• Nondiscrimination testing (ADP, ACP, and Top-Heavy tests) ensures that 401(k) plans provide equitable benefits by comparing the participation and contribution levels of Highly Compensated Employees (HCEs)—defined for 2026 as those earning over $160,000 or owning more than 5% of the company—against the rest of the workforce.

• For the 2026 plan year, individual deferral limits increase to $24,500 with a standard catch-up of $8,000 for those 50+, while the total annual additions limit (combined employer and employee contributions) rises to $72,000, alongside a specialized “super” catch-up of $11,250 for participants aged 60–63.

Sponsoring a 401(k) plan provides meaningful value to employees, but it also requires employers to demonstrate each year that the plan is working as intended. Nondiscrimination testing is the primary way the IRS evaluates that performance, checking whether contributions and participation patterns are balanced between highly compensated employees (HCEs) and everyone else. For plan sponsors, a clear understanding of these tests can support compliance and plan design decisions. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

What Nondiscrimination Testing Measures

Nondiscrimination testing compares participation and contribution rates between HCEs and all other eligible employees. The IRS defines an HCE as someone who owns more than 5% of the company or earned more than $160,000 in 2025, an increase from $155,000 in 2024. Compensation includes wages, bonuses, commissions, overtime, and salary deferrals. Employers may also apply the top-20% election, which limits HCE status to the highest-paid group of employees.

Accurately identifying HCEs matters because the distinction drives the annual compliance results. If HCEs defer at much higher rates than non-HCEs, the plan can fail testing. That could mean administrative work, refunds, and other corrective steps, which are outcomes most plan sponsors want to avoid. Knowing who falls into the HCE group early in the plan year helps sponsors monitor activity before issues develop. The IRS requires several tests at the end of the year to ensure compliance. 

The Required Annual Tests and Limits

Average Deferral Percentage (ADP) Test — The ADP test evaluates whether employee salary deferrals are distributed equitably between HCEs and non-highly compensated employees (NHCEs). After separating eligible employees into the two groups, the plan calculates each person’s deferral rate as a percentage of pay and determines the average for each group. The test is designed to ensure that owners and higher-earning employees are not contributing at levels far above the rest of the workforce.

The IRS sets strict limits on how far ahead HCEs may be. A plan passes the ADP test if the average HCE deferral rate does not exceed 125% of the NHCE average, or, alternatively, does not exceed the lesser of 200% of the NHCE average or the NHCE average plus two percentage points. 

Average Contribution Percentage (ACP) Test — The ACP test measures employer contributions; this includes matching contributions and any employee after-tax contributions, if applicable. After calculating the contribution rates for each participant and group (HCEs and NHCEs), it assesses whether employer contributions for HCEs fall within the IRS limits relative to NHCEs.

This test uses the same comparison thresholds as the ADP test: the HCE average cannot exceed 125% of the NHCE average, or the lesser of 200% of the NHCE average or the NHCE average plus two percentage points. Because matching formulas directly influence contribution rates, many plan sponsors look at ACP implications when reviewing plan design. Safe harbor plans, which provide required employer contributions, are generally exempt from both ADP and ACP testing.

Top-Heavy Test — The top-heavy test evaluates whether a disproportionate share of total plan assets is held by key employees. This is defined as someone who owns more than 5% of the company, owns more than 1% and earns more than $150,000 per year, or serves as an officer earning above the IRS compensation threshold for the year. Annually, the plan reviews account balances as of the last day of the prior plan year to determine whether key employees own more than 60% of total plan assets. The purpose is to see that the plan’s benefits are not concentrated among owners or company leaders. If a plan is determined to be top-heavy, it may be required to provide minimum contributions to non-key employees for that year.

Coverage Test — The coverage test ensures a 401(k) plan benefits a representative group of employees rather than favoring highly compensated employees (HCEs). A plan must pass either the ratio percentage test or the average benefit test. The ratio percentage test is the most common, and it requires that eligible NHCEs are covered at a rate that is at least 70% of the coverage level for eligible HCEs. Eligible NHCEs must be age 21 or over with at least one year of service. The ratio is calculated as:

(Eligible NHCEs in the plan / Eligible NHCEs employed) / (Eligible HCEs in the plan / Eligible HCEs employed).

Annual Limits — In addition to nondiscrimination testing, 401(k) plans must meet IRS limits that cap how much an individual can contribute or receive during the plan year. The first of these is the 402(g) limit, which applies to an employee’s combined pre-tax and Roth deferrals. For 2025, employees may defer up to $23,500, increasing to $24,500 in 2026. Participants age 50 and older can make additional catch-up contributions of $7,500 in 2025 and $8,000 in 2026. SECURE 2.0 also provides a higher catch-up limit for participants who turn 60, 61, 62, or 63 during the year; this special catch-up is $11,250 for both 2025 and 2026 and replaces the standard catch-up amount.  Any deferrals above the 402(g) limit must be returned by April 15 of the following year to avoid double taxation.

Another key limit is the 415 annual additions limit. This applies to all contributions that end up in a participant’s account during the year, regardless of the source. For 2025 and 2026, this limit is the lesser of 100% of the participant’s compensation or $70,000 and $72,000, respectively.

Next Steps for Plan Sponsors

Although nondiscrimination testing occurs after year-end, the factors that determine the results develop throughout the year. Plan sponsors may want to first focus on the two areas with the biggest impact on testing outcomes: 1) tracking compensation trends to anticipate who will qualify as an HCE, and 2) reviewing participation and deferral rates among non-HCEs, since these directly influence ADP and ACP results. Being familiar with the rules and checking in on these areas can help ensure the plan operates as intended and reduces the likelihood of corrections.

