of pay, which is $40, would receive a match of $40. Again, 4% is the maximum employer match.

Any employer matching contribution is 100% vested.

Qualified Automatic Contribution Arrangement (QACA)

This is typically referred to as a “Safe Harbor Auto-Enrollment.” That is because it combines the component of auto-enrollment (if your employees don’t “opt-out” from being enrolled into the plan, then they will be automatically enrolled).

Formula – Match 100% up to 1% and 50% after up to 6%. Total expense to the employer is 3.5% if the employee puts in 6%. (Please note, although the total expense is lower and the employee has to defer more of their pay in order to receive more match, the auto-enrollment part of this shouldn’t be overlooked. It will pull more employees into the 401(k) plan through inertia.)

• E.g. If you selected a QACA Plan, an employee paid $1,000 and wanting to contribute 6% of pay, which is $60, would receive a match of 3.5% or $35. The maximum is 3.5% employer match. So, even if an employee put in 20% of pay, the employer would only be putting in 3.5%.

You can choose between a few vesting options. You could select a 2-year cliff (1 year – 0%; 2 year 100%), a 50-50 split (1 year – 50%; 2 year – 100%) or 100% vested immediately.

Safe Harbor Non-Elective

This is a Safe Harbor profit-sharing. It can be up to 6% of employee pay, but is typically at 3% of annual pay. You would have to make that decision annually, and cannot reduce 6% down to 3%, for example.

Formula – Employer non-elective (not related to employee deferral contributions) is 3% of eligible employee’s gross pay (required annually). Eligible pay is $285,000 in 2020 (so if someone has over that amount it would cap there and would be 3% of the $285,000).

• E.g. If you have 5 eligible employees and their gross pay $300,000, then your required Safe Harbor Non-Elective contribution would be $9,000 (3% of pay respectively).

This is 100% vested.

Now, why would you choose Safe Harbor if you have to provide for an employer contribution and follow a specific set formula? The two main reasons are the exemption from the nondiscrimination testing and the reduction in business taxes from that employer contribution. Employer contributions into a 401(k) plan go in pre-tax. So, figure your total tax liability and consider your pre-tax contributions.

It’s always recommended to talk with a tax professional for more details on the tax benefits, but in general, if you could give a benefit to your employees instead of paying that amount in taxes, would you do it?

At 401GO we have many different plan design options, including all the Safe Harbor plans mentioned in this article. Plus you can get set up in under 15 minutes. It’s easy to use, and handles all aspects of the required annual administration. Talk to us today to more fully understand these options.

Make 401K Savings Easy, Fun, and Personal for Your Employees

401GO simplifies the 401(k) retirement savings process for business owners, HR professionals, and employees.

The post Why a Safe Harbor 401(k) Plan? appeared first on Fast and Affordable 401k for growing businesses.

In an effort to build out a network and expand a retirement offering like the 401(k) plan, you could simply leverage an already established network found within a chamber. This is easier said than done, but the reciprocal benefit found from a chamber aligned with what 401GO offers, referred to as a 401(k) Syndicate, opens up a completely new and exciting opportunity.

To give a little history, the traditional offering for a retirement benefit plan with a large group of employers, such as those members within a chamber is to create or sponsor a multiple employer plan or MEP. However, I have to say that the MEP is simply the wrong fit for this type of organization.

3 Reasons an MEP Doesn’t Work for a Chamber

1. An MEP puts the fiduciary responsibility onto the chamber. In other words, the chamber must be the sponsoring organization, which means they will hold a trustee role and be required to oversee the MEP’s operations and service providers. There are options coming down the pipeline that would allow other organizations to take much of this from the chamber, but it comes at a cost.
2. It’s expensive to get off the ground. The cost of an MEP should always be understood before starting down that path. An MEP requires many service providers, which then adds even more to that number down the line. Not to mention, once this is started a chamber is hooked into it. It’s not easy to just walk away once you get going (like a boulder barreling down a mountain, it won’t stop until it’s made an impact). Consider the time expense and if the chamber would have to hire someone to keep up and maintain that MEP.
3. A chamber’s model doesn’t make sense with an MEP. They are a resource for their members, and would instead want to provide an offering or benefit instead of being the sponsoring organization. It also blurs the line with some of their members in the financial services. While some organizations are more aptly suited, such as an association or even a PEO, an MEP might make more sense. If the MEP is costing the chamber money it can quickly become the focus and distract from the resources and education for which they are wanting to provide.

