Spring 2020


Measure your plan’s success

Sponsoring a retirement plan for employees takes an ongoing commitment of time and resources. Even if your company’s retirement plan has been in place for some time, you’ll want to regularly review how well the plan is meeting its goals.

Reevaluate plan objectives

A good way to begin your review is by asking why you are sponsoring a retirement plan and what you want the plan to achieve. Employers have a variety of reasons for offering a retirement plan, and these reasons can vary by company size, industry and the skill/education levels of the workforce. Identify and prioritize your company’s specific goals for the retirement plan. Common goals include:

  • Assisting in employee recruitment and retention efforts
  • Helping employees save for retirement and incentivizing them to save throughout their careers
  • Motivating employees/rewarding strong performances
  • Maximizing benefits for key employees/company owners
  • Taking advantage of tax breaks
  • Minimizing complexity

Your goals and priorities may shift over time in response to changes in business or industry conditions, your workforce and the regulatory environment, as well as other factors. By answering these questions, you should gain a better understanding of how well your plan is meeting the goals you currently have for it.

  • Have the demographics and size of your full- and part-time workforce changed since you first offered the plan?
  • Have your business needs changed?
  • Does your plan help attract and retain talent?
  • Are your plan’s eligibility requirements a help or a hindrance to onboarding employees to the plan?
  • Are average contribution levels close to the benchmarks for your plan size and industry?
  • Are participation levels comparable with those of similar plans?
  • Are plan fees and expenses reasonable?

See if you can leverage automatic features

Recent research1 from Callan, an institutional investment consulting firm, found that plan sponsors rated participation rate/plan usage as the most important determinant for measuring the success of their retirement plan. Contribution/savings rate was the second most important factor.

Your plan’s design could be an impediment to boosting participation and contribution levels. By retooling your plan’s features, your plan may be able to move your employees closer to their retirement goals. Consider:

Auto enrollment. With this enhancement, employees who fail to enroll on their own can be automatically enrolled in a 401(k) plan. Contributions can be set at a 3% default deferral rate, though experts suggest a default of at least 6% of earnings.² Plan sponsors should also consider an auto enrollment sweep of all employees periodically. Employees must be allowed to opt out of auto enrollment.³

Auto deferral escalation. To boost employee contribution levels, consider implementing auto escalation to increase the contribution by at least 1% of earnings annually. Auto escalation can be applied to automatically enrolled participants who might otherwise fail to increase their deferral rates.

Consider making all employees immediately eligible
By eliminating eligibility requirements, your plan can give all employees the chance to participate from their first paycheck. In addition to increasing participation, this approach can reduce the time and effort spent tracking eligibility requirements and entry dates for every employee.

Assess other features
If the plan includes an employer match, consider whether the match structure is accomplishing the intended results and if the associated cost to your company is in line with expectations. Discretionary profit-sharing contributions are another employer funding option that might be considered. You’ll also want to review the existing vesting schedule to ensure it is optimal for achieving your goals.

Reduce asset leakage
Distributions and loans can have a negative impact on the retirement outcomes of employees. Plan sponsors should consider the following steps to minimize asset leakage.

  • Cashouts are one of the main sources of leakage from the retirement system.4 Consider allowing participants with smaller balances to retain savings in the plan upon separation from service. Another way employers are encouraging separating participants to preserve some of their account balance for retirement is by giving them the option to receive periodic installment distributions or partial distributions from their plan accounts.5
  • Offer participants access to educational materials or advisors who can outline options other than cashing out plan assets upon leaving the company or reaching retirement age.
  • In-service withdrawals are another significant source of leakage. Let participants know that funds withdrawn on account of financial hardship generally cannot be repaid to the plan or rolled over into an IRA or other qualified plan.6
  • Educate employees on the negative impact that loans can have on their long-term savings.
  • Consider changing the plan’s design so that the plan limits the number of loans each participant may take.
  • Make it possible for employees to use payroll deduction to fund an emergency savings account so that they won’t resort to using a distribution or a loan from their retirement plan account when they are under financial pressure.

Be proactive
While there are no guarantees that your retirement plan will be a success in terms of meeting your business’s goals and fulfilling the retirement hopes of your employees, there are strategies you can employ to increase the likelihood of success. The input from your UBS retirement plan professional can be invaluable.


SECURE Act changes to address in 2020

Retirement plan sponsors have several important issues to address now that the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) has become law. While some of the new law’s provisions don’t take effect immediately, there are some changes that could impact your plan as early as this year.7

Increase in required minimum distribution age
Under pre-SECURE Act law, the general rule has been that required minimum distributions (RMDs) from 401(k) and other qualified retirement plans must begin by April 1 of the calendar year following the year a participant turns 70½. Unless the plan provides otherwise, non-5% owners who haven’t retired from employment with the employer maintaining the plan may delay RMDs until after they retire. Effective for RMDs made after December 31, 2019, the SECURE Act generally changes the RMD age from 70½ to 72. However, the age 70½ rule stays in place for participants who reached age 70½ before January 1, 2020.8

As the result of this change, participants will have different required beginning dates depending upon their date of birth.