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Nondiscrimination testing is a major part of 401(k) administration, and plan sponsors have a key role in its success. Being proactive can help ensure the plan is compliant and positioned to meet the needs of employees across the organization. If you have questions about the information outlined above or need assistance with your next benefit plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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• Employees aged 50 or older with prior-year wages over $145,000 (indexed for inflation) who make catch-up contributions must designate those amounts as after-tax Roth contributions.
• Plans that offer Roth catch-up contributions to high-income participants must extend the Roth option to all participants eligible for catch-up contributions; otherwise, high-income employees in plans without a Roth feature will be unable to make any catch-up contributions.
• The mandatory Roth catch-up requirement applies for taxable years beginning after December 31, 2026. This follows a transition period that was set to expire on December 31, 2025, which has not been extended by the final regulations.
• Employers and plan administrators must prepare by updating payroll/recordkeeping systems to track prior-year wages, defaulting eligible participants’ catch-up contributions to Roth, and updating plan documents and participant communications.

The Treasury Department and the IRS have issued final regulations on catch-up contributions under the SECURE 2.0 Act. The regulations confirm that certain higher-income employees who make catch-up contributions to workplace retirement plans will be required to designate those amounts as after-tax Roth contributions. These rules will affect plan sponsors, administrators, and participants as they prepare for the upcoming compliance dates. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

Catch Up Contributions – Background

Catch-up contributions allow workers ages 50 and older to contribute additional amounts to 401(k) or similar retirement plans. SECURE 2.0 created new rules for higher-income employees, defined as those with more than $145,000 in wages from the prior year. These employees must make catch-up contributions as Roth. The law also introduced new higher contribution limits for employees between ages 60 and 63 and for participants in SIMPLE plans.

The IRS issued proposed regulations in January 2025 and requested public comments. A transition period announced in Notice 2023-62 gives plan sponsors until December 31, 2025, to update systems and processes before the requirement takes effect.

What the Final Regulations Say

The final regulations “generally follow” the proposals issued in January. Employees with more than $145,000 in FICA wages from the sponsoring employer in the prior year must make catch-up contributions as Roth, and that amount will be indexed for inflation. 

Plans that offer Roth catch-up contributions to higher-income participants must extend the option to all participants eligible for catch-up contributions. Plans without a Roth feature are not required to add one, but higher-income participants in those plans will not be able to make catch-up contributions.

Participants under the wage threshold may continue to make catch-up contributions on a pre-tax or Roth basis, depending on plan design. The enhanced limit for employees ages 60 through 63 stays in place at 150% of the standard catch-up, equal to $11,250 in 2025 compared with the standard $7,500 limit. SIMPLE plans also follow the enhanced structure, with participants in the 60 to 63 age group permitted an additional $5,250 in 2025.

The final regulations also make several important changes. Plan administrators are now permitted to aggregate wages from certain separate common law employers to determine whether an employee is subject to the Roth catch-up requirement.

As for correcting errors, if too much money is directed to a Roth account, plan administrators have until the end of the following plan year to make the correction. In addition, if a participant is no longer subject to the Roth catch-up requirement because of a reduction in wages or a corrected Form W-2, the automatic Roth treatment must end within a reasonable period of time.

The Roth catch-up requirement will apply for taxable years beginning after December 31, 2026. Plans that are ready may begin implementing in 2026 if they apply a reasonable and good faith interpretation of the statute. The final regulations do not extend the earlier transition relief beyond December 31, 2025.

Action Steps for Plan Sponsors

Employers and plan administrators should begin preparing now for the Roth-only requirement. Payroll and recordkeeping systems will need to track wages from the prior year to determine who is affected. Systems must also default those participants’ catch-up contributions to Roth.

Plan documents and participant communications should be updated to reflect the new rules. Sponsors will need to prepare for the higher contribution limits for employees ages 60 through 63 and the expanded limits for SIMPLE plans. Correction procedures should be reviewed and tested in case errors occur. Clear communication to employees will be important, particularly for those who may see catch-up contributions change from pre-tax to Roth.

FAQ — New Roth Catch-Up Rules

• Who is affected by the Roth catch-up rule? Employees ages 50 or older who earned more than $145,000 in wages from the sponsoring employer in the prior year. The amount will be indexed for inflation in future years.
• When does the requirement take effect? The Roth catch-up rule applies to taxable years beginning after December 31, 2026. Plans may implement the rule in 2026 and use a reasonable and good faith interpretation of the law. 
• What happens to employees under the threshold? Participants below the income threshold can continue to choose between pre-tax and Roth catch-up contributions, depending on what the plan allows.
• What if a mistake is made? The final regulations describe correction methods if catch-up contributions are incorrectly treated as pre-tax. Plan sponsors should review and update correction procedures to reflect the new guidance.

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The final regulations clarify that the SECURE 2.0 catch-up provisions will work in practice. Those who begin to plan now will be better positioned to meet the new requirements. If you have questions about the information outlined above or need assistance with your next benefit plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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• A total compensation statement is a personalized report that provides the complete dollar value of an employee’s pay and benefits, moving beyond the base salary to include items like health insurance, paid time off, and employer retirement contributions, which typically account for about 30% of total employer cost.
• The statement is particularly effective at demonstrating the substantial long-term value of employer retirement contributions (e.g., company match), which are often invisible in regular paychecks, thus encouraging greater employee plan participation and saving.
• Total compensation statements serve as a communication tool to boost employee awareness of benefit costs, support retention by showcasing the full value of the compensation package, and enhance recruitment efforts with a clearer, more competitive offer.
• For effective implementation, employers should aim for a simple, one-page layout with clear visuals (like a pie chart), deliver the statement during key events like open enrollment or performance reviews, and customize the content to ensure it is relevant to each individual employee.