As states ramp up Secure Choice retirement plan alternatives, it would be timely to look at how a chamber can be a player in providing an option to their members. Additionally, there are many opportunities that come up with the SECURE Act with regard to costs and grouping retirement benefits (you can find more information about this here). Moreover, a group 401(k) plan gives flexibility to the chamber in terms of providing a resource to their members, instead of sponsoring something that puts them in a bit of a pickle with those members that are trying to provide similar or the same services. That is why the 401(k) Syndicate meets and matches most of the criteria previously mentioned.

6 Things to Know About a 401GO Syndicate

1. A 401(k) group offering in which the chamber has no fiduciary obligation or responsibilities.
2. This runs outside the chamber in a way that does not disrupt the resources they are trying to provide their members. Instead it is something more easily referenced for those members in which overlap in the industry (benefit and investment advisors more specifically).
3. Each employer is setting up their own 401(k) plan within an automated railway. The plan design options are ideal and easily adopted through the 401GO platform. (A 15-minute setup should certainly save on the time expense.)
4. The chamber can co-brand to allow for their members to look to the 401(k) Syndicate as a cohesive retirement benefit. They would continue to rely on the chamber for those services without the contradictory pushiness of an MEP that has the underlining pressure of joining instead of being optional. Think of the co-branding as having the chamber logo for all those businesses when they login, on both the employer and employee level.
5. As mentioned numerous times in this article, one of the best things about a 401(k) Syndicate is the flexibility. If there is a business member in the chamber that works with a financial advisor that they would like to link up for their 401(k) plan, they don’t have to give that up. A 401(k) Syndicate can accommodate many financial advisors within it.
6. Cost may be last on this list, but certainly not unimportant. A chamber can offer a 401(k) Syndicate to businesses with under 50 employees for $9 per participating employee a month (no setup, document, filing, administrative fees, etc.). A chamber can also arrange an even more reduced cost to the $9 per participant per month or receive a referral credit.

Keep in mind, there are a lot of options out there, but when it comes to the benefit in the retirement space for 401(k) plans, automation is king. Not only does it open options such as the 401(k) Syndicate, but it also creates efficiencies that only improve features and reduce cost.

At 401GO we think a partnership with a chamber is the ideal combination to leverage the network of members and power of automation.

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Regardless, the stigma of superfluous or unnecessary exists and is very much attached to what would appear to be the primary retirement vehicle in the United States today. How did we get here? The “Father of the 401(k) Plan,” Ted Benna, has long been outspoken about what has happened to the 401(k) plan since its emergence in the 80s. He said: “I’ve been quoted saying I would wipe out the whole thing. Really, what I was referring to was the investment structure, not the 401(k) entirely. I’ve documented the history of these and how participants have been impacted, and it’s not a pretty picture. It went from all fees being paid by the employer to everything getting bundled and dumped on employees.” Essentially, the investment options have gone out of control with way too many choices for the sake of diversification, and then the costs have been historically shifted from employer-paid to employee-paid.

Technology: Killing Two Birds with One Stone

The primary goal of a 401(k) plan is to save for retirement (whatever that may look like differs by individual but the purpose is the same), and instead of that plan and path being straightforward and clear, it has been riddled with obstacles, exceptions, and distractions. Obstacles such as cost and lack of technology create roadblocks, as well as other “more important” benefits taking the focus away from a business keeping retirement and a 401(k) plan on the essential benefit list. However, even when you get past those things, you then face the biggest hurdle, the amount of time. Those gearing up to start on such a metaphorical and also literal journey may not realize how much they will need to pack for the trip. Like the traveling King Arthur in Monty Python and the Holy Grail in search of a crew and crusade, never realized that he’s been the butt of the joke to the viewers, the employer taking steps to sponsor a 401(k) plan may indeed feel the inadequacy of navigating that quest. Imagine if the journey was in a straight line with plenty of signs and alerts along the way, no detours or “side quests,” how much more appealing would the 401(k) plan be? This is where technology comes in and this is where things change. Technology will be the savior of the 401(k) plan, and the results will be quite evident.