Illustration. Employee A, born March 3, 1949, reached age 70½ on September 3, 2019, and is not a 5% owner of the company. She will retire on October 31, 2020. Under the provisions of her company’s plan, her required beginning date is April 1, 2021 (April 1 of the year following the year she retires). Employee B, another non-owner, will also retire on October 31, 2020. He was born August 5, 1950, reached age 70½ February 5, 2021, and will celebrate his 72nd birthday on August 5, 2022. His required beginning date is April 1, 2023.

Please note:
With the passing of the Coronavirus Aid, Relief and Economic Security Act (CARES Act) on March 27, 2020, RMDs are suspended for all retirement plan and IRA participants required to withdraw funds from such retirement accounts between January 1 and December 31, 2020 (including required beginning date distributions for April 1, 2020). Please consult your UBS Financial Advisor for more information on the CARES Act.

Distributions to plan beneficiaries
The new law revises the period over which beneficiaries must take RMDs from a plan (or individual retirement account) following a participant’s death. With certain exceptions, beneficiaries of participants who die after December 31, 2019, must receive distribution of their entire interest within 10 years after the date of death. Only “eligible designated beneficiaries” will continue to have the ability to “stretch” distributions over life expectancy.9 Stretching distributions can be advantageous where a beneficiary wants to spread out his or her tax liability and keep inherited funds invested tax deferred for as long as possible. Eligible designated beneficiaries include the participant’s surviving spouse and minor children. Also eligible are designated beneficiaries who are totally and permanently disabled or chronically ill and medically certified as reasonably expected to remain so for a lengthy period. The final category of eligible designated beneficiary is any individual who is no more than 10 years younger than the participant. Note that children are no longer considered eligible designated beneficiaries once they reach the age of majority and have 10 years after that time to take their remaining interest.10

Penalty-free birth or adoption distributions
A new provision allows 401(k) and other defined contribution plans to make distributions to participants of up to $5,000 within a year of the birth or adoption of a child. Qualified birth or adoption distributions are taxable but are not subject to the IRC Section 72(t) 10% early distribution penalty and can be repaid to the plan as a rollover contribution, assuming the plan accepts rollovers. Only participants who are still eligible to make other plan contributions may repay the plan, although former employees who aren’t eligible to contribute may repay qualified birth or adoption distributions to an IRA.11

Plans may permit qualified birth or adoption distributions starting January 1, 2020, and new parents would likely appreciate the flexibility. On the other hand, some plan sponsors may decide to wait for additional IRS guidance clarifying open questions around implementation, such as how to substantiate a participant’s eligibility, before making a decision concerning this new feature.

Action steps
Plan documents, summary plan descriptions, rollover and distribution notices, distribution forms, and participant communications should be reviewed and revised to reflect pertinent SECURE Act provisions. The deadline for making plan amendments for SECURE Act changes is the last day of the first plan year beginning on or after January 1, 2022 (or a later date prescribed by the IRS).12


The saver’s credit can benefit plan participants

It is not uncommon for some employees to firmly resistjoining their employer-provided retirement plan. A smallminority have no interest in saving for a long-term goaland very little will persuade them otherwise. However,many of those who opt not to participate in theirretirement plan say that they just cannot afford to doso. They acknowledge that saving for retirement isimportant but feel that money is so tight they can’tafford the contributions.

Plan sponsors may be able to convince these employeesto participate in the plan by informing them about afederal income tax credit available to qualifying employeeswho contribute. Education about the credit could alsomotivate employees who currently contribute to boosttheir contribution levels.

The Internal Revenue Code Section 25B saver’s credit,known officially as the Retirement Savings ContributionsCredit, gives eligible employees a tax credit for makingcontributions to a retirement plan. Eligible plans include401(k), SIMPLE IRA, SARSEP, 403(b), 501(c)(18) and 457(b)plans, as well as Roth and traditional individual retirementaccounts (IRAs). The credit reduces an employee’s federalincome tax liability, potentially increasing the employee’stax refund or reducing the amount owed to the IRS whenthe employee files an income tax return for the year. Inessence, the credit repays a percentage of the contributionsthat eligible employees make to their retirement savingsplan accounts.

How much is the credit worth?
The credit is a percentage—either 50%, 20% or10%—of up to $2,000 of qualified retirement savingscontributions. Contributions can be up to $4,000($2,000 for each spouse) if married, filing jointly. Thepercentage depends on two factors: the employee’sadjusted gross income (AGI) and filing status. The employee must be at least age 18, not be claimed asa dependent on another person’s tax return, and not be afull-time student in order to claim the credit. An employeewhose AGI is greater than the top of the range for the10% credit cannot claim the credit.

Communicate the pluses of the credit to employees
Since many employees probably don’t know anythingabout this credit, employers may want to be proactiveabout communicating its advantages. All forms ofcommunication can help get the word out—face-to-facemeetings, e-mails, text messages and posters. The keypoint to communicate is that the savers credit makes itmore affordable to contribute to their retirement planby subsidizing a percentage of their contributions.

Our professionals can work with you to develop acomprehensive education strategy designed to moveyour employees closer to retirement security.