Employees often look first at their paycheck when they think about compensation. That makes sense, since salary and take-home pay are the numbers they see most often. Other parts of the package such as health insurance, paid time off, and employer contributions to retirement plans may not be as visible. Yet these benefits represent a large share of what employers provide. Recent reports show that wages and salaries account for about 70% of employer costs for private industry workers, while benefits make up the remaining 30%.

A total compensation statement helps employees see this full picture. It brings together salary, benefits, and retirement contributions in one report. The statement shows the value of each component in dollars so that employees can understand what they receive. For employers, it is a simple way to communicate value, improve benefit engagement, and support retention. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

What’s a Total Compensation Statement?

A total compensation statement is a personalized report that shows the complete value of an employee’s pay and benefits. In other words, it looks beyond the paycheck. While a pay stub lists wages and deductions, a total compensation statement captures the full scope of what the employer provides to workers.

Typical components include:

• Base salary and bonuses
• Employer retirement plan contributions, including the company match
• Health, dental, and vision insurance
• Life and disability insurance
• Paid time off (vacation/sick days)
• Other offerings such as tuition assistance, wellness programs, or professional development

Employers often present this information with a simple visual. A pie chart, for example, can illustrate the share of wages and benefits as portions of the whole. These visuals make the information easier to understand and highlight the value of the entire package.

Spotlight on Retirement

Retirement contributions are one of the most important parts of compensation, yet they are also one of the least visible. They do not appear in take-home pay and may go unnoticed if not highlighted in some way, especially for younger employees who may not be thinking of saving for retirement. 

Here, employers can show the match formula, the employee’s current deferral rate, and the dollar amount of the employer contribution. A bar chart that places employee deferrals next to the employer match helps demonstrate the value of each type of contribution. For example, an employee who earns $70,000 and defers 5% contributes $3,500. If the employer match is also 5%, another $3,500 may be added. That creates $7,000 in total contributions for the year. Over a decade, that adds up to $70,000 before investment growth or salary adjustments. 

By presenting the numbers this way, employees can see that the match is not a minor add-on but a large part of overall compensation. It also provides employers with a way to highlight long-term value and encourage greater participation in the plan.

Key Benefits for Employers

Total compensation statements give employers a tool to communicate the full value of what is offered through employment with the company. Key benefits include:

• Awareness — Many employees underestimate what benefits cost until they see the figures. A statement that puts a price on insurance, time off, and retirement savings helps increase employee awareness. 
• Retention — When employees see the salary and benefits together as a total dollar figure, it puts compensation into perspective. They may be less likely to leave the current position for one that only offers a higher paycheck.
• Recruitment — That same visibility can help with recruiting. Salary is usually one of the first questions, but that’s not the total picture. Showing health coverage, retirement contributions, and paid time off in dollar terms helps an organization present a more competitive offer.
• Consistency — HR teams often answer many questions about benefit costs during the open enrollment period or during performance reviews. A compensation statement gives them a consistent tool to answer those questions. This saves time and ensures every employee receives the same message.
• Long-term value — Benefits are often invisible day-to-day. But by putting employer contributions next to salary, it elevates the organization’s role in helping employees prepare for the future. 
• Tips for Implementation — Employers that are introducing total compensation statements, or refining ones already in use, can keep a few practical steps in mind.
• Choose the right time — Open enrollment and annual performance reviews are common points in the year because employees are already focused on pay and benefits. Connecting the statement to those events makes it more likely that people will read and understand it.
• Keep the layout simple — Most employers include a table with labeled categories and dollar amounts, with the total compensation figure highlighted in some way. A one-page format is usually best, with a short FAQ or glossary available for anyone who wants more detail.
• Decide how to deliver it — Paper statements can feel more personal, while online portals or secure emails may be easier to update. The choice depends on the workforce and the privacy concerns of the organization.
• Customize as needed — Employees are more likely to value the statement when it includes only relevant information. For example, if a certain benefit is not available to an individual, it should not be listed. 

Some employers also include a section for optional benefits or resources employees haven’t signed up for, including retirement benefits, life insurance, and short-term disability. This can prompt greater participation in underused programs.

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Total compensation statements are more than a summary of pay and benefits. They are a communication tool that helps employees understand the value of retirement contributions and can be useful in driving plan participation. This is especially useful for increasing retirement savings.  If you have questions about the information outlined above or need assistance with your next retirement plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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• The most significant update to the DOL’s Voluntary Fiduciary Correction Program (VFCP) since 2006 is the creation of the Self-Correction Component, allowing plan sponsors to fix certain routine errors without the full application process.
• The SCC is available for minor errors, specifically late contributions or loan repayments where the lost earnings are $1,000 or less and the correction is made within 180 days. It also covers certain inadvertent loan failures eligible under IRS rules.
• While the SCC streamlines the process by substituting a full application with an online notice and email acknowledgment, plan sponsors must maintain robust documentation, including a completed checklist, lost earnings calculations, and a signed penalty-of-perjury certification, as the DOL reserves the right to review records.
• The DOL amended Prohibited Transaction Exemption 2002-51 to ensure that SCC corrections qualify for excise tax relief, mirroring the relief offered by the full VFCP, and removed the prior three-year limit on using this relief.

