Betterment Editors

The Case for Including ETFs and managed portfolios in Your 401(k) Plan At Betterment, we firmly believe exchange-traded funds (ETFs) are better for 401(k) plan participants. Wondering if managed ETF portfolios may be appropriate for your plan? Mutual funds dominate the retirement investment landscape, but in recent years, exchange-traded funds (ETFs) have become increasingly popular—and for good reason. They are cost-effective, highly flexible, and technologically sophisticated. And at Betterment, we firmly believe they’re also better for 401(k) plan participants. Wondering if ETFs may be appropriate for your 401(k) plan? Read on. What’s the difference between mutual funds and ETFs? Let’s start with what ETFs and mutual funds have in common. Both consist of a mix of many different assets, which helps investors diversify their portfolios. However, they have a few key differences: ETFs can be traded like stocks whereas mutual funds may only be purchased at the end of each trading day based on a calculated price. ETFs are transparent meaning you can see the underlying holdings daily. Mutual funds either report its holdings monthly or quarterly. Mutual funds are either actively managed by a fund manager who decides how to allocate assets or passively managed by tracking a specific market index (such as the S&P 500). While  ETFs are usually passively managed, more differentiated ETFs that are actively managed or use other fundamentals like factors (smart beta) have emerged over the years. Mutual funds tend to have higher fees and higher expense ratios than ETFs, especially in instances where smaller plans do not have access to institutional share classes. Why do mutual funds cost so much more than ETFs? Many mutual funds are actively managed—requiring in-depth analysis and research—which drives the costs up. However, while active managers claim to outperform popular benchmarks, research conclusively shows that they rarely succeed in doing so. See what we mean. Mutual fund providers generate revenues from both stated management fees, as well as less direct forms of compensation, for example: Revenue sharing agreements—These agreements among 401(k) plan providers and mutual fund companies include: 12(b)-1 fees, which are disclosed in a fund’s expense ratios and are annual distribution or marketing fees Sub Transfer Agent (Sub-TA) fees for maintaining records of a mutual fund’s shareholders Revenue sharing agreements often appear as conflicts of interests. Internal fund trading expenses—The buying and selling of internal, underlying assets in a mutual fund are another cost to investors. However, unlike the conspicuous fees in a fund’s expense ratio, these brokerage expenses are not disclosed and actual amounts may never be known. Instead, the costs of trading underlying shares are simply paid out of the mutual fund’s assets, which results in overall lower returns for investors. Soft-dollar arrangements—These commission arrangements, sometimes called excess commissions, exacerbate the problem of hidden expenses because the mutual fund manager engages a broker-dealer to do more than just execute trades for the fund. These services could include nearly anything—securities research, hardware, or even an accounting firm’s conference hotel costs! All of these costs mean that mutual funds are usually more expensive than ETFs. These higher expenses come out of investors’ pockets. That helps to explain why a majority of actively managed funds lag the net performance of passively managed funds, which lag the net performance of ETFs with the same investment objective over nearly every time period.  What else didn’t I realize about mutual funds? Often, there are conflicts of interest with mutual funds. The 401(k) market is largely dominated by players who are incentivized to offer certain funds: Some service providers are, at their core, mutual fund companies. And therefore, some investment advisors are incentivized to promote certain funds. This means that the fund family providing 401(k) services and the advisor who sells the plans may have a conflict of interest.  Why is it unusual to see ETFs in 401(k)s? Mutual funds continue to make up the majority of assets in 401(k) plans for various reasons, not despite these hidden fees and conflicts of interest, but because of them. Plans are often sold through distribution partners, which can include brokers, advisors, recordkeepers or third-party administrators. The fees embedded in mutual funds help offset expenses and facilitate payment of every party involved in the sale. However, it’s challenging for employers and employees because the fees aren’t easy to understand even with the mandated disclosure requirements. Another reason why it’s unusual to see ETFs in a 401(k) is existing technology limitations. Most 401(k) recordkeeping systems were built decades ago and designed to handle once-per-day trading, not intra-day trading (the way ETFs are traded)—so these systems can’t handle ETFs on the platform (at all). However, times are changing. ETFs are gaining traction in the general marketplace and companies like Betterment are leading the way by offering ETFs. What’s even better than ETFs? At Betterment, we believe that a portfolio of ETFs in conjunction with personalized, unbiased advice is the ideal solution for today’s retirement savers. Our retirement advice adapts to your employees’ desired retirement timeline and can be customized if they’re more conservative or aggressive investors. Not only that, we also link employees’ outside investments, savings accounts, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances. It can make saving for retirement (and any other short- or long-term goals) even easier. You may be wondering: What about target-date funds? Well, target-date funds are still popular, but financial advice has progressed far beyond using one data point—employees’ desired retirement age—to determine their investing strategy. Here’s how: Target-date funds are only in five-year increments (for example, 2045 Fund or 2050 Fund). Betterment can tailor our advice to the exact year your employees want to retire. Target-date funds ignore how much employees have saved. At Betterment, we can tell your employees if they‘re on or off track, factoring in all of their retirement savings, Social Security, pensions, and more. Target-date funds only contain that company’s underlying investments (for example, Vanguard target-date funds only have Vanguard investments). No single company is the best at every type of investment, so don’t limit your employees’ retirement to just one company’s investments. Now what? You may be thinking: it’s time to have a heart-to-heart with your 401(k) provider or plan’s investment advisor. If so, here’s a list of questions to ask: Do you offer ETFs? If not, why not? What are the fees associated with our funds? Are there revenue sharing agreements in place? Are there any soft-dollar arrangements we should be aware of? Are you incentivized to offer certain funds? Are there any conflicts of interests that we should be aware of? Do you create managed portfolio strategies?

The Tax Benefits of Offering a 401(k) Seize the tax deductions (and credits!). Offering a 401(k) to your employees can unlock several tax benefits for your company. When employees contribute to their 401(k) accounts, they unlock some pretty sweet tax perks. But no less important are the potential tax benefits awaiting your own company by virtue of offering a 401(k) in the first place. We’re not a tax advisor, and none of this information should be considered tax advice for your company’s specific situation, but we’d be remiss if we didn’t lay out three key tax benefits awaiting companies in general by sponsoring a 401(k) plan: Company contributions are tax deductible Plan administration fees are (usually) tax deductible Small businesses can snag tax credits for starting a new plan and/or adding auto-enroll Keep reading for more details on each opportunity. Your company’s contributions to employees’ 401(k)s are tax deductible When you contribute to your employees’ 401(k)s, you not only supercharge their retirement savings and boost the appeal of your benefits, you can deduct your contributions from your company’s taxable income, assuming they don’t exceed the IRS’s limit. That annual contribution limit is 25% of compensation paid to eligible employees and doesn’t change from year to year. Compensation Pro-Tip: Consider a contribution over a raise It’s for this reason that dollar-for-dollar, contributing to your employees’ 401(k)s on a pre-tax basis (i.e. via a Traditional 401(k)) is more tax efficient for you and for them compared to giving them raises of an equivalent amount. Consider this example using $3,000: A $3,000 increase in employees’ base pay would mean a net increase to them of just $2,250, assuming 25% in income taxes and FICA combined. For the company, that increase would cost $2,422.12 after FICA adjusted for a 25% income tax rate. You contributing $3,000 to an employee’s 401(k), on the other hand, results in no FICA for both you and them. The employee receives the full benefit of that $3,000 today on a pre-tax basis, plus it has the opportunity to grow tax-free in a Traditional 401(k) until retirement. As the employer, the value of your tax deduction on that $3,000 contribution would be $750, meaning your cost is just $2,250—or 7% less than if you had provided a $3,000 salary increase. Your plan administration fees are (usually) tax deductible Although companies have the option of passing on their plan administration fees to employees—or splitting the tab—many employers opt to pay them entirely. In this case, these costs are typically considered a tax-deductible business expense. The result is a win-win: employees keep more funds invested in their 401(k) accounts and you reduce your company’s taxable income. Small businesses can snag valuable three-year tax credits Thanks to the SECURE Act of 2019, businesses with fewer than 100 employees are eligible for two kinds of valuable three-year tax credits: For opening a new plan—Three years of annual tax credits covering 50% of the cost to establish and administer a retirement savings plan, up to $15,000 over those three years. A new version of the SECURE Act that’s likely to pass soon would increase this credit to 100% for businesses with up to 50 employees. For adding eligible auto-enroll—Three years of annual tax credits worth $500 for adding an eligible auto-enroll feature to your new or existing plan. Even more valuable than a tax deduction, a tax credit subtracts the value from the taxes you owe.

Share the Wealth: Everything you need to know about profit sharing 401(k) plans In addition to bonuses, raises, and extra perks, many employers elect to add profit sharing to their 401(k) plan. Read on for answers to frequently asked questions. Has your company had a successful year? A great way to motivate employees to keep up the good work is by sharing the wealth. In addition to bonuses, raises, and extra perks, many employers elect to add profit sharing to their 401(k) plan. Wondering if it might be right for your business? Read on for answers to frequently asked questions about profit sharing 401(k) plans. What is profit sharing? Let’s start with the basics. Profit sharing is a way for you to give extra money to your staff. While you could make direct payments to your employees, it’s very common to combine profit sharing with an employer-sponsored retirement plan. That way, you reward your employees—and help them save for a brighter future. What is a profit sharing plan? A profit sharing plan is a type of defined contribution plan that allows you to help your employees save for retirement. With this type of plan, you make “nonelective contributions” to your employees’ retirement accounts. This means that each year, you can decide how much cash (or company stock, if applicable) to contribute—or whether you want to contribute at all. It’s important to note that the name “profit sharing” comes from a time when these plans were actually tied to the company’s profits. Nowadays, companies have the freedom to contribute what they want, and they don’t have to tie their contributions to the company’s annual profit (or loss). In a pure profit sharing plan, employees do not make their own contributions. However, most companies offer a profit sharing plan in conjunction with a 401(k) plan. What is a profit sharing 401(k) plan? A 401(k) with profit sharing enables both you and your employees to contribute to the plan. Here’s how it works:  The 401(k) plan allows employees to make their own salary deferrals up to the IRS limit.  The profit sharing component allows employers to contribute up to the IRS limit, noting that the maximum includes the employee's contributions as well.   After the end of the year, employers can make their pre-tax profit sharing contribution, as a percentage of each employee’s salary or as a fixed dollar amount Employers determine employee eligibility, set the vesting schedule for the profit sharing contributions, and decide whether employees can select their own investments (or not) What’s the difference between profit sharing and an employer match? Profit sharing and employer matching contributions seem similar, but they’re actually quite different: Employer match—Employer contributions that are tied to employee savings up to a certain percentage of their salary (for example, 50 cents of every dollar saved up to 6% of pay) Profit sharing—An employer has the flexibility to choose how much money—if any at all—to contribute to employees’ accounts each year; the amount is not tied to how much employees save. What kinds of profit sharing plans are there? There are four main types of profit sharing plans:  Pro-rata plan—Every plan participant receives employer contributions at the same rate. For example, every employee receives the equivalent of 5% of their salary or every employee receives a flat dollar amount such as $1,000. Why is it good? It’s simple and rewarding. New comparability profit sharing plan (otherwise known as “cross-tested plans”)—Employees are placed into separate benefit groups that receive different profit sharing amounts. For example, business owners (or other highly compensated employees) are in one group that receives the maximum contribution and all other employees are in another group and receive a lower amount. Why is it good? It offers older owners the most flexibility.  Minimum Gateway – In order to utilize new comparability, the plan must satisfy the Minimum Gateway Contribution – All non-highly compensated employees (NHCEs) must receive an allocation that is no less than the lesser of 5% of the participant's gross compensation, or 1/3 of the highest contribution rate given to any highly compensated employees (HCEs). General Test – Once the minimum gateway is passed, it must pass the general test which breaks up the plan into “rate groups” based on their Equivalent benefit Accrual Rate (EBAR). Every HCE is in their separate rate group, which includes all participants who have an EBAR equal to or greater than that HCE. If the ratio percentage for each rate group is 70% or higher, the plan passes, and no further testing is necessary. If each rate group does not satisfy the ratio percentage test, then we revert to using the average benefits test. The average benefits test is the more complicated test, and consists of two parts: the nondiscriminatory classification test and the average benefits test. Betterment will always try to make the test pass using the ratio test method first. Permitted disparity—Employees are given a pro-rata base contribution on their entire compensation (up until the IRS limit). In addition, employees who earn more than the integration level, will receive an excess contribution on the amount over that limit. The integration level that provides the highest disparity allowed (5.7%) is the Social Security Taxable Wage Base (SSTWB). Plans that choose to lower the integration amount will receive a reduced disparity limit. Why is it good? It offers younger HCE’s who make more than the SSTWB a greater benefit. Age-weighted profit sharing plan—Employees are given profit sharing contributions based on their retirement age. That is, the older the employee, the higher the contribution. Why is it good? It can help with employee retention. How do I figure out our company’s profit sharing contribution? First, consider which type of profit sharing plan you’ll be using—pro-rata, new comparability, permitted disparity, or age-weighted. Next, take a look at your company’s profits, business outlook, and other financial factors. Keep in mind that: There is no set amount that you have to contribute You don’t need to make contributions Even though it’s called “profit sharing,” you don’t need to show profits on your books to make contributions The IRS notes that the “comp-to-comp” or pro-rata method is one of the most common ways to determine each participant’s allocation. Using this method, you calculate the sum of all of your employees’ compensation (the “total comp”). To determine the profit sharing allocation, divide the profit sharing pool by the total comp. You then multiply this percentage by each employee’s salary. Here’s an example of how it works: Your profit sharing pool is $15,000, and the combined compensation of your three eligible employees is $180,000. Therefore, each employee would receive a contribution equal to 8.3% of their salary. Employee Salary Calculation Profit sharing contribution Taylor $40,000 $15,000 x 8.3% $3,333 Robert $60,000 $15,000 x 8.3% $5,000 Lindsay $80,000 $15,000 x 8.3% $6,667 What are the key benefits of profit sharing for employers? It’s easy to see why profit sharing helps employees, but you may be wondering how it helps your small business. Consider these key benefits: Provide a valuable benefit (while controlling costs)—With employer matching contributions, your costs can dramatically rise if you onboard several new employees. However, with profit sharing, the amount you contribute is entirely up to you. Business is doing well? Contribute more to share the wealth. Business hits a rough spot? Contribute less (or even skip a year). Attract and retain top talent—Profit sharing is a generous perk when recruiting new employees. Plus, you can tweak your profit sharing rules to aid in retention. For example, some employers may elect to have a graded or cliff profit sharing contribution vesting schedule to motivate employees to continue working for their company. Rack up the tax deductions—Profit sharing contributions are tax deductible and not subject to payroll (e.g., FICA) taxes! So if you’re looking to lower your taxable income in a profitable year, your profit sharing plan can help you make the highest possible contribution (and get the highest possible tax write-off). Motivate employees to greater success—Employees who know they’ll receive financial rewards when their company does well are more likely to perform at a higher level. Companies may even link profit sharing to performance goals to motivate employees. What are the rules? The IRS clearly defines rules for contribution limits and calculation rules, tax deduction limits, deadlines, and disclosures (as with any type of 401(k) plan!). Be sure to keep an eye out for any annual changes from the IRS. Are there any downsides to offering a profit sharing plan? Contribution rate flexibility is one of the greatest benefits of a profit sharing 401(k) plan—but it could also be one of its greatest downsides. If business is down one year and employees get a lower profit sharing contribution than they expect, it could have a detrimental impact on morale. However, for many companies, the advantages of a profit sharing 401(k) plan outweigh this risk. How do I set up a profit sharing 401(k) plan? If you already have a 401(k) plan, it requires an amendment to your plan document. However, you’ll want to take the time to think through how your profit sharing plan supports your company’s goals. Betterment can help. At Betterment, we’re here to help with a range of tasks from nondiscrimination testing to plan design consulting to ensure your profit sharing 401(k) plan is working the way your business needs. And as a 3(38) fiduciary, we take full responsibility for selecting and monitoring your investments so you can focus on running your business—not managing your retirement plan. Ready for a better profit sharing 401(k) plan? Get started here.   The information provided is education only and is not investment or tax advice. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise.

Betterment 401(k) – Bulk Upload Tutorial for Plan Sponsors Betterment’s bulk upload tool allows you to add multiple employees to your plan quickly. This tutorial outlines best practices and shares helpful tips for using our bulk upload tool effectively. Step-by-step Tutorial Log in to the employer dashboard   Navigate to: employees → add employees → add multiple employees   Download the CSV template   Open the CSV template using a program like Microsoft Excel, Apple Numbers, or Google Sheets   Fill out one row for each employee you want to upload.   Use the table below to understand the columns in the template: Column Description First Name The employee’s legal first name No special characters accepted Last Name The employee’s legal last name No special characters accepted Middle Initial Leave blank if the employee doesn’t have a legal middle name Social Security Number The employee’s government-issued Social Security Number If the employee is not a US Citizen, a Social Security Number still needs to be provided Social Security Numbers should be formatted with hyphens, e.g.: 123-45-6789 Email Betterment uses email to complete the employee sign-up process and to send employees important plan notifications and updates Date of Birth Date should be formatted as MM/DD/YYYY Employment Status This field accepts the following inputs: active   (currently employed) terminated   (formerly employed) deceased   (deceased) disabled   (on disability leave) unpaid_leave   (unpaid leave) retired   (retired former employee) Date of Hire Date of hire can be up to one year in the future Date should be formatted as MM/DD/YYYY Date of Termination This field is required if Employment Status is terminated, deceased, disabled or retired This field can be left blank for employees who are active or who are on unpaid leave Date of termination can be up to one year in the future Date should be formatted as MM/DD/YYYY Date of Rehire This field is required if Employment Status is active and Date of Termination is set Address Line 1 This field is required for all employees The employee’s residential address cannot be a PO Box If the employee’s address includes a comma, you must put that address within quotation marks Address Line 2 This field can be left blank if the employee’s residential address is only one line City Part of the employee’s residential address State Part of the employee’s residential address State should be written using the official two-letter postal abbreviation Examples: NY, FL, CA, TX 5 Digit ZIP Code Part of the employee’s residential address Eligible This field accepts an input of Y or N If an employee will be hired in the future, you must enter N for Eligible, and enter a date in the Entry on column. This indicates that the employee will become eligible for the plan on the future date you’ve specified. Entry on This field defines the date on which an employee will become eligible for the 401(k) plan This date can be in the past or the future Date should be formatted as MM/DD/YYYY Electronic Access This field accepts an input of Y or N Can this employee receive emails and access Betterment’s website at a computer they use regularly as part of their job? Union Member This field accepts an input of Y or N Is this employee a member of a union? Date Joined Union Required if the employee is a member of a union Date should be formatted as MM/DD/YYYY Can be left blank for non-union employees Participant Type This field accepts the following inputs: primary   (all participants who are currently in the plan, whether active, terminated, deceased, disabled, retired, or on leave) beneficiary   (beneficiary of a deceased participant) alternate_payee   (a person who will be the payee of a divorce or other legal settlement) Deferral Rate If an employee was participating in a 401(k) plan you had with a previous provider, please indicate their contribution rate from that provider. This will be used as their new default rate at Betterment. The employee will be able to log into their account to change this prior to their first contribution with Betterment. Traditional deferral amount and percent cannot both be present. Roth deferral amount and percent cannot both be present. If you’re not switching to Betterment from a previous provider, you can leave this field blank.   After you’re done filling out the document, export the file as a CSV.   Upload your CSV file to Betterment.   If you receive any errors after uploading your file, review the errors and make changes to your CSV file. Re-upload the file to Betterment after making changes.   Once your file is accepted without any errors, you’ll be asked to review the names of the newly created employees. This helps ensure that you’re uploading the correct file to your plan. When you’re done reviewing, click the ‘add employees’ button.   Next, the upload process will begin. Once your employees have been uploaded, they’ll receive an email inviting them to complete the sign-up process.   Finally, check the employees page to make sure there are no outstanding errors that occurred during the employee creation process. Address any errors that may have occurred.   You’re all set! All new participant profiles will be visible on the employees page. You can return to the employees page to make changes to an employee’s profile at any time.   Frequently Asked Questions Do I have to do anything else? Nope! You’re all set. Betterment will email all required disclosures to your new plan participants. Do I have to send any notices to my employees? No, Betterment will send all notices to your employees automatically via email. When will my employees be alerted? Employees will be notified by email as soon as their account is created. How can my employees join the plan after I upload their information to Betterment? Employees can check their email for an invite from Betterment to complete the sign-up process. My employee has a P.O. Box as their address. Can I use that address with Betterment? No. To comply with regulations for opening accounts, we require a physical address to verify an employee's identity. Betterment will not send physical mail to an employee’s address (unless they opt into paper statements, which is rare); we will otherwise only use their physical address for account verification. Questions? Contact us.