Credit rate

Credit rate

With Adjusted Gross Income (AGI)

With Adjusted Gross Income (AGI)


Married joint

Head of household

All other filers

50% of contributions

Up to$39,000

Up to$29,250

Up to$19,500

20% of contributions

$39,001 –$42,500

$29,250 –$31,875

$19,501 –$21,250

10% of contributions

$42,501 –$65,000

$31,876 –$48,750

$21,251 –$32,500

0% of contribution

More than$65,000

More than$48,750

More than$32,500

IRS issues final hardship regulations

401(k) plans that have hardship withdrawal provisions allow participants to access their savings early for certain reasons. But tax law restrictions place burdens on participants who take hardship distributions—and on the plans that allow them. Recently issued IRS regulations offer some relief. The final regulations closely follow the IRS’s proposed regulations and reflect various statutory changes made by 2018’s Bipartisan Budget Act and other legislation. The IRS says that plans that complied with the proposed regulations will satisfy the final regulations.1

While some changes are optional, others are mandatory for plans that allow hardship withdrawals.

Definition of hardship withdrawals

Previous rules said that a 401(k) plan may provide that an employee can receive a distribution of elective contributions from the plan on account of hardship. A hardship distribution may be made only because of an immediate and heavy financial need and only in an amount necessary to meet the financial need.2

Plans may make hardship distribution determinations based on all relevant facts and circumstances. However, for administrative simplicity, many plans instead rely on “safe harbors” in IRS regulations to determine whether a distribution is made on account of an employee’s hardship.

The safe harbor rules provide that distributions for certain types of expenses are deemed to be made on account of an immediate and heavy financial need. In addition, distributions are deemed necessary to satisfy an immediate and heavy financial need if certain requirements are met. Under prior law, one such condition was that, after the distribution was received, the employee could not make elective contributions or employee contributions to the plan (and any other plans maintained by the employer) for at least six months.3

What the final regulations say

The final regulations modify the safe harbor list of expenses in the existing regulations by:

  1. Adding the “primary beneficiary of the plan” as a qualified individual for whom medical, educational and funeral expenses may be incurred;
  2. Allowing hardship distributions for repairs of damage to an employee’s principal residence that would qualify for a casualty loss deduction, without regard to whether the loss occurs in a federally declared disaster area;
  3. Adding a new type of expense related to employee expenses incurred as a result of certain disasters.4

How to determine necessity

In addition, the final regulations eliminate the facts and circumstances test for determining whether a distribution is necessary to satisfy a financial need and adopt one general standard for determining necessity. Under the new regulations:

  1. The hardship distribution cannot be greater than the amount of the financial need (that includes any sum necessary to pay income taxes or penalties reasonably expected to result from the distribution).5
  2. The employee must have taken all available, non-hardship distributions from the plan or other plans maintained by the employer.
  3. The employee must provide a written representation that he or she lacks sufficient cash or other liquid assets reasonably available to satisfy the need.
  4. The plan administrator does not have actual knowledge that is contrary to the representation.6

Participants can make their cases for receiving a hardship distribution to the plan sponsor either in writing, via electronic medium, or in any other form prescribed by the plan administrator, including a phone call if that call is recorded.7

The final regulations also clarify that a plan generally may impose additional conditions to demonstrate necessity, such as requiring that employees first obtain all nontaxable loans available under the employer’s plans. However, a 401(k) plan may not provide for a suspension of elective or employee contributions as a condition of obtaining a hardship withdrawal.8

Expanded sources for hardship distributions

The final regulations expand the types of contributions that are eligible to be distributed on account of a hardship. Under the regulations, a 401(k) plan may make hardship distributions of elective contributions, qualified matching contributions (QMACs), qualified non-elective contributions (QNECs) and the associated earnings, regardless of when contributed or earned.9 Safe harbor contributions may also be distributed. A plan may limit the type of contributions available for hardship distributions and may exclude earnings from hardship distribution eligibility.10

Amendment deadlines

The IRS anticipates that plan sponsors will have to amend their plans’ hardship distribution provisions to reflect the final regulations. Any amendment must be effective for distributions beginning no later than January 1, 2020.11

Furnishing disclosures electronically: DOL proposes new alternative

The US Department of Labor (DOL) recently released proposed regulations outlining an optional safe harbor method for furnishing most ERISA-required participant disclosures. Under the proposal, retirement plans would be permitted to post the disclosures on a website instead of delivering them by hand, first-class mail or e-mail. Individuals who prefer to receive the disclosures on paper would be able to request paper copies and to opt out of electronic delivery entirely.12

Basic approach

The safe harbor adopts a “notice and access” disclosure framework. In broad terms, plans would post the information on a designated website, notify participants and beneficiaries of its availability, and provide instructions on how to access the information and how to request paper copies.13

Participants (and others) who have provided an electronic address, such as an e-mail address or smartphone number, or who have an employer-assigned electronic address, would be covered by the safe harbor.14 The safe harbor would be available for most of the documents that a plan administrator must furnish to participants and beneficiaries under ERISA. Examples include benefit statements, blackout notices, and the plan’s summary annual report and summary of material modifications. The plan would still have to separately provide documents that a participant or beneficiary has requested (for example, a copy of the summary plan description).15