On March 17, 2025, the Department of Labor (DOL) announced its first major update to the Voluntary Fiduciary Correction Program (VFCP) since 2006. The program, a familiar tool for retirement plan sponsors, has always offered a way to fix fiduciary errors before they lead to enforcement action. In practice, though, the process often required more paperwork than many sponsors felt was reasonable for small, routine mistakes. The new rules introduce a Self-Correction Component and modernize several existing provisions, giving employers a new path to compliance while keeping the accountability standards of ERISA in place. To help clients, prospects, and others, Wilson Lewis has summarized the key details below.

Background

The VFCP was created under the Employee Retirement Income Security Act of 1974, better known as ERISA. It is the federal law that governs most private-sector retirement and health plans. It sets minimum standards for how plans must be run, requires fiduciaries to act solely in participants’ best interests, and prohibits conflicts of interest. When mistakes occur, ERISA gives the DOL authority to enforce penalties, but it also permits voluntary correction programs like VFCP to encourage compliance.

Until now, even minor problems in these areas required a full VFCP application. Sponsors had to prepare extensive documentation and wait for the DOL to issue a “no-action” letter. For small, routine mistakes, many found the process cumbersome.

When SECURE 2.0 passed in 2022, it required regulators to make self-correction easier for certain errors. Soon after, the IRS expanded its correction program, and the DOL has now updated VFCP.

What Changed?

The most significant change is the creation of the Self-Correction Component (SCC). For the first time, sponsors can correct certain errors without going through the full VFCP application process. Late contributions or loan repayments may now be self-corrected if the lost earnings are $1,000 or less and the correction is made within 180 days. Certain inadvertent loan failures may also qualify, but only if they are eligible under the IRS’s correction program.

Now, instead of preparing a full application, sponsors may submit a notice through DOL’s online portal and receive an email acknowledgment. However, unlike the traditional program, SCC does not result in a formal “no-action” letter. This means it’s the responsibility of the plan sponsor to keep proper documentation, including the emailed SCC notice, a completed checklist, lost earnings using the DOL’s online calculator, and a signed penalty-of-perjury certification. The DOL reserves the right to review records at any time.

Eligibility for SCC also comes with limits. Sponsors cannot use the self-correction process if the plan or applicant is already under investigation, examination, or enforcement by the DOL, IRS, or any other agency. SCC does not cover every type of loan issue; it applies only to those defined as “inadvertent” under the IRS rules. Larger or more complex issues still require the full VFCP application.

The DOL made other updates as well. It clarified correction methods for complex transactions, such as when plan assets have been sold and can’t be repurchased, or when leasebacks with related parties cannot simply be undone. It also created an option for service providers to submit bulk applications for multiple plans, reducing costs and administrative duplication. Finally, the DOL amended Prohibited Transaction Exemption 2002-51 so that SCC corrections, like full VFCP applications, can qualify for excise tax relief, and it removed a prior three-year limit on how often that relief can be used.

Next Steps for Plan Sponsors

For sponsors, the updated VFCP offers a quicker way to address routine errors while keeping the traditional program for bigger problems. Proactive steps include: 

• Review payroll and plan processes — The first step is to review processes to see where small mistakes might occur. If errors are found, under the $1,000 threshold, and corrected within 180 days, SCC may be the best option. 
• Update procedures — Incorporate the SCC option into compliance protocols, especially for routine, small-dollar errors.
• Train staff and service providers — Check that HR, payroll, and third-party administrators understand when SCC is available and how to submit an SCC notice.
• Keep strong documentation — Sponsors must keep complete records, including the SCC checklist, calculations, and signed certifications.
• Use the full VFCP as needed — Errors involving higher dollar amounts or more complicated issues will still require the full VFCP application.
• Consult advisors — Work with plan auditors to confirm whether an error qualifies for SCC or requires the traditional, formal application.

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The DOL’s new option is meant to handle the smaller, routine errors that come up in plan administration, but larger or more complicated problems still need the traditional VFCP process. In practice, the change may reduce the burden for plan sponsors while maintaining accountability. If you have questions about the information outlined above or need assistance with your next plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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• An independent ERISA audit is generally required for plans with 100 or more eligible participants at the start of the year (with the exception of the 80-120 rule). The audit reviews the plan’s financial accuracy and verifies that daily operations comply with the plan documents and regulatory standards.
• Preparation should focus on four core areas: ensuring Plan Documentation (plan document, amendments) is complete, verifying Participant Data (eligibility, compensation) is accurate, confirming Financial Transactions (contributions, distributions) are timely and correct, and evaluating general Plan Operations and internal controls.
• To ensure a smooth audit, plan sponsors should designate a primary contact, reconcile all financial activity and participant records with service providers (TPAs/recordkeepers), and proactively identify and correct known errors before the audit begins.
• Auditors are reviewing plan preparation for upcoming legislative changes, including new rules for Automatic Enrollment (starting 2025), changes to Required Minimum Distribution (RMD) ages, and the requirement to offer participation to Long-Term Part-Time (LTPT) employees.

Preparing for an ERISA plan audit often starts with understanding what the audit looks for and how daily plan operations support compliance. For plans that cover 100 or more eligible participants at the beginning of the year, the audit is a required part of filing Form 5500. But beyond meeting filing requirements, the process gives sponsors a chance to review how contributions are handled, how participant data is tracked, and how internal controls are working.