Plan Design Matters Thoughtful 401(k) plan design can help motivate even reluctant retirement savers to start investing for their future. Designing a 401(k) plan is like building a house. It takes care, attention, and the help of a few skilled professionals to create a plan that works for both you and your employees. In fact, thoughtful plan design can help motivate even reluctant retirement savers to start investing for their future - read more to learn how.  How to tailor a 401(k) plan you and your employees will love As you embark on the 401(k) design process, there are many options to consider. In this article, we’ll take you through the most important choices so you can make well-informed decisions. Since certain choices may not be available on the various pricing models of any given provider, make sure you understand your options and the trade-offs you’re making. Let’s get started! 401(k) eligibility When would you like employees to be eligible to participate in the plan? You can opt to have employees become eligible: Immediately – as soon as they begin working for your company After a specific length of service – for example, a period of hours, months, or years of service It’s also customary to have an age requirement (for example, employees must be 18 years or older to participate in the plan). You may also want to consider an “employee class exclusion” to prevent part-time, seasonal, or temporary employees from participating in the plan. Once employees become eligible, they can immediately enroll – or, you can restrict enrollment to a monthly, quarterly, or semi-annual basis. If you have immediate 401(k) eligibility and enrollment, in theory, more employees could participate in the plan. However, if your company has a higher rate of turnover, you may want to consider adding service length requirements to alleviate the unnecessary administrative burden of having to maintain many small accounts of employees who are no longer with your organization. Enrollment Enrollment is another important feature to consider as you structure your plan. You may simply allow employees to enroll on their own, or you can add an automatic enrollment feature. Automatic enrollment (otherwise known as auto-enrollment) allows employers to automatically deduct elective deferrals from employees’ wages unless they elect not to contribute. With automatic enrollment, all employees are enrolled in the plan at a specific contribution rate when they become eligible to participate in the plan. Employees have the freedom to opt out and change their contribution rate and investments at any time. As you can imagine, automatic enrollment can have a significant impact on plan participation. In fact, according to research by The Defined Contribution Institutional Investment Association (DCIIA), automatic enrollment 401(k) plans have participation rates greater than 90%! That’s in stark contrast to the roughly 50% participation rate for plans in which employees must actively opt in. If you decide to elect automatic enrollment, consider your default contribution rate carefully. A 3% default contribution rate is still the most popular; however, more employers are electing higher default rates because research shows that opt-out rates don’t appreciably change even if the default rate is increased. Many financial experts recommend a retirement savings rate of 10% to 15%, so using a higher automatic enrollment default rate would give employees even more of a head start. Auto-escalation Auto-escalation is an important feature to look out for as you design your plan. It enables employees to increase their contribution rate over time as a way to increase their savings. With auto-escalation, eligible employees will automatically have their contribution rate increased by 1% every year until they reach a maximum cap of 15%. Employees can also choose to set their own contribution rate at any time, at which point they will no longer be enrolled in the auto-escalation feature. For example, if an employee is auto-enrolled at 6% with a 1% auto-escalation rate, and they choose to change their contribution rate to 8%, they will no longer be subject to the 1% increase every year. Compensation You’re permitted to exclude certain types of compensation for plan purposes, including compensation earned prior to plan entry and fringe benefits for purposes of compliance testing and allocating employer contributions. You may choose to define your compensation as: W2 (box 1 wages) plus deferrals – Total taxable wages, tips, prizes, and other compensation 3401(a) wages – All wages taken into account for federal tax withholding purposes, plus the required additions to W-2 wages listed above Section 415 Safe Harbor – All compensation received from the employer which is includible in gross income Employer contributions Want to encourage employees to enroll in the plan? Free money is a great place to start! That’s why more employers are offering profit sharing or matching contributions. Some common employer contributions are: Safe harbor contributions – With the added bonus of being able to avoid certain time-consuming compliance tests, safe harbor contributions often follow one of these formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—The most common employer match formula is 100% of employee contributions, up to 4% of their compensation, but this could vary.  Non-elective contribution—Employer contributes at least 3% of each employee’s compensation, regardless of whether they make their own contributions. Discretionary matching contributions – You decide what percentage of employee 401(k) deferrals to match and the maximum percentage of pay to match. For example, you could elect to match 50% of contributions on up to 6% of compensation. One advantage of having a discretionary matching contribution is that you retain the flexibility to adjust the matching rate as your business needs change. Non-elective contributions – Each pay period, you have the option of contributing to your employees’ 401(k) accounts, regardless of whether they contribute. For example, you could make a profit sharing contribution (one type of non-elective contribution) at the end of the year as a percentage of employees’ salaries or as a lump-sum amount. In addition to helping your employees build their retirement nest eggs, employer contributions are also tax deductible (up to 25% of total eligible compensation), so it may cost less than you think. Plus, we believe offering an employer contribution can play a key role in recruiting and retaining top employees. 401(k) vesting If you elect to make an employer contribution, you also need to decide on a vesting schedule (an employee’s own contributions are always 100% vested). Note that all employer contributions made as part of a safe harbor plan are immediately and 100% vested  (although QACA plans can be subject to a 2-year cliff). The three main vesting schedules are: Immediate – Employees are immediately vested in (or own) 100% of employer contributions as soon as they receive them. Graded – Vesting takes place in a gradual manner. For example, a six-year graded schedule could have employees vest at a rate of 20% a year until they are fully vested. Cliff – The entire employer contribution becomes 100% vested all at once, after a specific period of time. For example, if you had a three-year cliff vesting schedule and an employee left after two years, they would not be able to take any of the employer contributions (only their own). Like your eligibility and enrollment decisions, vesting can also have an impact on employee participation. Immediate vesting may give employees an added incentive to participate in the plan. On the other hand, a longer vesting schedule could encourage employees to remain at your company for a longer time. Service counting method If you decide to use length of service to determine your eligibility and vesting schedules, you must also decide how to measure it. Typically, you may use: Elapsed time – Period of service as long as employee is employed at the end of period Actual hours – Actual hours worked. With this method, you’ll need to track and report employee hours Actual hours/equivalency – A formula that credits employees with set number of hours per pay period (for example, monthly = 190 hours) 401(k) withdrawals and loans Naturally, there will be times when your employees need to withdraw money from their retirement accounts. Your plan design will have rules outlining the withdrawal parameters for: Termination In-service withdrawals (at attainment of age 59 ½; rollovers at any time) Hardships Qualified Domestic Relations Orders (QDROs) Required Minimum Distributions (RMDs) Plus, you’ll have to decide whether to allow participants to take 401(k) plan loans (and the maximum amount of the loan). While loans have the potential to derail employees’ retirement dreams, having a loan provision means employees can access their money if they need it and employees can pay themselves back plus interest. If employees are reluctant to participate because they’re afraid their savings will be “locked up,” then a loan provision can help alleviate that fear. Investment options When it comes to investment methodology, there are many strategies to consider. Your plan provider can help guide you through the choices and associated fees. For example, at Betterment, we believe that our expert-built ETF portfolios offer investors significant diversification and flexibility at a low cost. Plus, we offer ETFs in conjunction with personalized advice to help today’s retirement savers pursue their goals. Get help from the experts Your 401(k) plan provider can walk you through your plan design choices and help you tailor a plan that works for your company and your employees. Once you’ve settled on your plan design, you will need to codify those features in the form of a formal plan document to govern your 401(k) plan. At Betterment, we draft the plan document for you and provide it to you for review and final approval. Your business is likely to evolve—and your plan design can evolve, too. Drastic increase in profits? Consider adding an employer match or profit sharing contribution to share the wealth. Plan participation stagnating? Consider adding an automatic enrollment feature to get more employees involved. Employees concerned about access to their money in an uncertain world? Consider adding a 401(k) loan feature. Need a little help figuring out your plan design? Talk to Betterment. Our experts make it easy for you to offer your employees a better 401(k) —at one of the lowest costs in the industry.

Everything You Need to Know About 401(k) Blackout Periods Maybe you’ve heard of a 401(k) blackout period, but if you don’t know exactly what it is or how to explain it to your employees, read on. You’ve probably heard of a 401(k) plan blackout period – but do you know what it is and how to explain it to your employees? Read on for answers to the most frequently asked questions about blackout periods. What is a blackout period? A blackout period is a time when participants are not able to access their 401(k) accounts because a major plan change is being made. During this time, they are not allowed to direct their investments, change their contribution rate or amount, make transfers, or take loans or distributions. However, plan assets remain invested during the blackout period. In addition, participants can continue to make contributions and loan repayments, which will continue to be invested according to the latest elections on file. Participants will be able to see these inflows and any earnings in their accounts once the blackout period has ended. When is a blackout period necessary? Typically, a blackout period is necessary when: 401(k) plan assets and records are being moved from one retirement plan provider to another  New employees are added to a company’s plan during a merger or acquisition Available investment options are being modified Blackout periods are a normal and necessary part of 401(k) administration during such events to ensure that records and assets are accurately accounted for and reconciled. In these circumstances, participant accounts must be valued (and potentially liquidated) so that funds can be reinvested in new options. In the event of a plan provider change, the former provider must formally pass the data and assets to the new plan provider. Therefore, accounts must be frozen on a temporary basis before the transition. How long does a blackout period last? A blackout period usually lasts about 10 business days. However, it may need to be extended due to unforeseen circumstances, which are rare; but there is no legal maximum limit for a blackout period. Regardless, you must give advance notice to your employees that a blackout is on the horizon. What kind of notice do I have to give my employees about a blackout period? Is your blackout going to last for more than three days? If so, you’re required by federal law to send a written notice of the blackout period to all of your plan participants and beneficiaries. The notice must be sent at least 30 days – but no more than 60 days – prior to the start of the blackout. Typically, your plan provider will provide you with language so that you can send an appropriate blackout notice to your plan participants. If you are moving your plan from another provider to Betterment, we will coordinate with your previous recordkeeper to establish a timeline for the transfer, including the timing and expected duration of the blackout period. Betterment will draft a blackout notice on your behalf to provide to your employees, which will include the following: Reason for the blackout Identification of any investments subject to the blackout period Description of the rights otherwise available to participants and beneficiaries under the plan that will be temporarily suspended, limited, or restricted The expected beginning and ending date of the blackout A statement that participants should evaluate the appropriateness of their current investment decisions in light of their inability to direct or diversify assets during the blackout period If at least 30 days-notice cannot be given, an explanation of why advance notice could not be provided The name, address, and telephone number of the plan administrator or other individual who can answer questions about the blackout Who should receive the blackout notice? All plan participants with a balance should receive the blackout notice, regardless of their employment status with your company. In addition, we suggest sending the notice to eligible active employees, even if they currently don’t have a balance, since they may wish to start contributing and should be made aware of the upcoming blackout period. What should I say if my employees are concerned about an upcoming blackout period? Reassure your employees that a blackout period is normal and that it’s a necessary event that happens when significant plan changes are made. Also, encourage them to look at their accounts and make any changes they see fit prior to the start of the blackout period. Thinking about changing plan providers? If you’re thinking about changing plan providers, but are concerned about the ramifications of a blackout period, know that Betterment is here to help. Our team is here to guide you through the process, and we are committed to making the transition as seamless as possible for you and your participants.

Understanding 401(k) Fees Come retirement time, the number of 401(k) plan fees charged can make a major difference in your employees’ account balances—and their futures. Did you know that the smallest 401(k) plans often pay the most in fees? We believe that you don’t have to pay high fees to provide your employees with a top-notch 401(k) plan. In fact, Betterment offers comprehensive plan solutions at one of the lowest costs in the industry. Why do 401(k) fees matter? The difference between a 1% fee and a 2% fee may not sound like much, but in reality, higher 401(k) fees can take a major bite out of your participants’ retirement savings. Consider this example: Triplets Jane, Julie, and Janet each began investing in their employers’ 401(k) plan at the age of 25. Each had a starting salary of $50,000, increased by 3% annually, and contributed 6% of their pre-tax salary with no company matching contribution. Their investments returned 6% annually. The only difference is that their retirement accounts were charged annual 401(k) fees of 1%, 1.5%, and 2%, respectively. Forty years later, they’re all thinking about retiring and decide to compare their account balances. Here’s what they look like:   Annual 401(k) fee Account balance at age 65 Jane 1% $577,697 Julie 1.5% $517,856 Janet 2% $465,894 Information is hypothetical and provided for educational purposes only. As such, these figures do not reflect Betterment’s management fee and do not reflect any actual client performance As you can see, come retirement time, the amount of fees charged can make a major difference in your employees’ account balances—and their futures. Why should employers care about 401(k) fees? You care about your employees, so naturally, you want to help them build brighter futures. But beyond that, it’s your fiduciary duty as a plan sponsor to make sure you’re only paying reasonable 401(k) fees for services that are necessary for your plan. The Department of Labor (DOL) outlines rules that you must follow to fulfill this fiduciary responsibility, including “ensuring that the services provided to the plan are necessary and that the cost of those services is reasonable” and has published a guide to assist you in this process. Generally, any firm providing services of $1,000 or more to your 401(k) plan is required to provide a fee disclosure, which is the first step in understanding your plan’s fees and expenses. It’s important to note that the regulations do not require you to ensure your fees are the lowest available, but that they are reasonable given the level and quality of service and support you and your employees receive. Benchmark the fees against similar retirement plans (by number of employees and plan assets, for example) to see if they’re reasonable.  What are the main types of fees? Typically, 401(k) fees fall into three categories: administrative fees, individual service fees, and investment fees. Let’s dig a little deeper into each category: Plan administration fees—Paid to your 401(k) provider, plan administration fees typically cover 401(k) set-up fees, as well as general expenses such as recordkeeping, communications, support, legal, and trustee services. These costs are often assessed as a flat annual fee. Investment fees—Investment fees, typically assessed as a percentage of assets under management, may take two forms: fund fees that are expressed as an expense ratio or percentage of assets, and investment advisory fees for portfolio construction and the ongoing management of the plan assets. Betterment, for instance, acts as investment advisor to its 401(k) clients, assuming full fiduciary responsibility for the selection and monitoring of funds. And as is also the case with Betterment, the investment advisory fee may even include personalized investment advice for every employee. Individual service fees—If participants elect certain services—such as taking out a 401(k) loan—they may be assessed individual fees for each service. Wondering what you and your employees are paying in 401(k) fees? Fund fees are detailed in the funds’ prospectuses and are often wrapped up into one figure known as the expense ratio, expressed as a percentage of assets. Other fees are described in agreements with your service providers. High quality, low fees Typically, mutual funds have dominated the retirement investment landscape, but in recent years, exchange-traded funds (ETFs) have become increasingly popular. At Betterment, we believe that a portfolio of ETFs, in conjunction with personalized, unbiased advice, is the ideal solution for today’s retirement savers. Who pays 401(k) fees: the employer or the participant? The short answer is that it depends. As the employer, you may have options with respect to whether certain fees may be allocated to plan participants. Expenses incurred as a result of plan-related business expenses (so-called “ settlor expenses”) cannot be paid from plan assets. An example of such an expense would be a consulting fee related to the decision to offer a plan in the first place. Other costs associated with plan administration are eligible to be charged to plan assets. Of course, just because certain expenses can be paid by plan assets doesn’t mean you are off the hook in monitoring them and ensuring they remain reasonable. Plan administration fees are often paid by the employer. While it could be a significant financial responsibility for you as the business owner, there are three significant upsides:   Reduced fiduciary liability—As you read, paying excessive fees is a major source of fiduciary liability. If you pay for the fees from a corporate account, you reduce potential liability.   Lowered income taxes—If your company pays for the administration fees, they’re tax deductible! Plus, you can potentially save even more with the new SECURE Act tax credits for starting a new plan and for adding automatic enrollment.   Increased 401(k) returns—Do you take part in your own 401(k) plan? If so, paying 401(k) fees from company assets means you’ll be keeping more of your personal retirement savings. Fund fees are tied to the individual investment options in each participant’s portfolio. Therefore, these fees are paid from each participant’s plan assets. Individual service fees are also paid directly by investors who elect the service, for example, taking a plan loan. How can you minimize your 401(k) fees? Minimizing your fees starts with the 401(k) provider you choose. In the past, the price for 401(k) plan administration was quite high. However, things have changed, and now the era of expensive, impersonal, unguided retirement saving is over. Innovative companies like Betterment now offer comprehensive plan solutions at a fraction of the cost of most providers. Betterment combines the power of efficient technology with personalized advice so that employers can provide a benefit that’s truly a benefit, and employees can know that they’re invested correctly for retirement. No hidden fees. Maximum transparency. Costs are often passed to the employee through fund fees, and in fact, mutual fund pricing structures incorporate non-investment fees that can be used to pay for other types of expenses. Because they are embedded in mutual fund expense ratios, they may not be explicit, therefore making it difficult for you to know exactly how much you and your employees are paying. In other words, most mutual funds in 401(k) plans contain hidden fees. At Betterment, we believe in transparency. Our use of ETFs means there are no hidden fees, so you and your employees are able to know how much you’re paying for the underlying investments themselves. Plus, our pricing structure unbundles the key offerings we provide—advisory, investment, record keeping, and compliance—and assigns a fee to each service. A clearly defined fee structure means no surprises for you—and more money working harder for your employees.

