401(K) Secure 2.0 Election Form

This guidance is written with the clinician owner in mind, assuming there is not a full-time resource to manage employee benefits and there is a desire to decrease additional administrative responsibilities. We hope this guide offers a framework for making and understanding the elections proposed. Where possible, we have identified provisions we feel strongly are in your best interest, as opposed to simple suggestions where you, as a plan sponsor, should understand the administrative burden versus the spirit of the optional provision. The suggestions below are general, more specific questions related to your business should be directed to tbodin@buckinghamgroup.com.

Self-Certification of Hardships: Answer “Yes.” STRONG SUGGESTION

This will decrease your liability and administrative costs. The provision allows a participant seeking a penalty-free distribution from their 401(k) account due to “hardship” to be responsible for justifying the hardship if the IRS were to ask for paperwork.

Increased Cash-Out Threshold: Answer “Yes.” STRONG SUGGESTION

This increases the limit to “force out” a non-responsive former employee from $5,000 to $7,000. This will help keep plans clean of former employees who are not responsive in moving their balance from the plan.

Long-Term Part-Time Employees (LTPT)

Historically, only eligible employees were allowed in a plan. We have generally defaulted to the most restrictive definition of eligibility, which is one year of service at 1,000 hours and 21 years or older. SECURE 2.0 created a new category of employee from the plan participation perspective. An LTPT employee is one who has worked between 500–1,000 hours for two years and is 21 years or older.

• LTPT employees may make Roth elective deferrals, if otherwise permitted by the plan: Answer “Yes” STRONG SUGGESTION LTPT employees generally have low taxable income. If the plan allows Roth deferrals, it is good to manage two conflicting plan provisions and allow an LTPT to leverage their likely lower income tax bracket.

• LTPT employees will be governed by the auto-enrollment provisions in the plan: Answer “Yes” STRONG SUGGESTION This will provide consistency in plan administration. If the plan provisions allow an exception to the auto-enrollment provision, it is best to keep this provision consistent.

• LTPT employees will be excluded from all coverage and non-discrimination testing: Answer “Yes” STRONG SUGGESTION We have traditionally excluded LTPT employees from the plan to control and limit employer costs. With LTPT excluded from testing, this will remain the case. LTPT employees will be able to make elective deferrals of their own earnings, but by not being included in non-discrimination testing, they will not be required to receive employer contributions such as safe harbor or profit sharing.

• The Eligibility Computation Period for LTPT Employees will be consistent with the Plan Document: Answer “Yes” STRONG SUGGESTION As with auto-enrollment provisions, we want to limit the responsibility of the plan sponsor to manage multiple provisions across different employee eligibility classes.

• Entry Dates for LTPT Employees will be the semi-annual entry date – the first day of the plan year and the first day of the seventh month of the plan year: Answer “Yes” STRONG SUGGESTION Again, we want to limit the responsibility of the plan sponsor to manage multiple provisions across different employee eligibility classes. We also want to limit the burden of entry dates for plan sponsors.

LTPT Employees and Contributions

LTPT employees must be allowed to make salary deferral contributions. Employer and other optional contribution types for LTPT can be elected below:

1. Employer Contributions (including QNECs), if applicable: Answer is “No” STRONG SUGGESTION
2. Matching Contributions (including QMACs), if applicable: Answer is “No” STRONG SUGGESTION
3. Safe Harbor Contributions, if applicable: Answer is “No” STRONG SUGGESTION
4. Rollover Contributions, if applicable: Answer is likely “Yes” MINOR SUGGESTION
5. After-Tax Employee Contributions, if applicable: Answer is “No” STRONG SUGGESTION
6. Top Heavy Minimum Contributions, if applicable: Answer is “No” STRONG SUGGESTION

Or all available Plan Sources: Answer is “No” STRONG SUGGESTION

The easiest option is to not check any options and keep LTPT employees limited to elective deferrals. The one exception is “4. Rollover Contributions.” This will allow an LTPT employee to roll over their own retirement balances from another plan into the 401(k). This will have minimal administrative burden on the plan sponsor and will not create an employer funding obligation, but it will allow the LTPT employees to consolidate retirement funds in a single account and consistently invest them.