Planning ahead can make the audit process more manageable and help sponsors catch small issues before they grow into larger concerns. It also supports compliance and keeps the plan running smoothly over time. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Understanding ERISA Audit Requirements

Most retirement plans are governed by the Employee Retirement Income Security Act of 1974, known as ERISA. Once a plan covers 100 or more eligible participants at the start of the plan year, an independent audit is generally required. The audit reviews whether the plan’s financial reporting is accurate and whether daily operations match the terms set out in the plan documents and complies with other standards. Completed audit reports are filed with Form 5500 and made part of the plan’s public record.

There is one exception that can apply in some cases. Under the 80-120 rule, plans with between 80 and 120 eligible participants may be able to keep the same filing status as the prior year. For example, a plan that filed as a “small plan” last year could continue doing so if the participant count stays under 121.

The audit process serves a broader purpose than filing requirements alone. It gives sponsors and fiduciaries a clear view of how the plan is functioning, whether internal controls are operating effectively, and where improvements may be needed. Understanding what auditors look for is an important first step toward a smooth audit experience.

How to Prepare for an ERISA Audit

Preparing for an ERISA audit means making sure the plan’s records are complete, accurate, and aligned with how the plan is actually being operated. A few core areas typically draw the most attention from auditors.

• Plan Documentation — Auditors will review the official plan document, any amendments, adoption agreements, trust agreements, investment policy statements, and contracts with service providers. These documents show how the plan is designed to operate and serve as a baseline for comparing actual practices.
• Participant Data — Accurate participant records are critical. This includes verifying eligibility, hire and termination dates, compensation details, and participant status, whether active, terminated, or retired. It is common for audits to find discrepancies between payroll data and plan records, so reviewing participant information ahead of time can prevent issues.
• Financial Transactions — Auditors also review how contributions, distributions, loan repayments, and investment activity are recorded and processed. Employee contributions must be remitted timely according to Department of Labor standards. Delays or inconsistencies can trigger findings and may require corrective action.
• Plan Operations — Beyond records, experienced auditors evaluate how the plan operates day to day. They review whether contributions are deposited promptly, whether loans and distributions are processed according to the plan’s terms, and whether internal controls are functioning properly. Strong daily operations help ensure that plan activities align with both regulatory requirements and plan documentation.

SECURE 2.0 Regulations to Watch 

The SECURE 2.0 Act introduced new requirements for retirement plans. Although some provisions take effect in future years, auditors are already considering how plans are preparing for compliance. Key SECURE 2.0 changes include:

Automatic Enrollment — Most new 401(k) and 403(b) plans established after December 29, 2022, must implement automatic enrollment starting in 2025.

Required Minimum Distributions — The age for RMDs has increased from 72 to 73 for individuals born between 1951 and 1959 and will rise to 75 for those born in 1960 or later.

Long-Term Part-Time Employees — Plans must offer participation to LTPT employees who work at least 500 hours in two consecutive years, starting with plan years beginning in 2025.

Plan sponsors will want to update documents, systems, and participant communications where necessary. Auditors may inquire about the status of these updates.

Practical Steps for Audit Preparation 

Taking steps to prepare can make the audit process more efficient and can help reduce the risk of findings:

• Assign a primary contact — Designate someone who understands the plan’s operations and can coordinate document requests, service provider communications, and auditor questions.
• Review plan documents and participant records — Confirm that all key plan documents are complete and up to date, and that participant data such as eligibility dates, compensation, and status is accurate.
• Reconcile financial activity — Verify that all activities match the plan’s financial statements before the audit begins.
• Communicate with service providers — Work with TPAs, custodians, and recordkeepers to review their records and address any inconsistencies or missing information ahead of time.
• Identify and correct known issues — If operational errors have occurred, consider using voluntary correction programs to address them before the audit review.

Choosing the right plan auditor is another important step. Sponsors will want to look for firms that have specific experience auditing employee benefit plans, understand ERISA requirements, and maintain independence from plan operations. 

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The audit process is an opportunity to strengthen internal controls and build trust with plan participants. As ERISA requirements continue to evolve, staying proactive helps retirement plans remain compliant and resilient. If you have questions about the information outlined above or need assistance with your next benefit plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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How does the VFCP work?

The VFCP creates a framework fiduciaries can use to identify ERISA violations. Once these violations are found, fiduciaries can take steps to correct them. This can look like recalculating benefits, adjusting plan operations, or restoring losses to the plan, with interest if necessary. After the violations are corrected, fiduciaries can apply for a no-action letter with the EBSA. Not all corrected violations require a no-action letter, but if required and accepted, this means there will be no enforcement action against a fiduciary in relation to the reported violations. .

What types of violations are covered by the VFCP?

Several different violations can be voluntarily reported and corrected under the VFCP, including:

• Delinquent participant contributions: Employee contributions that were not deposited into the plan in a timely manner.
• Improper loans: Loans to parties in interest that don’t fulfill ERISA requirements.
• Prohibited transactions: Transactions that occur between plans and parties in interest that are not allowed under ERISA.
• Improper expenses: Unreasonable or unnecessary payment of plan expenses.

In total, 19 different categories of violations can be addressed under the VFCP.

What are some benefits to participating in VFCP?

By participating in VFCP, fiduciaries can avoid potential penalties and Department of Labor legal actions. This voluntary action also protects plan participants and demonstrates a commitment to compliance with ERISA regulations, boosting trust among plan participants.

Who is eligible to correct violations with the VFCP process?

Plan sponsors, administrators, and other fiduciaries can apply for relief through the VFCP if they are concerned about violations, but if the plan or applicant is “under investigation,” they cannot apply. It’s also important to note that enforcement actions may proceed if the corrections or applications about corrections are incomplete or deemed unacceptable.

