Employer Resources

The key factors holding back your employees’ retirement readiness BlogPost 151878042642 The key factors holding back your employees’ retirement readiness And how the types of benefits you offer can help. Broadly speaking, the economy did alright in 2023. Inflation slowed, stocks rallied, and employment remained strong. But you wouldn’t know it by looking at the current mood of American workers. According to our latest annual survey of 1,000 full-time employees, their levels of financial wellness trended down in 2023 at the same time their financial anxiety climbed by seven percentage points. So what gives? We sifted through the data and saw several trendlines emerge. Explore them in full detail in our Retirement Readiness annual report – and keep reading below for a preview. Inflation’s ripple effect on retirement Inflation slowed significantly in 2023, but that’s not to say that all prices fell. The average American household spent $709 more per month in 2023 compared to 2021 on things like rent, groceries, and gas. Until wage growth catches back up to inflation, workers will continue to feel their paychecks pinched, and two casualties are taking shape as a result: Emergency funds: Although more than half (52%) of employees reported currently having an emergency fund, that’s a 7% drop from 2022, and 14% decrease from 2021. Retirement savings: A worrisome 3 in 10 workers tapped into retirement savings in the past year to pay for short-term expenses, a significant setback for their long-term goals. All of this has left workers feeling stressed. More than half (58%) went so far as to say the anxiety makes it hard for them to focus at work. But our research shows that some employer support and benefits can go a long way toward calming the waters. The growing role of financial benefits in retention If short-term expenses are depleting workers’ savings, it’s no surprise that a strong 401(k) and financial wellness benefits program remains at the top of workers’ wish lists. The importance of these benefits continues to grow as well, with 70% of workers saying financial wellness benefits are more important now than a year ago. A growing percentage of workers (60%) even say they’d be enticed to leave their job for better financial benefits. Student loan debt, however, continues to prevent the adoption of financial benefits for many. 64% of workers said student loan debt impacts their ability to save for retirement, and when asked why they don’t take advantage of their employer’s benefits, by far the most common reason was their paycheck simply won’t stretch that far. On this front, good news is just around the corner. Thanks to the SECURE 2.0 Act, employers will soon be able to offer a 401(k) match on their employees’ qualifying student loan payments, helping workers tackle two goals at once.

ETFs and managed portfolios as options in your 401(k) Plan BlogPost 56841825937 ETFs and managed portfolios as options in your 401(k) Plan At Betterment, we use exchange-traded funds (ETFs) to build our managed portfolios. Learn about the different types of investment vehicles and how Betterment crafts our investment solutions. Mutual funds have historically dominated the retirement investment landscape. Over time, exchange-traded funds (ETFs) have received more attention due to their cost-effectiveness and flexibility. Here at Betterment, we use them to build our diversified managed ETF portfolios. Learn about the differences between the investment vehicles and the ways investments can be managed. What is active vs. passive (Indexing) investing? People often associate active or passive investing with certain investment vehicles (e.g. ETFs or mutual funds). However, active and passive are really two different management strategies. Characteristics Active Passive (indexing approach) Portfolio managers/team use their investment expertise in an attempt to outperform their benchmark or specified market index. x Portfolio managers/team seeks to match the performance of their benchmark, usually a market index such as the S&P 500. x Usually has relatively high turnover (meaning they will buy/sell securities more frequently) x Usually has low turnover x Tends to have higher management fees x Tends to have lower management fees x Higher tracking error (Greater volatility in returns as they deviate from the index to drive outperformance) x Lower tracking error (Lower volatility in returns as they try to replicate the index they are tracking and invest in the same securities) x Exchange-traded funds are: x x Mutual funds are: x x From the table above, notice how both ETFs AND mutual funds can be actively or passively managed. What’s the difference between mutual funds and ETFs? ETFs and mutual funds do have qualities in common. Both consist of a mix of many different assets, which helps investors easily diversify their portfolios. However, they have a few key differences: Mutual Funds ETFs Both Most are actively managed Tend to have higher fees, sales charges Less transparent, holdings typically disclosed monthly or quarterly Trades once per day, bought and sold directly with the mutual fund provider Mutual funds still remain the dominant investments in 401(k) plans Most are passively managed, but can be active Relatively lower fees Have clear goals and mandates Transparent Liquid, trades throughout the day (like a stock) ETFs are growing quickly Unique product structure with creation/redemption mechanism Easy diversification Easily access a variety of exposures, eg. stocks, bonds, commodities, alternatives, themes, etc. Costs have reduced over time Mutual funds are traditionally known for their