What is a 401(k) QDIA? A QDIA (Qualified Default Investment Alternative) is the plan’s default investment. When money is contributed to the plan, it’s automatically invested in the QDIA. What is a QDIA? A 401(k) QDIA (Qualified Default Investment Alternative) is the investment used when an employee contributes to the plan without having specified how the money should be invested. As a "safe harbor," a QDIA relieves the employer from liability should the QDIA suffer investment losses. Here’s how it works: When money is contributed to the plan, it’s automatically invested in the QDIA that was selected by the plan fiduciary (typically, the business owner or the plan sponsor). The employee can leave the money in the QDIA or transfer it to another plan investment. When (and why) was the QDIA introduced? The concept of a QDIA was first introduced when the Pension Protection Act of 2006 (PPA) was signed into law. Designed to boost employee retirement savings, the PPA removed barriers that prevented employers from adopting automatic enrollment. At the time, fears about legal liability for market fluctuations and the applicability of state wage withholding laws had prevented many employers from adopting automatic enrollment—or had led them to select low-risk, low-return options as default investments. The PPA eliminated those fears by amending the Employee Retirement Income Security Act (ERISA) to provide a safe harbor for plan fiduciaries who invest participant assets in certain types of default investment alternatives when participants do not give investment direction. To assist employers in selecting QDIAs that met employees’ long-term retirement needs, the Department of Labor (DOL) issued a final regulation detailing the characteristics of these investments. Learn more about what kinds of investments qualify as QDIAs below. Why does having a QDIA matter? When a 401(k) plan has a QDIA that meets the DOL’s rules, then the plan fiduciary is not liable for the QDIA’s investment performance. Without a QDIA, the plan fiduciary is potentially liable for investment losses when participants don’t actively direct their plan investments. Plus, having a QDIA in place means that employee accounts are well positioned—even if an active investment decision is never taken. If you select an appropriate default investment for your plan, you can feel confident knowing that your employees’ retirement dollars are invested in a vehicle that offers the potential for growth. Does my retirement plan need a QDIA? Yes, it’s a smart idea for all plans to have a QDIA. That’s because, at some point, money may be contributed to the plan, and participants may not have an investment election on file. This could happen in a number of situations, including when money is contributed to an account but no active investment elections have been established, such as when an employer makes a contribution but an employee isn’t contributing to the plan; or when an employee rolls money into the 401(k) plan prior to making investment elections. It makes sense then, that plans with automatic enrollment must have a QDIA. Are there any other important QDIA regulations that I need to know about? Yes, the DOL details several conditions plan sponsors must follow in order to obtain safe harbor relief from fiduciary liability for investment outcomes, including: A notice generally must be provided to participants and beneficiaries in advance of their first QDIA investment, and then on an annual basis after that Information about the QDIA must be provided to participants and beneficiaries which must include the following: An explanation of the employee’s rights under the plan to designate how the contributions will be invested; An explanation of how assets will be invested if no action taken regarding investment election; Description of the actual QDIA, which includes the investment objectives, characteristics of risk and return, and any fees and expenses involved Participants and beneficiaries must have the opportunity to direct investments out of a QDIA as frequently as other plan investments, but at least quarterly For more information, consult the DOL fact sheet. What kinds of investments qualify as QDIAs? The DOL regulations don’t identify specific investment products. Instead, they describe mechanisms for investing participant contributions in a way that meets long-term retirement saving needs. Specifically, there are four types of QDIAs: An investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date (for example, a professionally managed account like the one offered by Betterment) A product with a mix of investments that takes into account the individual’s age or retirement date (for example, a life-cycle or target-date fund) A product with a mix of investments that takes into account the characteristics of the group of employees as a whole, rather than each individual (for example, a balanced fund) The fourth type of QDIA is a capital preservation product, such as a stable value fund, that can only be used for the first 120 days of participation. This may be an option for Eligible Automatic Contribution Arrangement (EACA) plans that allow withdrawals of unintended deferrals within the first 90 days without penalty. We’re excluding further discussion of this option here since plans must still have one of the other QDIAs in cases where the participant takes no action within the first 120 days. What are the pros and cons of each type of QDIA? Let’s breakdown each of the first three QDIAs: 1. An investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date Such an investment service, or managed account, is often preferred as a QDIA over the other options because they can be much more personalized. This is the QDIA provided as part of Betterment 401(k)s. Betterment factors in more than just age (or years to retirement) when assigning participants their particular stock-to-bond ratio within our Core portfolios. We utilize specific data including salary, balance, state of residence, plan rules, and more. And while managed accounts can be pricey, they don’t have to be. Betterment’s solution, which is relatively lower in cost due to investing in exchange traded funds (ETFs) portfolios, offers personalized advice and an easy-to-use platform that can also take external and spousal/partner accounts into consideration. 2. A product with a mix of investments that takes into account the individual’s age or retirement date When QDIAs were introduced in 2006, target date funds were the preferred default investment. The concept is simple: pick the target date fund with the year that most closely matches the year the investor plans to retire. For example, in 2020 if the investor is 45 and retirement is 20 years away, the 2040 Target Date Fund would be selected. As the investor moves closer to their retirement date, the fund adjusts its asset mix to become more conservative. One common criticism of target date funds today is that the personalization ends there. Target date funds are too simple and their one-size-fits-all portfolio allocations do not serve any individual investor very well. Plus, target date funds are often far more expensive compared to other alternatives. Finally, most target date funds are composed of investments from the same company—and very few fund companies excel at investing across every sector and asset class. Many experts view target date funds as outdated QDIAs and less desirable than managed accounts. 3. A product with a mix of investments that takes into account the characteristics of the group of employees as a whole  This kind of product—for example, a balanced fund—offers a mix of equity and fixed-income investments. However, it’s based on group demographics and not on the retirement needs of individual participants. Therefore, using a balanced fund as a QDIA is a blunt instrument that by definition will have an investment mix that is either too heavily weighted to one asset class or another for most participants in your plan. Better QDIAs—and better 401(k) plans Betterment provides tailored allocation advice based on what each individual investor needs. That means greater personalization—and potentially greater investment results—for your employees. At Betterment, we monitor plan participants’ investing progress to make sure they’re on track to reach their goals. When they’re not on target, we provide actionable advice to help get them back on track. As a 3(38) investment manager, we assume full responsibility for selecting and monitoring plan investments—including your QDIA. That means fiduciary relief for you and better results for your employees. The exchange-traded fund (ETF) difference Another key component that sets Betterment apart from the competition is our exclusive use of ETFs. Here's why we use them: Low cost—ETFs generally cost less than mutual funds, which means more money stays invested. Diversified—All of the portfolios used by Betterment are designed with diversification in mind, so that investors are not overly exposed to individual stocks, bonds, sectors, or countries—which may mean better returns in the long run. Efficient—ETFs take advantage of decades of technological advances in buying, selling, and pricing securities. Helping your employees live better Our mission is simple: to empower people to do what’s best for their money so they can live better. Betterment’s suite of financial wellness solutions, from our QDIAs to our user-friendly investment platform, is designed to give your employees a more personalized experience. We invite you to learn more about what we can do for you.

All About Vesting of Employer Contributions Employers have flexibility in defining their plan’s vesting schedule, which can be an important employee retention tool. Regardless of age, employees (as well as job seekers), are thinking about saving for their future. 401(k) plans, therefore, are a very attractive benefit and can be an important competitive tool in helping employers attract and retain talent. And when a company sweetens the 401(k) plan with a matching or profit sharing contribution, that’s like “free money” that can be hard for prospective and current employees to pass up. But with employer contributions comes the concept of “vesting,” which both employees and employers should understand. What is Vesting? With respect to retirement plans, “vesting” simply means ownership. In other words, each employee will vest, or own, a portion or all of their account in the plan based on the plan’s vesting schedule. All 401(k) contributions that an employee makes to the plan, including pre-tax and/or Roth contributions made through payroll deduction, are immediately 100% vested. Those contributions were money earned by the employee as compensation, and so they are owned by the employee immediately and completely. Employer contributions made to the plan, however, usually vest according to a plan-specific schedule (called a vesting schedule) which may require the employee to work a certain period of time to be fully vested or “own” those funds. Often ownership in employer contributions is made gradually over a number of years, which can be an effective retention tool by encouraging employees to stay long enough to vest in 100% of their employer contributions. What is a 401(k) Vesting Schedule? The 401(k) vesting schedule is the set of rules outlining how much and when employees are entitled to (some or all of)  the employer contributions made to their accounts. Typically, the more years of service, the higher the vesting percentage. Different Types of 401(k) Vesting Schedules Employers have flexibility in determining the type and length of vesting schedule. The three types of vesting are: Immediate Vesting - This is very straight-forward in that the employee is immediately vested (or owns) 100% of employer contributions from the point of receipt. In this case, employees are not required to work a certain number of years to claim ownership of the employer contribution. An employee who was hired in the beginning of the month and received an employer matching contribution in his 401(k) account at the end of the month could leave the company the next day, along with the total amount in his account (employee plus employer contributions). Graded Vesting Schedule - Probably the most common schedule, vesting takes place in a gradual manner. At least 20% of the employer contributions must vest after two years of service and 100% vesting can be achieved after anywhere from two to six years to achieve 100% vesting. Popular graded vesting schedules include:   3-Year Graded 4-Year Graded 5-Year Graded 6-Year Graded Yrs of Service % Vested % Vested % Vested % Vested 0 - 1 33% 25% 20% 0% 1 - 2 66% 50% 40% 20% 2 - 3 100% 75% 60% 40% 3 - 4   100% 80% 60% 4 - 5     100% 80% 5 - 6       100% Cliff Vesting Schedule - With a cliff vesting schedule, the entire employer contribution becomes 100% vested all at once, after a specific period of time. For example, if the company has a 3 year cliff vesting schedule and an employee leaves for a new job after two years, the employee would only be able to take the contributions they made to their 401(k) account; they wouldn’t have any ownership rights to any employer contributions that had been made on their behalf. The maximum number of years for a cliff schedule is 3 years. Popular cliff vesting schedules include:   2-Year Cliff 3-Year Cliff Yrs of Service % Vested % Vested 0 - 1 0% 0% 1 - 2 100% 0% 2 - 3   100% Frequently Asked Questions about Vesting What is a typical vesting schedule? Vesting schedules can vary for every plan. However, the most common type of vesting schedule is the graded schedule, where the employee will gradually vest over time depending on the years of service required. Can we change our plan’s vesting schedule in the future? Yes, with a word of caution. In order to apply to all employees, the vesting schedule can change only to one that is equally or more generous than the existing vesting schedule. Known as the anti-cutback rule, this prevents plan sponsors from taking away benefits that have already accrued to employees. For example, if a plan has a 4-year graded vesting schedule, it could not be amended to a 5- or 6-year graded vesting schedule (unless the plan is willing to maintain separate vesting schedules for new hires versus existing employees). The same plan could, however, amend its vesting schedule to a 3-year graded one, since the new benefit would be more generous than the previous one. Since my plan doesn't currently offer employer contributions, I don't need to worry about defining a vesting schedule, right? Whether or not your organization plans on making 401(k) employer contributions, for maximum flexibility, we recommend that all plans include provisions for discretionary employer contributions and a more restrictive vesting formula. The discretionary provision in no way obligates the employer to make contributions (the employer could decide each year whether to contribute or not, and how much). In addition, having a restrictive vesting schedule means that the vesting schedule could be amended easily in the future. When does a vesting period begin? Usually, a vesting period begins when an employee is hired so that even if the 401(k) plan is established years after an employee has started working at the company, all of the year(s) of service prior to the plan’s establishment will be counted towards their vesting. However, this is not always the case. The plan document may have been written such that the vesting period starts only after the plan has been in effect. This means that if an employee was hired prior to a 401(k) plan being established, the year(s) of service prior to the plan’s effective date will not be counted. What are the methods of counting service for vesting? Service for vesting can be calculated in two ways: hours of service or elapsed time. With the hours of service method, an employer can define 1,000 hours of service as a year of service so that an employee can earn a year of vesting service in as little as five or six months (assuming 190 hours worked per month). The employer must be diligent in tracking the hours worked to make sure vesting is calculated correctly for each employee and to avoid over-forfeiting or over-distributing employer contributions. The challenges of tracking hours of service often lead employers to favor the elapsed time method. With this method, a year of vesting is calculated based on years from the employee’s date of hire. If an employee is still active 12 months from their date of hire, then they will be credited with one year of service toward vesting, regardless of the hours or days worked at the company. If there is an eligibility requirement to be a part of the plan, does vesting start after an employee becomes an eligible participant in the plan? Typically, no, but it is dependent on what has been written into the plan document. As stated previously, the vesting clock usually starts ticking when the employee is hired. An employee may not be able to join the plan because there’s a separate eligibility requirement that must be met (for example, 6 months of service), but the eligibility computation period is completely separate from the vesting period. The only instance where an ineligible participant may not start vesting from their date of hire is if the plan document excludes years of service of an employee who has not reached the age of 18. How long does an employer have to deposit employer contributions to the 401(k) plan? This is dependent on how the plan document is written. If the plan document is written for employer contributions to be made every pay period, then the plan sponsor must follow their fiduciary duty to make sure that the employer contribution is made on time. If the plan document is written so that the contribution can be made on an annual basis, then the employer can wait until the end of the year ( or even until the plan goes through their annual compliance testing) to wait for the contribution calculations to be received from their provider. What happens to an employer contribution that is not vested? If an employee leaves the company before they are fully vested, then the unvested portion (including associated earnings) will be “forfeited” and returned to the employer’s plan cash account, which can be used to fund future employer contributions or pay for plan expenses. For example, if a 401(k) plan has a 6-year graded vesting schedule and an employee terminates service after only 5 years,  80% of the employer contribution will belong to the employee, and the remaining 20% will be sent back to the employer when the employee initiates a distribution of their account.

ESG Investments in 401(k) Plans The DOL proposal provides clarity with ESG investing. In the beginning of 2021, the Department of Labor (DOL) released a  “final rule” entitled “Financial Factors in Selecting Plan Investments,” pertaining to ESG (environmental, social, governance) investments within a 401(k) plan. In March 2021, the DOL under the Biden administration stated that they were not going to enforce the previous administration’s rule until they had completed their own review. Most recently, the Biden DOL released its own proposal, reworking parts of the rule to be more favorable to the inclusion of ESG investments within 401(k)s and clarifying areas that had a chilling effect on fiduciaries performing their responsibilities. So what’s changed?   2020 Rule New Proposal Evaluating investments Investment choices must be based on “pecuniary” factors, which include time horizon, diversification, risk, and return. Clarifies that ESG factors are permissible and are financially material in the consideration of investments. Qualified default investment alternative (QDIA) Cannot select investment based on one or more non-pecuniary factors. ESG factors are permissible, allowing the possibility of wider adoption of ESG funds and portfolios. Tie-breaker test (when deciding between investments) Non-financial factors such as ESG are permissible. However, they must have detailed documentation. Permitted to select investments based on “collateral benefits” such as ESG. Where collateral benefits form the basis for investment choice, disclosure of collateral benefits required. Detailed tie-breaker documentation not required. Proxy voting Fiduciaries are not required to vote every proxy or exercise every shareholder right. Revised language stresses the importance of proxy voting in line with fiduciary obligations. Special monitoring for proxy voting when outsourcing responsibilities. Proxy voting activities must be recorded. Additional special monitoring is not required. Removal of record keeping of proxy activities. Safe harbors: a fiduciary can choose not to vote proxy if (a) the proposal is related to business activities or investment value (b) percentage ownership or the proposal being voted on is not significant enough to materially impact. Removal of safe harbors. Voting to further political or social causes “that have no connection to enhancing the economic value of the plan's investment” through proxy voting or shareholder activism is a violation. Opens the door to ESG factors when voting proxies as under the proposed rule that they are economically material. Why is this important? Under the proposal, the DOL clarifies that “climate change and other ESG factors can be financially material and when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.”  Under the previous rule, many ESG factors would not count as a “pecuniary” factor. However, in actuality ESG factors have a high likelihood of impacting financial performance in the long run. For example, climate change can shift environmental conditions, force companies to transition and adapt to these shifts, lead to disruptions in business cycles and new innovations, and ultimately be a material financial risk over time when a company declines from failing to adapt. For retirement plans, the DOL’s revised proposal acknowledges that ESG risks could be  important to consider when reviewing investments for strategic portfolio construction. Driving impact through ESG investing and proxy voting works. We’ve seen this concept in action with Engine No. 1 winning three ExxonMobil board seats in a six month long proxy battle. The change in having three new board members that are conscious of climate change and favor transitioning away from fossil fuels will benefit the company in the long term as renewable energy grows in prominence. After its successful proxy battle with Exxon, Engine No. 1 reported cordial discussions with representatives of Chevron Corp. regarding the company’s emissions reduction strategy, and also has reportedly built a stake in General Motors and expressed support for GM’s management actions relating to increased electric vehicle production and GM’s long-term strategy. Ernst & Young also published data showing an increasing trend of how more Fortune 100 companies are incorporating ESG initiatives into proxy statements. For example, 91% disclosed they are incorporating workplace diversity into their initiatives in 2021 versus 61% in 2020.  Demand for ESG products will continue We believe demand for ESG-focused investing will continue to grow, and it is important that regulations are clarified to accommodate this trend. Bloomberg projects that global assets in ESG will exceed $50 trillion by 2025, which is significant as it will represent a third of projected global assets under management. In the US, $17 trillion is invested in ESG assets. Trends within ESG ETFs tell the same story where fund flows this year have increased by more than 1000% compared to flows seen just three years ago. How Betterment incorporates ESG investing in 401(k) plans At Betterment, we believe investing through an ESG lens matters, and can be important to 401(k) participants investing on a longer time horizon. We’ve found many ways to thoughtfully weave ESG investing into our portfolio strategies. Betterment has a 10+ years track record of constructing globally diversified portfolios, along with a history of implementing ESG investment strategies in 401(k)s using our Socially Responsible Investing (SRI) portfolios. The SRI portfolios come with three different focuses: Broad Impact, Social Impact, and Climate Impact. Each of these portfolios allow our clients to choose how they want to invest to best align their portfolio with their values. Perceptions of higher fees in the ESG investment space has been a misconception that  has historically posed an obstacle to the adoption of pro-ESG regulation. Expense ratios of ESG ETFs have declined to 0.20%, which is low compared to the 0.47% average expense ratio of all ETFs in the US. Within Betterment’s SRI portfolios, and depending on the investor’s overall portfolio allocation to stocks relative to bonds, the asset weighted expense ratios of the Broad Impact, Social, and Climate portfolios range from 0.12-0.18%, 0.13-0.20%, 0.13-0.20% respectively. Another misconception is that in order to adopt ESG investing, you have to sacrifice performance goals. As a 3(38) investment fiduciary, Betterment reviews fund selection on an ongoing basis to ensure we’ve performed our due diligence in selecting investments suitable for participants' desired investing objectives. To determine if there were in fact any financial tradeoffs associated with an SRI portfolio strategy relative to the Betterment Core, we examined evidence based on historical returns. When adjusting for the stock allocation level and Betterment fees, we found that: There were no material performance differences. The portfolios were highly correlated overall. In certain time periods the SRI portfolios outperformed the Betterment Core portfolio. Another example of how we’ve incorporated ESG impact investing is through the addition of the Engine No. 1 Transform 500 ETF (VOTE) into all three of our SRI portfolio strategies in 2021. With VOTE ETF, you can still maintain exposure to the 500 largest companies within the US at an inexpensive expense ratio of 0.05%. That may seem counterintuitive since it mirrors owning the S&P 500 Index, however the magic happens behind the scenes as the fund manager uses share ownership to vote proxies in favor of ESG initiatives. This is a new form of shareholder activism and another way performance goals, exposure, and fees do not have to be sacrificed to make a difference.  What’s next? We are hopeful that ease of interpretation with this rule may allow wider adoption of ESG products as investment options and may lead to greater incorporation of ESG factors in the decision making process as we do believe they are material. This has been a focus of Betterment’s as we seek to remain ahead of the trend with our product solutions.  We will continue to monitor ongoing developments and keep you informed. Note: Higher bond allocations in your portfolio decrease the percentage attributable to socially responsible ETFs.

