Things I Worry About (5): Long-Term, Part-Time Employees (1)


401(k), 403(b), plan sponsors, SECURE Act
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Key Takeaways

  • SECURE Act 1.0 required that long-term, part-time (LTPT) employees be allowed to defer into 401(k) plans beginning January 1, 2024 for calendar year plans. However, plan sponsors are not required to contribute for them.
  • LTPT employees for SECURE 1.0 are those who have worked at least 500 hours a year for three consecutive years, but didn’t satisfy a plan’s regular eligibility provisions.
  • SECURE Act 2.0 reduced the three-year requirement to two years and extended the requirement to private sector 403(b) plans. The 2.0 change applies in January 2025 for calendar year plans. As a result, if the new two-year requirement is satisfied, those LTPT employees must be allowed to defer into the plans for the first payroll in January 2025.
  • My concern is that plan sponsors—and particularly small plan sponsors (e.g., private schools with 403(b) plans)—may inadvertently fail to satisfy these qualification rules and put their plans in jeopardy.

The SECURE Act (“SECURE 1.0”) included a provision that required sponsors of 401(k) plans to include their long-term, part-time, or LTPT, employees in their plans for purposes of deferring part of their compensation into the plan. Plan sponsors are not required to contribute for those LTPT participants (e.g., matching contributions) even if they do for “regular” participating employees,  but they may.

For purposes of SECURE 1.0, a part-time, or PT, employee is an employee who works at least 500 hours a year, but not enough to satisfy the plan’s regular eligibility provisions. A long-term employee is a PT employee who satisfies the requirement for three consecutive years. The first contingent of qualifying LTPT employees must have been allowed to defer in January of 2024. (For purposes of this article, I’m assuming that plans are on a calendar year.)

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SEC 2025 Examination Priorities: Retirees and Rollovers


IRA, rollovers, SEC
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Key Takeaways

    • Over 11,000 people are reaching age 65 every day and most have retired or are contemplating retirement.
    • Many of those retirees will rollover money from retirement plans, including 401(k) plans, into IRAs.
    • The IRA investments will need to provide sustainable retirement income for the lifetimes of those retirees, with regular withdrawals to pay for their costs of living.
    • Many retirees will receive advice from broker-dealers and investment advisers who are subject to SEC regulation and examinations.
    • To compound matters, many of those retirees will, in due course, suffer from diminished cognitive abilities, reducing their ability to evaluate the advice they are being given.
    • The cumulative effect of these factors is that the SEC is focusing on advice to retirees and older investors, as reflected in the 2025 Examination Priorities.

The SEC’s Division of Examinations issued its 2025 Exam Priorities a few months ago. 2025-exam-priorities.pdf

Many articles have been written about those priorities, but none—at least that I have seen—have addressed the focus on retirees, older investors and rollovers. This article fills that gap.

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ERISA Moments Ep. 28: The 2024 Election and What it Means for Retirement Policy


ERISA

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments. See the newest episode, The 2024 Election and What it Means for Retirement Policy,  on the Spotlight on Benefits blog.

Watch the video on the Spotlight on Benefits blog.

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Things I Worry About (4): Automatic Enrollment (4)


401(k), 403(b), SECURE 2.0
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Key Takeaways

  • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022.
  • Unfortunately, it is likely that some of the affected plan sponsors will fail to automatically enroll their eligible employees on a timely basis.
  • My last post discussed the correction methods if the failures occurred due to a “reasonable administrative error” and were corrected on a timely basis.
  • This article discusses corrections for those failures if they did not result from a “reasonable administrative error” or if they were not corrected on a timely basis.

SECURE 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

Two earlier blog posts, Things I Worry About (1) and Things I Worry About (2), discussed the general requirements and my concerns about which employees must be automatically enrolled. My last post, Things I Worry About (3), covered the straightforward and low cost corrections in SECURE 2.0 where the failures were due to reasonable administrative errors and were corrected on a timely basis.

This one looks at correcting automatic enrollment failures, such as not enrolling the eligible employees when required, that are not due to reasonable administrative errors or are not corrected on a timely basis.

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The Last Rodeo


General

A Country and Western Retirement

I asked ChatGPT to write lyrics for a country and western song about retirement . . . about the uncertainty of moving into a new phase of life. Here is what I got:

(Verse 1)
I’ve spent all my life punchin’ that clock,
Dust on my boots, walkin’ the walk.
Built a name, carved it deep, strong and proud,
But now the quiet’s callin’ out loud.

(Chorus )
It’s the last rodeo, it’s time to ride on,
But I’m scared of the shadows, the dreams that are gone.
Will I still matter, when I lay my tools down,
Or fade like an echo, in a cold empty town?

(Verse 2)
Friends shake my hand, say “You’ve earned some rest,”
But this heart in my chest still pounds at my best.
I’ve lived for the rush, the workin’ man’s pride,
Now I’m fearin’ the silence waitin’ outside.