Technology changes an industry, and in a very real way normalizes simplicity. When have you ever heard someone say, “You know, I used this tool to make things harder and more complex?” Never. Unless of course it’s for a workout, then it would still be providing for desired results from the user (better physical shape). Technology is the “king of the hill” in every fight for the top. It just may take a little longer for it to make it up there for some of these battles. The change that technology provides takes longer because of a couple reasons: fear of change and cost. The “If I pay that much doesn’t that mean it’s better quality?” or “I’ve done it this way a 1,000 times, why would I change it?” questions also pop up.

There are many examples of how technology has upended an industry and created an uncomfortable disturbance, but in most cases it is for the benefit of the consumer and longevity of that industry.

Let’s take, for example, buying a car. How has that industry changed? There are so many different services and apps available to us to buy a car. You can see all of the options clearly and do side-by-side comparisons, as well as pull up reviews and comments from the millions of others doing the same thing. You can order a car and have it delivered to you! No more of the sitting at a dealership with the back-and-forth negotiation on price and options. Technology has made it simple so you can see what you’re getting and knowing what it costs. Transparency and efficiency.

Path of Automation

That same principle should be applied to a 401(k) plan.

The amount of time that goes into the creation of a 401(k) plan can be sluggish and somewhat archaic if you compare it to any other industry in which they’ve accepted the transition to new technology. Checklists and manual reviews of forms and documents to determine what a company wants for a 401(k) plan just shows how far we’ve strayed from the Ted Benna vision. How much paperwork do you have to go through before the plan has officially started?

It’s imperative that you incorporate automation to the retirement industry and more specifically 401(k) plans. If this is going to be prevalent, affordable—which it should be—it is only through technological advances and methods to get there.

Let’s automate the plan design options for immediate setup of the 401(k) plan. Let’s automate the enrollment process so the manual hours used to set it up and sit down and go back and forth is eliminated. Let’s automate the nondiscrimination testing, the annual notices, and lastly the tax filing. Automation is the time saver and in the end the equalizer for pricing and accessibility.

With automation in place it leaves much more time for the important elements that shouldn’t be snuffed out. Connecting with people and reinforcing the importance of saving and setting goals. Let the other “complicated” stuff turn and move like the cogs in a watch. Keep the time, serve its purpose, but not be a distracting contraption strapped to your wrist.

The 401(k) Groups

It is said that the multiple employer plan (MEP) was created to help small businesses. This type of arrangement is designed so you can group many employers under one 401(k) plan managed by experts. This would hopefully take the burden off the small business with fiduciary responsibilities assisted and costs being aggregated in one place.

There is a closed MEP and an open MEP (which will eventually change January 1, 2021).

The closed MEP can be sponsored by many types of organizations, more specifically associations, professional employer organizations (PEOs), chambers of commerce, and other type of employer groups. In other words there has to be a level of commonality connecting these type of employers under a closed MEP. The purpose of an MEP is to provide a one-size fits all solution for those businesses joining it. Not to mention the single Form 5500 filing.

One simplifying example of an MEP is buying products in bulk. You buy multiple items to get a discounted price. That discounted price should then carry into the overall cost. Therefore, an MEP should have better investment options, lower cost, and overall level of services rendered. At least, that is how they are advertised and promoted.

An open MEP does not have the commonality component to join employers together. There is still a plan document for each employer, and separate tax filings with the Form 5500. The idea is to have enough employers grouped together to demand pricing (see bulk buying example above) that is lower and additional have better access to high quality investments.

The next option, which is a version of an open MEP, is an Exchange Plan. Typically you have a third-party administrator that manages the Exchange for the administration and tax filing purposes, but all the employers are separate other than assets grouped together on one record-keeper. These are simply the precursor to a pooled employer plan.

These types of plans do, however, give a false sense of separation for the employer to the MEP in regard to fiduciary responsibility and costs—I would even say investments as well. All of the service providers in place come with a certain cost to managing the MEP, and it should be examined how these type of setups can ostracize businesses of a certain size. Furthermore, if the goal is to display the 401(k) as a benefit that should be simple and available to all, it’s not doing a good job of that in terms of leveraging technology over bulk pricing.

Think of it this way, if you can produce something without having to expend a lot of manual labor and the process is automated, it will be more affordable without the need to buy bulk. Another good example of this comes from the automobile industry again. The technology behind the assembly line and the ability to more easily make the automobile is what led to affordability.

So, what changes have happened in the retirement industry to allow for technology to dramatically reduce cost and raise saving potential?

The last couple decades we have seen an increase in contribution limits, auto-enrollment, and more recently with the SECURE Act the re-birth of what will be lovingly referred to as the “PEP” or Pooled Employer Plan.