Understanding 401(k) Compensation Using an incorrect definition of compensation is on the top ten list of mistakes the IRS sees in voluntary correction filings. Compensation is used to determine various elements of any 401(k) plan including: Participant elective deferrals Employer contributions Whether the plan satisfies certain nondiscrimination requirements Highly compensated employees (HCEs) for testing purposes The IRS permits a plan to use multiple definitions of compensation for different purposes, but there are rules surrounding which definition can be used when. This is why using an incorrect definition of compensation is on the top ten list of mistakes the IRS sees in voluntary correction filings. General Definition of Plan Compensation There are three safe harbor definitions outlined in IRC Section 415(c)(3) that can be used to define “plan compensation” used to allocate participant contributions. W-2 Definition—Wages reported in box 1 of W2  PLUS the taxable portion of certain insurance premiums and taxable fringe benefits. The 3401(a) Definition–Wages subject to federal income tax withholding at the source PLUS  taxable fringe benefits. The 415 Definition–Wages, salaries, and other amounts received for services rendered such as bonuses, and commissions. It also includes items such as taxable medical or disability benefits and other taxable reimbursements. In some contexts, the plan is required to use this definition for purposes of determining HCEs and the maximum permissible contributions. For all of these definitions, pre-tax elective deferrals are included in reported compensation. In addition, it’s important to note the annual cost of living adjustments on compensation as well as contribution limits by the IRS. These will impact the amount of allowable employer and employee contributions. Compensation for Non-Discrimination Testing As defined in IRC Section 414(s), this definition of compensation is primarily used for various nondiscrimination tests. Safe harbor match or safe harbor nonelective plans, for example, must use this definition to bypass the actual deferral percentage (ADP) and the actual contribution percentage (ACP) test. Each of the three 415(c)(3) definitions also satisfy the 414(s) compensation definition of compensation and can be used for non-discrimination testing. However, a 414(s) definition of compensation can include certain modifications that are not permissible where a 415(c)(3) definition is required. It is not uncommon for the 414(s) definition to exclude fringe benefits such as personal use of a company car or moving expenses. Exclusions of certain forms of pay must be clearly stated and identified in the plan document but may trigger additional nondiscrimination testing (known as compensation ratio testing) to make sure non-highly compensated employees are not disproportionately affected. Additional Compensation Definitions Pre-entry or pre-participation Compensation Plans that have a waiting or eligibility period may elect to exclude compensation earned prior to entering the plan from the compensation definition. This may help alleviate some of the financial burden associated with an employer match or profit-sharing contribution. Although such an exclusion would not trigger any compensation discrimination test, a plan that is deemed “top-heavy” (more than 60% of assets belong to key employees) must calculate any required employer contribution using the full year’s worth of compensation. Post-severance Compensation Post severance compensation are amounts that an employee would have been entitled to receive had they remained employed. It usually includes amounts earned but not yet paid at time of termination (bonuses, commissions), payments for unused leave such as vacations or sick days, and any distributions made from a qualified retirement plan. To be considered as post-severance pay eligible and included in the definition of plan compensation, amounts must be paid before the later of the last day of the plan year in which the employee terminated or two and a half months following the date of termination. Taxable Fringe Benefits Non-cash items of value given to the employee, such as the use of a company car for personal use, must be reported as taxable income. A plan can exclude taxable fringe benefits from its compensation definition and therefore not be subject to the compensation ratio test. Bonuses, Commissions, and Overtime These types of payments are considered plan compensation unless specifically excluded in the plan document. Many employers decide to exclude them because they are not regularly recurring, but should be aware that such exclusions will trigger the compensation ratio test. However, such exclusions must be specifically detailed in the plan document. For example, If a company offers a performance bonus, hiring bonus, and holiday bonus but decides to exclude the hiring and holiday bonuses from the definition of plan compensation, then it must be specific, since “bonus” would be too broad and include all types. Reimbursements and Allowances Allowances (amounts received without required documentation) are taxable, while reimbursements for documented and eligible expenses are not taxable. Allowances are therefore included in the definition of plan compensation while reimbursements are not. An allowance is generally considered a taxable fringe benefit so it is reported and follows certain rules above in regards to compensation definitions. International Compensation Tax implications can easily rise when dealing with international workers and compensation. Employers with foreign affiliates that sponsor non-US retirement plans still may be subject to the US withholding and reporting requirements under the Foreign Account Tax Compliance Act (FATCA) to combat tax evasions. Companies with employees who either work outside of the U.S. or who work in the U.S. with certain visas will need to carefully review each employee’s status and 401(k) eligibility. Rules and requirements vary by country. However, when 401(k) eligibility is based on citizenship or visa status, work location and compensation currency is not a factor. Define Plan Compensation Carefully Payroll is often a company’s largest expense, so it’s no surprise that companies devote significant time and energy to develop their compensation strategies. However, companies need to be mindful of the implications of their compensation program. Even simple pay structures do not necessarily translate into simple 401(k) plan definitions of compensation. It’s important to review the plan document carefully to be sure compensation definitions used reflect the desires of the company, that the definitions chosen are accurately applied, and that implications are clearly understood. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

401(k) Glossary of Terms Whether you're offering a 401(k) for the first time or need a refresh on important terms, these definitions can help you make sense of industry jargon. 3(16) fiduciary: A fiduciary partner hired by an employer to handle a plan’s day-to-day administrative responsibilities and ensure that the plan remains in compliance with Department of Labor regulations. 3(21) fiduciary: An investment advisor who acts as co-fiduciary to review and make recommendations regarding a plan’s investment lineup. This fiduciary provides guidance but does not have the authority to make investment decisions. 3(38) fiduciary: A codified retirement plan fiduciary that’s responsible for choosing, managing, and overseeing the plan’s investment options. 401(k) administration costs: The expenses involved with the various aspects of running a 401(k) plan. Plan administration includes managing eligibility and enrollment, coordinating contributions, processing distributions and loans, preparing and delivering legally required notices and forms, and more. 401(k) committee charter: A document that describes the 401(k) committee’s responsibilities and authority. 401(k) compensation limit: The maximum amount of compensation that’s eligible to draw on for plan contributions, as determined by the IRS. In 2020, this limit is $285,000. Keep in mind that contributions are also limited by the 401(k) contribution limit, which is $19,500 in 2020 for those under age 50. 401(k) contribution limits: The maximum amount that a participant may contribute to an employer-sponsored 401(k) plan, as determined by the IRS. For 2020, the limits are $19,500 for individuals under age 50, and $26,000 for individuals age 50 and older (including $6,500 in catch-up contributions). 401(k) force-out rule: Refers to a plan sponsor’s option to remove a former employee’s assets from the retirement plan. The sponsor has the option to “force out” these assets (into an IRA in the former employee’s name) if the assets are less than $5,000. 401(k) plan: An employer-sponsored retirement savings plan that allows participants to save money on a tax-advantaged basis. 401(k) plan fees: The various fees associated with a plan. These can include fees for investment management, plan administration, fiduciary services, and consulting fees. While some fees are applied at the plan level — that is, deducted from plan assets — others are charged directly to participant accounts. 401(k) plan fee benchmarking: The process of comparing a plan’s fees to those of other plans in similar industries with roughly equal assets and participation rates. This practice can help to determine if a plan’s fees are reasonable per ERISA requirements. 401(k) set-up costs: The expenses involved in establishing a 401(k) plan. These costs cover plan documents, recordkeeping, investment management, participant communication, and other essential aspects of the plan. 401(k) withdrawal: A distribution from a plan account. Because a 401(k) plan is designed to provide income during retirement, a participant generally may not make a withdrawal until age 59 ½ unless he or she terminates or retires; becomes disabled; or qualifies for a hardship withdrawal per IRS rules. Any other withdrawals before age 59 ½ are subject to a 10% penalty as well as regular income tax. 404(a)(5) fee disclosure: A notice issued by a plan sponsor that details information about investment fees. This notice, which is required of all plan sponsors by the Department of Labor, covers initial disclosure for new participants, new fees, and fee changes. 404(c) compliance: Refers to a participant’s (or beneficiary’s) right to choose the specific investments for 401(k) plan assets. Because the participant controls investment decisions, the plan fiduciary is not liable for investment losses. 408(b)(2) fee disclosure: A notice issued by a plan service provider that details the fees charged by the provider (and its affiliates or subcontractors) and reports any possible conflicts of interest. The Department of Labor requires all plan fiduciaries to issue this disclosure. Actual contribution percentage (ACP) test: A required compliance test that compares company matching contributions among highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). Actual deferral percentage (ADP) test: A required compliance test that compares employee deferrals among highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). Annual fee disclosure: A notice issued by a plan sponsor that details the plan’s fees and investments. This disclosure includes plan and individual fees that may be deducted from participant accounts, as well as information about the plan’s investments (performance, expenses, fees, and any applicable trade restrictions). Automated Clearing House (ACH): A banking network used to transfer funds between banks quickly and cost-efficiently. Automatic enrollment (ACA): An option that allows employers to automatically deduct elective deferrals into the plan from an employee’s wages unless the employee actively elects not to contribute or to contribute a different amount. Beneficiary: The person or persons who a participant chooses to receive the assets in a plan account if he or she dies. If the participant is married, the spouse is automatically the beneficiary unless the participant designates a different beneficiary (and signs a written waiver). If the participant is not married, the account will be paid to his or her estate if no beneficiary is on file. Blackout notice: An advance notice of an upcoming blackout period. ERISA rules require plan sponsors to notify participants of a blackout period at least 30 days in advance. Blackout period: A temporary period (three or more business days) during which a 401(k) plan is suspended, usually to accommodate a change in plan administrators. During this period, participants may not change investment options, make contributions or withdrawals, or request loans. Catch-up contributions: Contributions beyond the ordinary contribution limit, which are permitted to help people age 50 and older save more as they approach retirement. In 2022, contribution limits (set by the IRS) are $20,500 on ordinary contributions and $6,500 on catch-up contributions, for a combined limit of $27,000. Compensation: The amount of pay a participant receives from an employer. For purposes of 401(k) contribution calculations, only compensation is considered to be eligible. The plan document defines which form, for example the W-2, is referred to in determining the compensation amount. Constructive receipt: A payroll term that refers to the impending receipt of a paycheck. The paycheck has not yet been fully cleared for deposit in the employee’s bank account, but the employee has access to the funds. Deferrals: Another term for contributions made to a 401(k) account. Defined contribution plan: A tax-deferred retirement plan in which an employee or employer (or both) invest a fixed amount or percentage (of pay) in an account in the employee’s name. Participation in this type of plan is voluntary for the employee. A 401(k) plan is one type of tax-deferred defined contribution plan. Department of Labor (DOL): The federal government department that oversees employer-sponsored retirement plans as well as work-related issues including wages, hours worked, workplace safety, and unemployment and reemployment services. Distributions: A blanket term for any withdrawal from a 401(k) account. A distribution can include a required minimum distribution (RMD), a loan, a hardship withdrawal, a residential loan, or a qualified domestic relations order (QDRO). Docusign: A third-party platform used for exchanging signatures on documents, especially during plan onboarding. EIN: An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Eligible automatic enrollment arrangement (EACA): An automatic enrollment (ACA) plan that applies a default and uniform deferral percentage to all employees who do not opt out of the plan or provide any specific instructions about deferrals to the plan. Under this arrangement, the employer is required to provide employees with adequate notice about the plan and their rights regarding contributions and withdrawals. ERISA: Refers to the Employee Retirement Income Security Act of 1974, a federal law that requires individuals and entities that manage a retirement plan (fiduciaries) to follow strict standards of conduct. ERISA rules are designed to protect retirement plan participants and secure their access to benefits in the plan. Excess contributions: The amount of contributions to a plan that exceed the IRS contribution limit. Excess contributions made in any year (and their earnings) may be withdrawn without penalty by the tax filing deadline for that year, and the participant is then required to pay regular taxes on the amount withdrawn. Any excess contributions not withdrawn by the tax deadline are subject to a 6% excise tax every year they remain in the account. Exchange-traded fund (ETF): Passively managed index funds that feature low costs and high liquidity. ETFs make it easy to manage portfolios efficiently and effectively. All of Betterment’s 401(k) investment options are ETFs. Fee disclosure: Information about the various fees related to a 401(k) plan, including plan administration, fiduciary services, and investment management. Fee disclosure deadline: The date by which a plan sponsor must provide plan and investment-related fee disclosure information to participants. The DOL requires you to send your participant fee disclosure notice at least once in any 14-month period without regard to whether the plan operates on a calendar-year or fiscal-year basis. Fidelity bond: Also known as a fiduciary bond, this bond protects the plan from losses due to fraud or dishonesty. Every fiduciary who handles 401(k) plan funds is required to hold a fidelity bond. Fiduciary: An individual or entity that manages a retirement plan and is required to always act in the best interests of employees who save in the plan. In exchange for helping employees build retirement savings, employers and employees receive special tax benefits, as outlined in the Internal Revenue Code. When a company adopts a 401(k) plan for employees, it becomes an ERISA fiduciary and takes on two sets of fiduciary responsibilities:     “Named fiduciary” with overall responsibility for the plan, including selecting and monitoring plan investments     “Plan administrator” with fiduciary authority and discretion over how the plan is operated Most companies hire one or more outside experts (such as an investment advisor, investment manager, or third-party administrator) to help manage their fiduciary responsibilities. Form 5500: An informational document that a plan sponsor must prepare to disclose the identity of the plan sponsor (including EIN and plan number), characteristics of the plan (including auto-enrollment, matching contributions, profit-sharing, and other information), the numbers of eligible and active employees, plan assets, and fees. The plan sponsor must submit this form annually to the IRS and the Department of Labor, and must provide a summary to plan participants. Smaller plans (less than 100 employees) may instead file Form 5500-SF. Hardship withdrawal: A withdrawal before age 59 ½ intended to address a severe and immediate need (as defined by the IRS). To qualify for a hardship withdrawal, a participant must provide the employer with documentation (such as a medical bill, a rent invoice, funeral expenses) that shows the purpose and amount needed. If the hardship withdrawal is authorized, it must be limited to the amount needed (adjusted for taxes and penalties), may still be subject to early withdrawal penalties, is not eligible for rollover, and may not be repaid to the plan. Highly compensated employee (HCE): An employee who earned at least $125,000 in compensation from the plan sponsor during the previous year (if 2019), or at least $130,000 if the previous year is 2020, or owned more than 5% interest in the plan sponsor’s business at any time during the current or previous year (regardless of compensation). Inception to date (ITD): Refers to contribution amounts since the inception of a participant’s account. Internal Revenue Service (IRS): The U.S. federal agency that’s responsible for the collection of taxes and enforcement of tax laws. Most of the work of the IRS involves income taxes, both corporate and individual. Investment advice (ERISA ruling): The Department of Labor’s final ruling (revised in 2020) on what constitutes investment advice and what activities define the role of a fiduciary. Investment policy statement (IPS): A plan’s unique governing document, which details the characteristics of the plan and assists the plan sponsor in complying with ERISA requirements. The IPS should be written carefully, reviewed regularly, updated as needed, and adhered to closely. Key employee: An employee classification used in top-heavy testing. This is an employee who meets one of the following criteria:     Ownership stake greater than 5%     Ownership stake greater than 1% and annual compensation greater than $150,000     Officer with annual compensation greater than $200,000 (for 2022) Non-discrimination testing: Tests required by the IRS to ensure that a plan does not favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs).   Non-elective contribution: An employer contribution to an employee’s plan account that’s made regardless of whether the employee makes a contribution. This type of contribution is not deducted from the employee’s paycheck. Non-highly compensated employee (NHCE): An employee who does not meet any of the criteria of a highly compensated employee (HCE). Plan sponsor: An organization that establishes and offers a 401(k) plan for its employees or members. Qualified default investment alternative (QDIA): The default investment for plan participants who don’t make an active investment selection. All 401(k) plans are required to have a QDIA. For Betterment’s 401(k), the QDIA is the Core Portfolio Strategy, and a customized risk level is set for each participant based on their age. Qualified domestic relations order (QDRO): A document that recognizes a spouse’s, former spouse’s, child’s, or dependent’s right to receive benefits from a participant’s retirement plan. Typically approved by a court judge, this document states how an account must be split or reassigned. Plan administrator: An individual or company responsible for the day-to-day responsibilities of 401(k) plan administration. Among the responsibilities of a plan administrator are compliance testing, maintenance of the plan document, and preparation of the Form 5500. Many of these responsibilities may be handled by the plan provider or a third-party administrator (TPA). Plan document: A document that describes a plan’s features and procedures. Specifically, this document identifies the type of plan, how it operates, and how it addresses the company’s unique needs and goals. Professional employer organization (PEO): A firm that provides small to medium-sized businesses with benefits-related and compliance-related services. Profit sharing: A type of defined contribution plan in which a plan sponsor contributes a portion of the company’s quarterly or annual profit to employee retirement accounts. This type of plan is often combined with an employer-sponsored retirement plan. Promissory note: A legal document that lays out the terms of a 401(k) loan or other financial obligation. Qualified non-elective contribution (QNEC): A contribution that a plan is required to make if it’s found to be top-heavy. Required minimum distribution (RMD): Refers to the requirement that an owner of a tax-deferred account begin making plan withdrawals each year starting at age 72. The first withdrawal must be made by April 1 of the year after the participant reaches age 72, and all subsequent annual withdrawals must be made by December 31. Rollover: A retirement account balance that is transferred directly from a previous employer’s qualified plan to the participant’s current plan. Consolidating accounts in this way can make it easier for a participant to manage and track retirement investments, and may also reduce retirement account fees. Roth 401(k) contributions: After-tax plan contributions that do not reduce taxable income. Contributions and their earnings are not taxed upon withdrawal as long as the participant is at least age 59½ and has owned the Roth 401(k) account for at least five years. For 2020, the limits on plan contributions (Traditional, Roth, or a combination of both) are $19,500 for individuals under age 50, and $26,000 for individuals age 50 and older (including $6,500 in catch-up contributions). Roth vs. pre-tax contributions: Pre-tax contributions reduce a participant’s current income, with taxes due when funds are withdrawn (typically in retirement). Alternatively, Roth contributions are deposited into the plan after taxes are deducted, so withdrawals are tax-free. Safe Harbor: A plan design option that provides annual testing exemptions. In exchange, employer contributions on behalf of all employees are required. Saver’s credit: A credit designed to help low- and moderate-income taxpayers further reduce their taxes by saving for retirement. The amount of this credit — 10%, 20%, or 50% of contributions, based on filing status and adjusted gross income — directly reduces the amount of tax owed. Stock option: The opportunity for an employee to purchase shares of an employer’s stock at a specific (often discounted) price for a limited time period. Some companies may offer a stock option as an alternative or a complement to a 401(k) plan. Summary Annual Report (SAR): A summary version of Form 5500, which a plan sponsor is required to provide to participants every year within two months after the Form 5500 deadline – September 30 or December 15 (if there was an extension given for Form 5500 filing). Summary Plan Description (SPD): A comprehensive document that describes in detail how a 401(k) plan works and the benefits it provides. Employers are required to provide an SPD to employees free of charge. Third-party administrator (TPA): An individual or company that may be hired by a 401(k) plan sponsor to help run many day-to-day aspects of a retirement plan. Among the responsibilities of a TPA are compliance testing, generation and maintenance of the plan document, and preparation of Form 5500. Traditional contributions: Pre-tax plan contributions that reduce taxable income. These contributions and their earnings are taxable upon withdrawal, which is typically during retirement.  Vesting: Another word for ownership. Participants are always fully vested in the contributions they make. Employer contributions, however, may be subject to a vesting schedule in which participant ownership builds gradually over several years.

How Does a Multiple Employer Plan Compare to a Single Employer 401(k) Plan? Are MEPs and PEPs the new solution for workplace retirement savings or should I pick my own 401(k) plan? Multiple employer plans (MEPs) have been around for many years, but the rules governing these types of retirement plans limit their availability to many employers. In an effort to help more small and mid-sized companies offer retirement savings plans to their employees, the SECURE Act ushered in new changes so that, beginning in 2021, any business can join a new type of MEP, called a Pooled Employer Plan (PEP). Because of this new development, MEPs and PEPs have become buzzwords in the industry and no doubt you’ll see advertisements touting the benefits of these one-size-fits-all type plans. But are they really the magic bullet policymakers are hoping will solve the “retirement savings crisis”? That remains to be determined, but for many employers, sponsoring their own 401(k) plan with the right plan provider is the best way to ensure their goals for a retirement savings plan are met. What is a MEP? A multiple employer plan or MEP is a retirement plan, often structured as a 401(k) plan, that is established and administered by an “MEP organizer.” The MEP organizer makes the plan available to many different employers. If the MEP meets certain requirements set forth in the tax laws and ERISA (Employee Retirement Income Security Act), it will be treated as a single plan managed by the organizer and not as a series of separate plans administered by each participating employer. The MEP organizer serves as plan fiduciary and typically assumes both administrative and investment management responsibilities for all employers participating in the MEP. An MEP is viewed by the Department of Labor (DOL) as a single plan eligible to file one Form 5500 only if the employers participating in the MEP are part of the same trade or association or are located in the same geographical area. There must be some commonality between the participating employers besides just participating in the MEP. A Professional Employer Organization (PEO) may also sponsor an MEP for its employer clients. What is a PEP? The rules limiting the benefits of an MEP to employers with commonality limited the usefulness of MEPs for many small businesses. To allow broader participation in MEPs, the SECURE Act added a new type of MEP, called a Pooled Employer Plan or PEP, effective for plan years beginning in 2021. A PEP is a 401(k) plan that will operate much like a MEP with a plan organizer and multiple participating employers, but there are a few important differences. Any employer can join a PEP; the businesses do not have to have any common link for the PEP to be considered a single plan. But the PEP must be sponsored by a “Pooled Plan Provider” (PPP) that has registered with the DOL and IRS. The Pooled Plan Provider must be designated in the PEP plan document as the named fiduciary and the ERISA 3(16) plan administrator. This service provider is also responsible for ensuring the PEP meets the requirements of ERISA and the tax code, including ensuring participant disclosures are provided and nondiscrimination testing is performed. The PPP must also obtain a fidelity bond and ensure that any other entities acting as fiduciary to the PEP are bonded. What are the benefits of participating in a MEP or PEP? Small businesses may refrain from adopting a retirement plan for their employees because of the administrative burdens, fiduciary liability, and cost associated with workplace plans. MEPs have been identified in recent years as a way to address these concerns for employers and potentially increase access to workplace retirement plans for employees of small and mid-size businesses. The MEP structure can alleviate much of the administrative and fiduciary burdens for participating employers, and potentially reduce costs. Reduced fiduciary responsibility – The MEP organizer or the PPP takes on fiduciary responsibility for managing the plan and for selecting and monitoring service providers. This generally includes selecting investments that will be offered in the plan. Reduced administrative responsibility – The MEP organizer or the PPP is responsible for day-to-day administration and complying with all applicable rules and regulations for plan operations. Investment pricing – A MEP/PEP arrangement pools plan assets of all participating employers, which may allow the MEP/PEP to obtain better pricing on investments. Reduced plan expenses – MEPs/PEPs allow small businesses to benefit from economies of scale by sharing the expenses for plan documents, general plan administration, and one Form 5500. Because of these benefits, interest in MEPs has grown over the years, leading to the rule changes that open the MEP opportunity to all employers through a PEP. How do MEPs & PEPs Differ from a Single 401(k) Plan? Many of the responsibilities associated with managing a retirement plan that can challenge plan sponsors are taken on by the MEP organizer or the PPP. This third party is responsible for making almost all the decisions related to managing the plan, hiring and monitoring service providers, and overseeing the plan’s investments and operations. The MEP/PEP entity must perform these services on behalf of all participating employers and will be held to the high fiduciary standards of ERISA for these duties. Once the employer has prudently selected the MEP/PEP entity, the employer is relieved of the day-to-day operational oversight and investment management. However, this transfer of responsibilities also means a transfer of control over key decisions regarding the plan. Conversely, when an employer establishes its own 401(k) plan for its employees, the employer retains many of these operational and investment responsibilities, which the employer typically fulfills with the support of service providers. The employer can design the plan based solely on their goals and objectives for the plan and their employees’ needs. The flexibility retained by an employer adopting a single 401(k) plan includes: Selecting the plan design features that fit their employees’ needs Picking the service provider that will assist them in operating the plan and provide relevant education and guidance to their employees Choosing the menu of investments that will be offered to participants in the plan or engaging an investment advisor to manage or guide investment selection Deciding whether to offer personalized advice to employees When Might a Single 401(k) Plan Might Be Better? While the shared expenses and reduced responsibilities of participating in a MEP/PEP can be attractive to small and midsize employers, sometimes what one employer sees as a benefit, another employer sees as a disadvantage. For example, because the MEP/PEP entity is operating one plan for many employers, the plan may be designed with the features that will be most widely accepted by most employers. There is typically little customization available in order to keep plan operations efficient (and cost effective) for the MEP/PEP entity. Participating employers generally have no control over service providers, plan design, or the participant experience. Additionally, although the structure of a MEP/PEP is meant to reduce administrative and investment expenses for participating employers, it remains to be seen if the cost of these plans will be competitive with the low-cost 401(k) plans available today without compromising on the quality and breadth of services. PEPs will open up the multiple employer plan market to all employers for the first time ever. And there are many financial organizations and service providers preparing to capitalize on this new solution by launching PEP products. Although the DOL has provided some guidance, the industry is still awaiting additional guidance on a number of critical elements necessary for building the PEP plan product, including plan documents, acceptable compensation arrangements for service and investment providers, administrative responsibilities for PPPs, and special Form 5500 rules. With so many unknowns yet in the PEP market, it’s difficult to predict whether this new type of multiple employer plan will hit the mark for small business owners. Employers can benefit from the simplicity of a single service provider solution and receive professional fiduciary and administrative support right now with a 401(k) solution designed specifically for small and midsized plans. Ready for the right 401(k) solution? Betterment at Work  offers an all-in-one dashboard for employers that aims to simplify plan administration at one of the lowest costs in the industry. Our guided onboarding, dedicated customer support team, and expert-built portfolios can help  you deliver a 401(k) plan that works both for your organization and your employees.

