Benefit Plan Adjustments to Accommodate SECURE 2.0 Act and Best Practices

SECURE ACT 2.0 was enacted in late 2022 and is aimed to help taxpayers bolster their retirement savings and help strengthen long‐term financial security. The bill includes many provisions to make it easier for small businesses to offer retirement savings plans and provides benefits to offset costs associated with establishing one.Many of the provisions will become effective at different times.

Some of these provisions may have a more significant effect on annual employee benefit plan (EBP) audits than others, and employers should be aware of how the provisions may impact their annual edit. Plan administrators and sponsors should monitor the following items to ensure compliance and alter plans accordingly:

• Employers may elect to allow employer contributions to be designated as Roth contributions for future tax benefits.
• Former employees with a balance of more than $7,000 in their workplace retirement account must transfer the funds into an individual retirement account.
• Certain existing rules that applied to 401k plans are applicable to 403(b) plans, including the long-term, part-time employee provision.
• Secure 2.0 simplifies the count for employee benefit plan audits and now requires plans with over 120 account balances (initial audits) or over 100 account balances (reoccurring audits) to undergo an audit.
• In 2024, student loan payments may be treated as employee-elected deferrals for purposes of employer matches.
• In 2025, ANY new 401k or 403b plans must automatically enroll participants as soon as they are eligible. Employees may opt-out, but if they do nothing, the deferrals will begin automatically.
  • Active plans are grandfathered in.
  • With automatic enrollment, employers may quickly exceed the employee benefit plan audit threshold.
• The Act changes the classification of long-term part-time employees from three years to two starting in 2025. This provision also extends the rules to 403(b) plans that are subject to ERISA.

Employee benefit plan audit best practices

In addition to the ongoing SECURE 2.0 Act changes, plan administrators and plan sponsors should be aware of the best practices for employee benefit plan audits. Our employee benefit plan audit specialists shared the following overview of EBP audit best practices:

• Know plan provisions
• Avoid unnecessary complexity
• Automate processes & calculations
• Create checklists
• Review SOC reports
• Reconcile contributions to payroll
• Ensure timely remittances
• Review financial reports
• Document plan oversight
• Be alert to new risks

This list includes some of the most basic best practices, and each will vary depending on your business, but this is a good summary of things to focus on when preparing for an EBP audit.

Members of our National Employee Benefit Plan Practice recently presented on SECURE 2.0 Act updates and EBP audit best practices, and more information on any of the SECURE 2.0 provisions or best practices is available by accessing the presentation recording.

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