What do acceptable corrections under VFCP look like?

While corrections can look different depending on the violation, in general, steps will include assessing the valuation of plan assets, restoring the amount involved in the transaction, paying necessary expenses associated with the transaction, and making supplemental distributions if needed. Corrections need to also include appraisals using generally accepted appraisal standards, consideration of lost earnings and profits, and documented proof of supplemental distributions.

Other documentation can also be required as part of the VFCP application, including a copy of parts of the plan documents that correspond with the correction, transaction records, records of lost earnings and restored profits, proofs of payment, documents associated with specific transactions (per Section 7 of the VFCP), a signed checklist, and a statement signed under penalty of perjury.

What does restitution mean?

When applications work to restore the plan, they have to do it based on the condition the plan would have been in if the violation hadn’t happened. To make the process easier, the VFCP includes a calculator for correction amounts that may need to be paid to a plan.

What are the updates to VFCP as of January 2025?

In January 2025, the Department of Labor published an updated version of the VFCP in the Federal register, which included the self-correction component for certain violations. In some cases, fiduciaries can even make corrections without having to apply for a no-action letter. Updates also included expansions in eligible violations, as well as important clarifications and revisions to the rules and procedures of the program to make it easier for employers and plan administrators to navigate.

Instead of completing an application, some self-correctors will be able to submit a self-correction component (SCC) notice through an online tool provided by EBSA, including specific information, and receive an email from EBSA acknowledging the submission. There are two transactions that are eligible under this new SCC rule:

• Delinquent Participant Contributions and Loan Repayments to Pension Plans: Employers who hold onto employee retirement contributions or loan repayments longer than allowed can use the SCC functionality to correct the problem if lost earnings equal $1,000 or less. To do this, they also need to calculate lost earnings with an online calculator, send the missing money to the plan within 180 days of withholding it from employees, pay any penalties or fees, and ensure the plan nor the individual is under investigation. The SCC Record Retention Checklist is required as part of the submission process.
• Eligible Inadvertent Participant Loan Failures: Eligible loan problems include issues with the loan amount, length, or repayment. They can also include loan defaults from missing payroll deductions, lack of spousal consent, or too many loans. They don’t need to complete the SCC Retention Record Checklist for these types of corrections.

What is PTE 2002-51?

The Prohibited Transaction Exemption (PTE) 2002-5, is a related class exemption that provides conditional relief for fiduciaries regarding payment of excise taxes associated with six specific prohibited transactions, including late contributions/loan repayments, fair market value loans to disqualified persons, and certain asset purchases or sales. The tax break will only take effect if employers meet all VFCP requirements, including getting a no action letter or SCC acknowledgement, as well as follow specific exemption rules of required notifications and documentation.

When does the VFCP update take effect?

Both the VFCP updates and the PTE 2002-51 amendments take effect on March 17, 2025.

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The changes to the VFCP are designed to make it easier for plan sponsors to identify and self-correct certain plan errors or violations. Through this program plan sponsors can come clean about potential issues, and in certain cases, receive assurance there will be no enforcement actions taken. If you have questions about the information outlined above, or need assistance with your next plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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Mandatory ROTH Catch Up Contribution Rule

Section 603 of the SECURE Act 2.0 created new restrictions on catch-up contributions made by individuals earning more than $145,000 in FICA wages in the prior tax year. These high earners are required to make all catch up contributions as ROTH after tax contributions. Starting after December 31, 2024, the ROTH catch up wage threshold will be adjusted for cost-of-living changes.

Proposed Regulation Highlights

• Plans Without Roth Contributions – Employers are not required to offer a qualified Roth contribution program within the plan. Under these circumstances, if the plan does not offer this feature, then impacted participants would not be allowed to make any catch-up contributions. However, those not subjected to the requirement will still be allowed to make catch-up contributions. It is important to note, these plans are still required to track and document which participants are subject to the new rule.  
• Determination of FICA Wages – Since the threshold is based on FICA wages earned, the proposed regulations provide details on how FICA wages are determined. Only wages subjected to Social Security and Medicare taxes are applied against the wage threshold. If the prior year FICA earnings were less than $145,000 then the rule does not apply. This includes individuals who received cash compensation but did not have the required FICA wages from the plans sponsor.
• Employer Sponsoring the Plan – The regulations define the employer sponsoring the plan as the participant’s common law employer. For multi-employer plans, prior year FICA wages from one employer are not aggregated with wages from another plan sponsor when determining whether the wage threshold has been met. This is consistent with the prior 2023 IRS guidance.
• Availability of Roth Catch Up Contributions – The proposed guidance also requires a plan that has at least one impacted participant, and the Roth provision is offered, then all participants must be given the opportunity to make Roth catch up contributions.
• Correction Methods – If a participant subject to the requirement makes a pre-tax deferral above the applicable limit, then a plan will no longer be qualified unless the error is correct. The proposed guidance offered detailed instructions for correction which includes either a distribution of the pre-tax deferral or an in-plan rollover. Under the W-2 method, the contribution would be included in the participant’s gross income for the year. However, this method cannot be used if the participant’s W-2 for the year has already been issued. Under the rollover method, the plan would roll over the elective deferral from the pre-tax to the designated Roth account and report the amount on IRS Form 1099-R for the year of the rollover.
• Applicability Date – For non-bargained plans, the amendments are proposed to apply six months after the final regulations are issued. For collectively bargained plans, the amendments are proposed to apply to contributions in taxable years beginning more than 6 months after the date final regulations are issued.

