Employer Resources for 401(k) | Betterment for Business

Pros and Cons of the New York State Secure Choice Savings Program

How Do State-Based Plans Stack Up Against 401(k) Plans?

How Do State-Based Plans Stack Up Against 401(k) Plans? State-mandated retirement plans increase worker access to workplace savings programs, but they may not be the best fit for employees or employers. The most important thing you can do to help your employees prepare for retirement is to offer a workplace savings plan. A recent study from the Employee Retirement Benefit Institute (EBRI) shows that workers who have access to a retirement plan at work are far more likely to save for retirement: 79% of those with access to a plan have retirement savings vs. only 17% of those without access to a plan. Increasing access to a workplace savings plan is an important policy goal in the U.S. Helping more workers save for a financially secure retirement will reduce reliance on government programs for retirees. Policymakers continue to explore new solutions for increasing workers’ access to retirement plans, including incentivizing employers to sponsor a workplace plan, like a 401(k) plan. State governments are also coming up with various strategies to increase workers’ access to workplace savings programs, including requiring employers to participate in a savings plan designed and administered by the state. Since 2012, Georgetown University’s Center for Retirement Initiatives shows that 45 states have taken action to promote access to workplace savings plans, ranging from studying plan options to passing legislation to enrolling employers into a plan. State plans As of September 2020, a dozen states and one city government have passed legislation to help or require employers to offer a savings plan at work in one of the following ways: Voluntary participation in a Payroll Deduction IRA: New York and New Mexico Mandated participation in a Payroll Deduction IRA (if not offering another retirement plan): California, Colorado, Connecticut, Illinois, Maryland, New Jersey, Oregon, and Seattle WA Voluntary participation in a multiple employer defined contribution plan: Massachusetts and Vermont Voluntary use of products from a state-based retirement plan marketplace: Washington and New Mexico The most popular option: Payroll Deduction IRA Plans Of the states that have passed legislation to establish a state-based plan, the majority have chosen to require employers to participate in a Payroll Deduction IRA program, also known as an “Auto IRA” plan. Generally, under an Auto IRA plan, employers who do not offer a retirement plan (for example, a 401(k) plan) must automatically enroll their employees into a state IRA savings program. The employer withholds a certain percentage of an employee’s wages and deposits it into a Roth IRA on behalf of the employee. Employees have control over their individual Roth IRA and can opt out of participating. These programs do not allow employers to supplement employee deferrals with matching or other types of employer contributions. The state administers the Roth IRAs and oversees the investment options. The details of each program vary by state. For example, The OregonSaves program requires any employer that does not offer a qualified retirement plan to enroll employees at a 5% deferral rate, which must be increased by 1% each year up to a maximum of 10%. The Illinois Secure Choice plan requires employers who have been in business for at least two years and have at least 25 employees to automatically enroll employees at a 5% deferral rate. The CalSavers plan requires employers with at least 5 employees to automatically enroll employees at a 5% deferral rate with automatic annual increases up to a maximum of 8%. Pros & Cons of state-based plans States are increasing access to retirement plans by requiring most employers to offer the state-based plan if they don’t offer another type of retirement plan. The automatic enrollment feature encourages savings among workers who otherwise might not take the initiative to do so. And automatic payroll deduction makes disciplined saving easy and convenient for employees. While employers are being forced into these arrangements, there are little to no costs for the employer and few administrative burdens other than processing the payroll withholding and depositing employees’ money into the IRAs. There are, however, some less-than-ideal aspects of state-based plans that should be considered. These plans are not subject to the worker protections under ERISA that apply to other tax-qualified retirement savings plans, such as 401(k) plans. ERISA is a federal law that requires fiduciary oversight of retirement plans and provides some uniformity to plan operations nationwide. Each state-based plan has its own rules and features, which can make it more difficult for employees and employers living and working in different states to comply. Another concern is that workers do not receive a tax benefit for their savings in the year they make contributions because most state-based plans (so far) consist of after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until removed from the IRA and may eventually be tax-free. IRAs also have much lower contribution limits than other types of retirement plans. A worker may save up to $6,000 in an IRA in 2020 ($7,000 if they’re age 50 or older), while a worker may save up to $19,500 in a 401(k) plan in 2020 ($26,000 if they’re age 50 or older) and may be eligible for additional employer matching and/or profit sharing contributions. Pros & Cons of 401(k) Plans For many employers – even very small businesses – a 401(k) plan may be a more attractive option than a state-based plan for a variety of reasons. Employer benefits Flexibility and control over plan service providers, investments, and plan features to meet your company’s needs and objectives Tax credit for plan start-up costs for small businesses Tax deduction for plan expenses paid by business owner Option to make tax-deductible contributions to your employees’ accounts Ability as a business owner to save for your own retirement Employee benefits Disciplined savings through automatic payroll deduction Reduced taxable income through pre-tax salary contributions & greater flexibility with respect to timing of taxes, with option to make Roth contributions Tax credits for lower paid employees Higher contribution limits than permitted in most state-based savings arrangements (For 2020, employee and employer contributions can reach 100% of an employee’s income up to $57,000 for employees under age 50 and $63,500 for employees age 50 and older, including business owners) Access to a broad range of investment options and often additional resources, including managed accounts and/or personalized advice Tax-deferred growth on investments while in the 401(k) plan Option to take a loan from retirement savings Benefits of 401(k) Plan vs Payroll Deduction Roth IRA 401(k) Payroll Deduction Roth IRA Employer contributions allowed x Plan design flexibility x Choice of provider x Small business tax credits x Tax deductions for employer contributions x Employee contribution limits (2020) $19,500 under age 50 $26,000 age 50+ $6,000 under age 50 $7,000 age 50+ Combined employee and employer contribution limits (2020) Up to 100% of employee’s income (max $57,000 for employees under age 50 and $63,500 for employees age 50+ and older, including business owners No employer contributions Ability for employees to save on pre-tax basis and reduce current tax liability x Flexibility with respect to employee tax liability x Additional potential plan features Personalized advice, employer contributions, loans, hardship distributions ERISA Protection from creditors x Of course, with all these benefits for the employer and employees come some administrative requirements to ensure the tax laws are met. Employers sponsoring a 401(k) plan are also required by ERISA to act solely in the interest of their employees and ensure that they and any others who have discretionary control over the plan or its assets meet the high standards of a fiduciary. Engaging plan providers for document, recordkeeping, and investment support is an added expense for employers. With the right 401(k) solution, however, employers can offer a robust retirement plan benefit that fits the company’s objectives and employees’ needs, as well as receive expert assistance, while also controlling costs. Ready for the right 401(k) solution? Betterment for Business offers a digital platform that makes it easy for you to set up and maintain a plan, with low cost administration, guided onboarding, and expert investment and administrative support. 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.

