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CalSaver’s Plan and Federal Plan Startup Tax Credit

 “A number of my business clients have been required to adopt the Calsaver’s plan for their employees. Now I see the SECURE Act 2.0 of 2022 sweetened the federal tax credit for plan startup costs for businesses with 50 or fewer employees. If a business has adopted the CalSaver’s plan is the plan startup tax credit still available to them?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from California dealt with a question on CalSaver’s plan.

Highlights of Discussion
The good news is, “yes,” small business owners that adopted the CalSaver’s plan will still qualify for the federal plan startup tax credit if they want to upgrade from the CalSaver’s plan to a simplified employee pension (SEP), savings incentive match plan for employees (SIMPLE) or qualified plan (e.g., 401(k) plan) and they otherwise qualify for the tax credit (i.e., had 100 or fewer employees who received at least $5,000 in compensation for the preceding year; and had at least one plan participant who was a nonhighly compensated employee).

The federal plan startup credit under IRC Sec. 45E is not available if, during the three-taxable year period immediately preceding the first taxable year for which the credit would otherwise be allowed, the employer or any member of any controlled group including the employer (or any predecessor of either), established or maintained a “qualified employer plan” with respect to which contributions were made, or benefits accrued, for substantially the same employees as are in the new qualified employer plan. A CalSaver’s plan is a payroll deduction Roth IRA—completely employee funded. It is not considered a qualified retirement plan that would preclude a small employer from being eligible to claim the plan startup credit if the employer is otherwise eligible.

Section 102 of the SECURE Act 2.0 of 2022 (see page 819) increases the plan startup credit from 50 percent to 100 percent of eligible plan startup cost up to $5,000 for the first three years for employers with up to 50 employees. Prior rules still apply for those with 51-100 employees. What’s more, there is an additional credit available for defined contribution plans that is a percentage of employer contributions made for five years on behalf of employees, up to a per-employee cap of $1,000. The contribution credit is phased out for employers with between 51 and 100 employees.

Conclusion
A CalSaver’s plan is a payroll deduction Roth IRA—completely employee funded. It is not considered a qualified retirement plan that would preclude a small employer from being eligible to claim the federal plan startup credit if the employer is otherwise eligible and establishes a SEP, SIMPLE or qualified plan.

 

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SECURE Act 2.0: Reshaping the Retirement Landscape

Course Overview

The long-awaited and much anticipated “SECURE 2.0” is here. Join us as we provide an overview of the many aspects of the new retirement-related legislation know as SECURE 2.0. This bill makes significant changes to most aspects of the retirement environment including expanded contribution limits and credits, enhancements of SIMPLE IRA arrangements, emergency saving account options in 401(k), and matching of certain student loan payments. In addition, we’ll cover changes to excesses, corrections, RMD and rollover rules. Lastly, the timing, amendment and effective dates of key provisions will be discussed.

Learning Objectives

  • Understand the new 401(k) features including emergency savings accounts, student loan payments, starter 401(k)s, required auto-enrollment features and increased credits and limitations
  • Identify enhanced SIMPLE-IRA features, modifications to 457(b) eligibility requirements and ability to treat employer contributions as Roth amounts
  • Recognize expanded rollover options, additional distribution penalty exemptions, RMD changes
  • Summarize changes to MEP/PEP and Group of Plans rules
  • Consider the timing and effective dates of the provisions and requirement amendments

In order to be awarded the full credit hours, you must be present for the entire session, registering your attendance and departure in the webinar and answering all polling questions.

Participants will earn 1.0 CPE credit. Program is free.

Field of Study: Specialized Knowledge

Additional Information:

Prerequisites: 3-5 years experience in the industry
Who should attend: Financial Professionals and Accountants; others are welcome.
Advanced Preparations: None
Program Level: Intermediate
Delivery Method: Group Internet Based

Refunds and Cancellations: For more information regarding refund, complaint and program cancellation policies, please contact our offices at 218-828-4872 or email info@cecenterinc.com

Continuing Education Center, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have the final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.NASBARegistry.org

© Copyright 2024 Retirement Learning Center, all rights reserved
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403(b)s and CITs—Yes or No?

“I’ve heard conflicting statements on whether SECURE Act 2.0 allows 403(b) plans to invest in collective investment trusts (CITs). Can you answer the question definitively?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from New York dealt with a question on 403(b) plans and CITs.

Highlights of Discussion

The ability for 403(b)s to invest in CITs is regulated by both the IRS under the tax code and the Securities Exchange Commission (SEC) under the Securities Act of 1933 (The ’33 Act), the Securities Exchange Act of 1934 and the Investment Company Act of 1940 (The ’40 Act). Section 128 of SECURE Act 2.0 of 2022 (SECURE 2.0) does amend the IRS’s Internal Revenue Code (IRC) at section 403(b)(7) to allow 403(b) plans to invest in CITs, effective January 1, 2023 (see page 872 for Section 128). 

However, Section 128 of SECURE 2.0, as enacted, does not, simultaneously, amend The ’33 Act [specifically, Section 3(a)(2)], the Securities Exchange Act of 1934 [specifically, Section 3(a)(12)(C)] and The ’40 Act [specifically, Section 3(c)(11)], to allow 403(b)s use CITs.  An earlier version of the provision (at that time Section 104), passed by the House of Representatives, would have made conforming amendments across all governing sources. When the dust settled, only the language amending the IRC remained in the final version of the law signed on December 29, 2022.

Conclusion

While amendments pursuant to SECURE Act 2.0 allow 403(b) plans to invest in CITs from the IRS’s perspective, SEC rules still prohibit such investing practices at this time.[1]

 

[1] Exception: 403(b)(9) retirement income accounts offered by church plans are not subject to the investment restrictions of 403(b)s.

 

© Copyright 2024 Retirement Learning Center, all rights reserved
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Group of Plans Audit Requirement

A recent call with a financial advisor from Minnesota dealt with a question on Group of Plans (GoPs). The advisor asked: “Did the DOL or IRS ever conclude whether a GoPs is subject to the annual Form 5500 audit requirement?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of Discussion

This is a timely question as the SECURE Act of 2022, enacted as part of the Consolidated Appropriations Act, 2023, addresses this question specifically.  Section 345 of the law clarifies that plans filing as a GoPs will submit an auditor’s opinion if a plan, individually, has 100 participants or more. In other words, any audit required shall relate only to each individual plan that would otherwise be subject to an independent audit. The new rule took effect on December 29, 2022.

For more details on GoPs, please see a related case: Group of Plans or Defined Contribution Group Plans.

Conclusion

The SECURE Act created a consolidated Form 5500 filing option for GoPs beginning with the 2022 plan year. SECURE Act 2.0 of 2022 clarified the application of the independent auditor’s report as applying to individual plans within the GoPs.

© Copyright 2024 Retirement Learning Center, all rights reserved