A retirement plan may permit participants to access their accounts through hardship distributions if they face an immediate and significant financial need, regardless of how the need arose. The Plan Document specifies which funds are available for such distributions, typically including employee elective deferrals, vested employer matching contributions, and employer nonelective (or profit-sharing) contributions.
The withholding of federal and state income taxes on 401k retirement plan distributions varies based on the distribution type and state regulations. Some states have mandatory withholding requirements, while others allow voluntary withholding or do not impose state income tax at all. Federally, pre-tax employee contributions and employer contributions face a mandatory 20% income tax withholding, though there are specific circumstances where this may not apply. This article examines the withholding requirements for 401k plan distributions.
In 2024, cybercrime surged, becoming a top concern for business leaders, with a CFO Magazine survey indicating ransomware attacks as the primary worry for C-Suite executives. Additionally, 45% of cybersecurity leaders cited cyber incidents as the most feared source of business disruption. This trend is underscored by significant data, including $9.5 trillion in global cybercrime damages, a 10% rise in the average data breach cost to $4.88 million, a 1,265% increase in phishing emails, and a 30% rise in overall cyberattack frequency across industries. As new technologies and techniques are rapidly weaponized, cybersecurity threats are expected to escalate further in 2025. The article presents seven predictions regarding trends in cybercrime, organizational priorities, and the regulatory landscape to help businesses formulate their cybersecurity strategies for the upcoming year.
On January 14, 2025, the DOL released final rules updating the Voluntary Fiduciary Compliance Program for the first time in nearly two decades. Key changes include the introduction of a self-correction feature allowing retirement plan sponsors to rectify issues related to the late transmittal of participant contributions and loan repayments, which are common operational failures. Additionally, the self-correction procedures extend to certain participant loan issues that qualify for correction under the IRS's Employee Plans Compliance Resolution System.
The author, a lawyer, acknowledges the negative reputation lawyers often have, which can deter plan sponsors from hiring them, particularly ERISA attorneys. Despite the common jokes and stereotypes about lawyers, the author argues that it's important for retirement plan sponsors to overcome their apprehension and seek the assistance of an ERISA attorney when necessary. The article aims to explain the circumstances and reasons for hiring such legal expertise.
On January 10, 2025, the IRS issued proposed regulations outlining guidance on age-based catch-up contributions under Internal Revenue Code Section 414(v). These regulations allow participants aged 50 or older in 401k, 403b, and governmental 457b plans to make additional "catch-up" contributions beyond regular deferrals. This provision is not subject to the usual limits on elective deferrals. The proposed regulations implement statutory changes from the SECURE 2.0 Act of 2022 and provide important guidance for retirement plan participants, beneficiaries, employers, and administrators regarding compliance with the new catch-up contribution rules.
Recently, there has been an increase in ERISA class actions challenging the practice of using 401k plan forfeitures, which occur when employees leave before employer contributions vest. Traditionally, these forfeited amounts remain within the 401k plan and can offset future employer contributions, a practice deemed acceptable by regulatory guidance. However, plaintiffs are now arguing that this practice violates various ERISA provisions. Over 30 lawsuits have been filed against companies of all sizes, though none have reached a final judgment yet. Given the nascent state of these claims and the unclear legal landscape, plan sponsors and fiduciaries must adopt risk mitigation strategies. This should include reviewing their plan's forfeiture terms to ensure compliance with plan provisions.
In 2024, there was a notable increase in class action filings under ERISA, with 136 new cases, which is higher than in 2023 but still below the 2020 record of over 200. The continuation of this trend into 2025 will likely hinge on the resolution of key legal issues. This Law360 article by Groom principals discusses what to expect for ERISA litigation in 2025, highlighting potential increases in health plan litigation, developments in excessive fee and forfeiture cases, as well as pension plan litigation.
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Collected Wisdom™
Our researchers look for what they think are some of the better resources available to assist you in administering your plan or helping your clients. We group these resources in our COLLECTED WISDOM™ topics to make it easy for you to locate the information you need. Each item in a category contains a summary and date of when it was placed in the group.
We also maintain some older material in these collections for perspective and context.