CARES Act and 401(k)s: Additional IRS Updates

CARES Act and 401(k)s: Additional IRS Updates The latest notice from the IRS expands the definition of those qualified to take advantage of CARES Act 401(k) distribution and loan relief. IRS Notice 20-50 The IRS continues to release updates to the CARES (Coronavirus Aid, Relief, and Economic Security) Act in response to a growing number of outstanding questions. This latest notice, IRS Notice 20-50, provides further clarification and additional benefits to participants impacted by COVID-19. As a refresher, the CARES Act was signed into law in late March and allows qualified individuals to take coronavirus-related distributions of up to $100,000 from their eligible retirement accounts (including IRAs) until December 30, 2020. These distributions are not subject to the 10% early withdrawal penalty that would typically apply to certain distributions taken prior to age 59-½. The CARES Act also relaxes normal retirement plan loan provisions and repayment terms. For loans taken between March 27, 2020, and September 22, 2020, the maximum loan amount has been increased from $50,000 to $100,000 of the vested balance. Additionally, participants are able to delay their loan repayments for up to one year if they fall between March 27, 2020, and December 31, 2020. With Notice 20-50, the IRS has expanded the definition of “qualified individual.” Specifically, a qualified individual is now considered to be anyone who: Is diagnosed, or whose spouse or dependent is diagnosed with the virus; Experiences adverse financial consequences due to COVID-19 as a result of: the individual, the individual’s spouse, or a member of the individual’s household (that is someone who shares the individual’s principal residence) being quarantined, furloughed or laid off, or having work hours reduced; being unable to work due to lack of childcare; closing or reducing hours of a business that they OWN or operate; having pay or self-employment income reduced; or having a job offer rescinded or start date for a job delayed. The notice also clarifies that qualified individuals can claim the tax benefit of the coronavirus-related distribution rules even if their employer did not implement these COVID-related distribution and loan rules. In this Notice, the IRS also added a “Loan Safe Harbor” to the CARES Act, which permits plan sponsors to delay or suspend loan repayments for up to 1 year if those repayments otherwise would have been made from March 27, 2020, through December 31, 2020. Under this Safe Harbor: Loan repayments will resume when the suspension ends. This means that the repayments will resume as of January 2021 if the suspension goes through December 31; The term of the loan may be extended up to one year after the date the loan was originally due even if it will exceed 5 years; and The loan and the additional interest on the unpaid balance must be re-amortized as of January 1, 2021, to the new date. 401(k) regulations related to COVID-19 continue to evolve. Betterment is actively reviewing updates as they are published and encourages employers and others to refer to the notice for more information.

Should Your Business Continue to Work Remotely? 7 Benefits to Consider.