Additional Stand-Alone Provisions

• Allowing Employer Contributions as Roth: Answer “No.” STRONG SUGGESTION By allowing employer contributions to be treated as Roth for the employee, the plan sponsor will increase their administrative responsibilities. The benefit likely does not exceed the employer’s additional administrative costs.

• Matching Student Loan Payments: Answer likely “No” MINOR SUGGESTION This provision would likely only apply to a top-heavy plan with a safe harbor match. Most top-heavy plans are a safe harbor contribution (flat 3% versus matching 4%). If your practice uses associate doctors, this can help garner loyalty and goodwill. Most associate doctors have considerable student loan debt and delay saving for retirement because of a lack of understanding of how to manage this debt. Note, if this provision is applicable to one employee, it is applicable to all. Likely a “No,” but there could be a benefit to “Yes.” We are happy to discuss your situation.

• Domestic Abuse Distributions: Answer likely “No” MINOR SUGGESTION From a purely administrative burden perspective, any qualified distribution takes paperwork and time. Self-certification will make these distributions less onerous. Allowing this distribution may significantly help a staff member in a time when access to financial resources is needed.

• Allowing Terminal Illness Distributions without a 10% penalty tax: Answer likely “No” MINOR SUGGESTION From a purely administrative burden perspective, any qualified distribution takes paperwork and time. Self-certification will make these distributions less onerous. Allowing this distribution may significantly help a staff member in a time when access to financial resources is needed.

• Required Minimum Distribution for Surviving Spouse: Answer “Yes.” STRONG SUGGESTION This will allow you and your staff greater financial and tax planning options if you are subject to RMDs. This option is mostly applicable to the participant and less to the plan administrator (you). Note this provision will likely go unutilized as the participant must be of RMD age with a balance in the 401(k) plan.

• Military Spouse Credit: Answer “No.” STRONG SUGGESTION While the spirit of this provision is admirable, the application will be onerous. This provision will create a third category of enrollment provisions to monitor (traditional full-time, LTPT and military and spouses).

• Emergency Expense Distributions: Answer “No.” STRONG SUGGESTION While the spirit of this provision is admirable, the application will be onerous. This provision has a strong likelihood of abuse by creating access to a $1,000 self-certification distribution option. The distribution is from the vested plan balance, which includes employer contributions. The goal of your employer contributions is to create a top-heavy plan for you and your family with the additional benefit of supporting your team's retirement, not annual lifestyle spending.

• Pension-Linked Emergency Savings Accounts (PLESAs): Answer “No.” STRONG SUGGESTION While the spirit of this provision is admirable, the application will be onerous. The provision provides for managing an employer emergency savings account funded by Roth deferrals into a separate, non-retirement account tied to the 401(k). This provision will create significant administrative and record-keeping burdens on plan sponsors.

• Top Heavy Contributions to Otherwise Excludable Employees: Answer “Yes.” STRONG SUGGESTION This provision relates to the LTPT provisions. By selecting “Yes,” you will be able to keep LTPT participants separate from traditional participants for funding safe harbor and profit sharing to maintain the top-heavy status of a 401(k) plan.

• Special Disaster Relief Rules The new disaster relief provisions are a three-pronged provision:

1. Qualified disaster recovery distributions: Answer likely “No” MINOR SUGGESTION.
2. Increased loan limits for qualified individuals: Answer likely “No” MINOR SUGGESTION.
3. Loan repayments to be delayed for one year for qualified individuals: Answer likely “No” MINOR SUGGESTION.

NOTE: If you choose to answer “Yes” to one of the above, you should likely answer “Yes” to all of the above.
From a purely administrative burden perspective, any qualified distribution takes paperwork and time. Self-certification will make these distributions less onerous. Allowing this distribution may significantly help a staff member in a time when access to financial resources is needed.

The above is written with the goal of balancing administrative responsibilities with your plan’s features. If you have any questions related to the above suggestions, please don’t hesitate to reach out. We are happy to discuss the impact on plan administration based on your selections.

For informational and educational purposes only and should not be construed as specific investment, accounting, legal, or tax advice. Certain information is based on third party data and may become outdated or otherwise superseded without notice. The suggestions are for general purposes and individuals should speak with a qualified financial professional based on their own certain business needs. Neither the Securities and Exchange Commission (SEC) nor any other federal or state agency have approved, determined the accuracy, or confirmed the adequacy of this information.