The PEP is not new, but will certainly be in a new “form,” effective January 1, 2021 and will give opportunities for anyone to sponsor an MEP. No more commonality requirement, increased size for the MEP without a required audit (if none of the employers are over 120 participants), and a benefit group that can be established by financial organizations and business groups instead of just the expected PEOs, chambers of commerce, associations, and other employer groups.

These changes, however, do not again resolve the massive gap of Americans not saving for retirement or having a saving mindset at all. More than anything it does create a clamor of 401(k) industry professionals looking forward to how they can focus and bolster their own business by accommodating a new version of an MEP.

The traditional or legacy 401(k) providers would offer a multiple employer plan (MEP) or pooled employer plan (PEP) to solve the problem of affordable options for the small businesses, even though they know that that offering is certainly not on par for cost and efficiency.

Why buy in bulk for services that in comparison are going to cost your business less if you buy direct?

In most cases, the MEP option can be overkill for a small business. Overkill on price, overkill on services, and overkill on what is needed. So, the original statement about an MEP being made for the small business isn’t exactly true if you look at the prior examples of what technology does. Is it what a small business needs? In my opinion, no. The technology is out there to produce a competitively priced and meaningful 401(k) plan without the buying in bulk option.

Keep in mind, it will be the same organizations of service providers looking for the opportunity to promote an MEP that have been doing it for years. The PEP will be a new face and may help close the retirement gap by a very small percentage.

The 401(k) Syndicate

Now there have been a roll out over the years of Fintech companies offering “simplified” solutions for the 401(k), each having a different approach whether on pricing or what their technology can do. Make no mistake, these companies are trailblazers. They have made the path much easier to travel, but we are still left with a real dilemma on market saturation. There are still millions of Americans not saving for retirement and businesses not making the step to sponsor a 401(k) plan.

The old verses new tug-of-war is happening. Those most to benefit in this exchange, however, is the small business. The new Fintech wave of 401(k) providers is gathering to come crashing down (in a good way) on the small business, and the small business doesn’t even realize it. Also, it may seem odd as previously the small business was the least pursued by industry providers for the less than blatant reason of expense and time it takes to manage these smaller-sized plans and the ultimate payout for them.

But what if you could have a 401(k) group, a syndication, that allows all business sizes in with pricing and options that larger organizations command? A 401(k) Syndicate is a group of employers (mostly small businesses) that create a 401(k) plan on a Fintech solution, such as the platform 401GO offers. This platform is the perfect stage for every type of organization, including the financial advisors, PEOs, chambers of commerce, associations, medical groups, manufacturing groups, CPAs, payroll companies, etc.

The 401(k) Syndicate is a simplified version of the MEP. Think, MEP Lite. For example, imagine an association having a 401(k) offering, branded with their group, an automated structure in regard to administration, testing, notices, and annual filing, and the association holds no fiduciary burden nor a required expertise to offer such benefit. The automation makes plan setup fast, administration simple, integration with the flip of a switch, and most importantly, costs so low that the old or legacy service providers can’t fathom how something like that can be offered and remain in business.

This is what technology does. It simplifies, and it makes any industry adjust the baseline costs of an offering. Everyone can be ready for retirement; everyone can have access to a 401(k) plan. Instead of sponsoring an MEP or PEP as is predictably advertised, organizations should think about creating a 401(k) Syndicate. There now becomes the freedom of choice instead of the lack thereof.

A financial advisor can establish his or her own 3(38) investment lineup and provide their own models for a guided portfolio Robo-Advisor for their very own co-branded 401(k) Syndicate, and feel comfortable knowing these things are in place for businesses of all sizes to join.

The other more miraculous feature of a 401(k) Syndicate is that it can be set up in hours and not months. Also, there isn’t the locked-in mechanism that is so discretely masked with sponsoring an MEP. Furthermore, it can be a game changer for groups looking to provide a 401(k) benefit to member businesses—especially the small business!

In addition to the speed and efficiency of setting up this type of plan group is the transparent pricing. For 401GO the employer fees of $9 per participating employee a month (PEPM) are affordable for even the smallest business. Why charge a setup fee or a document fee when automation handles it? The manual steps, the data input, the process has all been simplified. As it should be! From the plan setup to the annual administration, the funnel into a 401(k) Syndicate is consistent and co-branded for the employer to have the look and feel of an MEP, but not all the extra expense.