Should Your Business Continue to Work Remotely? 7 Benefits to Consider. Companies that were once uncertain about remote work are now capitalizing on the benefits of remote work. Around the world, millions of employees are working in the comfort of their homes—not by choice, but by necessity. As the COVID-19 pandemic forces people to shelter in place, companies that were once uncertain about remote work are now seeing the silver lining of benefits. The Brookings Institution estimates that up to half of American workers are currently working from home, more than double the number who worked from home (at least occasionally) in 2017-2018. This large-scale, work-from-home experiment is revealing the pros and cons of telecommuting in real-time. If you’re a business owner or manager, you may be asking yourself: “After the pandemic is over, should we continue working from home?” Making a temporary situation permanent According to a recent survey from Gartner, 74% of Chief Financial Officers intend to shift some employees to remote work permanently after the pandemic is resolved. “CFOs, already under pressure to tightly manage costs, clearly sense an opportunity to realize the cost benefits of a remote workforce. In fact, nearly a quarter of respondents said they will move at least 20% of their on-site employees to permanent remote positions,” said Alexander Bant, practice vice president, research for the Gartner Finance Practice. Of course, not every job is suited to be done remotely—and there are downsides. Notably, managing remote teams can be more challenging, staff members may feel isolated working at home, and instead of becoming more productive, some employees may become more distracted. Despite these potential disadvantages, more CFOs, business owners, and managers are recognizing that remote work can deliver significant cost savings (and other benefits) in the long run. Let’s delve into the top benefits of telecommuting. Save money First and foremost, telecommuting can save your small business a significant amount of money. With all or some of your employees working from home, you’ll be saving money on: Real estate—Currently, you may be locked into a lease for a period of years. However, if you decide to downsize your office space or forgo it entirely in the future, you’ll save a significant amount of money. Operational costs—From heating and air conditioning to office supplies and copy machines, you’ll likely be able to cut many operational costs. However, you may incur costs associated with setting up your employees’ home offices and implementing telecommuting systems and software. Perks—When employees work at home, they make their own coffee (or swing by a local coffee shop), prepare their own lunches, and pour their own beers for Zoom happy hours with their co-workers. With a remote team, you can switch these office perks to invest in valuable benefits such as starting a 401(k) plan or increasing your company matching contributions. So how much could you save? According to a March 2020 report from Global Workplace Analytics, a typical employer can save an average of $11,000 per half-time telecommuter per year. It’s the net sum of things like increased productivity, lower real estate costs, reduced absenteeism and turnover, and better disaster preparedness. Want to calculate your own savings? Global Workplace Analytics offers a free TeleworkSavings Calculator™. Make employees happy According to Global Workplace Analytics, 80% of employees want to work from home at least some of the time.1 In particular, Millennials appreciate flexibility and remote work opportunities. Telecommuting is such a draw that office workers would even take a pay cut if they could work from home! More than a third of workers would take a pay cut of up to 5% in exchange for the option to work remotely at least some of the time; a quarter would take a 10% pay cut; 20% would take an even greater cut.2 Improve employees’ financial wellbeing Many studies have shown that personal financial stress negatively impacts employees’ performance, productivity, and ability to focus—all of which can lead to higher employee turnover. However, telecommuting can help your employees cut costs, improve their work-life balance, and boost their financial wellbeing. In fact, employees could save hundreds (or even thousands) of dollars on commuting expenses, take-out lunches, and even business clothes! According to a USA Today interview with FlexJobs, remote workers typically save about $4,000 a year by telecommuting. The money employees save can help them improve their current standard of living, invest for retirement and other long-term goals, and gain an overall sense of financial wellbeing. Increase productivity While the perception is that remote workers work less, the reality is actually quite different. A recent study from Airtasker , a gig economy platform, which surveyed more than 1,000 full-time employees across the United States, 505 of whom worked remotely, found that: Remote workers averaged 27 minutes of unproductive time a day, compared to 37 minutes for in-office workers Remote workers worked an average of 1.4 more days every month (or 16.8 more days every year) Plus, a remote job eliminates many of the typical “time sucks” of the average in-office workday like lengthy commute times, chats by the water bubbler, and unnecessary meetings. Minimize workforce turnover If you ask someone what they don’t like about their job, you’ll get a lot of different answers. “I hate my commute!” “My schedule isn’t flexible!” “I work so hard, but I don’t earn enough money.” “My boss micromanages me!” Many of these common reasons why people are dissatisfied at their job can be solved through remote work. By trusting your employees to telecommute, you give them the flexibility, free time, and money they need to be happy enough to stick around. Hire the best talent (regardless of location) Relocation expenses ranging from moving services to temporary housing can cost your company thousands of dollars per employee. Instead, consider hiring the best talent from around the world, allowing them to work remotely. You’ll save significant upfront costs and be able to draw from a larger pool of talented potential staff members (who may also strongly prefer to work from home). Plus, if your company is based in a city with a high cost of living and you hire a remote worker in a rural, lower cost of living area, you may be able to pay them a lower rate that’s still competitive for their location. Keep your business on track in the best (and worst) of times As we’ve witnessed over the last several weeks, companies that had already invested in telecommuting software—and had a corporate culture conducive to remote work—were able to more smoothly transition their workforce. While we hope that COVID-19 is the last pandemic that the world ever faces, the fact of the matter is that business disruptions happen. Whether it’s a major tropical storm or a health crisis, it helps to have a contingency in place that allows your employees to work remotely on a full-time or part-time basis. Capitalizing on the benefits of remote work If you decide to reap the benefits of telecommuting, you may be wondering: “What should I do with all the money my company saves?” Well, it’s a perfect opportunity to invest in your company’s future by starting a 401(k) plan or adding a company match. According to a Betterment for Business survey, 67% of plan participants said that a good 401(k) plan was important in their evaluation of a job offer. By providing this valuable benefit, you’ll improve your company’s ability to recruit and retain top talent. Plus, living and working through a pandemic is challenging for everyone. Reward your employees and show how much you appreciate them by investing in their futures with a 401(k) plan. There’s never been a better time to start a 401(k) plan than right now. With the recent passage of 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. Also, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits. See how. Betterment makes it easy for you to offer your employees a better 401(k)—at a fraction of the cost of most providers. Want to learn more? Let’s talk. https://globalworkplaceanalytics.com/telecommuting-statistics(State of the American Workforce, Gallup, 2016) https://globalworkplaceanalytics.com/telecommuting-statistics(State of Remote Work 2019, Owl Labs)

