Top priorities for small business owners and other 401(k) administrators in 2022 include understanding how recent legislative changes (such as state-run auto-enrollment plans) will impact their retirement plans this year.
Employers take on a number of responsibilities when they act as administrators of their 401(k) plans, such as hitting key filing deadlines, understanding how employer contributions can affect employee retention rates, and keeping plan costs under control. These administrative duties can be taken off your hands when you partner with a leading small business 401(k) provider like Ubiquity. We not only make plan setup a breeze, but we oversee your plan to make sure that you are always in full compliance and staying on course to meet your savings goals.
Here are four tips for effective administration of retirement benefits in 2022.
1. Don’t Wait Until It’s Too Late
As of April 2022, workers are automatically enrolled in IRA retirement plans in four states—California, Connecticut, Oregon, and Illinois. Similar legislation has passed in seven states—Colorado, Maine, Maryland, New Jersey, New Mexico, New York, and Virginia—as well as the cities of Seattle, WA, and New York, NY.
In California, the final CalSavers deadline—affecting small businesses with five to 50 employees—is set to go into effect on June 30, 2022. Employers can opt out of these state-mandated retirement plans by offering their own flexible 401(k) plans.
If you operate in one of these states and haven’t contacted a 401(k) plan administrator yet, now is a great time to do it. Offering your own retirement savings program allows you greater flexibility in contribution amounts, investment selection, fees, eligibility, vesting schedule, and matching formulas.
2. Increase Your Contributions to Be More Competitive
The Great Resignation has taken a toll on employee retention across industries, so it may be time to consider increasing your employer contribution. In 2022, your employees can contribute up to $20,500, up $1,000 from 2021. Workers over 50 may contribute an extra $6,500 in catch-up savings. Employers can contribute $40,500 more, bringing an employee’s grand total to $61,000 or $67,500 for the year.
If you’re looking to be more competitive this year, keep in mind the average American employer is matching 6% of employee contributions.
If your small business is offering a SIMPLE 401(k), the maximum contribution limit is $14,000 with $3,000 allowed as an additional catch-up. Employers contribute a dollar-for-dollar match up to 3% of employee pay or a 2% non-elective contribution for each eligible employee. The compensation cap is $305,000 in 2022.
3. Meet Your Deadlines
There are a number of deadline-oriented tasks a good 401(k) plan provider will help you meet:
- 2/14/22 – Provide fourth quarter 2021 benefit statements to employees
- 3/15/22 – Distribute funds to correct a failed 2021 ADP/ACP test to avoid 10% excise tax
- 3/15/22 – If you’re an S Corp: fund 2021 employer contribution to take 2021 tax deduction
- 4/1/22 – Distribute RMDs to employees who became eligible for distributions in 2021
- 4/15/22 – If you’re a C Corp: fund 2021 employer contribution to take 2021 tax deduction
- 5/15/22 – Provide first quarter 2022 benefits statements to employees
- 8/1/22 – File Form 5500 or request a 2.5-month extension using Form 5558
- 8/15/22 – Provide second quarter 2022 benefits statements to employees
- 9/15/22 – If you’re an S Corp who filed for extension, you can fund 2021 employer contributions now
- 9/30/22 – If you modified your plan in 2021, deliver a summary of material modification to employees
- 9/30/22 – Send your 2021 summary annual report to employees
- 10/15/22 – If you’re a C Corp who filed for extension, you can fund 2021 employer contributions now
- 10/15/22 – File Form 5500 for 2021 if you received approval for extension
- 11/14/22 – Provide third quarter 2022 benefits statements to employees
- 12/2/22 – Provide 2023 notices for Safe Harbor, Qualified Default Investment Alternative, fee disclosure, and automatic negative enrollment
- 12/15/22 – Send summary annual report if you received extension
- 12/31/22 — Distribute funds to correct failed 2021 ADP/ACP test with 10% excise tax
- 12/31/22 – Distribute RMDs to employees who became RMD-eligible prior to 2021
- 12/31/22 – Make 2021 safe harbor contributions
- 12/31/22 — Sign any 2022 discretionary amendments
4. Consider What Fees You’re Paying
Many employers serve as sponsors of their 401(k) plans. As such, sponsors owe a fiduciary duty to shareholders that they will manage the plan with participants’ best interests in mind, keep plan expenses to a reasonable level, follow governing document terms, diversify investments, and oversee the plan with “care, skill, prudence, and diligence.” These requirements are outlined in the Employee Retirement Income Security Act of 1974 (ERISA).
Many fees can be avoided. For instance, your brokerage firm may have you tied up in costly investments. Low-cost options include index funds, institutional funds, and some target-date funds.
If you’re paying 1-2% for “investment advice” through your brokerage, consider switching to a certified financial planner who can get your plan on track with a one-time consulting fee.
Also, be aware that some 401(k) plan providers charge Assets Under Management fees and per-person fees that essentially penalize your plan for growing. Others – like Ubiquity – only charge a low, flat, transparent fee for plan administration. Contact us to learn more about starting your small business 401(k) in 2022.