active approach. It is a key reason why mutual funds tend to have higher fees and higher expense ratios than ETFs. Costs are also higher in instances where smaller retirement plans do not have access to institutional share classes. However, Index mutual funds, which are passively managed and lower in costs, have continued to become more popular. ETFs, on the other hand, are usually passively managed. More differentiated ETFs however, that are actively managed or use other fundamentals like factors (smart beta), have emerged over the years. Most ETFs are transparent, meaning you can see the underlying holdings daily. Mutual funds either report their holdings monthly or quarterly. ETFs can be traded like stocks whereas mutual funds may only be purchased at the end of each trading day based on a calculated price. ETFs have a unique share creation and redemption mechanism, which provides efficiencies such as reducing trade costs incurred by the fund, allowing tighter tracking to the index. Differences in costs between mutual funds and ETFs Another difference to highlight is costs. Both mutual funds and ETFs have some form of implicit and explicit costs. Here’s a breakdown of the different types: Types of Costs Mutual Funds ETFs Management fee Both include a stated management fee Trading costs N/A May trade at a price slightly more or less than NAV Transaction costs May include sales loads, redemption fees Similar to stocks, may be subject to brokerage commissions Revenue sharing agreements Agreements among 401(k) plan providers and mutual fund companies include: 12(b)-1 fees, which are disclosed in a fund’s expense ratios and are annual distribution or marketing fees Sub Transfer Agent (Sub-TA) fees for maintaining records of a mutual fund’s shareholders Revenue sharing agreements often appear as conflicts of interests. Soft-dollar arrangements These commission arrangements, sometimes called excess commissions, exacerbate the problem of hidden expenses because the mutual fund manager engages a broker-dealer to do more than just execute trades for the fund. These services could include nearly anything—securities research, hardware, or even an accounting firm’s conference hotel costs. These are the different types of costs that can ultimately drive the “all-in” mutual funds fees experience to be different from ETFs. What else didn’t I realize about mutual funds? Conflicts of interest Often, there are conflicts of interest with mutual funds. Some service providers are, at their core, mutual fund companies. And therefore, some investment advisors are incentivized to promote certain funds. This means that the fund family providing 401(k) services and the advisor who sells the plans may have a conflict of interest. Some mutual funds invest in a portfolio of ETFs Target-date funds have evolved to now include ETFs, so it is important to understand the way your TDFs are constructed and that ETFs are also being considered for a traditional mutual fund product like TDFs. Why is it unusual to see ETFs in 401(k)s? The 401(k) market is largely dominated by players who are incentivized to offer certain mutual funds. Plans are often sold through distribution partners, which can include brokers, advisors, recordkeepers or third-party administrators. The fees embedded in mutual funds help offset expenses and facilitate payment of every party involved in the sale. However, it’s challenging for employers and employees because the fees aren’t easy to understand even with the mandated disclosure requirements. Existing technology limitations prevent traditional recordkeeping systems from supporting ETFs. Most 401(k) recordkeeping systems were built decades ago and designed to handle once-per-day trading, not intra-day trading (the way ETFs are traded)—so these systems can’t handle ETFs on the platform (at all). How Betterment manages your investments Betterment combines managed ETF portfolios with personalized, unbiased advice to create an easy solution for today’s retirement savers. At Betterment, we use ETFs as the building blocks for our managed portfolios where you have the ability to choose from a menu of portfolio strategies that are managed over time. To select the ETFs that we use to construct our portfolios, we use our proprietary unbiased investment selection methodology that is based on qualitative and quantitative factors, always serving your employees’ best interest. Many retirement plans use target-date funds because they are often viewed as a one-stop solution. While having specific retirement date funds (2045 Fund, 2050 Fund, etc.) may satisfy most investors, it is important to consider options for those whose circumstances have changed (if someone decides to retire early, for example) and require flexibility. Betterment can tailor our advice to the exact year your employees want to retire. Our retirement advice adapts to your employees’ desired retirement timeline and can be customized for their risk appetite if they want to be more conservative or aggressive. Betterment can also tell your employees if they‘re on or off track, factoring in all of their retirement savings, Social Security, pensions, and more. Employees can also link outside investments, savings accounts, IRAs—even spousal/partner assets—to create a real-time holistic snapshot of their finances. It can make saving for retirement (and any other short- or long-term goals) even easier. At Betterment, we believe in providing investment options and retirement advice that allows for customization and flexibility in a cost-effective way. Interested in bringing a Betterment 401(k) to your organization? Get in touch today at 401k@betterment.com.