Paycheck Protection Program Flexibility Act of 2020

DOL Rules that 401(k) Notices Can Be Sent Electronically

DOL Rules that 401(k) Notices Can Be Sent Electronically The new “Notice and Access” Rule provides relief to the expense and burden of distributing required 401(k) notices to employees. On May 21, 2020, The U.S. Department of Labor (DOL) announced final rules allowing required 401(k) plan disclosures to be posted online or delivered via email. This new safe harbor rule was much anticipated since prior to the rule required notices could only be delivered electronically if employees satisfied the definition of being “wired at work” (or affirmatively opted to receive notices electronically). Plan participants are required to receive notices and disclosures about their 401(k) plan in a secure and timely manner. The new e-Disclosure Safe Harbor Rule provides some relief from certain administrative expenses in that it will allow new forms of electronic delivery to be the default delivery method, so long as the intended recipient can be reached electronically and receives the appropriate initial notification. The New “Notice and Access” Rule The new rule allows plan sponsors to deliver 401(k) disclosure notices electronically to all employees that are part of the plan, regardless of their employment status. As a safe harbor, this new rule includes several requirements: Initial Paper Notice - Before defaulting an individual into electronic delivery, a plan administrator must first notify the individual by paper: 1) that some or all plan documents will be furnished electronically; 2) that they have the right to request and receive paper copies of some or all of the covered documents (or to opt out of electronic delivery altogether); and 3) of the procedures for exercising such rights. Notice of Internet Availability - A plan administrator is required to send a notice of internet availability to the employee’s email address on file each time a 401(k) plan disclosure is posted to the website. Each notice of internet availability must remind the individual of his or her right to request and receive paper copies and to opt out of electronic delivery altogether, as well as the procedures to exercise such rights. Covered Disclosures and Documents - Documents must be posted online on a timely basis and written in a manner to be understood by an average employee. The 401(k) documents covered by the new rule are: Summary Plan Description (SPD) Summary of Material Modification (SMM) Summary Annual Reports QDIA Notice Annual Notice (Safe Harbor & Automatic Enrollment) Investment-related disclosures (identifying information, performance data, benchmarks, fee information, etc.) Website Standards - Documents posted under the new rule must be maintained on the website until replaced by an updated document. Posted documents must be searchable electronically and protect the confidentiality of personal information. Invalid Electronic Address - Email delivery systems must include invalid electronic address alerts. Once an invalid address has been identified (e.g., email is returned as undeliverable), the problem must be fixed by sending the notice to a secondary email address on file (work email vs. personal email). If this issue is not able to be resolved, the individual must be treated as if they had opted out of electronic delivery and be sent a paper version of the documents as soon as possible, until a new valid email address has been obtained.