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The information outlined in the proposed regulations provides important details for plan sponsors required to implement the catch-up contribution rule. While final regulations have yet to be released, this information provides important insights into how the new requirement will be handled. If you have questions about the information outlined above, or need assistance with your 401k plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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On November 18, 2024, the DOL launched a Voluntary Information Collection Request (ICR) to start building the database. This initiative encourages plan sponsors to submit participant and plan data, forming the foundation for an online system that reconnects individuals with lost retirement savings. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key information below.

What Is the RSLF Database?

The Retirement Savings Lost and Found (RSLF) is a federally managed, online database designed to reconnect individuals with retirement benefits they may have forgotten. Mandated under Section 523 of the Employee Retirement Income Security Act (ERISA), the RSLF simplifies the process of locating retirement accounts by centralizing participant and plan data.

Initially, the database will focus on individuals ages 65 and older who have separated from service, with plans to expand over time to include a broader range of participants and retirement accounts. This approach mirrors the success of state unclaimed property programs, which have successfully reunited individuals with lost financial assets like bank accounts and uncashed checks. By applying a similar model to retirement savings, the RSLF aims to address a critical gap in helping individuals recover earned benefits.

How Does It Work?

The RSLF functions as a secure and accessible tool for both participants and plan administrators. Participants can search the database to locate lost accounts and connect with the appropriate plan administrator.

For plan administrators, the DOL has developed a secure web portal for data submissions. Administrators can upload plan and participant information, including data already reported on Form 5500, as well as details about separated participants who are owed benefits. To streamline this process, the DOL has provided an upload template, making it easier for administrators to manage data submissions, even across multiple plans.

Key Considerations for Plan Sponsors and Administrators

Plan sponsors will play an important role in the success of the Retirement Savings Lost and Found. While participation is voluntary during the initial rollout, engaging with the program can demonstrate a commitment to fiduciary responsibilities and help participants reconnect with lost retirement benefits. Below are the key considerations for plan sponsors:

• Voluntary Data Submission: Plan sponsors are encouraged to provide current plan details and participant information for separated vested participants aged 65 and older. Submissions do not require historical data or younger participant records during this phase.
• Fiduciary Duties: Participation aligns with ERISA fiduciary responsibilities, with the DOL offering liability protection for data submitted through the RSLF portal. Unlike private tools, which operate without government oversight, the RSLF is a federally mandated program with clear compliance protocols.
• Cybersecurity and Privacy: The RSLF uses advanced encryption and secure Login.gov authentication to protect participant data during submission and storage.
• Participant Opt-Outs: Participants can request to have their information excluded from the database. Sponsors should be prepared to address these requests.
• Costs: Reasonable expenses for data submission can be paid from plan assets. Sponsors must carefully document these costs to ensure compliance and transparency.
• Future Expansion: As the database grows, plan sponsors may need to adapt to expanded data requirements and a broader participant base. Staying informed about updates will be essential.

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The Retirement Savings Lost and Found is an important step in addressing the issue of lost retirement accounts. While participation is voluntary, the program offers plan sponsors a chance to assess processes and consider how they support locating lost benefits. If you have questions about the information outlined above or need assistance with your next retirement plan audit, Wilson Lewis can help. For additional information please call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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Understanding Types of Plan Fees

Retirement plans typically include multiple types of fees that sponsors should manage carefully. Here’s a breakdown of the main types of plan fees and why each matters for cost management and compliance:

• Administrative Fees – Administrative fees cover essential services for the day-to-day operation of the plan, including recordkeeping, compliance, customer service, plan communications, and regulatory filings. These fees are typically charged as a flat rate or a percentage of plan assets. Since Abernathy Daley’s report suggests companies paying over 3% of total assets in administrative costs may be overpaying, regular review of these fees is key to ensuring cost-effectiveness.
• Investment Fees – Investment fees are associated with the funds and investment options available within the plan. They are often the largest component of plan costs and are expressed as an expense ratio — a percentage of assets invested. While actively managed funds tend to have higher fees than passive index funds, reviewing the investment lineup can help sponsors identify and reduce unnecessary costs.
• Individual Service Fees – Individual service fees apply when participants use specific services or request transactions, such as taking a loan, processing a distribution, or requesting certain reports. These fees are typically passed on directly to the participant and can vary widely among providers.

The Risks of Excessive Fees

Overpaying on any type of retirement plan fee has consequences for both employees and plan sponsors. Excessive fees reduce the net returns on employees’ retirement savings, slowing the growth of their accounts. For employees contributing to a 401(k) or 403(b) over several decades, even a small percentage difference in fees can significantly impact the total balance at retirement. Participants who unknowingly bear these higher costs may end up with less income, potentially delaying retirement plans.

From a compliance standpoint, plan sponsors have a fiduciary responsibility to ensure that all fees are fair and reasonable. Failing to manage fees effectively can lead to legal action. A 2020 report by Aon found that at least 85 excessive fee lawsuits were filed in U.S. courts, marking a fourfold increase over previous years. This uptick in litigation reflects a growing awareness of fiduciary obligations around fee management.

Recent high-profile cases illustrate the consequences of excessive fees. In 2023, General Electric paid $61 million to settle a lawsuit that claimed the company’s limited fund choices resulted in high fees for participants. Similarly, Cornell University is facing a lawsuit, currently before the U.S. Supreme Court, where employees allege that the university failed to control administration fees in its 403(b) plan, raising costs for participants. These cases emphasize the substantial financial and reputational risks for plan sponsors.