Initial paper notification

Before providing any documents to a participant or beneficiary, the plan would have to provide the person with a one-time notification on paper explaining that some or all covered documents will be furnished electronically. This paper notification must include a statement of the right to request a paper version of the document free of charge, inform the person of the right to opt out and explain how to exercise the opt-out right.16

Notice of internet availability

Following the initial notification, plan administrators would be required to furnish a notice of Internet availability whenever a new document is made available on the website. (A combined notice may be used for certain documents.) This notice must contain:

  • A prominent statement, such as a title, legend or subject line that reads, “Disclosure About Your Retirement Plan.”
  • The statement, “Important information about your retirement plan is available at the website address below. Please review this information.”
  • A brief description of the document.
  • The website address where the document is available, which must be specific enough to provide ready access to the document.
  • A statement of the right to request and obtain a free paper version of the document and an explanation of how to exercise this right.
  • A statement of the right to opt out of receiving documents electronically and an explanation of how to exercise this right.
  • A telephone number to contact the plan administrator (or other designated plan representative).17

The system for furnishing the notices must be designed to alert the plan administrator of invalid or inoperable electronic addresses. In these instances, the plan administrator must either take reasonable steps to correct the problem, such as sending the notice to a valid, operable secondary electronic address, or treat affected individuals as if they had elected to opt out of electronic delivery and receive only paper versions.18

There would be some flexibility in the timing of combined notices. Under the proposal, these could be provided once each plan year. And where a combined notice was furnished during the prior plan year, the plan would have as long as 14 months following the date the notice was furnished to provide the current year’s notice.19

Website standards

The plan administrator would be responsible for ensuring that an Internet website exists that allows covered individuals to access the disclosures. Each disclosure posted on the website should be:

  • Available no later than the required date for furnishing the document under ERISA and remain available on the site until a newer version is available.
  • Presented in a manner that can be understood by the average plan participant.
  • Presented in a widely available format or formats suitable to be both read online and printed clearly on paper and that allow the document to be permanently retained in an electronic format that meets these standards.
  • Searchable electronically by numbers, letters or words.

In addition, the plan administrator must take measures to ensure that the website protects the confidentiality of personal information relating to any participant, beneficiary or other covered individual.20

Choices remain

The proposed safe harbor could prove to be more efficient than the DOL’s existing e-delivery safe harbor, although those rules, as well as the option to distribute documents in paper form, would remain in effect.21

Employers may want to follow developments closely. The proposed safe harbor would become effective 60 days after publication of the final rule and apply to plans on the first day of the first calendar year after publication.22

2020 retirement plan limits

Many of the annual dollar limitations that affect retirement plans will be higher for 2020 due to cost-of-living adjustments. The table below compares the limits for 2020 and 2019.23




Defined contribution plan dollar limit on annual additions



Defined benefit plan limit on annual benefits



Maximum annual compensation used to determine benefits or contributions



401(k), SARSEP, 403(b), and 457 plan deferrals



SIMPLE deferrals



Compensation defining highly compensated employee



Compensation defining key employee (officer)



SEP annual compensation triggering a contribution



IRA contribution



PBGC maximum guaranteed monthly benefit for a 65-year-old retiree



Social Security taxable wage base (affects plans that consider Social Security in determining benefits or contributions)



Does your plan have the correct fidelity bond coverage?

Most employer-sponsored retirement plans are required to purchase a fidelity bond to protect the plan against losses caused by the fraudulent or dishonest acts of “plan officials.”1 ERISA’s bonding requirements are sometimes misunderstood, however, and new insurance products available in the marketplace have only added to the confusion.

In response to evidence of noncompliance, the ERISA Advisory Council issued a report at the end of last year recommending that the US Department of Labor (DOL) release guidance explaining the bonding requirements.2 Given the risks associated with not having the right type—or amount—of coverage, plan sponsors may want to review their coverage soon.

Fidelity bonds vs. other types of insurance

An ERISA fidelity bond is not the same as fiduciary liability insurance. A fidelity bond provides protection against losses stemming from fraudulent or dishonest acts, such as larceny, theft, embezzlement and forgery. Fiduciary liability insurance is coverage that protects against losses sustained because of a plan fiduciary’s breach of fiduciary responsibilities. Similarly, insurance policies designed to protect a retirement plan against losses from social engineering and cybercrime do not satisfy ERISA’s fidelity bonding requirements.3 While plan sponsors should certainly consider securing these coverages, a fidelity bond would still be required.

Fidelity bonds must be obtained from a surety or reinsurer that is named on the Department of the Treasury’s Listing of Approved Sureties, Department Circular 570. Under certain circumstances, the bond could also be obtained from Underwriters at Lloyd’s of London.4

Identify the individuals who must be bonded

Plan fiduciaries and all others who “handle” plan funds or other property (“plan officials”) must be bonded, unless they are covered under a regulatory exemption. For example, bonding is typically required for officers and employees of the plan or the plan sponsor who handle the receipt, safekeeping, and disbursement of plan funds.