How your 401(k) plan can help boost employee financial wellness (and productivity) BlogPost 149639782159 How your 401(k) plan can help boost employee financial wellness (and productivity) Financial stress is hurting productivity. Here’s how you can help change that at your business starting with your 401(k). Not only does financial stress make an individual’s personal life more difficult, it can hurt their employer's bottom line. As business leaders, we are in a position to make a positive impact on our employees’ lives and our business performance. Three different studies, one diagnosis Three national studies, including our own, found that financial stress negatively impacts work performance. PwC found that 60% of full-time employees are stressed about their finances and one in three full-time employees says that money worries have negatively impacted their productivity at work. Morgan Stanley found that 66% of employees agree that financial stress is negatively affecting their work and personal life. Our own study at Betterment at Work found that 46% of workers said that financial anxiety impacts their ability to work all or most of the time. The problem is clear but what do we do about it? The right benefits can help ease the pain When asked to rank potential financial wellness benefits that an employer could offer, employees ranked a 401(k) plan first followed by 401(k) matching contributions. These are some of the additional findings in our 2022 Betterment at Work Financial Wellness Barometer survey. If you offer a 401(k), it may be your core financial benefit but it isn’t the sole remedy. Our study also found that 93% of employees said it was at least somewhat important that their employer provides financial wellness benefits. Also, the demand for these benefits is increasing, with 68% saying financial wellness benefits are more important to them now than they were a year ago. It’s important to look at how you can build financial wellness features around your 401(k) plan to support your employees’ financial lives—and your business’s future. A comprehensive approach to wellness that starts with your 401(k) Knowing the needs of a modern workforce, at Betterment at Work, we’ve built a suite of financial benefits designed to support your employees, starting with your 401(k) plan. We believe that evolving your benefits with the needs of your workforce can help provide a strategic advantage in attracting and retaining talent. At our core is our modern 401(k) platform: Your 401(k) plan should be easy to manage for you and easy to use for your employees. Our technology streamlines this, whether via integrations with common payroll providers or through our intuitive platform that helps employees invest in diversified portfolios of generally low-cost ETFs. Enhancing your 401(k) plan: We’ve built additional benefits that integrate with our 401(k) platform to make managing benefits easier and reduce the financial stress that your employees carry. 529 Education Savings: Including 529s in your benefits package helps employees tackle rising education costs and shows your commitment to their financial health. It’s easy to manage, with 529s integrating into your existing benefits platform for a seamless experience. Financial Coaching: Help employees take better control of their finances with tailored 1:1 guidance and advice. Adding Financial Coaching to your Betterment 401(k) can help build a more confident, productive team. Plus, as a fiduciary, every financial advisor at Betterment is legally responsible to act in your employees' best interest.

