While the SECURE Act has gotten a lot of attention in the retirement plan industry recently, and with good reason, there is another change from the Department of Labor (DOL) that could affect some of the operation and administration of retirement plans as well. The DOL has instituted a new threshold for employees to be considered exempt from overtime rules effective Jan. 1, 2020. With that, HR departments around the country are taking some time to review their compensation strategies. This new threshold serves as the perfect opportunity to break open the retirement plan document and:
- Reconfirm that current payroll practices are in coordination with the definition of compensation as found in the plan document
- Consider what, if any, effect changes in compensation have to contributions
- Consider if any changes need to be made to the plan document in light of the above
If some portion of the employee population is moving between the exempt and non-exempt categories, consider the following:
- The option to include or exclude overtime pay from the definition of compensation can have a big impact on both employee and employer deferrals
- If you’re adding types of compensation: bonuses, holiday pay, etc., you should confirm how those are handled under the plan document and make changes accordingly
- What effects will these changes in compensation have on discrimination testing applicable under your plan type
There are plenty of resources on the topic of compensation. You can read the updated limits from the IRS in our previous blog. The IRS also has a good primer on what to do if you find an error in your compensation practices here.
Effective compensation and benefits packages work in tandem, and changes can have cascading effects. A regular review of operations keeps the plan running smoothly and can catch issues before they become costly mistakes.
Multnomah Group is a registered investment adviser, registered with the Securities and Exchange Commission. Any information contained herein or on Multnomah Group’s website is provided for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Multnomah Group does not provide legal or tax advice.