Like clockwork, the Internal Revenue Service announces changes to retirement planning limits for the coming year. The IRS has recently announced that 401k contribution limits will remain unchanged in 2021, at $19,500. The catch-up 401k contribution limit for employees over the age of 50 will also remain unchanged, at $6,500.
Despite there being no change in max 401k contribution limits, you should still take some actions to keep employees informed and help them make their contribution elections. Now is a great time to communicate employee options and take steps to maintain a healthy and compliant 401k plan. Take the following actions to manage your 401k plan effectively in the coming year:
Communicate the 2021 max 401k contribution limits to employees
401k contribution limits aren’t changing in 2021, but it’s still a good idea to communicate limits to employees and provide resources to help them model their contributions and select 401k plan investment options. You can provide helpful 401k information to employees through the company intranet and in your 2021 open enrollment materials. You can also send automated reminders through your open enrollment employee self-service portal.
Decide on any changes to your employer 401k match
While the individual 401k contribution limit will remain flat at $19,500, the IRS has increased the total contribution limit from $57,000 to $58,000 per person ($64,500 for individuals over 50) for contributions from all sources, including the company 401k match. If you’re considering making any adjustments to the company match for 2021, now is the time to finalize changes and communicate them to employees.
Educate employees about the 401k plan throughout the year
Year-end isn’t the only time to communicate with employees about making a 401k contribution and the applicable limits. As employees experience changes in their earnings and living expenses throughout the year, they may want to contribute to the 401k for the first time or adjust their elections up or down mid-year. To keep employees informed and make it easier for them to enroll in your 401k plan at any time, take the following actions:
- Offer financial education sessions
- Provide flyers, brochures, and investment illustrations to help employees understand how the 401k plan works, review new contribution limits, and know where to get access to plan balances and instructions for rollovers and loans
- Consider automatic enrollment for new hires
Manage your 401k plan efficiently
Managing your 401k plan is a complex undertaking, especially when considering all the changes in individual and company contributions each pay period. At any time throughout the year, incoming employees are establishing new accounts while other employees are repaying 401k loans or taking account distributions. In addition, you also need to keep the 401k plan in regulatory compliance and ensure employees do not exceed contribution limits.
Keeping track of the activity in your 401k plan requires a solution that pulls together all the relevant plan data so that you can track plan compliance and plan in-flows and out-flows. Our financial connectivity solution does just that, and provides you with tools and carrier integrations, such as:
- Uni- and bi-directional data flows to retirement plan vendors and providers
- Automated reports to show plan activity for every pay period
- Integration with a range of HRMS and third-party administrator platforms
- Correspondence and reminders to help you reduce risk, avoid regulatory fines, and keep your 401k plan in good regulatory standing
For 2021, communicating new contribution limits to employees may just be the beginning of managing your 401k plan for better compliance and efficiency. Take these steps to keep employees informed about their options and seamlessly deliver retirement plan data to your HR and benefits administration staff.