401(k) Contributions are Leaking from Participant Accounts at an Alarming Rate
A recent report by the Congressional Joint Committee on Taxation found that 22% of contributions into 401(k) and other workplace retirement savings plans were withdrawn early.
The contributions, made by employees aged 50 or younger, were distributed in the form of hardship withdrawals, loans, or cash-outs.
The most common reason for these leakages were:
- Leaving a job
- Becoming unemployed or suffering a negative income shock
- Making a home purchase
- Divorce or separation
- Large medical expense
- Tuition payments
During times of financial strain, particularly due to the pandemic, participants may be further tempted to pull funds from their retirement accounts.
What can plan sponsors do?
- Contact your financial advisor about creating a communications program for your plan participants.
- Ask your recordkeeper if they have any participant education materials that address financial planning topics that you can distribute to employees.
- Host webinars alongside your financial advisor to address participant questions on debt consolidation, creating an emergency savings outside of retirement, and other topics.
If you’d like more ideas about helping to address participant concerns, reach out to your SRC account representative.
–Chris Oneal, President, Stones River Consulting
DOL AND LEGISLATIVE CORNER
Mandated Automatic Enrollment is Coming Closer to a Reality
The Securing a Strong Retirement Act (also known as the SECURE Act 2.0) is likely to become law. The House Ways and Means Committee unanimously passed the bill, which is awaiting approval in the Senate.
The SECURE Act 2.0 retains most of the provisions outlined in the original SECURE Act (passed in 2019), yet there are some notable new provisions, including:
- Requiring all new defined contribution plans (e.g., 401(k), 403(b), and SIMPLE plans, etc.) to automatically enroll participants with at least a 3% contribution rate and increase the rate by 1% per year to at least 10%, but no more than 15%.
- Providing tax incentives to small businesses to encourage them to offer plans to their employees.
- Creating a national online database to monitor lost retirement accounts.
The mandate of automatic enrollment is significant, and while it remains widely supported by Congress, it will have real implications for small businesses.
Stones River Consulting will closely watch the movement of this legislation and keep you informed.
Important Deadlines to Remember
- IRS deadline for filing Form 5500 without an extension or filing Form 5558 to extend Form 5500 filing date. (TPA, Plan Sponsor)
- For S Corps or Partnerships with a tax extension, employer contributions must be remitted in order to take a tax deduction. (TPA, Plan Sponsor)
- Deadline to adopt a profit sharing plan for 2020 for S Corps or Partnerships with a tax return extension. (TPA, Plan Sponsor)
- IRS deadline for distributing Summary Annual Report (SAR) to participants unless a Form 5500 was extended. If extended, it is due December 15. (TPA, Plan Sponsor)
7 Signs Your Retirement Plan Needs an Upgrade
Retirement plans can be very complex if plan sponsors don’t have the right partner by their side to help navigate the ins and outs.
Stones River Consulting created a new guide titled, 7 Signs Your Retirement Plan Needs an Upgrade, that helps plan sponsors understand:
- What the four critical areas of a retirement plan are that need to be properly managed to maintain a successful retirement plan.
- Warning signs that a plan may be in danger of falling outside of compliance.
- How to get help to maintain a compliant retirement plan that benefits both the plan sponsor and its employees.
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