Fiduciaries for employee benefit plans (EBPs) have a challenging job. Staying on top of regulatory changes is a critically important part of that job. Congress, the U.S. Department of Labor (DOL) and other government entities constantly amend, adjust and repeal legal and regulatory requirements. This article discusses some of the most important changes that are likely to affect EBP fiduciaries in 2024.
Form 5500 is a collaborative project by the DOL, the IRS and the Pension Benefit Guaranty Corporation (PBGC). It provides a single document the EBPs can use for the reporting requirements under the Employee Retirement Income Security Act (ERISA) of 1974. Calling it a “single” document seems misleading, of course, considering that there are several types of Form 5500 with numerous schedules.
The DOL and its partners announced changes to the 2023 Form 5500 in February 2023 that will affect Form 5500 and Form 5500-SF filings in 2024. The following are some of the most significant changes:
The revised Form 5500 has new schedules and updates to existing schedules. Many of these changes originated in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
The new schedules added to Form 5500 address distinctions made by the SECURE Act among different types of EBPs. The law establishes pooled employer plans (PEPs) and defined contribution groups (DCGs). Employers may now choose between PEPs, DCGs and multiple employer plans (MEPs). Form 5500 now includes Schedule MEP and Schedule DCG for the new types of plans.
The following schedules have undergone updates:
Plans that have fewer than 100 participants and meet certain other criteria qualify for simplified reporting procedures. The Form 5500 changes affect the methodology for counting plan participants to determine if they meet the 100-participant requirement.
The earlier methodology counted all employees who were eligible to participate in a plan, whether they were participating or not. The new methodology only counts individuals with account balances.
The idea behind this change is to encourage more employers to offer EBPs to their employees.
The new methodology delays the point at which plans must comply with the full reporting requirements, which should lead to reduced costs for employers who offer EBPs with fewer than 100 participants. Fiduciaries should confirm the number of participants in their plan as of January 1, 2023, as some plans that were previously subject to the full reporting requirements, no longer meet this threshold.
The SECURE 2.0 Act of 2022 built on the SECURE Act’s efforts to encourage employers to offer retirement plans as an employee benefit. Some significant changes include the following:
Employers will be required, starting in 2025, to make enrollment in new 401(k) or 403(b) plans automatic for eligible employees. This requirement will begin with a minimum participation amount of 3% and a maximum of 10%. Those rates will increase by 1% each year until they reach 10% and 15%.
Starting in 2025, long-term part-time employees will become eligible for retirement benefits after two years of employment. A “long-term part-time” employee is defined as someone who, starting in 2020, has worked at least 500 hours but fewer than 999 hours per year, for three years in a row.
The IRS announced new 2024 contribution limits based on the COLA:
Beginning with the tax year 2024, the $1,000 catch-up contribution limit for people who are at least 50 years old will be indexed to the IRS cost-of-living-adjustment (COLA). The limit currently remains at $1,000 but will now increase along with other contribution limits tied to the COLA.
SECURE 2.0 allows emergency access to retirement savings without penalties starting on January 1, 2024 in the following situations:
As of January 1, 2023, SECURE 2.0 raised the age when retirees must take required minimum distributions (RMDs) from 72 to 73. The minimum age will increase to 75 in 2033. The law also reduced the penalty for failure to take an RMD from 50% to 25%. Timely correction of a failure to take an RMD lowers the penalty to 10%.
Freed Maxick’s Employee Benefit Plan team consists of over 50 professionals who have been trained in the numerous rules and regulations impacting this industry. Laws like the SECURE Act and SECURE 2.0, as well as changes implemented by the DOL, have made substantial changes to the regulations affecting EBP fiduciaries. Freed Maxick’s Employee Benefit Plan team can help EBP fiduciaries navigate through these changes and make sure your plan is compliant with the various rules and regulations. Our team performs over 150 employee benefits plan audits annually and prepares over 150 Form 5500’s. Freed Maxick is a member of the American Institute of Certified Public Accountants (AICPA) and its Employee Benefit Plan Audit Quality Center.