How tax credits can make offering a 401(k) affordable BlogPost 149639780948 How tax credits can make offering a 401(k) affordable See how new tax credits under the SECURE 2.0 Act could help with a new 401(k) plan’s implementation costs. After the passing of the SECURE 2.0 Act, CNBC published an article titled, “There may never be a better time to create a retirement plan.” The article largely focused on the increased tax credits smaller businesses can receive under the Act. These tax credits may amount to sizable savings for smaller employers looking to start a 401(k) plan. For that reason, we tend to agree with CNBC: this really may be the best time there has ever been to start a 401(k). What are the SECURE 401(k) tax credits? For businesses with 100 or fewer employees, there are three main tax credits to consider: Startup Tax Credit: Provides businesses with fewer than 100 employees a three-year tax credit for up to 50% of plan start-up costs. Increases the tax credit to up to 100% of the plan start-up costs for employers with 50 or fewer employees. The credit is based on the greater of $500 OR $250 per non-highly compensated employee (NHCE), capped at $5,000. Employer Contribution Credit: Offers a new tax credit to employers with 50 or fewer employees, encouraging direct contributions to employees, as much as $1,000 per participating employee with wages less than $100,000 (indexed annually). The credit covers the first five years of the plan allowing 100% of the employer contribution to be claimed in the first and second tax years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. The credit also applies to employers with 51-100 participants, but the amount of the credit is reduced by 2% per employee over 50 employees earning less than $100,000 per year. Automatic Enrollment Credit: Employers with new or established 401(k) plans that add automatic enrollment can take advantage of a $500 tax credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Sample scenario: Understanding the math To illustrate how tax credits can impact a business, consider the following hypothetical scenario for a business starting a new 401(k) with 25 participating NHCEs with wages less than $100,000 and a $3,000 average annual employer matching contribution per employee. Startup Tax Credit Employer Contribution Credit Automatic Enrollment Credit Total Credits Year 1 $5,000 ($250 per NHCE up to $5,000) $25,000 (100% or $1,000 max per employee) $500 ($500 per year) $30,500 Year 2 $5,000 ($250 per NHCE up to $5,000) $25,000 (100% or $1,000 max per employee) $500 ($500 per year) $30,500 Year 3 $5,000 ($250 per NHCE up to $5,000) $25,000 (75% or $1,000 max per employee) $500 ($500 per year) $30,500 Year 4 $0 (No credit) $25,000 (50% or $1,000 max per employee) $0 (No credit) $25,000 Year 5 $0 (No credit) $18,750 (25% or $1,000 max per employee) $0 (No credit) $18,750 Note: All information provided above is hypothetical for educational purposes only. For employers using the employer contribution tax credit, a tax deduction won't typically apply. Please review scenarios unique to your plan with your accountant to decide which tax credits and deductions are best for you. Three steps to make sure you get your tax credits Know the provisions: You’re already reading this, so you’re headed in the right direction. If you are considering starting a 401(k) plan, be sure to research both the tax credit and other SECURE 2.0 provisions. Know your plan: Whether you are starting a new plan or adding features to an established plan, to make the most of SECURE 2.0, you’ll need to review how your plan interacts with the law’s provisions and understand if your business is eligible. Talk to your tax adviser: Once you have a firm grasp of SECURE 2.0 provisions and how they impact your plan, reach out to your accountant and/or tax professional to plan for potential tax credits. They can walk you through your business’s situation and help you complete Form 8881.

How to implement 401(k) auto-escalation BlogPost 149639779884 How to implement 401(k) auto-escalation Historically, employers have had the choice to add automatic escalation to their 401(k) plans, but now SECURE 2.0 is requiring it to help people save. If you are faced with implementing automatic escalation, we've got you covered with advice on how to approach the change, and most importantly, how to communicate it to your employees. How SECURE 2.0 approaches automatic escalation Under SECURE 2.0, in addition to requiring automatic enrollment at a default rate between 3% and 10%, 401(k) plans are required to automatically escalate contributions at 1% per year to at least 10% (but no more than 15%). As always, employees can change their contribution rate or opt out of the plan at any time. Automatic escalation is a requirement for plans with an initial effective date on or after December 29, 2022. Businesses in existence for less than three years, as well as those with 10 or fewer employees, are exempt. The provision itself is effective on January 1, 2025. Consider this when setting your maximum escalation rate When you implement automatic escalation, you’ll need to decide your maximum rate, from 10% up to 15%. We like to think about automatic enrollment and automatic escalation together. Consider your default automatic enrollment rate when determining the limit to your escalation rate. For example, if you have a default enrollment rate of 8%, then a 15% escalation maximum rate might make sense, giving employees more room to grow their savings. Whereas a plan with a 3% default enrollment rate may want to consider a lower maximum escalation rate. Also, consider your employer match, if you offer one. Experts recommend saving 10-15% of income each year for retirement, and this includes the employer match. For example, if you are matching 5% and your automatic enrollment default rate is 8%, any employee who does not change their default rate is saving 13% of their income. Every company is different. It’s important to review different potential scenarios and keep in mind what your employees will respond best to when setting these default enrollment and escalation rates. Employee communications When it comes time to implement automatic escalation, how you communicate the change, along with any other plan changes, to your employees is incredibly important. If an employee doesn’t understand why the change is happening, they may fear it or be surprised to see an increased contribution if they were not expecting it. Instead, take the time to explain the purpose of automatic escalation. Consider this sample language when implementing the change with your employees: Recently, a new law was implemented called the SECURE 2.0 Act. Its purpose is to help Americans save more for retirement. Part of the Act that we’ll be adopting is called automatic escalation. Automatic escalation increases an employee’s contribution rate to their 401(k) plan by 1% each year until the contribution reaches [INSERT YOUR PERCENTAGE]. It’s designed to help everyone participating in our 401(k) to build retirement savings. Experts recommend saving 10-15% of your annual income for retirement and automatic escalation helps get closer to that amount without additional effort. But don’t worry: If you are not comfortable with the escalation, you have the option to change your contribution rate or opt out of the plan at any time. We’re excited about this change and are proud to continue to evolve our 401(k) program to make saving easier. Feel free to edit this language to fit your organization’s needs, including any mandatory communications. What’s most important is that your employees see automatic escalation as a positive change.

