PLANADVISER - Summer 2023 - 37

about the new matching opportunity and how and when they
may take advantage of it. This could be done during enrollment
meetings and through communication materials.
5) Discrimination testing. Plans have the option to test
QSLP matching contributions either as part of the plan's
general discrimination testing or separately. As a result, the
QSLP matching contributions should not adversely affect a
plan's discrimination testing. Advisers can help the committees
work with their plan's recordkeeper on a best approach.
6) The provision is optional. This new QSLP matching
provision is not mandatory. The decision to add it is a
" settlor " function-i.e., a plan design decision-and not a
fiduciary act under the Employee Retirement Income Security
Act. Therefore, it may be made in the best interest of the
company. For instance, plan sponsors that primarily employ
blue collar workers may not see a need for this provision and
its administrative complexities and decide to do without it.
Next Steps
In sum, plan sponsors should consider whether they need
this provision to help recruit and retain college-educated
workers. For sponsors that want to add the match for 2024,
advisers can offer instruction and help them coordinate
implementation with the recordkeeper. But some sponsors
may prefer to wait a year or two to allow time for the systems
and educational materials to be developed and implemented.
More Compliance to Consider
The Opportunity to 'Rothify'
Employer Contributions
The SECURE 2.0 Act, which builds on the
Setting Every Community Up for Retirement
Enhancement Act of 2019, allows
plan sponsors to give participants the
option to treat matching and nonelective
employer contributions as Roth
contributions. This feature is optional
for both plan sponsors and participants.
If a sponsor does provide the option,
and a participant opts to use it, the
employer contributions will be taxed
through to the participant. However,
when the money is withdrawn, it will
be tax-free, as will earnings if held in a
Roth account for at least five years.
Advisers can assist plan sponsors
in deciding whether this change will
benefit the employer and help its participants
by considering the following:
Education. If the provision is adopted,
the adviser can instruct the participants
about the tax treatment of Roth
contributions. This option may appeal
especially to participants who expect to
retire in a higher tax bracket. In effect,
Roth treatment is a tax arbitrage or a
" bet " on higher tax rates in retirement.
And there are other advantages, such as
the ability of Roth accounts to avoid the
required minimum distribution rules.
Participants need to be educated about
these considerations so they can make
informed decisions about whether Roth
is right for them.
Full vesting. The Roth option can be
offered only where employer contributions
are fully vested. This makes the
feature less attractive to plans with a
vesting schedule. So, if a plan fully vests
its matching contributions, but not its
nonelective-i.e., profit sharing-only
the matching contributions could be
Rothified. Advisers can help plan sponsors
understand these nuances.
Administration. The Roth feature
may be offered this year; yet doing so
may be impractical. Payroll and recordkeeper
systems will need modification,
and communication materials will
need to be created before a sponsor can
realistically make the option available.
Financial Incentives to
Encourage Plan Participation
SECURE-for Setting Every Community
Up for Retirement Enhancement-2.0
permits 401(k) and 403(b) plan sponsors
to offer incentives for employees
to join the employer plan or to increase
their deferrals. Allowed will be " gamification "
for these plans as of plan years
starting after December 29, 2022, or
January 1, 2023, for calendar year plans,
and will likely be effective in increasing
participation and deferral rates.
Advisers should educate plan
committees about the option and the
conditions for avoiding plan disqualification.
The qualification issue arises
because the Internal Revenue Code
prohibits any financial benefit, other
than a matching contribution for
an employee's deferrals to a plan;
however, this new rule amends that
provision to permit the incentive if the
following is met: The employee who is
offered the incentive must be eligible to
make deferred contributions under the
plan; the financial incentive may not be
paid for with plan assets, though the
sponsor may pay for it; the financial
incentive must be a non-cash gift or
award; and the incentive must be " de
minimis. " While not defining the incentive,
the Senate Finance Committee
report uses as an example a low-dollar
gift card. The IRS will probably issue
guidance on the maximum allowed.
This new incentive will likely appeal
to sponsors that already use gamification-e.g.,
in wellness programs-and
that don't want to use automatic enrollment.
Advisers can educate the sponsor
and committee about this new option.
Joan Neri is
counsel for Faegre
Drinker's financial
services ERISA
practice in Florham
Park, New Jersey.
Fred Reish is
chairman of the
financial services
ERISA practice at
Faegre Drinker in
Los Angeles.
Awards & Innovation | Summer 2023 | planadviser.com 37
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