Small Business Paycheck Protection Program and 401(k)s

CARES Act FAQs for Employees

CARES Act FAQs for Employees More details about the special distributions and loan provisions that were made possible by the CARES Act. CARES Act FAQs for Employees Q: What is a Coronavirus-Related Distribution (CRD)? A: This is a new type of distribution available to 401(k) and other retirement plans that was created in 2020 to provide relief to those financially impacted by COVID-19. CRDs enabled eligible individuals to: Take a distribution of up to $100,000 in aggregate from 1/1/2020 - 12/30/2020; Avoid the usual 10% early withdrawal penalty; Elect to repay the distribution within 3 years from receipt of the distribution to avoid owing any taxes on the distribution. Q: Who was eligible to take this distribution? A: Individuals needed to meet one of the following criteria: Had been diagnosed with COVID-19 Spouse or dependent had been diagnosed with COVID-19 Had been experiencing financial hardship as a result COVID-19 including being quarantined, furloughed, laid-off, having to work reduced hours, or having lost childcare. Q: What was the maximum amount available to be taken as a CRD? A: Eligible individuals could take up to the lesser of 100% of their vested balance (amount owned outright) or $100,000 in aggregate across all tax-qualified defined contribution plans. This could be taken as a one-time distribution up to $100,000 or multiple distributions until 12/30/2020, as long as the aggregate amount does not exceed $100,000. Q: What are the tax implications of the CRD? A: Generally, any distributions taken prior to age 59½ are subject to a 10% early withdrawal penalty. The IRS has waived this 10% penalty for CRDs. Additionally, distributions are normally also subject to 20% federal tax withholding. You may have waived this withholding if you had elected to opt out on the CRD form. The distribution will be counted as taxable income unless you choose to repay the amount in full within three years from the date you receive the funds. Q: What are the tax implications if my CRD included any Roth funds? A: Roth 401(k)s distributions are not subject to any tax withholding if you are at least age 59½ and have contributed to your Roth account for at least 5 years. If you do not meet these criteria, the distribution is considered “unqualified,” and the earnings portion of the Roth 401(k) is subject to taxation. Q: How do I make repayments on the CRD and what happens if I don’t make the repayments in the given 3-year period? A: Here are two resources you may find useful: IRS Questions and Answers on CRDs The actual CARES Act bill, which includes a section on CRD repayments If you took a CRD and would like to repay it, you have the option to make an indirect rollover to an Individual Retirement Account (IRA)—at Betterment or elsewhere. (Note that Betterment does not accept indirect rollovers into 401(k) plans. However, if you make an indirect rollover to an IRA first, you can then rollover the funds to your 401(k) account if you wish.) To proceed with an indirect rollover at Betterment: Deposit the funds in a personal bank account linked to Betterment If you do not have an IRA with Betterment, you can start by creating an IRA account here. Log into your Betterment account and indicate the amount you’d like to rollover repay to a Betterment IRA via Deposit > Traditional IRA/Roth IRA > Indirect IRA Rollover. (Note: although Betterment only permits one indirect rollover per year, you have until 12/31/2023 to repay your CRD in full, so you need not pay the entire amount at once). You are responsible for documenting the CRD and its repayment when you file your taxes. If you decide to make an indirect rollover to an IRA, you will need to note this rollover of your employer-sponsored plan on Form 1040. If you took the CRD from a 401(k) with Betterment, we will provide you with a 1099-R. If you decide to complete an indirect rollover to a Betterment IRA, we will also provide a Form 5498 documenting the indirect rollover into the IRA. These two forms can be used as documentation that you took a CRD and made a repayment to an eligible retirement account. We will continue this practice while we wait on guidance from the IRS as it relates to whether individuals should also make this note with respect to CRDs. Q: Are CRDs eligible for rollover? A: No, CRDs were not able to be rolled over to another qualified account. However, if you decide to repay your CRD, it will go back into your 401(k) account and will be treated as a distribution eligible for rollover (direct trustee-to-trustee transfer). Q: Can I take a loan against my 401(k) Plan? A: If your 401(k) plan includes a loan provision, the usual available loan amount is the lesser of $50,000 or 50% of your vested account balance. Relaxed loan provisions that your plan may have adopted as part of the CARES Act expired in September 2020. Q: What was the maximum loan amount I could take under the relaxed loan provisions of the CARES Act? A: The CARES Act allows employees to take up to the lesser of 100% of the vested balance or $100,000. This is a temporary increase over the usual 50% of vested balance or $50,000. The increased loan limit is only applicable to loans initiated from March 27, 2020 to September 23, 2020 (180-day period). Q: What are the repayment rules? A: Employees with 401(k) loan repayments on new or existing loans that were due between March 27, 2020 and December 31, 2020 could have elected to delay them for one year. Interest (that you effectively pay back to yourself) continued to accrue and the term of the loan will be adjusted accordingly. Q: Was a different interest rate applied to my loan if I delayed my repayments for a year? A: The same interest rate continued to apply to any delayed repayments, but interest continued to accrue during this period which may increase the total loan repayment amount. To help ease the financial impact, the maturity date of the loan was able to be extended for up to one year. Q: How long were CRDs and relaxed loans available for? A: CRDs were available from January 1, 2020 to December 30, 2020. The relaxed loans were available until September 23, 2020. The one-year postponement of loan repayments was only applicable for repayments due between March 27, 2020 and December 31, 2020. Note that these provisions were not automatically available to all 401(k) plans; your employer had to decide to adopt them. This article is being provided solely for marketing and educational purposes. It does not address the details of your personal situation and is not intended to be an individualized recommendation that you take any particular action, including rolling over an existing account. When deciding whether to roll over a retirement account, you should carefully consider your personal situation and preferences. Specific factors that may be relevant to you include: available investment options, fees and expenses, services, withdrawal penalties, protections from creditors and legal judgments, required minimum distributions, and treatment of employer stock. Before deciding to roll over, you should research the details of your current retirement account, consult tax and other advisors with any questions about your personal situation, and review our Form CRS relationship summary and other disclosures. If you currently participate in a 401(k) plan administered or advised by Betterment (or its affiliate), please understand that you are receiving this email solicitation as part of a general offering and that neither Betterment nor any of its affiliates are acting as a fiduciary, or providing investment advice or recommendations, with respect to your decision to roll over assets in your 401(k) account or any other retirement account.

