Plan Participants: The More They Know, The Better

As a plan sponsor, do you feel your employees have a clear understanding of the company’s retirement plan?

Do most utilize it as a tool to save for retirement—and, if not, do they understand the benefit that they are missing? According to the 2022 PLANSPONSOR Participant Survey, 115 of 774 (14.9%) respondents opted not to participate in a workplace defined contribution plan for various reasons. 18.3% of those that declined to participate said it was because they need to better understand the benefits of participating. 15.7% said they needed their income for day-to-day expenses. 50.5% of the nonparticipating employees were between the age of 18 through 39, 44.3% were age 40 through 59. This means that participants of all ages would benefit from additional education and encouragement.

Getting Started

Automatic enrollment provisions are popular and allow participants to begin their employee contribution deferral at a default rate (stated in the plan’s document), such as 3%, unless they elect another amount or proactively opt out. Education materials come in many forms, from simple handouts to advanced retirement accumulation calculators. Information shared with participants during the enrollment process will vary based on the recordkeeper or investment platform where the plan funds are held; further resources may be provided by the plan’s investment advisor.

The Role of a Plan Investment Advisor

Meeting with an advisor can help participants understand how compound interest and dollar cost averaging can impact their long-term goals. An advisor can also help determine the contribution amount and appropriate investment options based on the participant’s retirement date and risk tolerance.

Considering Student Debt

If your plan offers an employer matching contribution, the optional matching contribution on student loan payments can be beneficial. Starting January 1, 2024, this allows participants to receive a matching contribution on their student loan repayments.

Plan Distributions

Including various distribution types in your plan document helps participants feel secure. Here are a few options:

• In-service distributions: Available if participants meet the requirements in the plan document, such as age 60 and 5 years of service.
• Hardship distributions: IRS “safe harbor” rules cover medical expenses, principal residence purchase, tuition, and other emergencies.
• Qualified Birth and Adoption distributions: Up to $5,000 per child within one year of birth/adoption, penalty-free.
• $1,000 penalty-free emergency withdrawal: Available once per year starting January 1, 2024.
• Distributions for domestic abuse survivors: Penalty-free starting January 1, 2024.

Beneficiary on File?

Keeping beneficiary designations current is essential, as life events can change intended recipients. Without an updated designation, default rules apply, which may lead to unintended consequences.

News Flash!

• Form 5500 Update: Effective January 1, 2023, large plans will be determined by participants with an account balance at the start of the year.
• Defined Benefit Plans: The Cycle 3 restatement window for pre-approved documents is open until March 31, 2025.
• Required Amendments: Deadlines for SECURE, CARES, and Miners Act amendments have been extended to December 31, 2025, for most plans.
• Form 5500 for Retroactively Adopted Plans: No Form 5500 due for the initial plan year if adopted retroactively, per SECURE Act Section 201.

Clarification

For participants turning 72 in 2023, the RMD age increase applies, with options to delay the first payment until April 1, 2025.