Retirement Plan Task for Year End
Operational Required Changes for 2024
Long-term part-time employees: Although there is no amendment required to single employer retirement plan documents by December 31, 2023, there are operational requirements that you will need to implement and keep records of the choices you make to stay in operational compliance. For example, in 2024, employers need to consider the hours worked by part-time employees in 2021, 2022, and 2023 to determine if any employee worked 500 or more hours in each of those three years so that they are eligible to enter the plan and make elective deferral contributions as of January 1, 2024. As of January 1, 2025, the requirement will drop to 500 hours in each of any two consecutive years preceding years after December 31, 2022.
For purposes of calculating hours, (1) you can count the hours by each individual’s year measured by the anniversary of their date of hire, or (2) you can count the hours from the date of hire to the anniversary of the individual’s date of hire for the first year of employment and then switch and count each employee’s hours beginning with the January 1st immediately following the date of hire on a calendar year basis for every year thereafter (assuming your plan is on a calendar year).
Plan sponsors should check with their record keepers regarding what information will need to be fed to the record keeper for the part-time employees and whether the record keeper or the employer must determine which part-time employees qualify as long-term part-time employees under SECURE and SECURE 2.0. Employers are not required to provide this group with matching contributions or the same vesting schedule, so it is likely these will need to be noted as a separate group when entering the plan, and whether the employer must code these individuals in a certain way in the data feed or if the record keeper will have that responsibility will need to be determined.
Required Minimum Distributions: The rules for required minimum distribution timing changed first in the SECURE Act in 2019 and again in the SECURE 2.0 Act in 2022, with the mandated age at commencement being raised as well as other rules changing. While amendments to those provisions are not yet required, plan sponsors should check with plan administrators regarding how they are implementing such changes so the Plan remains compliant until such amendments are made.
Operational Optional Changes for 2024 for Plan in Existence on December 29, 2022
Optional Emergency Savings Accounts: Can be added to defined contribution plans to permit accumulations of up to $2500 as Roth contributions from which the participant can withdraw up to $1000 for a personal emergency without hitting the additional 10% tax for an early withdrawal. Adding this provision requires the payroll system to have access to the defined contribution plan savings account information to appropriately limit contributions from employees. This is an optional change worthy of waiting for further guidance on implementation. At a minimum, it requires the 401(k) plan’s record keeper and your payroll provider’s systems to be updated to administer the contribution limits before implementing this change.
Hardship withdrawals: In 2024 are permitted to be distributed from employer matching and non-elective contribution accounts. Plan sponsors should coordinate with their record keepers to be certain the record keeper’s system is updated to permit this change before implementing it or communicating it to employees.
Option to Match Student Loan Payments: In 2024, an employer may make matching contributions on student loan payments under SECURE 2.0. This is a change that requires substantial system changes for a record keeper and an employer, as well as plan administration changes. If an employer is contemplating adding this as a new feature, contact the plan record keeper and the Benefits department staff regarding how this will be implemented, as the statute currently allows student loan payments to be submitted up to 90 days after the end of the plan year, yet the nondiscrimination testing for non-safe harbor plans is normally completed by no later than March 15 for calendar year plans. So this could impact nondiscrimination testing for the plan. This is another change that requires careful coordination with all of the parties that will be involved in administering or record-keeping for this change.
New Withdrawal Options: SECURE 2.0 also permitted employers to adopt a number of new withdrawals or distributions that are optional but could be adopted as benefit changes if your plan’s record keeper is ready to implement these changes. If these withdrawals will be implemented by your plan, you will need an amendment to adopt them, as these are discretionary changes whose effective date needs to be communicated to the plan participants. These withdrawals include:
- hardship withdrawals with the employee self-certifying that they qualify for a hardship distribution;
- withdrawals for emergency expenses up to $1,000 without the additional tax, presumably to be withdrawn from the emergency savings accounts an employer may add to their plan;
- withdrawals for participants who are victims of domestic abuse;
- early distributions for participants with a terminal illness; and
- a special election by a surviving spouse of a participant to be treated as the participant for when required minimum distributions from the plan must begin after December 31, 2023.
If your plan is considering some of these changes, it is important to understand whether and when your plan’s record keeper and your benefits department and payroll department are ready to implement these changes and to document when each change is effective for your plan. These are all discretionary amendments, and they can be adopted later when guidance has been issued and record keepers are ready to handle these changes. Adopting these optional or voluntary changes will require the employer to disclose the change in the plan to the participants in an updated summary plan description or summary of the material changes to the plan so the employees are aware of it. You should document the time each change goes into effect so that the effective date of the change is documented for the plan amendment for SECURE 2.0.