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ERISA Moments Ep. 27: The SEC Staff Speaks Out on Standards for Rollover Recommendations


ERISA

Take a quick dive into the exciting world of ERISA with Faegre Drinker benefits and executive compensation attorneys Fred Reish and Brad Campbell. In this quick-hit series of updates, Fred and Brad offer a high-level view of current trends and recent ERISA developments.

See the newest episode, The SEC Staff Speaks Out on Standards for Rollover Recommendations, on the Spotlight on Benefits blog.

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Things I Worry About (3): Automatic Enrollment (3)


401(k), 403(b), SECURE 2.0
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Key Takeaways

    • The SECURE Act 2.0 required that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
    • “New” plans include most that were established on or after the enactment date of SECURE 2.0—December 29, 2022.
    • Unfortunately, it is likely that some of the affected plan sponsors will fail to automatically enroll their eligible employees on a timely basis.
    • This article discusses corrections for those failures.

SECURE  2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

My last two blog posts, Things I Worry About (1) and Things I Worry About (2), discussed the general requirements and my concerns about which employees must be automatically enrolled.

This one looks at the provisions in SECURE 2.0 about correcting automatic enrollment failures, such as not enrolling the eligible employees when required.

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Things I Worry About (2): Automatic Enrollment (2)


401(k), 403(b), SECURE 2.0, SECURE Act
,

Key Takeaways

  • The SECURE Act 2.0 requires that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • Unfortunately, there are unanswered questions about how the automatic enrollment requirement will be applied. This article discusses two of those.

SECURE Act 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024 (the “applicable date”). Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just weeks from now.

My last blog post, Things I Worry About (1), discussed the general requirements and my concerns about those.

This one looks at two specific issues…automatic enrollment of “which” eligible employes and automatic enrollment of long-term, part-time employees.

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Things I Worry About: Automatic Enrollment (1)


401(k), 403(b), SECURE 2.0, SECURE Act
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This starts a new series of blog posts…Things I Worry About. I will number these, but they will be more episodic than sequential.

Key Takeaways

  • The SECURE Act 2.0 requires that “new” 401(k) and private sector 403(b) plans automatically enroll their eligible employees, but not until plan years beginning after December 31, 2024…just weeks from now.
  • There are some exceptions for small and new companies, but those exceptions expire as the number of employees grows or as time goes by.
  • I am worried that some of those plans may fail to begin automatically enrolling those employees next year, or as the companies grow, or as time goes by. The consequences of a failure can be significant.

SECURE Act 2.0 was enacted on December 29, 2022. Among its provisions is a requirement that “new” 401(k) plans and private sector 403(b) plans must automatically enroll their eligible employees, but not until the first plan year beginning after December 31, 2024. Since most participant-funded and participant-directed plans, such as 401(k)s and 403(b)s, operate on a calendar year, this article discusses the effective date as if it were for the 2025 calendar year—just over two months from now.

SECURE 2.0 defines a “new” plan as one established on or after its enactment date—December 29, 2022.

In effect, the law has two effective dates. The first is that the 401(k) or private sector 403(b) plan must have been established on or after December 29, 2022 and the second is that those plans are not required to begin automatically enrolling until January 1, 2025. (A plan established after December 31, 2024 will need to automatically enroll their eligible employees immediately.)

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The New Fiduciary Rule (52): The Loper Bright Decision and What it Means for DOL Exemptions (2)


2020-02, 84-24, DOL, fiduciary, prohibited transaction, reg BI
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Key Takeaways

  • The lawsuits against the DOL’s new regulation on fiduciary advice and the related exemptions—and the likely appeals—will probably last for years.
  • Two key issues in the lawsuits and appeals are whether the DOL has the authority to amend its existing regulation—the 5-part test—to cover one-time recommendations and whether the DOL has the authority to issue prohibited transaction exemptions that require a standard of care (e.g., prudence and loyalty) where the law does not otherwise.
  • The DOL will argue that circumstances have change since 1975, for example, the enactment of Code section 401(k) and the post-ERISA growth in the importance of those plans. As a part of that, the DOL asserts that rollover recommendations should be fiduciary advice and that the compensation from the rollover IRA (account or annuity) would be a prohibited transaction.
  • My last post, Fiduciary Rule 51, discussed the impact of the Supreme Court’s Loper Bright decision on the new fiduciary regulation. This post discusses the impact of Loper Bright on the validity of the amended PTEs, 84-24 and 2020-02.

As I explained in my last post, Fiduciary Rule 51, I have been asked whether the Supreme Court’s decision in Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce et al. could affect the outcome of the litigation about the validity of the DOL’s fiduciary regulation and related exemptions. The answer is “yes,” but perhaps not in the way you might think. This article discusses the Loper Bright decision in the context of a review of the DOL’s Prohibited Transaction Exemptions (PTEs) 84-24 and 2020-02.

To be fair, I am not an expert on constitutional law and I don’t want to create the impression that this is an authoritative article. Instead, my goal is to highlight the issues for consideration by the courts.

Continue reading The New Fiduciary Rule (52): The Loper Bright Decision and What it Means for DOL Exemptions (2) →

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