How 401(k) automatic enrollment can benefit your employees and your business BlogPost 56841935654 How 401(k) automatic enrollment can benefit your employees and your business SECURE 2.0 mandates automatic enrollment for newer plans. Let’s look at the benefits for your business and your employees. Let’s take a look at how the new default for 401(k) plan enrollment can be a win-win for your business and your employees. SECURE 2.0 makes automatic enrollment the default Under the SECURE 2.0 Act, automatic enrollment is a requirement for plans with an initial effective date on or after December 29, 2022. The provision itself is effective on January 1, 2025. Additionally, businesses in existence for less than three years, as well as those with 10 or fewer employees, are exempt. The provision: Requires plans to automatically enroll employees at a default rate between 3% and 10%. Must offer participants who are automatically enrolled the ability to request a withdrawal of their contributions within 90 days of their first contribution. As before, must allow employees to change their contribution rate or opt out of the plan at any time. Even though the Act doesn’t require implementation until January 1, 2025, you may want to get ahead of the curve and implement automatic enrollment now. It can save you operational stress while showing your employees that you care about their savings. A win for your business Automatic enrollment requires some upfront implementation, but there are ongoing benefits to your business as a result. Increased plan participation: According to the IRS, automatic enrollment can increase employee participation, which may result in various positive outcomes. More plan participation could result in increased tax deductions if you offer employer-matching contributions. Higher participation may increase the likelihood of your plan passing nondiscrimination testing since, by default, automatic enrollment does not favor specific employees. Help attract and retain talent: A 401(k) plan with high participation could prove to be a crucial aspect in building a strong workforce. Our research has found that about 50% of employees would be enticed to leave their jobs for a 401(k) plan at another employer. You may be able to retain more employees if they see the value of your benefits package, specifically your 401(k)—and automatic enrollment makes participating easier for everyone. Automatic enrollment tax credit: Adding automatic enrollment, even if your plan isn’t mandated to, can provide you with a tax credit. Employers that add automatic enrollment to a new or existing plan can take advantage of a $500 tax credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Embracing automatic enrollment can yield positive results for your business, but as we’ll see next, the results may be even more meaningful for the financial lives of your employees. A win for your employees Simply put, automatic enrollment makes it easier for employees to save for retirement. That’s the whole point of the SECURE 2.0 Act. And the data speaks for itself: Recent industry data reported by BenefitsPRO found that plans with automatic enrollment saw a 93% participation rate compared with a participation rate of 70% for plans with voluntary enrollment. The National Association of Plan Advisors reported that automatic enrollment helps close the retirement savings gap for communities of color, showing far greater active participation rates within minority groups when employees are automatically enrolled. By changing the default to automatically enroll staff, you can expect more employees will save for retirement. That can be life-changing for many who may never otherwise have started. How does automatic enrollment under SECURE 2.0 actually work? Beginning in 2025, the SECURE 2.0 Act makes Eligible Automatic Contribution Arrangement (EACA) the default for all 401(k)s created December 29, 2022 or later, again with a few exceptions. That means for those plans, employees’ deferrals must be set between 3% and 10%. Newly auto-enrolled participants must also have a 90-day window to request their funds back. You can also consider a Qualified Automatic Contribution Arrangement (QACA) by way of a Safe Harbor 401(k) plan. That means you’ve already committed to, among other things, a specific threshold of employer contributions. Beginning in 2025, here are the options for newly-created plans: Beginning in 2025, for all plans with effective dates of December 29, 2022 or later Eligible Automatic Contribution Arrangement (EACA) Qualified Automatic Contribution Arrangement (QACA) Employees enrolled at preset contribution rate between 3% and 10% ✓ ✓ Employees can opt out or change contribution rate ✓ ✓ Employees can request refunds of deferrals within first 90 days ✓ ✓ Requires employer contributions (i.e., Safe Harbor) and accelerated vesting schedule ✓