What is a 401(k) Plan Audit? If an audit of your 401(k) plan is required, Betterment can help you understand what to expect and how to prepare. The Employee Retirement Income Security Act of 1974 (ERISA) requires that certain 401(k) plans be audited annually by a qualified independent public accountant subject. The primary purpose of the audit is to ensure that the 401(k) plan is operating in accordance with Department of Labor (DOL) and Internal Revenue Service (IRS) rules and regulations as well as operating consistent with the plan document, and that the plan sponsor is fulfilling their fiduciary duty. A 401(k) plan audit can be fairly broad in scope and usually includes a review of all of the transactions that took place throughout the plan year such as payroll uploads, distributions, corrective actions, and any earnings that were allocated to accounts. It will also include a review of administrative procedures and identify potential areas of concern or opportunities for improvement. When does a 401(k) Plan need an audit? Whether or not your plan requires an audit is determined by the number of participants in your plan at the beginning of the plan year. In this case, participants include not just those employees actively contributing to the plan but also those who were eligible but not participating as well as any terminated participants with a balance. Generally speaking, ERISA requires an audit for any plan that had 100 or more participants (so-called “large plans”) at the beginning of the plan year. However, as shown in the table below, there are exceptions to this general rule, captured in the “80-120 Participant Rule,” to address plans that may have fluctuating participant counts close to that 100 cut-off. Participant Count at Beginning of Plan Year Filing Status on Previous Year’s Form 5500 80-120 Participant Rule 100-120 participants Small Plan Considered a Small Plan (no audit required) until plan has more than 120 participants 80-100 participants Large Plan Considered a Large Plan (audit optional) until plan has fewer than 80 participants It is therefore important to review the plan’s eligible participant count before engaging an auditor, especially if the participant count fluctuates between 80 and 120. If your plan falls under the large plan filer category, engaging a qualified independent auditor as soon as possible after plan year end is advisable. How do I prepare for a 401(k) plan audit? To get started, an auditor will request all plan-related documents, which will likely include: Executed plan document or an executed adoption agreement Any amendments to the plan document Current IRS determination letter (these are attached in the plan document we provide for plan sponsors to execute) Current and historical summary plan description and summaries of material modifications Copy of the plan’s fidelity bond insurance Copy of the most recent compliance test performed Service agreements In general, these documents should be easily accessible and current. That’s why it’s important for plan sponsors to safely keep all applicable plan-related documents, especially if there are changes made. In addition, the auditor will need financial reports of your plan. As part of its 3(16) fiduciary support services, Betterment provides a full audit package which includes: Participant contribution report Plan activity report Payroll records Schedule of plan assets Distributions and/or loans report Fees report Reports regarding investment allocation of plan assets Copies of prior Form 5500 (available on eFAST within the DOL website) Trustee certification/agreement It’s also possible that the auditor may request copies of the committee or board minutes that document considerations and decisions about the plan, including choosing service providers and monitoring plan expenses. What will happen during a 401(k) plan audit? Once the auditor receives all the necessary documents, they will review the plan to gain a solid understanding of the plan’s operations, internal controls and plan activity. The auditor will pick a sample of employees for distributions, loans or rollovers (activity of assets moving out or in of plan) and will request documentation that support such activity. For example, this may include loan applications, distribution paperwork and the image of the check or proof of funds being delivered to the participant. Once the assessments of the samples and financials are complete, the auditor will draft something called an “accountant’s opinion.” The plan sponsor should carefully review this document, which outlines any control deficiencies found during the audit. The auditor will also provide a final financial statement that must be attached to the plan’s Form 5500 before filing with the DOL. Important Deadlines for 401(k) Plan Audits Annual audits should be completed before the Form 5500 filing deadline. Form 5500s are required to be filed by the last day of the seventh month after the plan year ends. For example, if your plan year ends on December 31, your Form 5500 is due on July 31 of the following year. However, you may file an extension with the DOL using Form 5558 to get an additional 2 ½ months to file, pushing the due date to October 15 for calendar year plans. It’s important to meet the required deadline to avoid any DOL penalties. Ready to learn more about how Betterment can help you with plan audits (and so much more)? Let’s talk.

The Importance and Benefits of Offering Employer Match Some employees resist saving because they feel retirement is too far away, can’t afford it, or can’t grasp the benefit. You can help change that mentality by offering a 401(k) employer match. Beyond being an attractive employee benefit, a 401(k) plan can act as a catalyst for employees at all career stages to save for retirement. Some employees, however, will resist saving because they feel retirement is too far away, or can’t afford it, or can’t make room in their budget (and current spending levels). However, as a 401(k) plan sponsor, you can help change that mentality by offering a 401(k) employer matching contribution. What is a 401(k) employer matching contribution? With an employer match, a portion or all of an employee’s 401(k) plan contribution will be “matched” by the employer. Common matching formulas include: Dollar-for-Dollar Match: Carla works for ABC Company, which runs payroll on a semi-monthly basis (two times a month = 24 pay periods a year). Her gross pay every period is $2,000. She has decided to defer 4% of her pre-tax pay every pay period, or $80 (4% x $2,000). The ABC Company 401(k) plan generously offers a dollar-for-dollar match up to 4% of compensation deferred. With each payroll, $80 of Carla’s pay goes to her 401(k) account on a pre-tax basis, and ABC Company also makes an $80 matching contribution to Carla’s 401(k) account. At a 4% contribution rate, Carla is maximizing the employer contribution amount. If she reduces her contribution to 3%, her company matching contribution would also drop to 3%; but if she increases her contribution to 6%, the formula dictates that her employer would only contribute 4%. Partial Match (simple): Let’s take the same scenario as above, but ABC Company 401(k) plan matches 50% on the first 6% of compensation deferred. This means that it will match half of the 401(k) contributions. If Carla contributes $80 to the 401(k) plan, ABC Company will contribute $40 on top of her contribution as the match. Tiered Match: By applying different percentages to multiple tiers, employers can encourage employees to contribute to the plan while controlling their costs. For example, ABC Company could match 100% of deferrals up to 3% of compensation and 50% on the next 3% of deferrals. Carla contributes 4% of her pay of $2,000, which is $80 per pay period. Based on their formula, ABC Company will match her dollar-for-dollar on 3% of her contribution ($60 = 3% x $2,000), and 50 cents on the dollar on the last 1% of her contribution for a total matching contribution of $70 or 3.5%. The plan’s matching formula is chosen by the company and specified in the plan document or may be defined as discretionary, in which case the employer may determine not only whether or not to make a matching contribution in any given year, but also what formula to use. Is there a limit to how much an employer can match? The IRS limits annual 401(k) contributions, and these limits change from year to year. It’s also important to note that the IRS caps annual compensation that’s eligible to be matched. Potential Benefits of Providing an Employer Match Attract talent: Offering a 401(k) is a great way to set your company apart from the competition, and a matching contribution sweetens the deal! A Betterment at Work study found that 68 percent of respondents would prioritize having better financial wellness benefits above an extra week of vacation! Better 401(k) plan participation: Unlike other types of employer contributions, a matching contribution requires employees to contribute their own money to the plan. In other words, the existence of the match drives plan participation up (not contributing is like leaving money on the table), encouraging employee engagement and increasing the likelihood of having your plan pass certain compliance tests. Financial well-being of employees: A matching contribution shows employees that you care about their financial well-being and are willing to make an investment in their future. The additional funds can help employees reach their retirement savings goal. Improved retention: The match is essentially “free money” that can be considered part of an employee’s compensation, which can be hard to give up. And by applying a vesting schedule to the employer match, you can incentivize employees to stay longer with your company to gain the full benefits of the 401(k) plan. Employer tax deduction: matching contributions are tax deductible, which means you can   deduct them from your company’s income so long as they don’t exceed IRS limits.  Offering a 401(k) plan is already a huge step forward in helping your employees save for their retirement. Providing a 401(k) matching contribution enhances that benefit for both your employees and your organization. Ready for a better 401(k) solution? Whether you’re considering a matching contribution or not, Betterment is here to help. We offer an all-in-one dashboard that seeks to simplify plan administration, at one of the lowest costs in the industry.,  Our dedicated onboarding team, and support staff are here to help you along the way. Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.  

Helping Employees Set Up a Financial Safety Net Employers are looking for ways to help their employees save for unexpected financial emergencies. Betterment’s 401(k) platform can help. Your water heater fails. Your car breaks down on the side of the road. Your spouse loses their job because of a global pandemic. Life is filled with challenges, and some are more stressful and expensive than others. As a business owner, you’ve likely witnessed firsthand how financial emergencies can impact your employees. Not only does the stress affect employees’ personal lives, it can also affect their work performance, attendance, and focus. That’s why an emergency fund —with enough money to cover at least a few months of expenses—is such an important part of your employees’ overall financial plan. However, many people lack this critical safety net. Rainy day funds are running dry According to research by the Federal Reserve and reported on by the Employee Benefit Research Institute (EBRI), less than 25% of working families had liquid savings of more than three months of their family income. And even when asked if they have 75% of funds needed for three months, that jumps to just over one quarter. When faced with an emergency, employees without a financial safety net may turn to credit cards, take a payday loan, or even raid their retirement savings—triggering early withdrawal penalties and derailing their retirement savings progress. Having a solid emergency fund may help prevent employees from spiraling into a difficult financial predicament with wide-reaching implications. Emergency fund 101 So, what should your employees consider when setting up an emergency fund? At Betterment, we recommend: Saving at least three to four months of expenses—If employees have a financial safety net, they’ll feel more confident focusing on other important goals like retirement or home ownership.  Investing emergency fund money—By investing their money—not socking it away in a low-interest savings account—employees don’t run the risk of losing buying power over time because of inflation.  Making it automatic—Setting up a regular, automatic deposit can help employees stick to their savings plan because it reduces the effort required to set aside money in the first place. All of this is summarized for employees here: How to Build an Emergency Fund. Helping employees save for today—and someday Some employees may feel like they have to choose between building their emergency fund and saving in their workplace retirement plan. But it doesn’t have to be a choice. With the right 401(k) plan provider, your employees can save for retirement and build an emergency fund at the same time. For example, the Betterment platform is more than just a 401(k) in that it provides: Quick and easy emergency saving fund set-up Betterment makes it easy to establish an emergency savings fund—helping ensure employees don’t need to dip into their 401(k) when faced with unexpected financial difficulties. If your employees aren’t sure how much to save, Betterment can calculate it for them using their gross income, zip code, and research from the American Economic Association and the National Bureau of Economic Research.Betterment will also estimate how much employees need to save to build the emergency fund they want to reach their target amount in their desired time horizon. Using our goals forecaster, employees can model how much they need to save each month to reach their emergency fund goal and view different what-if scenarios that take into account monthly savings, time horizons, and target amounts. Linked accounts for big picture planning Our easy-to-use online platform links employee savings accounts, outside investments, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances, making it easy for them to see the big picture. That means that in a single, holistic view, employees can track both their 401(k) plan account and their emergency fund. Personalized advice to help employees save for today (and someday) By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. Ready for a better way to help your employees prepare for the inevitable—and the unexpected? Talk to Betterment today.

What is a 401(k) Plan Restatement? Every six years, the IRS requires that all qualified retirement plans be “restated.” Find out what this means for your plan. Every six years, the IRS requires all qualified retirement plans to update their plan documents to reflect recent legislative and regulatory changes - that’s every six years as counted by the IRS, regardless of how long your plan has been active. Some updates are made during the normal course of business through plan amendments, but others require more substantial rewriting of plan documents through a formal process known as a “plan restatement.” This process began on August 1, 2020 and closed on July 31, 2022. Plan restatements are required by the IRS and not optional. Those who do not comply may be subject to significant IRS penalties. If you work with a third party administrator (TPA), they are the ones who handle the plan restatement, and we will coordinate with them when the next cycle begins. What is a plan restatement? A restatement is a complete re-writing of the plan document. It includes voluntary amendments that have been adopted since the last time the document was re-written, along with mandatory amendments to reflect additional legislative and regulatory changes. The latest mandatory restatement period for defined contribution plans is referred to as “Cycle 3” because it was the third required restatement that follows this six-year cycle. Is plan restatement mandatory or voluntary? This plan restatement is mandatory, even if your plan was amended for various reasons in the recent past. Plans that did not meet the July 31, 2022 restatement deadline are subject to penalties, up to and including revocation of tax-favored status. This means contributions might not be deductible and would be immediately included as income to employees. Why do plans have to be restated? Retirement plans are governed by ever-changing laws and regulations imposed by Congress, the IRS, and the Department of Labor (DOL). To remain in compliance and current with those laws and regulations, plan documents must be updated from time to time. Some of these changes may be reflected through plan amendments, but it is impractical for plans to amend their documents for every new law or regulation. What has changed since the last restatement? The deadline for the last mandatory restatement was July 31, 2022. Before that the previous deadline was April 30, 2016, and was based on documents approved by the IRS two years prior and only reflected legislative and regulatory updates through 2010. Since then, there have been a number of regulatory and legislative changes impacting retirement plans such as availability of plan forfeitures to offset certain additional types of company contributions and good faith amendments like the SECURE and CARES Acts. Haven’t we amended our plan to address these changes? Yes. Recognizing that plans would have to continuously update their plans to address changing regulations, the IRS allows for so-called “snap-on” amendments (also known as good faith amendments). However, it is more difficult to interpret a plan document (and therefore operate a plan consistent with the plan document) when there are so many amendments. A restatement cycle requires a full rewrite to incorporate “snap-on” amendments into the body of the document, often in greater detail. How will Betterment help with the plan restatement process? Betterment will draft and deliver the restated plan document to you for review and approval. Once you approve the restated plan document, we will see to it that plan provisions are accurately reflected in our recordkeeping system and provide you with the necessary disclosures for you to deliver to your participants. What does the plan restatement package include? The plan document restatement packages include the following, as applicable, based on your plan’s provisions: Adoption agreement Basic plan document that includes the detailed legal language describing each of the provisions Summary Plan Description (SPD) for distribution to plan participants Administrative policies for participant loans and qualified domestic relations orders (QDROs) Good faith amendments (currently, for the SECURE and CARES Acts) Will this restatement process take a lot of my time? Betterment will ensure that your plan document is properly drafted and delivered to you for execution. However, you have several important roles: Inform Betterment about any organizational changes that may impact your 401(k) plan. Review your restated plan document once you receive it, especially the plan highlight and plan provision (such as eligibility requirements) sections, to be sure they accurately reflect your plan. Distribute the Summary Plan Description (SPD), to be provided to you after you execute the restated plan document, to your plan participants. Is there a fee for this plan restatement? A standard plan restatement will be provided as part of our included compliance services to you. Any additional changes will trigger amendment fees.

