Tag Archives: 401k

New Hardship Rules…

From Associated Pension Consultants:

On November 14, 2018, the IRS released the proposed regulations on hardship distributions.  These proposed regulations provided us with insight into how the hardship distribution rules will be changing in 2019. These changes will impact 401(k) and 403(b) plans that offer hardship distributions.

  1. What are the main changes to the hardship distribution rules?
  • Elimination of the 6 month suspension of deferrals when a participant takes a hardship distribution.
  • Participant no longer has to take out a loan before applying for a hardship distribution effective 1/1/19.
  • Ability to include earnings in the hardship distribution calculations for 401(k) plans, but not in 403(b) plans.
  • Ability to include Safe Harbor Non Elective contributions, Safe Harbor Matching contributions, Qualified Automatic Contribution Arrangement (QACA), Qualified Non Elective Contribution (QNEC), Qualified Matching Contributions (QMACs) as available sources.
  • Added “primary beneficiary under the plan” as an individual for whom qualifying medical, educational, and funeral expenses may be provided (regulations had previously referenced only a spouse or dependent).
  • Added a new safe harbor expense reason of allowing participants impacted by losses to their principal residence to obtain a hardship if their residence happens to be in a federally declared disaster area.
  • Hardship distributions on account of damage to the principal residence that would qualify for a casualty deduction would continue to be allowed and not restricted to a federally declared disaster area. This was clarified in the proposed regulations.
  • The general standard for determining whether a hardship is necessary to satisfy a financial need has been simplified and this standard will apply effective 1/1/2020. The general standard is that:
  • The hardship may not exceed amount of need, adjusted for anticipated taxes and penalties.
  • The participant must have obtained all other available distributions under the plan.
  • The participant must represent that he or she has insufficient cash or liquid assets to satisfy that financial need.
  • The plan administrator may rely on this representation made by the participant.
  1. When does the 6 month suspension of deferrals go away?

The proposed regulation prohibits the use of the 6 month suspension of deferrals for hardship distributions occurring on or after January 1, 2020. However, in 2019 special rules apply.

  1. How should the 6 month suspension be handled on January 1, 2019?

The proposed regulations allow the plan sponsor to decide on any hardship distributions processed in the second half of 2018, as well as any hardships taken in 2019, whether they want to enforce the 6 month suspension.

APC recommends the following procedures to allow participants to continue to save for their retirement:

Hardship distributions processed in second half of 2018 – Should allow participants to restart deferrals on 1/1/19 and not continue the restriction until their 6 month suspension was originally set to end.  This is also subject to the rules of the fund company.  

New Hardship distributions processed in 2019 – Should not suspend deferrals of the participant for 6 months.

  1. When do the plan documents have to be amended for the new hardship changes taking into effect?

APC will notify you sometime in 2019 when we receive more guidance from the Internal Revenue Service (IRS) regarding the timeline of adopting the amendment to incorporate the new hardship provisions. Currently, we have no further information pertaining to the plan amendment.  However, the IRS will allow plans to start using the more relaxed hardship provisions on 1/1/19 in “good faith” prior to the formal amendment.

  1. Does the plan have to allow additional sources for hardship distributions?

The plan sponsor does not have to allow additional sources such as Safe Harbor contributions, Qualified Automatic Contribution Arrangement (QACA), Qualified Non Elective Contribution (QNEC), Qualified Matching Contributions (QMACs) in the calculation of the hardship distribution.

2019 Retirement Plan Numbers released

The IRS on Thursday increased the pre-tax contribution limits for employees who participate in a 401(k), 403(b) and most 457 plans to $19,000 from $18,500. That limit also applies to the federal government’s Thrift Savings Plan.

For participants ages 50 and over, the additional catch-up contribution limit, which is set by law, will stay at $6,000.

Meanwhile, IRA contribution limits were raised to $6,000 from $5,500 — the first time the IRS has increased the limits since 2013. The catch-up contribution limit for people 50 and over will still be $1,000.

IRA contribution limits were raised to $6,000 from $5,500 — the first time the IRS has increased the limits since 2013. The catch-up contribution limit for people 50 and over will still be $1,000.

  • 401(k) will be $19,000 (catch-up stays at $6,000)
  • Maximum compensation is $280,000 (up $5,000)
  • Defined Contribution limit is $56,000 (up $1,000)
  • Highly Compensated Employee income designation is $125,000 (up for $5,000 for the first time in many years)
  • Key Employee is $180,000 (up $5,000)
  • IRA finally went up to $6,000 (first time in many years it raised and catch-up remains at $1,000)
  • SEP remains at $600 for eligibility purposes (be careful, anybody that earns at least $600 in a year has that year count for eligibility)
  • SIMPLE has raised to $13,000 (up $500 for the first time in many years and catch-up remains at $3,000)

Make Sure You Take Sufficient Steps to Find Missing Participants

One more reason why discount 401k plan administrators are often not enough… Preferred TPA’s automatically roll your missing participants out according to the rules…

“When searching social media sites, it may be necessary to follow the trail to the missing participant’s family and friends, known affinity groups or professional organizations, as well as any book, sporting, and retirement clubs the missing participant may have connected with…. Work with the company’s legal department to subscribe to a robust public records database to assist in finding missing participants, their family members, and friends. Such lists may include telephone numbers…. Piggyback on the investigative tools and contracted resources already established by the company’s security team and fraud department.” – DOL Guideline when terminating a plan

Do you have missing participants in your 401K?

As employees terminate, they typically leave their balances with the prior employer.  In these cases, they are still participants – meaning you still pay to administer their account, and you have an obligation to communicate with them as much as any active employee.   This is not a problem, until you lose track of the ex-employee.  While it is not your Fault, it is still your responsibility under the law.

50% of Millenials in a recent survey learned of a retirement account with a previous employer they didn’t realize they had.

Enter the “Missing Participant IRA.”  The best solution is to get the ex-employee to take their balance with them when they leave.  Since that doesn’t always work, you need a mechanism to handle this.  With some of our clients we use a third-party outside service, but more and more high-end TPAs are providing this service automatically.

 

If you are concerned about COMPLIANCE in your 401k just give us a call.

Another 401k suit

NAPA is reporting another fee-based lawsuit against a Plan Sponsor:

“Yet another 401(k) provider and investment manager has been sued by one of its own participants for breaching its fiduciary duties to the plan – and while the claims are familiar, the venue is different.

This time the target is Mutual of Omaha in a suit filed last week in the U.S. District Court for the District of Nebraska by Berger & Montague and Schneider Wallace Cottrell Konecky Wotkyns LLP on behalf of Tamera S. Lechner, a participant in the plan, which had approximately 6,000 participants and some $500 million in assets.

Lechner alleged that the plan’s fiduciaries selected United of Omaha-branded investment funds “when each of these Omaha-branded funds invested all of its assets in another publicly available investment fund managed by an unrelated third party – causing the Plan to pay a fee to United of Omaha in addition to the fee charged by the underlying fund’s manager when the Plan could simply have offered the underlying fund and avoided paying any additional fee to United of Omaha.”

 

For the full article click here

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Reeve Conover is a Registered Representative. Securities offered through Cambridge Investment Research, Inc., a Broker/dealer member FINRA/SPIC. Cambridge and Conover Consulting are not affiliated. Licensed in SC, NC, NY, CT, NJ, and CA.
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