Automatic Cash-out of Terminated Participants Limit: Effective as of January 1, 2024, your 401(k) plan can be amended to permit the plan to force participants with accounts less than or equal to $7,000.00 instead of $5,000.00 to be automatically distributed via a rollover to an individual retirement account. This is not a required change. So you will need to reach out to your plan’s record keeper to see if they are prepared to make the change in their system before you make a decision regarding your plan. If an employer decides to adopt this change as of January 1, 2024, it will need to understand how the record keeper will be administering this change so that the employer can document how it was implemented in a future plan amendment and incorporate the change into the summary plan description to communicate this change to the plan participants.
Fringe Benefit Update – Limited Duration Recruitment Tool
Tax-free Limited Payment of Student Loans: During 2023, 2024, and 2025, employers with tuition or educational assistance programs under Code Section 127 may use such plans to reimburse or pay an employee’s student loans up to $5,250 per calendar year. This requires a plan that is communicated to employees. This payment is not income subject to federal income taxation for the employee. It does require that the benefit be communicated to the employees, and any limits the employer wants to place on such a benefit should be included in that written communication. This could be a recruitment tool to reimburse a portion of the student loan debt of new employees without triggering federal income tax on the payment. Since this is currently scheduled to end on December 31, 2025, it may be worthwhile to consider adopting the required educational assistance plan. If started in 2023, this will permit an employer to assist an employee with student loan debt by reducing it by up to $15,750 over the three years (2023, 2024, and 2025) before this tax benefit ends on December 31, 2025, assuming the employee remains employed through December 31, 2025.
Health Plan Changes
The various groups in Washington, D.C., have provided many changes for health plans as well. For your health plans, you should verify that the insurer, or third-party administrator, or your plan’s broker (collectively the “TPA”) has done the following for your group health plan:
- Request that your TPA provide you with the Mental Health Parity and Addiction Equity Act comparative analysis on quantitative and non-quantitative treatment limitations and review it for compliance.
- Request an update from the TPA regarding its compliance with the No Surprises Act and how it will comply with the required disclosures, claim adjudication requirements, and determination of the amount to be paid for out-of-network health care providers, and the dispute resolution process for determining the amount to be paid.
- Request the TPA or the broker for your health plan to provide the required fee disclosure of all direct and indirect fees it will receive related to your health plan, and if they believe it is not applicable, the reason why they believe they do not need to require it. Analyze if the reason provided matches with how your plan is set up and how it pays claims.
- Request your TPA update you regarding the required reporting on medical and drug cost reporting, commonly referred to as the RxDC Reports, and if the TPA is filing such a report for your self-insured health plan or when it will provide such a report to you for filing.
- The Transparency in Coverage rules were issued in November 2020 and had a phased implementation process. Plan sponsors should request that their TPA provide them with a status update on the disclosure of fees and cost sharing information because as of January 1, 2024, all covered items and services must be part of the disclosure to participants.
- Watch the litigation challenging the preventive care mandates from the Affordable Care Act to be ready when the decision is ultimately final with a game plan for preventive care coverage.
- Review your plan’s coverage changes.
- Since the pandemic public health emergency has ended, review your plan’s coverage of COVID-19 testing and the OTC testing kits to be certain they accurately reflect what you want to cover for such items in 2024.
- Watch how your TPAs are addressing the extensions on certain deadlines from the COVID-19 extensions to ensure that they are addressing the end of the deadlines extended correctly.
- The pandemic’s national emergency permitted individuals to maintain coverage on Medicaid and CHIP until mid-2023. The extended period for persons losing coverage from Medicaid or CHIP has expired, but the federal government agencies encouraged employers to allow persons who lost coverage from CHIP or Medicaid to have a special enrollment period that extended longer than their original requirement. Employers should verify with their TPAs how long they are permitting employees to enroll for loss of coverage under Medicaid or CHIP and when such an extended period will end.
- Review any corporate transactions that occurred during the calendar year to determine when they became employees of an entity in the controlled group and you became responsible for their reporting obligations on Forms 1095-C and 1094-C, and verify that such reporting will be completed for such employees.
- Remember, the affordability percentage has decreased to 8.39% of income for the 2024 calendar year. This percentage is applied annually to determine if the coverage offered as self-only is affordable for purposes of the employer shared responsibility tax.
- Lastly, ask your TPA regarding how it is providing a no gag clause certification.
Many employers rely on their TPA or broker to manage some of these compliance requirements. Employers should verify that the TPA or broker is complying with all of the changes, as the penalties generally fall on the employer sponsoring the group health plan subject to these requirements.
The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for informational purposes only and does not constitute legal advice. For additional assistance related to changes coming to health and retirement plans in 2024, please contact Greta E. Cowart or a member of the Employee Benefits & Executive Compensation (EBEC) practice.
Greta E. Cowart has counseled employers for more than 30 years on best practices in human resources and employee relations related to benefits and executive compensation. In her practice, Greta routinely develops strategies for effective administration of claims and other disputes, including defense of grievances, and in ERISA claim litigation, while also considering applicable labor and employment laws. Greta also provides fiduciary training and review of fiduciary operations to improve the documentation of the fiduciary process.