Note that “handling” plan funds or property isn’t limited to physical contact with cash, checks and similar assets. Individuals who have the authority to sign or endorse checks or to transfer funds or property, as well as those with supervisory or decision-making responsibility over such activities, also must be bonded.5

Verify that the bond amount is adequate

Each person generally must be bonded in an amount equal to at least 10% of the amount of the plan funds he or she handled in the prior year, with a $1,000 minimum. The maximum required amount is $500,000 per person (or $1,000,000 for a plan that holds employer securities).6

Where more than one plan is named on a bond, the above requirements apply on a per-plan basis. Moreover, the bond’s limit of liability must be sufficient in amount to insure each plan as if it were separately bonded. And the amount of coverage available to one plan cannot be reduced by the payment of a loss sustained by another plan.7

Check other features

Other important items to be aware of include:

  • The fidelity bond may not have deductibles or other features that transfer risk to the plan. (Note, however, that a deductible may apply to any coverage purchased in excess of the ERISA requirements).8
  • The bond must either provide for a one-year discovery period after the bond is terminated to discover losses that occurred during the bond’s term or it must give the plan the right to purchase a one-year discovery period following termination or cancellation of the bond.9

The fidelity bonding requirements can be complex. Please consult with your UBS Financial Advisor and legal advisor if you have questions.

More workers delaying retirement creates new challenges for plan sponsors

A recent analysis from the Pew Research Center finds that baby boomers are staying in the labor force longer than previous generations. In 2018, 29% of boomers ages 65 to 72 and 66% of those ages 54 to 64 were working or looking for work. In 1979, when members of the Greatest Generation were the same ages, only 19% of the older group and 58% of the younger group had not retired.10

Whether it’s because they want to or need to, a growing number of Americans are delaying retirement. Working longer can be key to a more financially secure retirement for several reasons. For one, it allows more time for workers to build their nest eggs through retirement plan participation and outside investing. Second, their nest eggs won’t have to stretch as far because they’ll spend fewer years in retirement. Also important is the fact that individuals who postpone collecting Social Security past full retirement age (now between 66 and 67) receive an 8% increase in their retirement benefit for each year they delay up until age 70.

In view of this trend, now may be a good time for plan sponsors to consider what steps they can take to address the needs of employees who have chosen to delay retirement past traditional retirement age. Plan sponsors will want to make sure that older employees have the tools and information they need to use their workplace retirement plan effectively and make a smooth transition to retirement when the time comes.

Promote higher contributions

Most long-tenured employees may already participate in your retirement plan, but are they maximizing their contributions? Chances are, at least some of them have not increased their contribution rate in years, if ever. Make sure employees know how much of their pay they can defer to the plan, and remind them that they should consider increasing their contribution amount whenever they can. Using illustrations that show the potential effect of a contribution increase on retirement savings can help reinforce the message. If your plan allows participants who have reached age 50 to make additional catch-up contributions, make sure employees understand how they can make a catch-up election and how doing so can help them build their savings more rapidly.

Encourage wise investment decision-making

How plan participants allocate their retirement assets among the different assets classes—stocks, bonds and cash—has a significant impact on portfolio risk and potential investment returns. As participants get closer to the time when they will start drawing on their retirement accounts, it’s especially important that they review the asset allocation of their portfolios to ensure they are comfortable with the amount of investment risk they are assuming. With a shorter investing time horizon and less time to recover from potential losses, participants may decide to take a more conservative investment approach by reducing their allocation to stocks.

Address retirement income and broader financial planning

One of the more difficult financial challenges for retirees is figuring out how much to withdraw from their retirement assets each year. Taking too much could deplete their assets prematurely; taking too little could unnecessarily compromise their retirement lifestyle or force them to pay an IRS penalty for failure to satisfy the tax law’s required minimum distribution provisions.11 Educating participants about this important issue before they retire—and encouraging them to seek assistance from a financial or tax professional—can help them make wise decisions later on. Education on broader financial planning topics, such as budgeting and reducing debt, can also help participants of all ages learn about strategies that may help improve their financial well-being.

Explain plan distribution options

Your retirement plan probably provides an explanation of the rules governing rollovers and the federal tax withholding on them, known as a Section 402(f) notice, to participants receiving eligible rollover distributions. However, preretirees may benefit from receiving additional information about the plan’s distribution options before they retire. Educating participants about the different ways they can receive their retirement plan benefits will help them plan appropriately as they prepare for the transition to retirement.

401(k) participant disclosures

Keeping employees informed about your 401(k) plan is an ongoing effort. Several notices must go out during the last months of the year, and other information about your plan should be distributed on an as-required basis throughout the year. Here’s a rundown of the key requirements.

Safe harbor notice.

A 401(k) plan that has a safe harbor design must provide eligible employees with a written notice describing the plan’s safe harbor provisions and employees’ rights and obligations under the plan. The time frame for distribution is at least 30 days and not more than 90 days before the beginning of every new plan year. Employees who become eligible to enroll in the plan after the beginning of the year should receive the notice no later than their eligibility date, but not more than 90 days in advance.12

Automatic enrollment notice.