How to decide if you should offer a 401(k) match on student loan payments BlogPost 148999934535 How to decide if you should offer a 401(k) match on student loan payments SECURE 2.0 gives 401(k) plan sponsors the option to offer matching contributions on qualified student loan payments. Our three-step process balances the needs of your people, your budget, and your operations to help you as you decide if offering a 401(k) match on student loan payments is right for your company. Step 1: Assess your people’s needs When thinking about your team, it’s important to consider your current employees and future hires. The workforce is evolving and the needs of your employees may evolve as you hire. Your current employee’s needs: You’ll want to review your workforce’s current participation in your 401(k) plan. If you see that enrollment and savings are high, you may not have a need. On the other hand, if you see larger portions of younger graduates not enrolled, student loan matching may be a good fit. If feasible, talk with your employees to better understand their needs. Remember, it’s not always younger employees who are paying student loans. (Tip: If you offer other student loan benefits, like direct reimbursements, look at who is using those benefits and whether or not those employees are also contributing to their 401(k). A 401(k) match on student loan payments may be a good fit if you see a savings problem.) Your future employee’s needs: Your workforce in a few years might look different than your workforce today. Consider the types of employees you want to attract over the coming years. For recent grads, especially when hiring for key roles, this new type of 401(k) match could be a differentiating factor when deciding where to accept a job. Knowing your employee’s needs is crucial to engagement and retention, but next, you’ll need to know how much that will cost. Step 2: Review your budget There are two cost aspects to consider when budgeting for offering a 401(k) match on student loan payments. Matching contributions: You’ll need to review the cost of matching contributions, considering employees whom you previously did not provide with matching contributions. Your goal is to calculate the incremental cost. You may already be budgeting for these potential contributions if you include them in your salary match budget. But it’s important to estimate the actual increase you could see year-over-year in matching contributions. Operational costs: Depending on your 401(k) provider, you may have technology-related costs, although they should be minimal in most cases. Also, consider “soft costs” like employee time used to manage operating processes. With the right technology, these operational costs can be relatively low. The goal of reviewing your budget is to walk away with a confident estimate of the total annual costs of offering the benefit. Knowing that, you can decide whether the cost makes sense. Ultimately, understanding the ROI of the decision is fundamental for your business. That’s why we recommend taking it a step further and calculating the ROI of offering a 401(k) match on student loan payments. Step 3: Understand your operational needs Anything new in business usually comes with process changes. And that’s true if you adopt a 401(k) match on student loan payments. When analyzing how to efficiently manage this new plan feature, consider the following: Automation via technology: Work with your plan’s tech platform to understand their capabilities. Ideally, most of the process will be streamlined for you and your employees. Human intervention: There will most likely be some manual intervention, such as approving qualified student loan payments in order to process the matching contributions. Understanding who on your team will complete these tasks can help create an efficient process and avoid operational issues post-implementation. We recommend mapping out a process as you initially launch a 401(k) match on student loan payments. You’ll be able to train your staff, explain the feature to employees, and make adjustments as needed.