Ultimately, there is no “release date” for a 401(k) Syndicate because it’s available now. No waiting until a legislative session. The technology is currently in place at 401GO, and more importantly will only make things easier, more affordable, and commonplace for a small business to have a 401(k) plan.

The post The Future of Retirement and the 401(k) Syndicate appeared first on Fast and Affordable 401k for growing businesses.

Step One: Decide to Offer a 401(k)

If a company hasn’t thought about sponsoring a 401(k) plan or some retirement plan for its employees, we would encourage a switch in thought. Saving for retirement and preparing for the future may seem a distant goal, but it would be even farther out of reach if there is no plan in place. The first step is to decide to have a 401(k) plan. I would suggest that this is something that is included in your discussion of other benefits, and not tossed in at the last second as an add-on for employees. Look at it as a crucial benefit that you wouldn’t want your employees to go without.

Why? Because it is every bit as important as any other benefits offered.

401(k) plans can be simplified and made easy through technology and automation. We cut out the difficult portion through the plan design offering to make it easy and understandable. Now, if you can simplify a 401(k) plan, what do you do about cost?

Well, the reality is that if you have 50 or fewer employees, you can essentially sponsor a 401(k) plan for free. Free? Yes, free! “Free.99.”

Step Two: Claim Your Credits

Companies with 50 or fewer employees that have not offered a qualifying retirement plan in the past three years and start a new 401(k) plan get the most tax benefits.

Here’s how it works.

First, set up a 401(k) plan through 401GO. 401GO helps with all the difficult stuff during and after setup.

Next, you pay just $9 per participating employee each month (and depending on the plan you choose, maybe a small base fee and AUM fee).

Finally, at the end of the year, you claim some pretty substantial tax credits for starting a new 401(k).

Since the SECURE Act 2.0 was passed, the tax credits for new plans cover all your administrative expenses.

• The startup administrative credit covers 100% of administrative costs for 3 years.
• The auto-enrollment credit give you an additional $500 per year for 3 years if you include auto-enrollment as a plan feature.
• You can even get credits of up to $1000 per employee for your matching contributions on a diminishing scale over 5 years.

So, let’s recap. If you have 50 employees and ALL 50 of those employees are participating, then your total cost for the year is roughly $5,400 through 401GO. You write off all of that with the startup administrative tax credit, and BAM! You now have the most affordable 401(k) plan ever along with the technology and automation of an amazing provider like 401GO.

Win. Win. Win.

For more information on the free 401(k) plan, please contact us. We’ll help answer any questions you may have.

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For those that aren’t aware of an MEP, it is a 401(k) plan that has two or more unrelated employers within it. The largest MEPs are sponsored by Professional Employer Organizations (PEOs), associations, and in some cases chambers of commerce. Regardless of who is sponsoring the MEP, I wanted to take a moment to look over the MEP option for small businesses and examine how it fits in regard to retirement and a 401(k) plan.

It’s important to look at the benefit of an MEP compared to a business directly sponsoring a 401(k) plan on their own. I’ve listed four things that make an MEP something to consider.

Why Employers Choose MEPs

1. Group Pricing – The more employers that join and participate in the MEP the more the assets and potential annual contributions will be. This allows for a reduced pricing from most service providers. Reduced pricing can help a small business that normally wouldn’t have the same access or buying power. “Economies of Scale” is the phrase most commonly used.
2. Investment Selection – When you have the size you can negotiate and in some cases demand better investment selections. Without going into the details, there are better investment opportunities in reference to the size of the 401(k) plan. An MEP provides such opportunities based on size and growth.
3. Provider Services – An MEP typically has three service providers to help navigate the 401(k) plan through the complex waters of ERISA. These include a financial advisor, third-party administrator, and record-keeper. Additionally, there have been an increase in adding another service provider, which is referred to as a 3(16) administrator.
4. Fiduciary Relief – There are quite a few things that are involved with a 401(k) plan, and a small business typically would have a difficult time keeping up with them. The organization sponsoring the MEP can elect a trustee or trustees to oversee the MEP, which means that the liability upon the employer is reduced (not removed…reduced).

These four points seem to meet all the criteria for a small business, correct? All the shapes go into the correct hole, and everyone is happy, right? It would seem so, but there is something missing. If this relationship with an MEP was so serendipitous, then why aren’t more small businesses starting up their 401(k) plan with an MEP, and why aren’t MEP sponsoring organizations pursuing them?

