Your Retirement Plan: 1Q21 Action Items
A recurring theme we’re hearing this year from employers is that the year is already flying by. While, in some ways, January felt like a year in itself, we are already in mid-February. If you are not on top of your retirement plan compliance for the year, let us help you get there.
Here are a few important things to note for 2021:
1. Be aware of increased IRS penalties for filing your 5500 late!
Anything that could cause you to incur unnecessary expense is at the top of our list and this is a big one. IRS fees for filing your 5500 late have increased by 1,000%. Yes, you read that right. The late penalty for Form 5500 increased from $25 to $250 per day with the cap increasing from $15,000 to $150,000. Similar increases apply to Forms 8955-SSA and 8822-B so be careful. For many employers, this means watching for requests from your service providers to complete your year-end action items such as providing or verifying employee census data. If you have a Solo(k) that has grown to over $250,000 as of the end of 2020, please note this applies to you too! Additionally, if your plan requires an audit, your audit must also be filed by the deadline to avoid penalty.
2. Start tracking your part-time employees.
Remember the SECURE Act of 2019? One of the provisions included expanding the minimum participation requirements for 401(k) plans to long-term part-time employees who work over 500 hours in at least 3 consecutive years. This applies only to employee elective deferrals and NOT employer contributions. The clock started ticking January 1, 2021, which means if you have part-time employees who were not previously eligible for the plan, you now need to be tracking their hours and they will become eligible after meeting this requirement going forward. We recommend checking with your payroll service provider to ask if and how they can support you with this requirement.
3. Find out if your PPP loan will impact year-end benefit calculations.
If you utilized PPP funds for compensation to non-employee owners (sole proprietors, partnerships, LLC owners, etc.), you may have increased the earned income utilized for benefit calculations (profit sharing, etc.). Failure to follow the definition of compensation in your retirement plan can result in trouble (and costs) with the IRS so be sure to consult with your plan administrator and/or accountant to determine if this applies to you.
4. If you have had or predict future layoffs, be aware of partial plan termination rules.
While there has been some legislative relief in this area, in general, if you lay off 20% or more of your workforce, you may trigger a partial plan termination. If you trigger a partial plan termination, and you don’t follow the proper IRS process, you could end up with bigger issues, including a disqualification of the entire plan. If you are concerned this could apply to you, contact your service providers or call ZUNA for help.
5. Take advantage of the plan restatement period beginning now.
Most employers utilize pre-approved plan documents (also called prototypes) for their 401(k) plans. The IRS requires these documents to be restated every 6 years to incorporate regulatory changes that have occurred since the last restatement. The current restatement period for these plans began in August 2020 and goes through July 31, 2022. (Note: There are separate restatement periods for Defined Benefit and 403(b) Plans). While we have only experienced a few service providers who have already provided our clients with draft documents, now is a great time to have plan design conversations with your retirement plan advisor or service providers. From adding Roth and Roth conversion features, to considering auto-enrollment or escalation, take advantage of this required restatement period to get your plan in top shape for the coming 6 years. Call ZUNA if we can be of help.
2020 was a busy year for regulators and this update is not intended to be comprehensive, but to alert you to a few potential trouble spots. Please refer to the compliance calendar below for a general guide on what to plan for in the coming months. If you need assistance determining which of these action items apply to you, reach out to your ZUNA consultant or find us at info@teamzuna.com.
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2021 Plan Action Items:
March 15 - ADP/ACP Refunds due to avoid excise tax*
April 1 - Initial RMDs due to participants who attained age 72 in 2020
April 15 - Deadline to return excess deferrals
July 31 - Form 5500 deadline (if no extension)*
October 15 - Form 5500 due (if extension filed by July 31)*
September 30 - Summary Annual Report to participants
December 1 - Safe Harbor, QDIA, and Auto Enrollment notices to plan participants
December 31 - RMDs due to participants already in pay status
*For non-calendar-year plans:
The deadline for ADP/ACP refunds is two-and-a-half months following the close of the plan year.
The Form 5500 filing deadline (with no extension) is seven months following the last day of the plan year.
The Form 5500 deadline (with extension) is 9 1/2 months following the last day of the plan year.
Links to additional compliance related resources that may apply to you:
Year-End Planning for Retirement Plans: Topics include RMDs, Safe Harbor notice requirements, electronic notices, and incorporating SECURE and CARES Act changes into your retirement plan.
The New E-Delivery Rule - The Price of Simplification: More on electronic delivery of notices and increased cyber security risk.
IRS 401(k) Plan Checklist: Download this checklist that is not intended to be comprehensive but includes many of the important rules.