Does your plan have an automatic enrollment feature? If so, employees should receive this notice 30 to 90 days before the beginning of the plan year. The notice explains the employee’s right to decline automatic enrollment, to make changes to the election amount, and to opt out of the plan altogether, and provides other relevant information. Employees should also receive the notice before their first plan contribution.13

QDIA notice.

A plan that uses a “qualified default investment alternative” must distribute this notice annually within a reasonable period of at least 30 days before the beginning of each plan year. It explains employees’ rights to designate how their contributions will be invested and how assets will be invested if they don’t make an investment election (i.e., a description of the QDIA and its investment objectives, risk and return characteristics, and any fees and expenses). The notice should also inform employees that they may transfer assets invested in the QDIA to other plan investment options and where they can get information about those investments. The QDIA notice also should be distributed to employees when they first become eligible for plan participation. (Specific timing requirements apply).14

Investment/fee disclosure.

Like many 401(k) plans, your plan may allow participants to direct the investment of their plan account assets. A participant-directed plan is required to periodically disclose certain plan-related and investment-related information, including a description of fees and expenses. Participants and beneficiaries should receive this information on or before the date on which they can first direct their plan investments and at least annually after that. Information about fees and expenses actually charged to individual plan accounts must be disclosed on quarterly statements.15

404(c) notice.

Additionally, a participant-directed plan that intends to satisfy the requirements of ERISA Section 404(c) must notify participants of that fact and include an explanation that plan fiduciaries may be relieved of liability for any losses that result from a participant’s investment instructions. If the plan allows participants to invest in employer securities, it must include certain information about how the confidentiality of transactions in those securities will be maintained.16

Blackout notice.

A plan is required to notify participants and beneficiaries of any blackout period lasting longer than three days during which they will be unable to direct their account investments. The notice generally must be provided at least 30 days before the blackout period.17

Special tax notice (Rollover notice).

Individuals who will receive an eligible rollover distribution from the plan should receive a Section 402(f) notice explaining the rollover rules within a reasonable period—generally 30 to 180 days—before the distribution is made.18

Other documents.

In addition to the notices described above, employees generally should receive a Summary Plan Description (SPD) within 90 days of becoming plan participants.19 If a plan amendment affects information that is required to be in the SPD, participants must receive an updated SPD or a Summary of Material Modifications (SMM) within 210 days after the close of the plan year in which the modification occurred.20 And a Summary Annual Report (SAR) generally must be distributed within nine months after plan year-end, or if the due date for filing Form 5500 is extended, within two months after the due date.21

The SECURE Act: What plan sponsors need to know

A new bipartisan bill in Congress, the Setting Every Community Up for Retirement Enhancement Act of 2019 (H.R. 1994),1 or the SECURE Act, could improve employees’ ability to plan and save for retirement, but it would also give plan sponsors some new responsibilities. Passed by the US House of Representatives on May 23, 2019 and currently awaiting a Senate vote,2 the SECURE Act, as currently drafted, would make several changes of potential importance to plan sponsors. These changes include.

Allowing long-term, part-time workers to participate in 401(k) plans.

This change would, except in the case of collectively bargained plans, require 401(k) plans to permit employees to make elective deferrals if they have worked at least 500 hours per year with the employer for at least three consecutive years and have met the age 21 requirement by the end of the three-year period. Since the US Bureau of Labor Statistics reports that millions of US workers are part-time employees,3 this part of the bill could have a substantial impact.

Simplification of safe harbor 401(k) rules. 

The legislation would eliminate the safe harbor notice requirement for safe harbor plans that provide for nonelective employer contributions of at least 3% of employee compensation (rather than employer matching contributions). Employers would have the ability to retroactively convert their plans to nonelective safe harbor status at any time prior to the last 30 days of the plan year. The change could be made as late as the end of the following plan year if a 4% nonelective contribution was made. Another provision would increase the cap on default rates under the auto enrollment safe harbor from the current 10% of compensation to 15% of compensation for years after default contributions have begun.

Fiduciary safe harbor for selection of lifetime income provider. 

This set of changes would provide certainty for Defined Contribution (DC) plan sponsors in the selection of annuity providers, a fiduciary act under ERISA. Fiduciaries would be offered an optional safe harbor with protection from liability for any losses that may result to a participant or beneficiary due to an insurer’s inability in the future to satisfy its financial obligations under the terms of the contract.

Portability of lifetime income options. 

The legislation would allow qualified DC plans, as well as Section 403(b) and Section 457(b) plans, to transfer lifetime income investments to another employer-sponsored retirement plan or IRA or distribute them in the form of an annuity. However, portability would be allowed only if the lifetime income investment was no longer authorized as an investment option under the plan. This change would allow participants to preserve their lifetime income investments and avoid surrender fees. A related provision would require that benefit statements for DC plan participants include a lifetime income disclosure at least once a year. This disclosure would show the monthly payments participants would receive if their total account balance were used to provide lifetime income streams.

Penalty-free withdrawals from retirement plans for the birth or adoption of a child. 