According to the DOL, there are 38 million employees of small businesses that do not have access to a 401(k) plan. 85% of those within businesses that have 100 employees or more have access to a retirement plan, while only 53% of those within businesses of less than 100 employees have access to a retirement plan. Many of those businesses reference cost as the primary reason to not start a 401(k) plan.

Group Pricing

If being part of an MEP provides such a luxury as reduced costs for employers, and these type of plans are tailored for the small business, then why aren’t they flocking to them? Sure, you could say that there is outreach to small businesses from the MEP sponsoring organization, but you can bet your bottom dollar that the attention is not on the smaller fish. Why would it be? An MEP full of small businesses would take much longer to be at a size that demands attention.

Bigger businesses bring higher assets and more contributions, and higher assets and more contributions bring more buying power. The small business doesn’t have much to offer in that respect. So, you couldn’t fault the MEP for not pursuing the small business, but it makes the option less available.

In addition to not necessarily being pursued, many small businesses that join an MEP and have under a certain amount of participation or assets are charged a separate annual fee. This is typically a fee to make up for the maintenance and administration costs that the small business has created, but hasn’t been making up for in assets and participation. I know that it sounds unfair, but it’s hard to keep up with the costs of an MEP and when a smaller business with only a handful of employees wants to join it just looks like more overhead expense.

Investment Selection

When comparing the type of investments available to a participating employer in an MEP to what is available on its own, there is a difference, but let’s not completely throw out the opportunity that investments, such as index funds, give to a small business sponsoring a 401(k) plan on its own. However, when the investment selection is considered “better” within an MEP it is just to say that their are more opportunities for the service providers to make more money. Revenue sharing on assets can often be found within these MEPs, and in many cases those aren’t considered appropriately in the overall expense for those participants in the plan (see 408(b)(2) information). It’s important to be aware of that and use that information when determining the total cost benefit to businesses within the MEP.

Keep in mind, I’m not giving any advice on where to put investments nor on how a business should invest. I’m merely saying that there are investment offerings that are low expense and available outside of an MEP. So, the idea that a small business gets the short end of the stick on investments because they aren’t bundled into an MEP solution, simply isn’t true.

Provider Services

An MEP is a complex 401(k) plan. It requires multiple service providers to successfully run it. That complexity comes with a cost. You have sign-up/document fees as well as quarterly and annual costs from the TPA, not to mention potential asset fees. The financial advisor takes his/her cut typically through an asset fee as well, and then the record-keeper has their fee (sometimes built into certain investments). The point is the costs for an MEP are relative to the size and scope of each of these service providers.

That being said, smaller MEPs can find themselves in a place of higher expense but no buying power to reduce those conglomeration of costs. In an effort to remedy those expenses, the MEP seeks out existing larger 401(k) plans to quickly balance the cost to service model. Larger 401(k) plans would, in some cases, have to perform an audit from an outside firm. This comes with a cost as well. So, what is done about it? Well, this is typically sold with the “Hey we can consolidate your audit fees in our MEP, and so the burden is held on many shoulders.”

Where does this leave the small business? With the recent SECURE Act the audit expense can no longer be spread out over assets of participating employers that wouldn’t, on their own, have to do an audit. In other words, the MEP has less need of a small business in their 401(k) plan because it lends no assistance on the audit costs. These MEPs are gold mines for auditors as well, as the complexity of the plan increases the costs for the audit.

You see where I’m going with this? Grouping together businesses into an MEP is a great idea, but when the overall focus is less on providing the 401(k) benefit to small businesses that wouldn’t normally offer it on their own, and more on existing large 401(k) plans, then opportunity and access to retirement is diminished, and the small business is again relegated to the corner. And “nobody puts baby in the corner.” (Sorry, I couldn’t help myself.)

Fiduciary Relief

This is a big one when you think about the complexities surrounding a 401(k) plan and the requirements quarterly, semi-annually, or annually are a burden or even a nuisance for a small business that is primarily focused on their bottom-line and staying afloat. That is a big selling point for a small business. Join an MEP and you will find the help with the fiduciary responsibilities that you don’t have time to do. This is a huge help for any business, and that is something that can’t be said enough. Whatever help you can provide and expertise to the small business in the same way with large businesses, then you are a-okay in my book.