Understanding 401(k) Nondiscrimination Testing Discover what nondiscrimination testing is (and how to pass). If your company has a 401(k) plan—or if you’re considering starting one in the future—you’ve probably heard about nondiscrimination testing. But what is it really? And how do you help your plan pass these important compliance tests? Read on for answers to the most frequently asked questions about nondiscrimination testing. What is nondiscrimination testing? Mandated by ERISA, annual nondiscrimination tests help ensure that 401(k) plans benefit all employees—not just business owners or highly compensated employees (HCEs). Because the government provides significant tax benefits through 401(k) plans, it wants to ensure that these perks don’t disproportionately favor high earners. We’ll dive deeper into nondiscrimination testing, but let’s first discuss an important component of 401(k) compliance: contribution limits. What contribution limits do I need to know about? Because of the tax advantages afforded 401(k) plan contributions, the IRS puts a limit on the amount that employers and employees can contribute. Here’s a quick overview of the important limits: Limit What is it? Notes for 2022 plan year Employee contribution limits (“402g”) Limits the amount a participant may contribute to the 401(k) plan. The personal limit is based on the calendar year.1 Note that traditional (pre-tax) and Roth (post-tax) contributions are added together (there aren’t separate limits for each). $20,500 is the maximum amount participants may contribute to their 401(k) plan for 2022. Participants age 50 or older during the year may defer an additional $6,500 in “catch-up” contributions if permitted by the plan. Total contribution limit (“415”) Limits the total contributions allocated to an eligible participant for the year. This includes employee contributions, all employer contributions and forfeiture allocations. Total employee and employer contributions cannot exceed total employee compensation for the year. $61,0002 plus up to $6,500 in catch-up contributions (if permitted by the plan) for 2022. Cannot exceed total compensation. Employer contribution limit   Employers’ total contributions (excluding employee deferrals) may not exceed 25% of eligible compensation for the plan year. N/A   This limit is an IRS imposed limit based on the calendar year. Plans that use a ‘plan year’ not ending December 31st base their allocation limit on the year in which the plan year ends. This is different from the compensation limits, which are based on the start of the plan year. Adjusted annually; see most recent Cost of Living Adjustments table here. What is nondiscrimination testing designed to achieve? Essentially, nondiscrimination testing has three main goals:   To measure employee retirement plan participation levels to ensure that the plan isn’t “discriminating” against lower-income employees (NHCEs) or favoring HCEs.   To ensure that people of all income levels have equal access to—and awareness of—the company’s retirement plan.   To encourage employers to be good stewards of their employees’ futures by making any necessary adjustments to level the playing field (such as matching employees’ contributions) How do I classify my employees by income level? And what do all these acronyms really mean? Before you embark on nondiscrimination testing, you’ll need to categorize your employees by income level and employee status. Here are the main categories (and acronyms): Highly compensated employee (HCE)—According to the IRS, an employee who meets one or more of the following criteria: Prior (lookback) year compensation—For plan years ending in 2022, earned over $135,000 in the preceding plan year; some plans may limit this to the top 20% of earners (known as the top-paid group election); or Ownership in current or prior year—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation Non-highly compensated employee (NHCE)—Someone who does not meet the above criteria. Key employee—According to the IRS, an employee who meets one or more of the following criteria during the plan year: Ownership over 5%—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation. Ownership over 1%—Owns more than 1% of the stock, voting power, capital, or profits, and earned more than $150,000. Officer—An officer of the employer who earned more than $185,000 for 2022; this may be limited to the lesser of 50 officers or the greater of 3 or 10% of the employee count. Non-key employee—Someone who does not meet the above criteria. What are the nondiscrimination tests that need to be performed? Below are the tests typically performed for 401(k) plans.  Betterment will perform each of these tests on behalf of your plan and inform you of the results. 1. 410(b) Coverage Tests—These tests determine the ratios of employees eligible for and benefitting from the plan to show that the plan fairly covers your employee base. Specifically, these tests review the ratio of HCEs benefitting from the plan against the ratio of NHCEs benefitting from the plan. Typically, the NHCE percentage benefitting must be at least 70% or 0.7 times the percentage of HCEs considered benefitting for the year, or further testing is required. These annual tests are performed across different contribution types: employee contributions, employer matching contributions, after-tax contributions, and non-elective (employer, non-matching) contributions. 2. Actual deferral percentage (ADP) test—Compares the average salary deferral of HCEs to that of non-highly compensated employees (NHCEs). This test includes pre-tax and Roth deferrals, but not catch-up contributions. Essentially, it measures the level of engagement of HCEs vs. NHCEs to make sure that high income earners aren’t saving at a significantly higher rate than the rest of the employee base. Specifically, two percentages are calculated: HCE ADP—The average deferral rate (ADR) for each HCE is calculated by dividing the employee’s elective deferrals by their salary. The HCE ADP is calculated by averaging the ADR for all eligible HCEs (even those who chose not to defer). NHCE ADP—The average deferral rate (ADR) for each NHCE is calculated by dividing the employee’s elective deferrals by their salary. The NHCE ADP is calculated by averaging the ADR for all eligible NHCEs (even those who chose not to defer). The following table shows how the IRS limits the disparity between HCE and NHCE average contribution rates. For example, if the NHCEs contributed 3%, the HCEs can only defer 5% (or less) on average. NHCE ADP   HCE ADP 2% or less → NHCE% x 2 2-8% → NHCE% + 2 more than 8% → NHCE% x 1.25   3. Actual contribution percentage (ACP) test—Compares the average employer contributions received by HCEs and NHCEs. (So this test is only required if you make employer contributions.) Conveniently, the calculations and breakdowns are the same as with the ADP test, but the average contribution rate calculation includes both employer matching contributions and after-tax contributions. 4. Top-heavy determination—Evaluates whether or not the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. Simply put, it analyzes the accrued benefits between two groups: Key employees and non-Key employees. A plan is considered top-heavy when the total value (account balance with adjustments related to rollovers, terminated accounts, and a five-year lookback of distributions) of the Key employees’ plan accounts is greater than 60% of the total value (also adjusted as noted above) of the plan assets, as of the end of the prior plan year. (Exception: The first plan year is determined based on the last day of that year). If the plan is considered top-heavy for the year, employers must make a contribution to non-key employees. The top-heavy minimum contribution is the lesser of 3% of compensation or the highest percentage contributed for key employees. However, this can be reduced or avoided if no key employee makes or receives contributions for the year (including forfeiture allocations). What happens if my plan fails? If your plan fails the ADP and ACP tests, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or by making additional employer contributions to your NHCEs. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! If you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious ramifications. Why is it hard for 401(k) plans to pass nondiscrimination testing? It’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. However, small and mid-sizes businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but non-highly compensated employees (NHCEs) don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. How can I help my plan pass the tests? It pays to prepare for nondiscrimination testing. Here are a few tips that can make a difference: Make it easy to enroll in your plan—Is your 401(k) plan enrollment process confusing and cumbersome? If so, it might be stopping employees from enrolling. Consider partnering with a tech-savvy provider like Betterment that can help your employees enroll quickly and easily—and support them on every step of their retirement saving journey. Learn more now. Encourage your employees to save—Whether you send emails or host employee meetings, it’s important to get the word out about saving for retirement through the plan. That’s because the more NHCEs that participate, the better chance you have of passing the nondiscrimination tests. (Plus, you’re helping your staff prioritize their future.) Add automatic enrollment —By adding an auto-enrollment feature to your 401(k) plan, you can automatically deduct elective deferrals from your employees’ wages unless they elect not to contribute. It’s a simple way to boost participation rates and help your employees start saving. Add automatic escalation - By adding automatic escalation, you can ensure that participants who are automatically enrolled in the plan continue to increase their deferral rate by 1% annually until a cap is reached (generally 15%). It’s a great way to increase your employees retirement savings and to engage them in the plan. Add a safe harbor provision to your 401(k) plan—Avoid these time-consuming, headache-inducing compliance tests all together by electing a safe harbor 401(k) plan. What’s a safe harbor 401(k) plan? A safe harbor 401(k) plan is a defined contribution retirement plan that’s exempt from nondiscrimination testing. It’s like a typical 401(k) plan except it requires you to contribute to the plan on behalf of your employees, sometimes as an incentive for them to save in the plan. This mandatory employer contribution must vest immediately—rather than on a graded or cliff vesting schedule. This means your employees can take these contributions with them when they leave, no matter how long they’ve worked for the company. To fulfill safe harbor plan requirements, you can elect one of the following contribution formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—Must be as generous as the basic safe harbor match, a common formula is when the employer matches 100% of employee contributions, up to 4% of their compensation. Non-elective contribution—Employer contributes a minimum of 3% of each employee’s compensation, regardless of whether they make their own contributions. These are only the minimum contributions. You can always increase non-elective or matching contributions to help your employees on the road to retirement. Interested in adding a safe harbor provision to your 401(k) plan? Find out more now. Did You Know? As a result of the SECURE Act, any 401(k) plan not utilizing a safe harbor match can be amended as late as 30 days before a plan year-end to provide the 3% safe harbor nonelective contribution for the plan year. Alternatively, the plan may amend up until the last day of the following plan year, provided they do a 4% safe harbor nonelective contribution. How can Betterment help? We know that nondiscrimination testing and many other aspects of 401(k) plan administration can be complicated. That’s why we do everything in our power to help make it easier for you as a plan sponsor. In fact, we help with year-end compliance testing, including ADP/ACP testing, top-heavy testing, annual additions testing, deferral limit testing, and coverage testing. With our intuitive online platform, you can better manage your plan and get the support you need along the way. Plus, you can have it all for a fraction of the cost of other 401(k) providers. Ready to learn more? Let's talk.  Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. The information contained in this article is meant to be informational only and does not constitute investment or tax advice.

What Employers Should Know About Timing of 401(k) Contributions One of the most important aspects of plan administration is making sure money is deposited in a timely manner—to ensure that employer contributions are tax-deductible and employee contributions are in compliance. Timing of employee 401(k) contributions (including loan repayments) When must employee contributions and loan repayments be withheld from payroll? This is a top audit issue for 401(k) plans, and requires a consistent approach by all team members handling payroll submission. If a plan is considered a ‘small plan filer’ (typically under 100 eligible employees), the Department of Labor is more lenient and provides a 7-business day ‘safe harbor’ allowing employee contributions and loan repayments to be submitted within 7 business days of the pay date for which they were deducted. If a plan is larger (>100 eligible employees), the safe harbor does not apply, and the timeliness is based on the earliest date a plan sponsor can reasonably segregate employee contributions from company assets. Historically, plans leaned on the outer bounds of the requirement (by the 15th business day of the month following the date of the deduction effective date), but today with online submissions and funding via ACH, a company would generally be hard-pressed to show that any deposit beyond a few days is considered reasonable. To ensure timely deposits, it’s imperative for plan sponsors to review their internal processes regularly. All relevant team members -- including those who may have to handle the process infrequently due to vacations or otherwise -- understand the 401(k) deposit process completely and have the necessary access. I am a self-employed business owner with income determined after year-end. When must my 401(k) contributions be submitted to be considered timely? If an owner or partner of a company does not receive a W-2 from the business, and determines their self-employment income after year-end, their 401(k) contribution should be made as soon as possible after their net income is determined, but certainly no later than the individual tax filing deadline. Their 401(k) election should be made (electronically or in writing) by the end of the year reflecting a percentage of their net income from self employment. Note that if they elect to make a flat dollar 401(k) contribution, and their net income is expected to exceed that amount, the deposit is due no later than the end of the year. Timing of employer 401(k) contributions We calculate and fund our match / safe harbor contributions every pay period. How quickly must those be deposited? Generally, there’s no timing requirement throughout the year for employer matching or safe harbor contributions. The employer may choose to pre-fund these amounts every pay period, enabling employees to see the value provided throughout the year and to benefit from compound interest. Note that plans that opt to allocate safe harbor matching contributions every pay period are required to fund this at least quarterly. When do we have to deposit employer contributions for year-end (e.g., true-up match or safe harbor deposits, employer profit sharing)? Employer contributions for the year are due in full by the company tax filing deadline, including any applicable extension. Safe harbor contributions have a mandatory funding deadline of 12 months after the end of the plan year for which they are due; typically for deductibility purposes, they are deposited even sooner.

Pros and Cons of Illinois Secure Choice for Small Businesses Answers to frequently asked questions about the Illinois Secure Choice retirement program for small businesses. Since it was launched in 2018, the Illinois Secure Choice retirement program has helped thousands of people in Illinois save for their future. If you’re an employer in Illinois, state laws require you to offer Illinois Secure Choice if you: Have 5 or more employees during all four quarters of the previous calendar year Have been in operation for at least two years Do not offer an employer-sponsored retirement plan If your company has recently become eligible for Illinois Secure Choice or you’re wondering whether it’s the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees Illinois Secure Choice? No. Illinois laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect Illinois Secure Choice. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is Illinois Secure Choice? Illinois Secure Choice is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees in the program. Specifically, the Illinois plan requires employers to automatically enroll employees at a 5% deferral rate, and contributions are invested in a Roth IRA. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice plan provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider Illinois Secure Choice? Illinois Secure Choice is a simple, straightforward way to help your employees save for retirement. It’s administered by a private-sector financial services firm and sponsored by the State of Illinois. As an employer, your role is limited and there are no fees to offer Illinois Secure Choice. 4. Are there any downsides to Illinois Secure Choice? Yes, there are factors that may make Illinois Secure Choice less appealing than other retirement plans like 401(k) plans. Here are some important considerations: Illinois Secure Choice is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in Illinois Secure Choice. For example, single filers with modified adjusted gross incomes of more than $144,000 in 2022 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. Illinois Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois Secure Choice only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to Illinois Secure Choice, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, Illinois Secure Choice does not. Limited investment options—Illinois Secure Choice offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer Illinois Secure Choice; however, employees do pay approximately $0.75 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time.  5. Why should I consider a 401(k) plan instead of Illinois Secure Choice? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with Illinois Secure Choice, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that Illinois Secure Choice is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running—and aim to simplify ongoing plan administration. Plus, our fees one of the lowest in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only. 

How to Help Your Employees Deal with Financial Stress Employee financial concerns can have a major impact on your business. Learn what you can do to help ease employee financial stress. Financial stress has been felt by Americans since the birth of the country. The nature of that stress has obviously evolved and the COVID pandemic exacerbated many problems. Between juggling childcare responsibilities, student loans, medical expenses, across-the-board inflation – it’s no secret that employees are facing added pressure. And asking them to leave those stressors at the door when they start their workday may not be a realistic expectation. Consider this: Data from an American Psychological Association survey shows that in February 2022, 65% of Americans were stressed about money and the economy – the highest percentage recorded since 2015. Another recent survey found that 61% of Americans were living paycheck to paycheck, as of June 2022. And the biggest rise in paycheck-to-paycheck consumers were those earning between $100,000 and $150,000. One in 3 Americans said they’re either struggling or in a crisis with their personal finances, and over half said they had difficulty paying their bills, according to a report from Ramsey Solutions, The State Of Personal Finance In America 2022. Fifty-nine percent of Americans said they worry about their general finances daily, and about half have lost sleep in the last three months due to financial worries. What can you do to help ease employee financial stress? You don’t need a big, expensive financial wellness program to help your employees. To begin, think about financial wellness benefits resources you already have at your disposal:  Does your health insurance plan have an Employee Assistance Program (EAP)? In addition to helping employees navigate health care issues, EAPs frequently offer advice on budgeting, debt consolidation, retirement savings planning, and more.  Do you have an in-house expert? Enlist your CFO or another financially savvy manager, CFO, or HR professional, to share savings tips or lead an information session to address common financial issues. answer commonly asked financial questions. Do you offer a 401(k) plan? If so, your 401(k) provider likely offers a variety of educational tools and resources to help employees budget and save for retirement (and beyond). By leveraging these resources, and educating your employees about the benefits they are already receiving, you can begin the process of improving employee financial wellbeing. Betterment can help At Betterment, our mission is simple: to empower people to do what’s best for their money so they can live better. By using our online platform, employees can plan for their long- and short-term financial goals ranging from retirement to an emergency fund to a new house. Betterment’s unique technological solution: Takes into account employees’ ages, savings, and goals to create a personalized plan to help them save for the future they want. Enables employees to link their outside assets, making it easy for them to see a fuller picture of their personal finances. Can boost employees’ after-tax returns using tax-smart tools available at no additional management fee. Beyond saving for retirement, Betterment helps employees gain control of their finances so they can reduce their stress and focus on what matters most to them.

Everything You Need to Know about Form 5500 If you’d like to get a general idea of what it takes to file a Form 5500 for a 401(k) plan, here are the top five things you need to know. As you can imagine, the Internal Revenue Service (IRS) and the Department of Labor (DOL) like to keep tabs on employee benefit plans to make sure everything is running smoothly and there are no signs of impropriety. One of the ways they do that is with Form 5500. You may be wondering: What is Form 5500? Well, Form 5500—otherwise known as the Annual Return/Report of Employee Benefit Plan—discloses details about the financial condition, investments, and operations of the plan. Not only for retirement plans, Form 5500 must be filed by the employer or plan administrator of any pension or welfare benefit plan covered by ERISA, including 401(k) plans, pension plans, medical plans, dental plans, and life insurance plans, among others. If you’re a Betterment client, you don’t need to worry about many of these Form 5500 details because we do the heavy lifting for you. But if you’d like to get a general idea of what it takes to file a Form 5500 for a 401(k) plan, here are the top five things you need to know. 1. There are three different versions of Form 5500—each with its own unique requirements. Betterment drafts a signature-ready Form 5500 on your behalf. But if you were to do it yourself, you would select from one of the following form types based on your plan type: Form 5500-EZ – If you have a one-participant 401(k) plan —also known as a “solo 401(k) plan”—that only covers you (and your spouse if applicable), you can file this form. Have a solo 401(k) plan with less than $250,000 in plan assets as of the last day of the plan year? No need to file a Form 5500-EZ (or any Form 5500 at all). Lucky you! Form 5500-SF– If you have a small 401(k) plan—which is generally defined as a plan that covers fewer than 100 participants on the first day of the plan year—you can file a simplified version of the Form 5500 if it also meets the following requirements: It satisfies the independent audit waiver requirements established by the DOL. It is 100% invested in eligible plan assets—such as mutual funds and variable annuities—with determinable fair values. It doesn’t hold employer securities. Form 5500– If you have a large 401(k) plan—which is generally defined as a plan that covers more than 100 participants—or a small 401(k) plan that doesn’t meet the Form 5500-EZ or Form 5500-SF filing requirements, you must file a long-form Form 5500. Unlike Form 5500-EZ and Form 5500-SF, Form 5500 is not a single-form return. Instead, you must file the form along with specific schedules and attachments, including: Schedule A -- Insurance information Schedule C -- Service provider information Schedule D -- Participating plan information Schedule G -- Financial transaction schedules Schedule H or I -- Financial information (Schedule I for small plan) Schedule R -- Retirement plan information Independent Audit Report Certain forms or attachments may not be required for your plan. Is your plan on the cusp of being a small (or large) plan? If your plan has between 80 and 120 participants on the first day of the plan year, you can benefit from the 80-120 Rule. The rule states that you can file the Form 5500 in the same category (i.e., small or large plan) as the prior year’s return. That’s good news, because it makes it possible for large retirement plans with between 100 and 120 participants to classify themselves as “small plans” and avoid the time and expense of completing the independent audit report. 2. You must file the Form 5500 by a certain due date (or file for an extension). You must file your plan’s Form 5500 by the last business day of the seventh month following the end of the plan year. For example, if your plan year ends on December 31, you should file your Form 5500 by July 31 of the following year to avoid late fees and penalties. If you’re a Betterment client, you’ll receive your signature-ready Form 5500 with ample time to submit it. Plus, we’ll communicate with you frequently to help you meet the filing deadline. But if you need a little extra time, Betterment can file for an extension on your behalf using Form 5558—but you have to do it by the original deadline for the Form 5500. The extension affords you another two and a half months to file your form. (Using the prior example, that would give you until October 15 to get your form in order.) What if you happen to miss the Form 5500 filing deadline? If you miss the filing deadline, you’ll be subject to penalties from both the IRS and the DOL: The IRS penalty for late filing is $250 per day, up to a maximum of $150,000. The DOL penalty for late filing can run up to $2,259 per day, with no maximum. There are also additional penalties for plan sponsors that willfully decline to file. That said, through the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP), plan sponsors can avoid higher civil penalty assessments by satisfying the program’s requirements. Under this special program, the maximum penalty for a single late Form 5500 is $750 for small 401(k) plans and $2,000 for large 401(k) plans. The DFVCP also includes a “per plan” cap, which limits the penalty to $1,500 for small plans and $4,000 for large plans regardless of the number of late Form 5500s filed at the same time. 3. The Form 5500 filing process is done electronically in most cases. For your ease and convenience, Form 5500 and Form 5500-SF must be filed electronically using the DOL’s EFAST2  processing system (there are a few exceptions). EFAST2 is accessible through the agency’s website or via vendors that integrate with the system. To ensure you can file your Form 5500 quickly, accurately, and securely, Betterment facilitates the filing for you. Whether you file electronically or via hard copy, remember to keep a signed copy of your Form 5500 and all of its schedules on file. Once you file Form 5500, your work isn’t quite done. You must also provide your employees with a Summary Annual Report (SAR), which describes the value of your plan’s assets, any administrative costs, and other details from your Form 5500 return. The SAR is due to participants within nine months after the end of the plan year. (If you file an extension for your Form 5500, the SAR deadline also extends to December 15.) For example, if your plan year ends on December 31 and you submitted your Form 5500 by July 31, you would need to deliver the SAR to your plan participants by September 30. While you can provide it as a hard copy or digitally, you’ll need participants’ prior consent to send it digitally. In addition, participants may request a copy of the plan’s full Form 5500 return at any time. As a public document, it’s accessible to anyone via the DOL website. 4. It’s easy to make mistakes on the Form 5500 (but we aim to help you avoid them). As with any bureaucratic form, mistakes are common and may cause issues for your plan or your organization. Mistakes may include: Errors of omission such as forgetting to indicate the number of plan participants Errors of timing such as indicating a plan has been terminated because a resolution has been filed, yet there are still assets in the plan Errors of accuracy involving plan characteristic codes and reconciling financial information Errors of misinterpretation or lack of information such as whether there have been any accidental excess contributions above the federal limits or failure to report any missed contributions or late deposits Want to avoid making errors on your Form 5500? Betterment prepares the form on your behalf, so all you need to do is review, sign, and submit—it’s as simple as that. 5. Betterment drafts a signature-ready Form 5500 for you, including related schedules When it comes to Form 5500, Betterment does nearly all the work for you. Specifically, we: Prepare a signature-ready Form 5500 that has all the necessary information and related schedules Remind you of the submission deadline so you file it on time Guide you on how to file the Form 5500 (it only takes a few clicks) and make sure it’s accepted by the DOL Provide you with an SAR that’s ready for you to distribute to your participants Ready to learn more about how Betterment can help you with your Form 5500 (and so much more)? Let’s talk.