CARES Act Overview for 401(k) Plans

CARES Act Overview for 401(k) Plans The CARES Act provides some temporary relief for 401(k) plan sponsors and their participants. Here's everything you need to know about provisions specific to plans. The CARES Act, a $2 trillion economic stimulus package signed into law on March 27 after unusually speedy Congressional approval, provides some temporary relief for retirement plan sponsors and their participants. Below is a summary of provisions specific to 401(k) plans, although there are many details yet to be worked through. Eligibility: In order to be eligible for the Coronavirus Related Distributions (CRDs) and relaxed loan provisions, participants will be required to certify that they meet one of the following criteria: They have contracted COVID19 themselves Their spouse or dependent has contracted COVID19 They have lost a job, been furloughed or otherwise suffered a heavy financial burden because of COVID19 (including loss of childcare) CRDs and the relaxed loan provisions are optional plan features. Plan sponsors who decide to make these features available to their participants should inform their providers, who can offer guidance, additional details and assistance in communicating changes to your employees. Although plans will need to be amended to include these special features, you have until the end of 2022 to do so. Betterment for Business has been in touch with clients regarding the CARES Act and is waiving any related plan amendment fees. Coronavirus Related Distribution (CRD) Eligible participants (see above) can take up to $100,000 from employer-sponsored retirement plans and IRAs without being subject to the normal 10% early distribution penalty or the 20% mandatory tax withholding. In addition, although the CRD will be treated as regular income, it can be spread over three years for tax purposes, and the distribution can be repaid---without being subject to the regular contribution cap---within three years to avoid taxation. CRDs are available for the entire 2020 calendar year, so even 2020 distributions made prior to the enactment of the CARES Act may be treated as a CRD. Relaxed Loan Provisions The available 401(k) loan amount has been increased to the lesser of 100% of the vested balance (up from 50%) or $100,000 (up from $50,000). In addition, participants with loan repayments due between 3/27/2020 and 12/31/2020 can elect to delay them for 1 year. Interest will continue to accrue, but the term of the loan will be extended accordingly. Required Minimum Distribution (RMD) Waiver By law, participants turning 72 are required to start taking RMDs based on previous calendar year-end market values. (The RMD age was increased in 2020 from 70 ½.) So 2019/2020 RMDs based on 12/31/18 and 12/31/2019 market values would have forced individuals to sell investments at drastically reduced prices. The CARES Act waives all RMDs for 2020, including first-time 2019 RMDs, which individuals may have been waiting until April 1, 2020 to make. Any RMDs already taken in 2020 (including 2019 RMDs paid in 2020) are eligible for a 60-day indirect rollover (or 3 year repayment under CRD rules) and won’t be considered to have been taken as a distribution. If you have more questions about COVID-19 and the CARES Act, please see our FAQs.

Betterment for Business Coronavirus Update

Betterment for Business Coronavirus Update Learn about the measures we have taken to ensure our team will be available as usual for you and your employees. In light of the growing concerns about COVID-19, also known as the coronavirus, we’d like to make you aware of the steps we have taken to ensure that our team will be available as usual for you and your employees. Operational Continuity: We have always had a flexible work environment at Betterment where employees can work remotely. In addition, we have opened two new offices (Philadelphia and Denver) in the past year which provide additional geographic diversity. In the event that we need to employ a mandatory work from home policy for our team, we are well-equipped to continue with business as usual and have implemented protocols and tools to minimize potential adverse impacts and maintain continuity of our operations. Market Volatility: We know that market volatility can be stressful. Your employees will see a message about market volatility when they log into their account. We encourage you to reinforce that message by directing employees to Betterment articles and remind them that 401(k)s are long-term investments meant for retirement. The best path to long-term investing success is for investors to be sure they are taking the right amount of risk for their goals, saving, and sticking to their plan. Rollover Checks: Effective immediately, all rollover checks should be sent to our lockbox at: If regular mail: Betterment 401(k) PO Box 208435 Dallas, TX 75320-8435 If overnighting by special courier: Lockbox Services 208435 (include above in Reference Section) Betterment 401(k) 2975 Regent Blvd, Suite 100 Irving, TX 75063 Kindly update your internal guidance to provide employees with this information. Checks that are already on their way to our NYC office will be forwarded to the lockbox; however, there may be some short delays as a result. Distributions: As a reminder, termination distributions can be done online, and all other paper distributions should be sent to Betterment via our secure upload site. We know that this can be a stressful time. If you need anything from us or have any questions, please let us know.