This change would allow plan participants to withdraw up to $5,000, penalty free, from their plan accounts within the one-year period following the birth or adoption of a child. Withdrawn amounts could later be recontributed to the plan tax free, subject to certain requirements.

Increase in age for required beginning date for mandatory distributions.

To factor in increased life expectancy, the legislation would raise the age at which plan participants and IRA owners are generally required to start taking minimum distributions from 70½ to 72 years old. A related change would generally require beneficiaries of plan participants (and IRA owners) to take distributions by the end of the tenth calendar year following the death of the participant. There would be exceptions for surviving spouses, disabled or chronically ill beneficiaries, beneficiaries who are not more than 10 years younger than the participant and minor children of the participant.

The bill also contains several other provisions that employers should note, including:

Forming multiple employer plans (MEPs). 

The legislation would allow employers with no common interest to combine forces and form an MEP. Each employer in a plan with a “pooled plan provider”—an outside provider responsible for administering the plan—would be treated as the plan sponsor with respect to the portion of the plan attributable to its own employees. Each plan sponsor would need to provide the plan provider with any information necessary to administer the plan. And to the extent not otherwise delegated by the plan provider to another fiduciary, each employer would have fiduciary responsibilities regarding the investment and management of its portion of the plan assets. In addition, there is protection from the “one-bad-apple” rule so that one employer’s failure to keep its part of the MEP in compliance would not result in disqualification of the entire plan.

Creating incentives for small employers to offer retirement plans.

Another provision would increase the credit for plan start-up costs to make them more affordable for small employers, while a related change would create a new tax credit for starting a 401(k) or SIMPLE IRA that includes an automatic enrollment feature or for converting an existing plan to an automatic enrollment design.

Repealing the age limit on IRA contributions. 

This change would repeal the current age limit of 70½ years old for making contributions to a traditional IRA.

Preventing retirement savings from being otherwise directed.

While some retirement plans offer participant loans through a credit card or some similar arrangement, this change would prohibit this option with the aim of better preserving participants’ retirement savings.

Plans adopted by the tax return filing due date for the year may be treated as in effect as of the close of the year. 

This change would offer employers more time to establish a plan and give participants the chance to receive contributions for that earlier year.

Combined annual reports for group of plans. 

This change would direct the Internal Revenue Service and the Department of Labor to accept the filing of a consolidated Form 5500 for similar plans, thereby reducing aggregate administrative costs and making it easier for small employers to initiate and sponsor a retirement plan.

Increased penalties for failure to file retirement plan returns. 

The intent of this increase is to encourage plan sponsors to file their plan information in a timely and accurate manner, as well as to improve tax administration.

The next step would be for the Senate to debate the bill’s contents. If the Senate has changes, the bill would be sent back to the House. If the Senate approves the bill with no changes, the bill would then be passed along to the President to sign into law or veto.

Preparing for retirement: What workers are doing and what stands in their way

The topic of retirement security has been front and center for plan sponsors, participants and employers for several years. Plan sponsors are very aware that many of their employees are stressed about their finances and worry about their ability to save or participate in their employer-provided retirement plans. The Employee Benefit Research Institute’s (EBRI) 2019 Retirement Confidence Survey examines in detail the extent of employee stress, the causes for this stress and how employees are confronting the barriers that stand in their way. Interestingly, the research also illustrates the steps employers can take to help move employees closer to retirement security.

Feeling stressed about preparing for retirement

The EBRI survey found that 20% of workers said they “strongly agree” and 39% “somewhat agree” with the statement that preparing for retirement makes them feel stressed. Workers say debt and competing financial priorities negatively impact their ability to save for retirement. The research found that debt is a huge roadblock to retirement and overall financial wellness.

To what extent does non-mortgage debt impact the following?








Save for emergencies




Save for retirement in general




Pay bills




Participate in or contribute to an employer’s retirement plan




Participate in or buy other employee benefits, such as life or disability insurance

Moreover, 55% of surveyed workers agreed that they are not able to save for retirement and save for other financial goals at the same time.

The current status of American workers

A sizeable percentage of workers report no or very little money in savings and investments. Nineteen percent report having less than $1,000 in savings and 40% report having less than $25,000. However, workers with a retirement plan have significantly more in savings and investments than those without a plan.

Worker savings amounts by plan vs. no plan

Plan status

Plan status

– $49,999

– $49,999

– $99,999

– $99,999

– $249,999

– $249,999

or more

or more

Plan status


– $49,999


– $99,999


– $249,999


or more


Plan status

No plan

– $49,999


– $99,999


– $249,999


or more


The Retirement Confidence Survey found that over six in 10 workers (66%) said that they or their spouses have saved money for retirement. Sixty-one percent report that they are currently saving for retirement. The survey iterates that the presence of a retirement plan at work clearly encourages employees to save for retirement.

Worker retirement savings behavior, by plan or no plan

Have personally saved any money for retirement



Plan status

Plan status



Plan status

All workers



Plan status




Plan status

No plan

Are currently saving for retirement



Plan status

Plan status



Plan status

All workers



Plan status




Plan status

No plan

What steps have workers taken?