Employers Step Up and Stand Out with Student Loan Help Here's why more companies are taking an active role. Your staff could very well be loaded up with student loan debt. Heck, you might even have some yourself. None of this is news. But as student loan debt continues to snowball in the U.S.–up to $1.75 trillion as of July 2022– you may be less familiar with the all-hands-on-deck mentality many employers are now taking toward the problem. Companies are getting off the sideline and taking a more active role in helping their workers manage student loans. Here’s how and, more importantly, why. Why companies are adding student loan help to their benefits toolbox The story of how companies came to help with student loans is really the story of the 401(k), or more specifically, why so many employees weren’t touching theirs. A mystery at first, the answer has grown increasingly clear: it’s tough to save for the future when you’re still paying off the past. For employees with student loans, every dollar in their paychecks can represent a zero-sum decision. Do they service their student loans or contribute to their 401(k)? In recent years, however, both employers and employees have signaled a growing expectation to work together on the issue. More than half (57%) of employees believe their company should help them pay off student loans according to exclusive Betterment research on employee financial wellness. Some companies have taken the issue to heart. By complementing their 401(k) with student loan management, they can offer a more holistic compensation package, one that accounts for the drag student loan debt now has on the workforce as a whole. The benefits are numerous: Recruiting and retention advantages When it comes to benefits packages, 401(k)s have become the standard. Translation: beyond a generous match, they don’t always differentiate your company from others. Offering something of unique value can not only attract top talent but keep it. Nearly 9 out of 10 (86%) of young workers say they'd stay at least five years with a company if it helped with student loans. Two-way tax benefits Just like with 401(k)s, offering your staff a student loan management tool is one thing, but the real magic lies in the match. Why is that? It unlocks tax perks for both parties. Thanks to legislation passed by Congress in 2020 (aka the CARES Act), companies who maintain a qualified Section 127 Program can make tax-free annual contributions of up to $5,250 toward their employees’ student loans. This translates into a benefit that lowers both your company’s payroll taxes and your employees’ income taxes. This tax-free treatment is approved through 2025. What to look for in a Student Loan Management tool First and foremost, you want a streamlined admin experience. For many benefits admins, adding another vendor on top of their 401(k) provider is a non-starter. With Betterment, you can get both benefits synced and served up at the same time. If you’re already familiar with Betterment’s 401(k) product, Student Loan Management now slots into the all-in-one dashboard. Last but certainly not least, you want a tool that also makes your employees’ lives easier. Similar to the admin experience, we give your participants a clearer financial picture of their student loans and 401(k) all in one place. We also go the extra mile by helping them balance the competing demands of debt and investing.  If you’re interested in bringing Student Loan management to your team, please get in touch. Student loan management services made available in partnership with Spinwheel Solutions, Inc.  

Pros and Cons of OregonSaves for Small Businesses Answers to frequently asked questions about the OregonSaves retirement program for small businesses. Launched in 2017, OregonSaves was the first state-based retirement savings program in the country and has since surpassed managing $100 million in assets. Employers with 5 or more employees are already required to offer a plan; for employers with 4 employees or fewer, the deadline is March 1, 2023. If you’re wondering whether OregonSaves is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees OregonSaves? No. Oregon laws require businesses to offer retirement benefits, but you don’t have to elect OregonSaves. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is OregonSaves? OregonSaves is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees into the program. Specifically, the Oregon plan requires employers to automatically enroll employees at a 5% deferral rate with automatic, annual 1% increases until their savings rate reaches 10%. All contributions are invested into a Roth IRA. As an eligible employer, you must facilitate the program, set up the payroll deduction process, and send the contributions to OregonSaves. The first $1,000 of an employee’s contributions will be invested in the OregonSaves Capital Preservation Fund, and savings over $1,000 will be invested in an OregonSaves Target Retirement Fund based on age. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. (They can also opt out of the annual increases.) 3. Why should I consider OregonSaves? OregonSaves is a simple, straightforward way to help your employees save for retirement. Brought to you by Oregon State Treasury, the program is overseen by the Oregon Retirement Savings Board and administered by a program service provider. As an employer, your role is limited and there are no fees to provide OregonSaves to your employees. 4. Are there any downsides to OregonSaves? Yes, there are factors that may may make OregonSaves less appealing than other retirement plans. Here are some important considerations: OregonSaves is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in OregonSaves. For example, single filers with modified adjusted 2022 gross incomes of more than $144,000 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. OregonSaves is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—OregonSaves only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to OregonSaves, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, OregonSaves does not. Limited investment options—OregonSaves offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer OregonSaves; however, employees do pay approximately $1 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have far lower employee fees. Fees are a big consideration because they can seriously erode employee savings over time. 5. Why should I consider a 401(k) plan instead of OregonSaves? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you can benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision.  Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with OregonSaves, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that OregonSaves is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the  industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only. 

Pros and Cons of the New York State Secure Choice Savings Program Answers to small businesses' frequently asked questions The New York State Secure Choice Savings Program was established to help private-sector workers in the state who have no access to a workplace retirement savings plan. Originally enacted as a voluntary program in 2018, Gov. Kathy Hochul signed a law on Oct. 22, 2021, that requires all employees of qualified businesses be automatically enrolled in the state's Secure Choice Savings Program. If you’re an employer in New York, state laws require you to offer the Secure Choice Savings Program if you: Had 10 or more employees during the entire prior calendar year Have been in business for at least two years Have not offered a qualified retirement plan during prior two years If you’re wondering whether the Secure Choice Savings Program is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees the Secure Choice Savings Program? No. State laws require businesses with 10 or more employees to offer retirement benefits, but you don’t have to elect the Secure Choice Savings Program if you provide a 401(k) plan (or another type of employer-sponsored retirement program). 2. What is the Secure Choice Savings Program? The Secure Choice Savings Program is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the New York plan requires employers to automatically enroll employees at a 3% deferral rate. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice Savings Program provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider the Secure Choice Savings Program? The Secure Choice Savings Program is a simple, straightforward way to help your employees save for retirement. According to SHRM, it is managed by the program’s board, which is responsible for selecting the investment options. The state pays the administrative costs associated with the program until it has enough assets to cover those costs itself. When that happens, any costs will be paid out of the money in the program’s fund. 4. Are there any downsides to the Secure Choice Savings Program? Yes, there are factors that may make the Secure Choice Savings Program less appealing than other retirement plans. Here are some important considerations: The Secure Choice Savings Program is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate. For example, single filers with modified adjusted gross incomes of more than $144,000, as of 2022, would not be eligible to contribute. If they mistakenly contribute to the Secure Choice Savings Program—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. New York Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—Employees may save up to $6,000 in an IRA in 2022 ($7,000 if they’re age 50 or older), while in a 401(k) plan employees may save up to $20,500 in 2022 ($27,000 if they’re age 50 or older). So even if employees max out their contribution to the Secure Choice Savings Program, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, the Secure Choice Savings Program does not. Limited investment options—Secure Choice Savings Program offers a relatively limited selection of investments. 5. Why should I consider a 401(k) plan instead of the Secure Choice Savings Program? For many employers—even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over the course of three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with New York Secure Choice that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that New York’s Secure Choice Savings Program is most appropriate for your company, visit the New York Secure Choice website to learn more.  If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now.

Why You Should Have a 401(k) Committee and How to Create One A 401(k) committee can help improve plan management and alleviate your administrative burden. Are you thinking about starting a 401(k) plan or have a plan and are feeling overwhelmed with your current responsibilities? If you answered “yes” to either of these questions, then it might be time to create a 401(k) committee, which can help improve plan management and alleviate your administrative burden.  Want to learn more? Read on for answers to frequently asked questions about 401(k) committees. 1. What is a 401(k) committee? A 401(k) committee, composed of several staff members, provides vital oversight of your 401(k) plan. Having a 401(k) committee is not required by the Department of Labor (DOL) or the IRS, but it’s a good fiduciary practice for 401(k) plan sponsors. Not only does it help share the responsibility so one person isn’t unduly burdened, it also provides much-needed checks and balances to help the plan remain in compliance. Specifically, a 401(k) committee handles tasks such as: Assessing 401(k) plan vendors Evaluating participation statistics and employee engagement Reviewing investments, fees, and plan design 2. Who should be on my 401(k) committee? Most importantly, anyone who serves as a plan fiduciary should have a role on the committee because they are held legally responsible for plan decisions. In addition, it’s a good idea to have: Chief Operating Officer and/or Chief Financial Officer Human Resources Director One or more members of senior management One or more plan participants Senior leaders can provide valuable financial insight and oversight; however, it’s also important for plan participants to have representation and input. Wondering how many people to select? It’s typically based on the size of your company – a larger company may wish to have a larger committee. To avoid tie votes, consider selecting an odd number of members. Once you’ve selected your committee members, it’s time to appoint a chairperson to run the meetings and a secretary to document decisions. 3. How do I create a 401(k) committee? The first step in creating a 401(k) committee is to develop a charter. Once documented, the committee charter should be carefully followed. It doesn’t have to be lengthy, but it should include: Committee purpose – Objectives and scope of authority, including who’s responsible for delegating that authority Committee structure – Number and titles of voting and non-voting members, committee roles (e.g., chair, secretary), and procedure for replacing members Committee meeting procedures – Meeting frequency, recurring agenda items, definition of quorum, and voting procedures Committee responsibilities – Review and oversight of vendors; evaluation of plan statistics, design and employee engagement; and appraisal of plan compliance and operations Documentation and reports – Process for recording and distributing meeting minutes and reporting obligations Once you’ve selected your committee members and created a charter, it’s important to train members on their fiduciary duties and impress upon them the importance of acting in the best interest of plan participants and beneficiaries. With a 401(k) committee, your plan may be able to run more smoothly and effectively.

What is a Fidelity Bond? 401(k) plan sponsors are required to purchase a fidelity bond to protect the plan against fraudulent or dishonest acts. Here are answers to common questions. What is a fidelity bond? A fidelity bond is a type of insurance required for those responsible for the day-to-day administration and handling of “funds or other property” of an ERISA (Employee Retirement Income Security Act of 1974) benefit plan such as a 401(k). The purpose of the bond is to protect the plan from losses due to acts of fraud or dishonesty including theft, embezzlement, larceny, forgery, misappropriation, wrongful abstraction, wrongful conversion and willful misapplication. What are “Funds Or Other Property”? “Funds or other property” refers to 401(k) plan assets. In addition to publicly-traded stocks, bonds, mutual funds, and exchange-traded funds, all employee and employer contributions are considered “funds,” whether they come in the form of cash, check or property. Who must be covered by a fidelity bond? Under ERISA, it is illegal to receive, disburse, or exercise custody or control of plan funds or property without having a fidelity bond in place. Therefore, anyone who handles or manages 401(k) funds must be covered by a fidelity bond. This includes anyone who has: Physical contact with cash, checks, or similar property Authority to secure physical possession of cash, checks, or similar property through access to a safe deposit box, bank accounts, etc. Authority to transfer plan funds either to oneself or a third party Authority to disburse funds Authority to sign or endorse checks Supervisory or decision-making authority over plan funds This requirement is not just limited to plan managers and plan sponsor employees. Third party service providers that have access to the plan’s funds or exercise decision-making authority over the funds may also require bonding. This includes investment advisors and third-party administrators (TPAs). How much coverage is required? ERISA requires each person handling the plan to be covered for at least 10% of the amount of funds they handle. The coverage can’t be less than $1,000 or more than $500,000, (unless the plan includes employer securities, in which case the maximum amount can be $1,000,000). The exception to the 10% rule applies to ‘non-qualifying plan assets” that may represent more than 5% of the plan’s total assets. Qualifying assets include items held by a financial institution such as a bank, insurance company, mutual funds, etc. Non-qualifying assets are those not held by any financial institution including tangibles such as artwork, collectibles, non-participant loans, property, real estate and limited partnerships. Fidelity bonds have a minimum term of one year. Longer-term bonds will typically include an inflation provision so the value of the bond will increase automatically.  The bond amount should be reviewed and updated as the plan assets increase or decrease. Where can I obtain a fidelity bond? The bond must be issued by an underwriter from an insurance company that is listed on the Department of Treasury’s Listings of Approved Sureties. These are companies that have been certified by the Treasury Department. Fidelity bond application During the application process, some plan information may be required. Common items the application will ask is the plan name, address, IRS plan number (ex. 001), and trustee information. Most of the items asked can be found under the administrative information section (usually second to last page) within the Summary Plan Description (SPD). What happens if I don’t cover my plan with a Fidelity Bond? The existence and amount of the plan’s fidelity bond must be reported on your plan’s annual Form 5500 filing. Not having a bond, or not having sufficient coverage based on plan assets, may trigger a Department of Labor audit and may risk the plan’s tax-qualified status. Additionally, the plan fiduciaries may be held personally liable for any losses that may occur from fraudulent or dishonest acts.  

Pros and Cons of CalSavers for Small Businesses Answers to frequently asked questions about the CalSavers Retirement Savings Program If you’re an employer in California with 5 or more employees, you must offer the CalSavers Retirement Savings Program—or another retirement plan such as a 401(k). Faced with this decision, you may be asking yourself: Which is the best plan for my employees? To help you make an informed decision, we’ve provided answers to frequently asked questions about CalSavers: 1. Do I have to offer my employees CalSavers? No. California laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect CalSavers. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is CalSavers? CalSavers is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the CalSavers plan requires employers with at least five employees to automatically enroll employees at a 5% deferral rate with automatic annual increases of 1%, up to a maximum contribution rate of 8%. As an eligible employer, you must withhold the appropriate percentage of employees’ wages and deposit it into the CalSavers Roth IRA on their behalf. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider CalSavers? CalSavers is a simple, straightforward way to help your employees save for retirement. CalSavers is administered by a private-sector financial services firm and overseen by a public board chaired by the State Treasurer. As an employer, your role is limited to uploading employee information to CalSavers and submitting employee contributions via payroll deduction. Plus, there are no fees for employers to offer CalSavers, and employers are not fiduciaries of the program. 4. Are there any downsides to CalSavers? Yes, there are factors that may make CalSavers less appealing than other retirement plans. Here are some important considerations: CalSavers is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in CalSavers. For example, single filers with modified adjusted gross incomes of more than $140,000 would not be eligible to contribute. If they mistakenly contribute to CalSavers—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. CalSavers is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—CalSavers only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to CalSavers, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, CalSaver does not. Limited investment options—CalSavers offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer CalSavers; however, employees do pay $0.83-$0.95 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of CalSavers? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with CalSavers, that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that CalSavers is most appropriate for your company, visit the CalSavers website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

Understanding your 401(k) Plan Document Betterment will draft your 401(k) plan document, but it’s important that you understand what it includes and that you follow it as written. What exactly is a Plan Document? A 401(k) plan is considered a qualified retirement plan by the Internal Revenue Service (IRS), and as such, must meet certain requirements to take advantage of significant tax benefits. Every 401(k) retirement plan is required to have a plan document that outlines how the plan is to be operated. The plan document should reflect your organization’s objectives in sponsoring the 401(k) plan, including information such as plan eligibility requirements, contribution formulas, vesting requirements, loan provisions, and distribution requirements. As regulations change or your organization changes plan features and/or rules, the plan document will need to be amended. Your provider will likely draft your plan’s document, but because of your fiduciary duty, it is important that you as plan sponsor review your plan document, understand it, and refer to it if questions arise. Whether you are a small business or a large corporation, failure to operate the plan in a manner consistent with the document as written can result in penalties from the IRS and/or the Department of Labor (DOL). Understanding Your Fiduciary Responsibilities Although any given 401(k) plan may have multiple (and multiple types of) fiduciaries based on specific plan functions, the plan document identifies the plan’s “Named Fiduciary” who holds the ultimate authority over the plan and is responsible for the plan’s operations, administration and investments. Typically the employer as plan sponsor is the Named Fiduciary. The employer is also the “plan administrator” with responsibility for overall plan governance. While certain fiduciary responsibilities may be delegated to third parties, fiduciary responsibility can never be fully eliminated or transferred. All fiduciaries are subject to the five cornerstone rules of ERISA (Employee Retirement Income Security Act) when managing the plan’s investments and making decisions regarding plan operations: Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them; Carrying out their duties prudently; Following the plan documents (unless inconsistent with ERISA); Diversifying plan investments; and Paying only reasonable plan expenses. One of the best ways to demonstrate that you have fulfilled your fiduciary responsibilities is to document your decision-making processes. Many plan sponsors establish a formal 401(k) plan committee to help ensure that decisions are appropriately discussed and documented. Which Type of 401(k) Plan is Best for Your Organization? The plan document will identify the basic plan type: Traditional 401(k) plans provide maximum flexibility with respect to employer contributions and associated vesting schedules  (defining when those contributions become owned by the employee). However, these plans are subject to annual nondiscrimination testing to ensure that the plan benefits all employees—not just business owners or highly compensated employees (HCEs). Safe Harbor 401(k) plans are deemed to pass certain nondiscrimination tests but require employers to contribute to the plan on behalf of employees. This mandatory employer contribution must vest immediately—rather than on a graded or cliff vesting schedule. QACA Safe Harbor plans are an exception, which may have up to a two-year cliff vesting schedule. Profit-sharing 401(k) plans include an additional component that allows employers to make more significant contributions to their employee accounts. Besides helping to attract and retain talent, small businesses can find this feature especially helpful In highly profitable years, since it reduces taxable income. There is no one plan type that is better than another, but this flexibility allows you to determine which type makes the most sense for your organization. Eligibility Requirements to Meet Your Needs Although the IRS mandates that employees age 21 or older with at least 1 year of service are eligible  to make employee deferrals, employers do have considerable flexibility in setting 401(k) plan eligibility: Age -- employers often choose to adopt a minimum age of 18. Service -- employers can establish requirements on elapsed time or hours. Entry date -- employers may allow employees to participate in the plan immediately upon hiring but often require some waiting period. For example, employees may have to wait until the first of the month or quarter following their hire date. This flexibility allows employers to adopt eligibility requirements appropriate to their business needs. For instance, a company with high turnover or lots of seasonal workers may institute a waiting period to reduce the number of small balance accounts and the associated administrative costs. Automatic Enrollment may be the Way to Go Enrollment in a 401(k) plan can either be voluntary or automatic. As retirement savings has become ever more essential for workers, employers are increasingly choosing to adopt automatic enrollment, whereby a set percentage is automatically deferred from employee paychecks and contributed to the plan, unless an employee explicitly elects to “opt out” or not contribute. The benefit of automatic enrollment is that human inertia means most employees take no action and start saving for their future. As of September 2022, only 13% of participants who were auto-enrolled opted out per Betterment’s internal analysis.  Employee Contribution Flexibility Provides Valuable Flexibility The plan document will specify the types of contributions (or “elective deferrals”) that eligible employees can make to the plan via payroll deduction. Typically these will be either pre-tax contributions or Roth (made with after-tax dollars) contributions. Allowing plan participants to decide when to pay the taxes on their contributions can provide meaningful flexibility and tax diversification benefits. Elective deferrals are often expressed as either a flat dollar amount or as a percentage of compensation. Employee contribution limits are determined each year by the IRS. The plan document must specify whether the plan will allow catch-up contributions for those age 50 and older. Able and/or Willing to Contribute to Employee Accounts? The plan document will also include provisions regarding employer contributions, which can be made on either a matching or non-matching basis. Matching contributions are often used to incentivize employees to participate in the plan. For example, an employer may match 50% of every $1 an employee contributes, up to a maximum of 6% of compensation. For traditional 401(k) plans, matching contributions can be discretionary so that the employer can determine not only how much to contribute in any given year but whether or not to contribute at all. As stated above, matching employer contributions are required for Safe Harbor 401(k) plans. The plan document may also permit the employer to make contributions other than matching contributions. These so-called “nonelective” contributions would be made on behalf of all employees who are considered plan participants, regardless of whether they are actively contributing. Vesting Schedules and Employee Retention Vesting simply means ownership. Employees own, or are fully vested, in their own contributions at all times. Employers with traditional 401(k) plans, however, often impose a vesting schedule on company contributions to encourage employee retention. Although there are a wide variety of approaches to vesting, one of the most common is to use a graded vesting schedule. For instance, an employee would vest in the employer contribution at a rate of 25% each year and be 100% vested after 4 years. Employer contributions as part of Safe Harbor 401(k) plans are vested immediately, aside from QACA Safe Harbor plans. Let Betterment help you create a 401(k) that works for you and your employees As a full-service provider, Betterment aims to make life easy for you. We will draft your plan document based on your preferences and our industry expertise of best practices. We will work with you to keep your plan in compliance and can prepare amendments based on your changing needs. Sign up for a free demo to learn about the impact our 401(k) plan can have on your business.