The SECURE Act is Changing the Retirement Landscape

The SECURE Act is Changing the Retirement Landscape The SECURE Act improves access to tax-advantaged retirement accounts, allows people to save more, and encourages employers to provide retirement plans. On December 20, 2019, President Trump signed the Setting Every Community Up for Retirement Enhancement Act of 2019 (the SECURE Act) into law. An extensive piece of bipartisan legislation, the SECURE Act improves access to tax-advantaged retirement accounts, allows people to save more, and encourages employers to provide retirement plans. What Does the SECURE Act Mean to You and Your Employees? As an employer, you’re tasked with working with your retirement plan provider to implement the provisions of the SECURE Act that impact your employees. One of the most exciting benefits of the SECURE Act is valuable tax credits for small businesses, but there are many other important considerations you should know about. Read on for details about these new rules (and how they can impact you). 1. Tax credit for new plans Thanks to these new rules, substantial tax credits will be available for employers with 100 or fewer employees. That’s great news for small businesses who’ve been on the fence about starting a defined contribution plan because of cost concerns. Prior to the passage of the SECURE Act, the Retirement Plans Startup Costs Tax Credit was $500. However, effective January 1, 2020, you may now be able to claim tax credits of 50% of the cost to establish and administer a plan, up to the greater of: $500; or the lesser of: $250 per eligible non-highly compensated employee eligible for the plan; and $5,000 Plus, the new rules state that you can claim this credit for the first three years of the plan. That means up to $15,000 in tax credits! And remember, unlike tax deductions that reduce your company’s taxable income, tax credits actually reduce the amount of tax you owe dollar for dollar. It’s important to note that this tax credit is only available when you’re establishing a new retirement plan, such as a 401(k) plan. Ready to learn more about starting your own retirement plan? Betterment can help. 2. Tax credit for adding eligible automatic enrollment Small businesses can now earn an additional $500 tax credit for adding an eligible automatic enrollment feature to their new or existing plan. This tax credit—known formally as the Small Employer Automatic Enrollment Credit—is available for each of the first three years the feature is active, for a total of $1,500 in tax credits. Beyond the tax credit, automatic enrollment correlates with higher plan participation rates—and helps employees save for a more comfortable future. In fact, according to research by The Pew Charitable Trusts, automatic enrollment 401(k) plans have participation rates greater than 90%! Learn how your small business can benefit from a 401(k) plan with automatic enrollment now. Does your small business qualify for these valuable tax credits? Your small business may be eligible if you can answer “yes” to the following questions: Do you have 100 or fewer employees? Did you pay each of them at least $5,000 last year? Was there at least one “non-highly compensated employee” who earned less than $120,000 last year? If so, you could enjoy valuable tax credits—and help your employees save for retirement in the process. Want to learn more? Talk to Betterment. 3. More flexible safe harbor rules A safe harbor 401(k) plan offers a great way to avoid the stress of annual nondiscrimination testing while helping your employees build a more comfortable future. The SECURE Act modifies a few of the safe harbor provisions to give you more flexibility—and your employees the opportunity for increased lifetime income. Here’s what changed: More relaxed nonelective employer contribution requirements Before—Your plan document had to include the 3% nonelective safe harbor provision—and participants had to be provided with the safe harbor status notice—before the beginning of the plan year. After—The SECURE Act eliminated the participant notice requirement for nonelective contributions. Plus, you can amend the 401(k) plan as late as 30 days before the end of a plan year to provide for a 3% nonelective safe harbor contribution. Alternatively, a 401(k) plan may be amended as late as the end of the following plan year, if a 4% nonelective safe harbor contribution is provided. (Note that these changes don’t apply to safe harbor matching contributions.) Increase in the automatic deferral rate for qualified automatic contribution arrangements (QACA) Before—A QACA safe harbor was permitted to automatically increase a participant’s deferral election up to 10% of eligible compensation. After—The SECURE Act increased the cap from 10% of eligible compensation to 15% of eligible compensation. That means that you have an even greater opportunity to help employees save the lifetime income they need to thrive in retirement. Need help with your safe harbor 401(k) plan? These new SECURE Act changes have many implications, including revisions to your policies, procedures, participant notices, plan documents, and more. Betterment can help. 4. Expanded eligibility for long-term, part-time employees Currently, 401(k) plans can limit access for employees who work under 1,000 hours per year, which averages out to about 20 hours per week. However, the SECURE Act changes that rule—helping part-time workers get a jumpstart on retirement saving. Beginning in 2021, plans must provide access for part-time workers who haven’t met 1,000 hours in one year, but have worked for over 500 hours for an employer for at least three years. This change is a great opportunity for large and small companies alike to improve retirement access for all individuals in their workforce. Plus, offering part-time workers a 401(k) plan is an effective way to boost your recruiting efforts. 5. Bigger penalties for late filing To improve deadline compliance, the new rules increase the penalties for late retirement plan document filings: Failing to timely file Form 5500 can be assessed up to $250 per day, not to exceed $150,000 per plan year. (Before the SECURE Act, the penalty was $25 a day, not to exceed $15,000.) Failing to file Form 8955-SSA can be assessed up to a daily penalty of $10 per participant, not to exceed $50,000. (Before the SECURE Act, the daily penalty was $1 per participant, not to exceed $5,000.) Failing to provide income tax withholding notices can be assessed up to $100 for each failure, not to exceed $50,000 for the calendar year. (Before the SECURE Act, the penalty was $10 for each failure, not to exceed $5,000.) So, what do these new rules mean to you? Well, it’s more important than ever to file your forms in a timely manner—or face significant financial repercussions. To make it easier for you, Betterment helps you prepare your Form 5500—and offers the support you need throughout the process. 