The 401(k) industry continues to evolve in 2024. This year’s focus will be on how retirement plans are set up and their contribution to improving financial wellness for plan participants. 401(k) recordkeepers and plan administrators must be aware of several changes to compliance and regulations.

This guide will provide an overview of key compliance considerations for recordkeepers and plan administrators in 2024. We will also discuss how these compliance changes impact recordkeeping and plan administration operations.

Key regulatory changes in 401(k) industry in 2024

1. Contribution limits

The Internal Revenue Service (IRS) increased the contribution limits for 401(k) plans in 2024.

The new limits are as follows:

  • Employee contributions: The limit on employee contributions (for traditional and safe harbor plans) will increase to $23,000 in 2024 from $22,500 in 2023.
  • Employer contributions: The total annual contribution amount (the sum of employee and employer contributions) will be $69,000 in 2024, up from $66,000 in 2023.
  • Catch-up contributions: Plan participants aged 50 and over can contribute to retirement savings under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The catch-up contribution limit is $7,500 in 2024.

These regulatory changes have several implications for recordkeepers and plan administrators. Recordkeepers must update their systems to reflect the increase in contribution limits, and the change demands rigorous monitoring of all employee plan accounts.

You must ensure participant contributions are within the new limits across all their accounts. It means additional responsibilities for recordkeepers and plan administrators regarding compliance checks and coordination with payroll departments.

2. Withdrawal rules

The SECURE Act 2.0 has relaxed withdrawal rules in 2024. Participants will now have flexibility for accessing retirement funds during emergencies.

The key changes are:

  • Penalty-free withdrawals for emergencies: The SECURE Act 2.0 has outlined exceptions allowing penalty-free withdrawals for specific emergencies. Employees can now withdraw up to $1,000 without incurring the standard 10% penalty for immediate financial needs related to personal or family emergencies. Additionally, they can repay this withdrawal within three years, adding a layer of financial planning for participants.
  • Special provisions for victims of domestic abuse: The Act extends penalty-free access to 401(k) funds for victims of domestic abuse. Survivors can withdraw up to $10,000 or 50% of the account balance, whichever is less. While income tax applies to the withdrawal, those who repay the amount within three years can receive a refund of the income taxes paid, showcasing a compassionate approach to financial recovery.
  • Emergency savings feature: The SECURE Act 2.0 introduces an emergency savings provision for defined contribution plans like the 401(k). It allows participants to contribute to a dedicated emergency savings account within their 401(k) plan, with contributions capped at $2,500 and made after tax.

The changes necessitate a proactive approach to updating recordkeeping and plan administration systems to ensure compliance. The introduction of an emergency savings feature adds complexity, requiring adjustments to account for after-tax contributions and potential penalties.

3. Changes to 401(k) employer match

The SECURE Act 2.0 introduces significant 401(k) matching rule changes. Employer contributions made on behalf of employees against qualified student loan payments will be considered matching contributions. Though subject to specific criteria, this innovative approach will significantly reduce the burden of student loans on employees. It supports financial wellness by integrating loan repayment assistance with retirement savings.

Recordkeepers and plan administrators require careful consideration while updating their systems. You must accommodate the treatment of student loan repayments as matching contributions, along with any necessary compliance checks.

Impact of the changes on recordkeeping and plan administration

The regulatory changes mentioned above will affect recordkeeping and plan administration operations in the following ways:

  • Increased workload: With increased contribution limits, there will be a significant increase in the number of employee accounts to manage. It means more data entry, monitoring, reporting, and compliance checks for recordkeepers and plan administrators.
  • System updates: Recordkeeping systems must be updated to reflect the new contribution limits, withdrawal rules, and any other regulatory changes. It requires significant time and resources.
  • Training: Recordkeeping staff must be trained on the new regulations to keep up with withdrawal rules and tax credit changes.

Compliance strategies for recordkeepers and plan administrators

Navigating the regulatory changes requires strategic planning and execution.

Here are some strategies that can help:

  • Regular training sessions can keep staff up-to-date with the latest regulations.
  • Robust recordkeeping systems help accurately track contributions, distributions, loan repayments, and other transactions.
  • Periodic plan reviews will ensure compliance with the new regulations and identify potential non-compliance issues.
  • Outsource 401(k) compliance to retirement plan industry experts like Congruent Solutions to ensure accurate and timely compliance checks.

Partner with Congruent Solutions to manage 401(k) compliance complexities in 2024. Our team of retirement plan industry experts is equipped to handle all aspects of your plan, from recordkeeping to compliance checks and system updates. Contact us today to learn how we can optimize your retirement plan administration and keep you ahead of regulatory changes.

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