I do want to mention, however, that even this point to an MEP isn’t exactly straightforward. A company owner always has fiduciary responsibilities. The MEP may handle the lion’s share, and the look and feel may be that the business is free from that liability, but for the sake of transparency you must know that that is not 100% the case. The business has selected the MEP, and has the responsibility to monitor them as a service provider. Additionally, if data that is provided to the MEP is flawed, the business would then have to correct it.

One way to see this more clearly is when a participating employer (business) does something that is “out of compliance” or requires a correction. The MEP’s sponsoring organization will (predictably) make efforts and take steps to show how they had upheld compliance for that particular employer and it was the employer who was at fault. Furthermore, the “bad apple” rule no longer applies to the overall MEP. What that means is that if one participating employer is out of compliance, the whole 401(k) plan is not out of compliance.

Keep in mind, the majority of the MEPs that I know out there do the right thing. If they are at fault, they correct it. If the employer is at fault, they work with them to correct it. What I’m trying to get at here is that the employer has liability, and is still a fiduciary. Joining an MEP does not remove that responsibility or liability from them. That message should be clear.

So, what does this all mean? Is a small business the right shaped block for the MEP box? It could be, but due to costs and the complexity of an MEP, it may be better for the small business to look at what technology can provide.

The Alternative to an MEP

There are other options out there for a 401(k) group. At 401GO we refer to them as a 401(k) Syndicate. Each company is aggregated under one co-branded 401(k) benefit group. This is an affordable option for all those involved, from a PEO to an association. Even a CPA could offer their own 401(k) Syndicate for their clients. It is imperative to us that a small business is given the same features and benefits of a retirement plan with a low-cost, high-quality 401(k) plan.

Ultimately, an MEP in my opinion gets a B grade. Why? Because they are providing a wonderful benefit to many businesses out there, and creating an awareness and need to save for retirement. The reason for a B grade is also because of the affordability and perceived access for a small business. The reason we don’t see a lot of small businesses flocking to an MEP is probably because the door hasn’t been opened to them.

The post Is an MEP Right for You? appeared first on Fast and Affordable 401k for growing businesses.

When it comes to saving for the future, it is usually with the perspective of anticipated and expected outcomes. Especially when we consider the goal of retirement. The outcome, we hope, is having sufficiently saved up or that things will be better off when that future event or moment arrives. The unprecedented spread of COVID-19 has changed all that for many people. In that respect, we understand that access to the 401(k) account can have a life-altering outcome.

On March 27, 2020 the over $2 Trillion dollar Coronovirus Aid Relief and Economic Security (CARES) Act passed. This legislation has many provisions in it to help with the situation that many face. More specifically, it provides unique access to the 401(k) account for those participating.

All these changes that affect the 401(k) can be immediately implemented by 401GO. We can accommodate these things for our existing clients now. It is important to people and thus important to us.

Those changes to the 401(k) plan from the CARES Act are as follows:

CARES Act 401(k) Withdrawal Parameters

• Withdrawals taken in 2020 (January 1 to December 31) will be penalty-free up to $100,000 from the 401(k) account

• Those who have been directly or indirectly affected by the COVID-19 outbreak are eligible for this withdrawal. Whether the withdrawal is for themselves, a spouse, or a family member. If they have suffered from an illness or financial setback through the loss of work, benefits, business, etc.

• Certification of eligibility happens on the participant level. In other words, the participant can certify the need and not the plan sponsor)

• The withdrawal can be paid back up to three years after it is taken. It will be paid back into either the 401(k) plan, from which it was withdrawn, or another retirement account, such as an Individual Retirement Account (IRA). If it is not paid back then it is taxable to the participant.

CARES Act 401(k) Loan Parameters

• Existing 401(k) loans from March 27, 2020 to December 31, 2020 can be delayed for one year. If it is delayed, it would still accrue interest for the time it is delayed.

• The 401(k) loan can also be extended out one year from the original term.

• 401(k) loans can be take from 100% of the vested account balance for up to a max of $100,000.

CARES Act 401(k) Required Minimum Distributions (RMDs)

• Distributions that are required for those of a certain age (>originally 70 1/2 and now 72) are waived for 2020.

• In other words, if it’s the first RMD that would be taken April 1, 2020 it is waived from having to be withdrawn.

These changes can be made upon request. They are available to those that are sponsoring a 401(k) plan. The plan document will eventually need to be updated. The deadline for that is January 1, 2022.

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