Workers who calculate how much money they will need to live a comfortable retirement are more likely to actually do something positive to achieve that goal. The survey found, for example, that workers reporting that they or their spouse participate in a retirement plan are significantly more likely than those who do not participate to have attempted to calculate how much money they will need to save in order to live comfortably in retirement (50% versus 12%).

Other steps that workers report they have taken to prepare for retirement:

  • 39% estimate how much income they would need each month in retirement.
  • 37% calculate how much money they would need to save by the time they retired for a comfortable retirement.
  • 33% have thought about how much money to withdraw from their retirement savings and investments in retirement.
  • 31% have planned for an emergency expense in retirement.
  • 29% calculate how much they would need for retirement health expenses.

What plan sponsors can do

The research found that workers believe there are things that plan sponsors can do to help them with their retirement savings.

  • 22% say education or advice on how to manage competing financial priorities would be “very helpful.”
  • 20% say help with basic budgeting and day-to-day finances would be “very helpful.”
  • 17% say student loan debt assistance would be “very helpful.”

Measuring and predicting retirement income adequacy is important for plan sponsors and employers since it can help them benchmark their plans with their competitors. A deeper understanding of the issue can help them identify deficiencies in their own plans and take steps to realign their plans to better meet the needs of their employees.

Keeping a 401(k) safe harbor plan in compliance

401(k) safe harbor plans are widely used by employers—and for good reason. With a safe harbor plan design, yearly nondiscrimination testing of 401(k) salary deferrals and employer matching contributions is not required and highly compensated employees have the opportunity to maximize their deferrals. As with other qualified retirement plans, however, a 401(k) safe harbor plan must satisfy several ongoing requirements to maintain its status and stay in compliance. What follows is an overview of key requirements.


One of the tradeoffs associated with sponsoring a 401(k) safe harbor plan is that the employer must make specified contributions to the plan.

ADP test safe harbor. 

To eliminate the need for actual deferral percentage (ADP) testing, the employer must make nonelective contributions for all eligible employees or matching contributions. Nonelective contributions must equal at least 3% of compensation. The basic safe harbor matching formula is 100% of deferrals up to 3% of compensation and 50% of deferrals from 3% to 5% of compensation.4

Note that a plan may use an alternative matching formula, but it must meet the following conditions:

  • The aggregate match amount at each level must equal or exceed the amount determined using the basic formula.
  • The match rate cannot increase as the deferral rate increases.
  • The match rate applicable to any eligible highly compensated employee cannot be greater than the match rate applicable to any eligible non-highly compensated employee who has the same rate of elective deferrals.5

ACP test safe harbor. 

To satisfy the actual contribution percentage (ACP) testing safe harbor, a plan should limit matching contributions to no more than 6% of compensation and discretionary matching contributions to no more than 4% of compensation. Additionally, matching contributions for highly compensated employees may not exceed those made for non-highly compensated employees at any rate of deferral. Lastly, the matching contributions may not increase as the employee deferral rate increases.6

Safe harbor contributions must be 100% vested when made and be subject to the same withdrawal restrictions that apply to salary deferrals made under the 401(k) plan.7


A safe harbor plan must distribute a written notice to employees who are eligible for plan participation. The notice, which must be written in a manner understandable to the average eligible employee, should include the following information:

  • The safe harbor matching or nonelective contribution formula
  • Any other employer contributions under the plan—including the potential for discretionary matching contributions—and the conditions under which these contributions will be made.
  • The identity of the plan to which the safe harbor contributions will be made if it is different from the 401(k) plan.
  • The type and amount of compensation that may be deferred.
  • How a deferral election is made.
  • The periods available for making the election.
  • The plan’s withdrawal and vesting provisions.
  • How to obtain additional information about the plan—telephone numbers, addresses and e-mail addresses of individuals or offices that will provide the information.8

The safe harbor notice must be provided within a reasonable period before the beginning of each plan year.9 Notices are deemed timely if they are provided at least 30 days and not more than 90 days before the plan year begins.10 Outside of this window, the Internal Revenue Service (IRS) considers all the relevant facts and circumstances in determining whether the timing requirement has been satisfied.11 Safe harbor notices must also be distributed to any employees who become eligible for participation during the year, generally at least 30 (and not more than 90) days before their eligibility date.12

Notices for qualified automatic contribution arrangement (QACA) safe harbor plans must include additional information:

  • The level of elective contributions that will be made on the employee’s behalf if the employee does not make an affirmative election.
  • The employee’s right to elect not to have elective contributions made or to elect to have these contributions made at a different percentage of compensation.
  • How contributions under the automatic arrangement will be invested.
  • For an arrangement that provides two or more investment options, how contributions will be invested in the absence of the employee’s investment election.13

Mid-year amendments

Although the IRS permits employers to make various changes to their safe harbor plans during the plan year, certain mid-year changes are prohibited. For example, a mid-year change that reduces the number of employees currently eligible to receive safe harbor contributions would not be allowed. Plan sponsors can find more information regarding mid-year changes to safe harbor plans and notices on the IRS’s website.14