January 10, 2017

Retirement Savings: An Important Goal (article)

Savings Arrangements Established by Local Governments

In the waning days of 2016, the government continued its effort to boost retirement savings by providing guidance to local jurisdictions, such as cities and counties, to encourage employers sitused within their borders to provide retirement benefits. 


As background, in recent years, several states have attempted to encourage, particularly, small employers, to offer a retirement savings option to their employees (see Savings Options Aplenty, Benefit Beat, 9/12/16).  On December 20, 2016, additional regulations were issued specific to local jurisdictions requiring retirement savings.  In particular, this guidance attempts to ensure there is no conflict between state requirements versus local jurisdictional requirements. 


To this end, only certain qualified state political subdivisions are eligible to establish a payroll deduction savings program.  For this purpose, a qualified state political subdivision is defined as a governmental unit of a state, including any city, county, or similar governmental body that has:

  1. Authority under state law to establish and participate in a payroll deduction savings program;
  2. A population equal to or greater than the population of the least populated state (currently, Wyoming); and
  3. The capability to implement and administer a retirement plan

It should be noted that these types of plans cannot be created in states that already have a mandatory statewide payroll deduction program in place nor could a political subdivision have geographic overlap with another political subdivision with a program in place.


These rules become effective on January 19, 2017.


New IRS publication addresses automatic enrollment plans

Separate from the safe harbor guidance discussed above, the IRS released a new publication titled, Automatic Enrollment 401(k) Plans for Small Businesses.  This publication provides guidance and checklists for small employers who want to offer an automatic enrollment retirement program. It includes the core basics of establishing and operating an automatic enrollment plan, the fiduciary responsibilities, and the reporting and disclosure obligations.


Generally, there are three types of automatic enrollment arrangements available to small employers:

  1. A basic automatic enrollment 401(k) plan wherein employees would automatically be enrolled in the plan unless they elect otherwise, and a percentage of their wages would automatically be deducted from each paycheck as contributions to the plan.
  2. An eligible automatic contribution arrangement (EACA) which is similar to the basic automatic enrollment plan but has specific notice requirements. An EACA can allow automatically enrolled participants to withdraw their contributions within 30 to 90 days of the first contribution.
  3. A qualified automatic contribution arrangement (QACA) which automatically passes certain kinds of annual required testing. This type of plan must include certain features, such as a fixed schedule of automatic employee contributions, employer contributions, a special vesting schedule, and specific notice requirements.

It should also be noted that while this IRS publication focuses on automatic enrollment 401(k) plans, the IRS indicates that the automatic enrollment feature can also be used in 403(b), governmental 457(b), and SIMPLE IRA plans.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.      

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