6. Higher required minimum distribution (RMD) age Prior to the passage of the SECURE Act, employees needed to take RMDs from their IRAs and qualified employer-sponsored retirement plans (like 401(k)s) at age 70 ½. Now, they can take them beginning at age 72—allowing extra time for earnings to potentially accumulate. This is great news for retirement savers who now have more opportunity to accumulate the lifetime income they need. It’s important to note that unlike Traditional IRAs and 401(k) plans, there are no RMDs for Roth IRAs during the account owners’ lifetime. So if employees have a Roth 401(k) account, they can roll it into a Roth IRA, avoid taking RMDs, and continue building lifetime income. 7. Penalty-free withdrawals for birth/adoption expenses and student loan payments Offering a welcome financial respite, the SECURE Act provides provisions for two brand-new penalty-free distributions: Birth or adoption—Now people can withdraw up to $5,000 from their qualified retirement accounts—without paying the usual 10% early withdrawal penalty—to cover expenses related to a birth or adoption. However, account owners will still be liable for the applicable income taxes, including those for any capital gains. Student loan payment using 529 plan—Now, people can use their 529 plan to pay the costs of apprenticeship and student loan payments. Specifically, account owners can withdraw up to $10,000 during the beneficiary and their siblings’ lifetimes. For example, a family with three children can take a $10,000 distribution to pay student loans for each child—for a total of $30,000. However, it’s important to note that any student loan interest that’s paid with tax-free 529 plan earnings can’t also be claimed as a tax deduction. Both of these new penalty-free distributions offer more flexibility to pay for important lifetime expenses. With this newfound freedom, individuals have greater opportunity to pay down debt and gain more secure financial footing. 8. Required retirement projections for employees Rather than just reporting a lump sum of what employees have saved, retirement plans will now be required to project expected income at retirement. With this retirement income projection, employees will have a better idea of what their future will look like (and whether they’re on—or off—track for retirement). While the retirement income projection requirement is a new rule, Betterment for Business already offers this level of insight for current 401(k) plan participants. In fact, our intuitive investment platform ensures that employees can get advice on all of their financial goals in one place. We aim to help employees set a clear, realistic retirement goal and stay on track to achieve that goal. In this way, it is an elaboration on the fundamentals of our goal-based approach to financial planning. We aim to include the following components of retirement planning: Projecting an estimate of desired spending in retirement -- We use several factors to help estimate retirement spending, including how earned income will grow over time, what the local cost of living will be like, and what an individual’s spending habits look like before retirement. Determining the total pre-tax savings amount likely needed to achieve that spending level with high confidence -- we can figure out the total amount an individual should have saved by the time of their desired retirement date to have a 96% chance of success they will not run out of money during retirement. Considerations include expected lifespan, other retirement income sources, and taxes. Calculating how much should be saved during each period prior to retirement -- The savings amount required depends on how much time remains until retirement age, the level of risk someone is willing to bear in order to pursue higher returns, and how much certainty they feel they need to hit that balance. Prioritizing which retirement savings vehicles are likely to be most efficient -- Prioritizing which accounts people save into depends on their specific tax situation and access to retirement accounts. Our recommendation for retirement goals only incorporates the external accounts that an employee has synced and any Betterment accounts within their Retirement goal. As always, we recommend individuals contact a qualified tax advisor to understand their personal situation. 9. New regulations for pooled employer plans Starting in 2021, unrelated companies can join a single Pooled Employer Plan (PEP) in an effort to access greater economies of scale and cost efficiencies. Prior to the new rules, “open” Multiple Employer Plans (MEPs) existed; however, there were concerns about how the DOL viewed them. This new regulation solidifies PEPs as an option for employers who are looking to lower their fees, reduce their fiduciary liability, and offer their employees a higher quality retirement plan. However, Betterment offers the key benefits of a pooled employer plan—lower fees and reduced fiduciary liability—with less complexity and greater personalization. Here’s how: Lower fees: Fees on Betterment plans are some of the lowest available, so there’s no need to compromise on a pooled plan that may not meet all of your needs or provide the flexibility you may want. Reduced fiduciary liability: We serve as a 3(16) administrative fiduciary and 3(38) investment fiduciary to your plan. This limits your risk exposure and allows you to focus more of your time on running your business--not your plan. Greater personalization: We’ll partner with you on your 401(k) plan design so you can tailor it to meet your company’s needs—from adding a safe harbor provision to electing an automatic enrollment feature. Don’t your employees deserve a better 401(k) plan? Get the Betterment 401(k) plan. 10. Deadline filing extension The SECURE Act also impacts the deadline for employers to establish a new 401(k) plan. Specifically, it extends this date from the last day of the tax year (December 31) to the due date of the tax return (April 15 of the next year). That’s good news for employers because you have an extra 3.5 months to set up a plan! Thinking about setting up a plan? Betterment can help tailor the plan that’s right for you. Want to learn more? We can help. The SECURE Act retirement bill contains 30 sections in all, which you can read about in more detail here. However, if you don’t want to sift through these dense regulations on your own, Betterment can help. As a full-service provider, we aim to make life easy for you by assisting with everything from compliance testing to plan design consulting. Not only do we provide highly optimized 401(k) plans, we also offer your employees high-tech retirement planning, a big picture view of their finances, and personalized advice—all at a fraction of the cost of most providers.

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