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Q1 Edition, January 2022
As your Third-Party Administrator (TPA), we are privileged to have the opportunity to work with you as a valued plan sponsor client. As part of our commitment to delivering industry insights to assist you, we are delighted to introduce a new quarterly plan sponsor newsletter in 2022!
Each quarter, we will deliver three articles, written by Kelsey Mayo, Partner, Lead Employee Benefits Attorney, Poyner Spruill, to keep you informed of legislative changes in Washington D.C., as well as provide best practice insights on various topics relevant to the management of your plan. We’ll also provide a quarterly “hot topic” article, that features a subject garnering attention in the plan sponsor community.
In this first quarterly issue (January 2022), Kelsey provides insights on the Build Back Better Act, that is making its way through the Senate, and outlines potential implications for you and your participants, should the Bill pass in its current form. In the best practice arena, Kelsey outlines the various tests in the upcoming testing season, and the steps plan sponsors can take now to begin coordinating getting census data ready on time. Finally, Kelsey provides a very important article on plan theft and outlines some of the best practice suggestions included in the Department of Labor’s 12 prong-cybersecurity best-practice summary (referenced here). We welcome you to our first quarterly issue and please feel free to reach out to us if you wish to further discuss any or all of these topics. Best wishes to you and your teams for a happy, successful, and safe new year!
Talk of the Build Back Better Act has been ubiquitous lately. At the time of this writing in December of 2021, the bill has passed the House of Representatives and is slowly making its way through the Senate (and the news outlets). Though discussions have generally centered on the bill’s proposed changes for healthcare and education, the Act also contains a number of retirement-related provisions.
A summary of these provisions from the bill’s most recent iteration is included below. Though the bill will certainly change, these touchpoints provide a window into current thinking in Washington.
The Act would limit and even completely curb Roth conversions. All individuals would be prohibited from converting after-tax contributions to Roth, beginning in 2022. This means that the “Mega Roth” plan design structures and “Back Door Roth IRAs” would have
to cease almost immediately if the Act is passed as currently drafted. In addition, certain high earners would be prohibited from making Roth conversions of pre-tax money (whether in-plan or in a Roth rollover) beginning in 2032 (assuming that provision isn’t walked back in the next 10 years!).
In the wake of publicity surrounding wealthy Americans with retirement accounts that total in the billions of dollars, the House passed a number of measures aimed at these large accumulations, although they don’t apply until 2029 (assuming the provisions aren’t walked back before that date).
A. Required reporting for large accounts. Your plan would have a new annual reporting obligation for any vested retirement plan accounts exceeding $2.5 million.
B. Required distributions from large accounts. If the total of a high earner’s account balances exceeds $10 million, that person would be required to take a minimum distribution the following year equal to 50% of the amount exceeding $10 million. An additional minimum distribution—aimed at limiting Roth accumulations—could apply if the aggregate balances exceed $20 million.
C. Cap on IRA contributions. High-earning individuals would be prohibited from contributing to an IRA if their aggregate defined contribution and IRA account balances exceed $10 million.
Notably, the limitations on IRA investments that were originally proposed are not in the version passed by the House.
Plan sponsors are encouraged to follow the bill’s progression. If your plan utilizes after-tax contributions, now is a great time to talk to your TPA and plan advisor about whether and how plan design changes can be implemented if needed to respond to the Act.