Thinking of Changing 401(k) Providers? Here’s What to Consider If you’re considering changing 401(k) providers, be sure to spend some time assessing your current situation and prioritizing your criteria. If you’re reading this, you may have reservations about your current 401(k) provider—and that’s okay. It’s not unusual for companies to change their 401(k) provider from time to time or feel out potential alternatives. We’d argue it’s even best practice to periodically take stock of your current situation. You want to feel confident your plan is keeping up with industry best practices and that you and your employees are getting good value for your money. So how do you go about it? In this guide, we’ll walk you through: Four criteria to consider before switching providers How to switch providers, step-by-step What to expect when switching your plan to Betterment at Work Four criteria to consider before switching 401(k) providers Let’s start with a friendly reminder: because choosing a 401(k) provider is a fiduciary act, you should carefully evaluate your options and clearly document the process. Even just a few criteria can go a long way in that pursuit. Taken altogether, they can give you a better sense of whether you should make a move or stay put. So if you haven’t read through your current agreement recently, now’s a good time to re-familiarize yourself and see how those terms stack up with the following criteria. It isn’t an exhaustive list by any means, but if you find they fall short in these criteria, it may be time to assess other options. Cost 401(k) plan fees can be complicated, but we’ll simplify things a little by sorting them into three categories: Plan administration fees Plan administration fees are (in most cases) paid by you, the plan sponsor, and cover things like plan setup, recordkeeping, auditing, compliance, support, legal, and trustee services.  Investment fees Investment fees are typically paid by plan participants and are often assessed as a percentage of assets under management. They come in two forms: - Fund fees, aka “expense ratios,” charged by the individual funds or investments themselves. - Advisory fees charged by the provider for portfolio construction and the ongoing management of plan assets. Individual service fees If participants elect certain services, such as taking out a 401(k) loan, they may be assessed individual fees for each service. Plan providers are required to disclose costs such as these—as well as one-off fees relating to events such as amendments and terminations—in fee disclosure documents.  All in all, fees can vary greatly from company to company, especially depending on the amount of assets in their plans. Larger plans, thanks to their purchasing power and economies of scale, tend to pay less. While comparisons can be hard to come by, one source is the 401k Averages Book. You’ll just need to pay—ahem—a fee to access their data. Support Support can encompass any number of areas, but it really boils down to this: do you and your employees feel forgotten and left to fend for yourselves, or do you feel the comforting and consistent presence of a trusted partner? The quality of service received by both groups—both you the plan sponsor and the plan participants—matters equally, so be sure to ask your employees about their experience. How easy is the provider’s user interface for them to navigate? Was it simple to set up their account and get started toward their goals? What kind of education are they being served along the way? One indicator of good participant support is when a majority of them are making contributions at healthy rates. From the plan sponsor’s perspective, many of the same questions regarding setup and day-to-day operations apply. Crucially, however, your support should extend to matters of compliance and auditing: Are the documents provided for your review and approval accurate and timely? When you’ve needed to consult on compliance issues, do you receive clear and helpful answers to your questions? Does the provider deliver a comprehensive audit package to you if you need it and collaborate well with your auditor? There’s also the question of payroll integration. Does your current 401(k) provider support it? How smoothly have things been running? Betterment at Work supports both 360o integration, where your payroll system and 401(k) system can send information back and forth, and 180o integration, where the data flows only one way, from your payroll system to the 401(k) system. If payroll integration is something you’re looking for in a new provider, be sure you understand these different levels of integration and which responsibilities you may retain. Investment Options For starters, it’s worth thinking about the investment philosophy of your current provider and whether that approach aligns with the needs of your employee demographic. What sort of investment options and guidance do they provide your employees? Some providers could offer a handful of target date funds and mutual funds then call it a day. This could be less than ideal for several reasons. For one, target date funds are essentially a rigid, one-size-fits-all solution to the problem of 401(k) investors not adjusting their risk exposure as they near retirement. If, however, an employee wants to customize their allocation according to their risk appetite, or if they plan to work past their retirement date, the target date fund may no longer be suitable for them. They’re left to figure out for themselves how and where to invest. Contrast that with Betterment at Work, where our portfolios can be customized based on a participant’s planned retirement date or their appetite for risk in general. Mutual funds, meanwhile, tend to cost more, anywhere from 2.5x to 5x more on average, and perform worse over the long run. This is why Betterment builds and manages its portfolios with lower-cost exchange traded funds (ETFs). All things considered, our investment options are designed for the long-term to help your employees reach their retirement goals.  Wherever your plan’s investment options land, you still have an obligation as a fiduciary to operate the plan for the benefit of your employees. This means it’s not about what you or a handful of managers want from an investment perspective, but what serves the best interests of the majority of your employees.  Finally, one important consideration is whether the plan provider is an ERISA 3(38) investment fiduciary like Betterment. This alleviates the burden of you, the plan sponsor, having to select and monitor the plan investments yourself. Instead, the plan provider assumes the responsibility for investment decisions, saving you time and stress. We’ll touch on other forms of fiduciary responsibility in the section below. Plan design Changing providers doesn’t mean you’re terminating your 401(k) plan and starting from scratch. That has legal ramifications, including not being able to establish another 401(k) plan for at least a year. It does present an opportunity to consider changing the design of your plan, like adding a Safe Harbor match provision. There are also features like auto-enroll and auto-escalation, which Betterment at Work offers at no additional cost. Now’s also a good time to know what level of fiduciary responsibility your current provider assumes and whether you’d want a new provider to have that same level of responsibility, take on more, or whether you’re comfortable taking on more fiduciary responsibility yourself. In terms of investments, the provider may serve as the ERISA 3(21) fiduciary, which provides only investment recommendations, or the aforementioned ERISA 3(38) fiduciary (like Betterment at Work), which provides discretionary investment management. Or they may not be a fiduciary at all. In terms of administration, the provider may or may not provide ERISA 3(16) services (Betterment at Work does). There can be a wide range of functions that fall within that, so refer to your agreement to be sure you know exactly which services they are responsible for and which by default, fall to you as plan administrator. How to switch providers, step-by-step So you’ve done and documented your research and reached the conclusion that it’s time to make a change. What next? Better understanding the mechanics of a move can help you manage expectations internally and create reasonable timelines. Typically, changing providers takes at least 90 days, with coordination and testing needed between both providers to reconcile all records and ensure accurate and timely transfer of plan assets. Once you’ve identified your chosen successor provider and executed a services agreement with them, high-level steps include: Notify your current provider of your decision. You may hear them refer to this as a “deconversion” process. Establish a timeline for asset transfer and a go-live date with the new provider. Review your current plan document with the new provider. This will give you the chance to discuss any potential plan design changes. Be sure to raise any challenges you’ve faced with your current plan design as well as any organizational developments (planned expansion, layoffs, etc) that may impact your plan. Set up the investments. If your new provider is a 3(38) investment fiduciary, you’ll likely have nothing to do here since the provider has discretionary investment responsibilities and will make all decisions with respect to fund selection and monitoring. If your new provider is NOT a 3(38) investment fiduciary, then you’ll have the responsibility for selecting funds for your plan. The plan provider will likely have a menu of options for you to choose from. However, this is an important fiduciary responsibility, and if you (or others at your organization) do not feel qualified to make these decisions, then you should consider hiring an investment expert. Review and approve revised plan documents. Communicate the change to employees (including required legal notices), with information on how to set up and access their account with the new provider. Wait through the blackout period. The blackout period is a span of time—anywhere from 2 to 4 weeks depending on your old provider—when employees can’t make contributions, change investments, make transfers, or take loans or distributions. Participants’ accounts are typically still invested up until the old provider liquidates them and sends them to the new provider. From there, they’re re-invested by the new provider. Outstanding employee loans are also transferred from the old provider to the new provider. Confirm the transfer of assets and allocation of plan assets to participant accounts at your new provider. What to expect when switching your plan to Betterment at Work As you can see from the steps above, switching 401(k) plan providers isn’t as simple as flipping a switch. But that doesn’t mean some providers don’t make it easier than others. We pride ourselves on streamlining the process for new clients in a number of ways: As a 3(38) fiduciary, we handle all investment decisions for you. That’s one less thing to worry about when serving the interests of your employees. We also create accounts for eligible employees and participants, saving them the hassle. You can track the entire onboarding process, meanwhile, in your employer dashboard. Regardless of whether you end up making a switch, we hope the criteria above helped you take better stock of your current 401(k) offering. Before, during, or after that decision, we’re here to help.

Helping Latinx Employees With Their Unique Retirement Needs Support Latinx employees this Hispanic American Heritage Month—learn about their unique challenges when saving for retirement. National Hispanic American Heritage Month spans from September 15 through October 15 and, as a part of this month of recognition, we asked ourselves at Betterment for Business: What are the unique challenges facing Latinx-American employees today? How can we learn about these challenges and address them as a part of our ongoing effort to promote Diversity, Equity and Inclusion at Betterment? It turns out that not only do Latinx-Americans—the largest ethnic group in the U.S.—have disproportionately low retirement savings, but they also have disproportionately low access to savings. Plus gender and age also play a factor. For employers committed to building out a financial wellness program that helps all employees, understanding the intersectional issues and how Latinx employees have unique needs and challenges is key. In this article, we’ll cover three important learnings that can help inform your wellness programs, and how you can build support for Latinx employees during this National Hispanic American Heritage Month and beyond. Latinx Employee Savings Lag Behind White Employees According to a 2021 report by MorningStar, only 31% of Latino households with income report that they are participating in a retirement savings plan, compared to 51% of non-Hispanic white households. Additionally, for the median Latino households who do save for retirement, studies show less growth and less overall retirement wealth than the median white households. When Latino families are saving for retirement, they are saving significantly less money than their White counterparts. That said, younger Latinxs are eager to save. For example, 1 in 5 Latinx respondents are actively looking to buy property in the next year, a rate more than triple that of non-Hispanic White buyers, according to the Hispanic Wealth Project. You can encourage Latinx employees to continue to diversify their investments and to set aside retirement savings in addition to their other assets—especially if you offer an employer-sponsored match that can help them reach their goals even faster. Access to Employer-Sponsored Retirement Plans is Also an Issue For Latinx-Americans, access to retirement-sponsored retirement plans is “significantly” lower than it is for White workers. Overall, about 31% of Latinx workers participate in a retirement plan, compared to 51% of White workers But, to put this into further context, they are significantly less likely to have that access in the first place. Hispanic households are 17% less likely than white households to have access to a retirement plan. As such, Latinx-Americans, particularly younger populations, feel the pressure of providing a social safety net to their families and loved ones. They are 51.6% more likely to live in multi-generational households than the general population and, when surveyed, one half agreed that it was more important to help friends and family members now than to save for their own retirement. It is important to offer a full-picture financial wellness solution that helps to address the unique needs of Latinx workers, which can include planning for the retirement of their loved ones or investing in additional real estate for their growing families. Older Women are Disproportionately Affected Nearly one in five Latinx women (18.6%) over the age of 65 live in poverty. And without the income from work, this population would not be able to meet the cost of basic living expenses. Separately, Black and Latinx women make up a disproportionate share of domestic workers, with Latinx women making up over 29% of domestic workers as compared to only 17% of all other workers. Only 19% of domestic workers have access to health or retirement benefits, compared to 49% of other workers. Consider your employee population and how factors like the pandemic may have affected them and the members of their household. Offer financial planning services and remind them that it’s never too late to get started with their savings, debt repayment, or other financial goals.

Guide to Meeting Your 401(k) Fiduciary Responsibilities To help your business avoid any pitfalls, this guide outlines how you can fulfill your 401(k) fiduciary responsibilities and manage them properly. If your company has or is considering, a 401(k) plan, you’ve probably heard the term “fiduciary.” But what does it mean to you as a 401(k) plan sponsor? Simply put, being a fiduciary means that you’re obligated to act in the best interests of your 401(k) plan participants. It’s serious business. If fiduciary responsibilities aren’t managed properly, your business could face serious legal and financial ramifications. To help you avoid any pitfalls, this guide outlines how you can fulfill your 401(k) fiduciary responsibilities. A brief history of the 401(k) plan and fiduciary duties When Congress passed the Revenue Act of 1978, it included the little-known provision that eventually (and somewhat accidentally) led to the 401(k) plan. The Employee Retirement Income Security Act of 1974, referred to as ERISA, is a companion federal law that contains rules designed to protect employee savings by requiring individuals and entities that manage a retirement plan, referred to as “fiduciaries,” to follow strict standards of conduct. Among other responsibilities, fiduciaries must always act in the best interests of employees who save in the plan and avoid conflicts of interest. When you adopt a 401(k) plan for your employees, you become an ERISA fiduciary. And in exchange for helping employees build retirement savings, you and your employees receive special tax benefits, as outlined in the Internal Revenue Code. The IRS oversees the tax rules, and the Department of Labor (DOL) provides guidance on ERISA fiduciary requirements and enforcement. As you can imagine, following these rules can sometimes feel like navigating a maze. But the good news is that an experienced 401(k) provider like Betterment can help you understand your fiduciary duties and even shoulder some of the responsibility for you. Key fiduciary responsibilities Even if you’re a business owner with a small 401(k) plan, you still have fiduciary duties. By sponsoring a retirement plan, you take on two sets of fiduciary responsibilities:   You are considered the “named fiduciary” with overall responsibility for the plan, including selecting and monitoring plan investments.   You are also considered the “plan administrator” with fiduciary authority and discretion over how the plan is operated. 401(k) fiduciary responsibility checklist As a fiduciary, you must follow the high standards of conduct required by ERISA both when managing your plan’s investments and when making decisions about plan operations. As a 401(k) fiduciary, you must follow five cornerstone rules: Act in employees’ best interests—Every decision you make about your plan must be solely based on what is best for your participants and their beneficiaries. Act prudently—Prudence requires that you be knowledgeable about retirement plan investments and administration. If you do not have the expertise to handle all of these responsibilities, you will need to engage the services of those who do, such as investment managers or recordkeepers. Diversify plan investments—You must diversify investments to help reduce the risk of large losses to plan assets. Follow the plan documents—You must follow the terms of the plan document when operating your plan (unless they are inconsistent with ERISA). Pay only reasonable plan fees—Fees from plan assets must be reasonable and for services that are necessary for your plan. Detailed DOL rules outline the steps you must take to fulfill this fiduciary responsibility, including collecting fee disclosures for investments and service providers, and comparing (or benchmarking) fees to ensure they are reasonable. You don’t have to pay a lot to get a quality 401(k) plan Betterment’s 401(k) administration fees are one of the lowest in the industry, and we always tell you what they are so there are no surprises for you—and more money working harder for your employees. Plus, since we serve as both a 3(16) administrative fiduciary and 3(38) investment fiduciary, we can help limit your risk exposure so you can focus on running your business--not managing your plan. Why it’s important to fulfill your fiduciary duties Put simply, it’s incredibly important that you meet your 401(k) fiduciary responsibilities. Not only are your actions critical to your employees’ futures, but there are also serious consequences if you fail to fulfill your fiduciary duties. In fact, plan participants and other plan fiduciaries have the right to sue to correct any financial wrongdoing. If the plan is mismanaged, you face a two-fold risk: Civil and criminal action (including expensive penalties) from the government and the potentially high price of rectifying the issue. Under ERISA, fiduciaries are personally liable for plan losses caused by a breach of fiduciary responsibilities and may be required to: Restore plan losses (including interest) Pay expenses relating to correction of inappropriate actions. While your fiduciary responsibilities can seem daunting, the good news is that ERISA also allows you to delegate many of your fiduciary responsibilities to 401(k) professionals like Betterment. How to be the best 401(k) fiduciary you can be Now that you understand what a 401(k) fiduciary is, you may be wondering how to best fulfill your fiduciary responsibilities. Here are some tips: Pay reasonable fees—As you know, fees can really chip away at your participants’ account balances—and have a detrimental impact on their futures. So take care to ensure that the services you’re paying for are necessary for the plan and that the fees paid from plan assets are reasonable. To determine what’s reasonable you may need to benchmark the fees against those of other similar retirement plans. Your 401(k) provider should be able to assist you with the benchmarking process. Deposit participant contributions in a timely manner —This may seem simple, but it’s extremely important to do it quickly and accurately. Specifically, you must deposit participants’ contributions to your plan’s trust account on the earliest date they can be reasonably segregated from general corporate assets. The timelines differ depending on your plan size: Small plan—If your plan has fewer than 100 participants, a deposit is considered timely if it’s made within seven business days from the date the contributions are withheld from employees’ wages. Large plan— If your plan has 100 participants or more, you must deposit contributions as soon as possible after you withhold the money from employees’ wages. It must be “timely,” which means typically within a few days.For all businesses, the deposit should never occur later than the 15th business day of the month after the contributions were withheld from employee wages. However, contributions should be deposited well before then. Fulfill your reporting and disclosure requirements—Under ERISA, you are required to fulfill specific reporting requirements. While the paperwork can be complicated, an experienced 401(k) provider like Betterment should be able to guide you through the process.It’s important to note that if required government reports—such as Form 5500—aren’t filed in a timely manner, you may be assessed financial penalties. Plus, when required disclosures—such as safe harbor notices—aren’t provided to participants in a timely manner, the consequences can also be severe including civil penalties, plan disqualification by the IRS, or participant lawsuits. Follow the plan document—It’s important to know your plan document. In fact, the IRS mandates that 401(k) plans operate in accordance with the terms of its written document to maintain its tax-favored status and prevent a breach of fiduciary duty.Make a mistake? The IRS considers the issue an “operational defect,” and your 401(k) plan can be disqualified for not fixing the problem in a timely manner. However, the IRS offers a handy 401(k) Plan Fix-It Guide to help you resolve any issues that crop up. Select prudent investments—Unfortunately, there can be many hidden fees buried in plan investments, so it’s critical to be vigilant about those you select. In addition to fee considerations, you must also think about whether they meet your plan’s investment objectives. Wondering which investments you should choose? Betterment can help.In fact, most companies hire one or more outside experts (such as an investment advisor, investment manager, or third party administrator) to help them manage their fiduciary responsibilities. Get help shouldering your fiduciary responsibilities When it comes to managing your fiduciary responsibilities, you don’t have to go it alone. However, the act of hiring 401(k) experts is a fiduciary decision! Even though you can appoint others to carry out most of your fiduciary responsibilities, you can never fully transfer or eliminate your role as an ERISA fiduciary. You will always retain the fiduciary responsibility for selecting and monitoring your plan’s investment professionals and administrators. How much support is right for you? For most employers, day-to-day business responsibilities leave little time for extensive investment research, analysis, and fee benchmarking. Many companies hire outside experts to take on the fiduciary investment duties or even plan administration responsibilities. Take a look at the chart below to see the different fiduciary roles—and the implications they have for you as the employer: Defined in ERISA section Outside expert Employer No Fiduciary Status Disclaims any fiduciary investment responsibility Retains sole fiduciary responsibility and liability 3(21) Shares fiduciary investment responsibility in the form of investment recommendations Retains responsibility for final investment discretion 3(38) Assumes full discretionary authority for assets and investments Relieves employer of investment fiduciary responsibility 3(16) Has discretionary responsibility for certain administrative aspects of the plan Relieves employer of certain plan administration responsibility Betterment can help When you appoint an ERISA 3(38) investment manager like Betterment, you fully delegate responsibility for selecting and monitoring plan investments to the investment manager. That means less work for you and your staff, so you can focus on your business. In addition to assuming fiduciary responsibility for your investment options, Betterment offers: Consultative plan sponsor support— As a total 401(k) solution, we are your full-service partner, including fiduciary services to plan design consulting and ongoing plan management support, helping ensure your 401(k) is set up for success. Personalized employee guidance—Our action-oriented approach to financial wellness enables your employees to make strides toward their long- and short-term goals ranging from paying down debt to saving for retirement. Plus, we link employees’ outside investments, savings accounts, IRAs—even spousal/partner assets—to help them see the big picture. Get in touch today if you’re interested in bringing a Betterment 401(k) to your employees.