Practical Steps to Manage Plan Fees

Plan sponsors can take several proactive steps to manage retirement plan fees, protect employees’ savings, and ensure regulatory compliance. Here are key actions to consider:

1. Benchmark Fees Regularly – One of the most effective ways to manage retirement plan fees is through regular benchmarking. Reviewing Form 5500 filings from similar-sized organizations can provide a basic comparison, while third-party benchmarking services offer a more detailed analysis. These services can assess costs across categories like recordkeeping, compliance, and investment management, providing insights into areas of potential overpayment. Regular benchmarking ensures that fees align with market rates and helps identify potential savings.
2. Conduct Periodic Requests for Proposal (RFPs) – Issuing an RFP to several service providers every few years allows plan sponsors to obtain competitive quotes for services like plan administration and recordkeeping. This process helps sponsors stay aware of current market rates and avoid overpaying. According to recent data, 5% of firms have not conducted an RFP in the past four years, which can leave them locked into outdated contracts with higher fees. Testing the market periodically can secure more favorable terms.
3. Evaluate Investment Options – Investment fees can make up a large portion of total plan costs, especially if the plan includes a range of actively managed funds. Reviewing the investment lineup and offering more cost-effective options allows sponsors to provide high-quality choices at lower costs. Regularly evaluating investment options complements other fee management efforts, creating a well-rounded, cost-effective plan.
4. Consult a Fiduciary Advisor – Working with a fiduciary advisor offers valuable oversight to ensure fees across all categories are reasonable and aligned with participants’ best interests. Fiduciary advisors are legally obligated to act in the best interest of plan participants, which includes identifying opportunities to reduce fees and ensuring regulatory compliance. Advisors also help sponsors select cost-effective service providers and structure efficient administrative services, adding a layer of protection.
5. Educate Employees on Fee Impact – Providing transparent information about fees improves employees’ understanding of how costs impact savings. Plan sponsors can hold group sessions or offer one-on-one meetings with financial educators to help employees make informed decisions. When employees understand the costs associated with the retirement plan, they are more likely to maximize their savings and feel supported in their retirement planning.

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Effective management of all retirement plan fees, especially costly administrative fees, means meeting fiduciary obligations, supporting employee financial wellness, and reducing compliance risks. If you have questions about the information outlined above or need assistance with your next retirement plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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It’s important to note that the timeline for implementing the new requirements differs between 403(b) and 401(k) plans. Additionally, these new rules apply differently to public and private sector 403(b) plans. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

Expanded Eligibility for Long-Term, Part-Time Employees

Under the new rules, private sector 403(b) plan sponsors must allow long-term, part-time employees to make elective deferrals starting with plan years beginning after December 31, 2024. A long-term, part-time employee is defined as someone who works at least 500 hours per year for two consecutive years. Previously, plan sponsors could exclude part-time employees (those working fewer than 20 hours per week) from making elective deferrals. This expansion helps to ensure greater financial security for a broader range of workers.

Public vs. Private Sector Requirements

The new requirements apply differently to public and private sector 403(b) plans. Public sector 403(b) plans, such as those offered by public schools and state universities, are generally not subject to the Employee Retirement Income Security Act (ERISA), which means they are exempt from the new rules. However, public employers may still choose to adopt these standards voluntarily to expand retirement benefits.

In contrast, private sector 403(b) plans, typically offered by nonprofit organizations like hospitals and charities, are subject to ERISA. Therefore, private sector plan sponsors must comply with the updated rules to include eligible long-term, part-time employees beginning in 2025.

Exclusions for Certain Employees Remain

Despite the expanded eligibility, some exclusions remain. Student employees performing services, as defined under Section 3121(b)(10), can still be excluded from making elective deferrals, even if they meet the long-term, part-time criteria. This exclusion is based on their classification rather than the number of hours worked, meaning student workers do not need to be offered plan participation.

Additionally, employees who have not yet reached the age of 21 can also be excluded, even if they meet the 500-hour service requirement. These exclusions provide plan sponsors with flexibility in determining which employees must be offered participation in the 403(b) plan.

Action Steps for Plan Sponsors

To comply with the updated rules, private sector 403(b) plan sponsors will want to take the following actions:

• Review and Update Plan Documents: Ensure plan documents are revised to reflect the new eligibility criteria for long-term, part-time employees. Participation criteria and policies must be aligned with the updated IRS regulations.
• Track Employee Hours: Implement systems to track employee hours accurately, ensuring compliance with the 500-hour requirement. This may require updating HR systems to effectively monitor hours worked by part-time employees.
• Coordinate with Service Providers: Work closely with plan administrators and other service providers to ensure the plan remains compliant with the updated regulations. Service providers can assist in administrative tasks and help ensure that plan documents are kept up to date.
• Communicate Changes to Employees: Proactively communicate the changes to employees, particularly those who will become eligible to participate for the first time. Clear communication will help employees understand the benefits of contributing and make informed decisions about their retirement savings.

Implementation Timeline

One notable aspect of the updated guidance is the difference in implementation timelines for 403(b) and 401(k) plans. 403(b) plans must comply with the new rules starting in 2025, which means private sector plan sponsors need to act promptly to ensure compliance. In contrast, final regulations for 401(k) plans regarding long-term, part-time employees will not take effect until at least January 1, 2026. For employers who sponsor both types of plans, it is important to prioritize updates to 403(b) plans first.

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Compliance with these updated regulations is essential for avoiding potential penalties and ensuring a smooth transition. Consulting with a tax professional is highly recommended to help review plan documents, implement the necessary compliance measures. If you have questions about the information outlined above or need assistance with your next benefit plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.

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