The ROI potential of offering a 401(k) match on student loan payments BlogPost 148809967874 The ROI potential of offering a 401(k) match on student loan payments Over 20% of employees would consider leaving their jobs for a 401(k) match on their student loan payments. But can you afford to offer the benefit? In a 2022 Betterment survey of over 1,000 employees, we found that student loans are an important issue for many employees. 64% of employees said student loans have had an impact on their ability to save for retirement 21% of employees reported that a 401(k) match on student loan payments would entice them to leave their jobs. Generally, we believe that the more employees who participate in a 401(k) program, the less turnover a company will see. Data from payroll software provider Gusto backs up that belief. They report that employees with a 401(k) plan are 32% less likely to quit in any given month. We see a large opportunity for savvy employers to build stronger 401(k) programs to retain their employees. Adding benefits like a 401(k) match on student loan payments could be a difference maker. But how does an employer know if the costs of offering a 401(k) match on student loan payments is worth it? Let’s dive in and find out. First, some SECURE 2.0 fast facts Before we look at the potential ROI of this new match, let’s cover some fast facts about the provision included in the SECURE 2.0 Act. Effective date: January 1, 2024 401(k) student loan matching: Qualified student loan repayments could count as elective deferrals and qualify for 401(k) matching contributions from their employer. Employees who take advantage of this would be compliance tested separately. How it works: At a high level, there are three things to know. Employees are required to certify that they made loan payments. They do not have to show proof of payments if the employer doesn’t require it. An employer can rely on employee certification alone. Matching contributions must vest on the same schedule as salary deferral matching contributions. Employers can make matching contributions less frequently than salary matches, although contributions must be made at least once a year. Understanding the costs of a 401(k) match on student loan payments First, let's take a wider view of cost. Replacing a single employee may not directly show up on your company’s financial statements, but it's expensive, no matter the company, especially if it happens more than once. One report by SHRM cites employee replacement costs as being six to nine months of an employee’s salary. Another report by Gallup cites one-half to two times the employee's annual salary. Employee replacement costs to consider include: Hard costs: These are straightforward to quantify and include hiring costs like HR staff, technology, and job postings. Once an employee is hired there are also hard costs like onboarding training, new equipment, and processing paperwork. Soft costs: These can be murky to measure but impact every hiring decision. These include the time spent by employees who help with the hiring process, from interviews to position description reviews and onboarding planning. As a new employee joins the company, these costs continue with additional onboarding meetings and lowered productivity as the new team member gets up to speed. Now that you’ve considered the real costs of recruiting and onboarding a new employee (vs. retaining a good team member), we can talk about the cost of this new 401(k) match. Provision implementation costs may include: Participant Fee: If you are using a modern 401(k) tech platform, these costs are minimal often ranging from $5 to $10 per month. You can also consider passing these small costs on to the employee. Nondiscrimination testing: Depending on your 401(k) provider, an increase in participants may result in increases in fees for additional compliance testing. (Note: At Betterment at Work, there are zero additional compliance testing fees if your plan has an increase in participants.) Matching contribution costs: If more employees use the 401(k), contributions may increase, although some companies may have already budgeted for a portion of these in their overall 401(k) match budget. Administrative costs: Tracking self-certifications requires implementing a process. This can be reduced if your company leverages technology to streamline this workflow. There are costs to administering the 401(k) student loan match provision. But compared to losing a talented employee, provision costs may be far less. Think of the match benefit as an investment in talent. Calculating ROI of a 401(k) match on student loan payments It’s important to note that when calculating ROI for your company, you should take into consideration each employee’s unique value and the costs associated with replacing their role. To help illustrate, consider the following hypothetical example of an employee making $75,000 at a company offering a 6% 401(k) match. Estimated replacement costs: $37,500 to $150,000 one-time cost An employee making $75,000 could cost between $37,500 and $150,000 to replace using the benchmark of one-half to two times the employee's annual salary. Estimated 401(k) student loan match costs: $4,620 to $5,000 per year If that employee uses the 401(k) student loan matching program with a 6% match, the employer would pay $4,500 in matching contributions. We’ll add on $120 per year in estimated monthly participant plan fees plus potential administrative costs estimated at a few hundred dollars to process and test this employee’s student loan match. We see that with a full employer match plus administrative fees, we are still not even close to the costs associated with needing to replace the employee. It would take over seven years in 401(k) matching costs to reach the low-end cost of replacing the employee. That’s without considering the value a satisfied, tenured employee brings in workplace production, institutional knowledge, cultural contributions, and more.

How to use SECURE 2.0 to enhance your total rewards program BlogPost 144752082072 How to use SECURE 2.0 to enhance your total rewards program Learn how the SECURE 2.0 Act can have a positive impact on your total rewards program. Plus, follow our checklist for a smooth implementation. Leading HR teams take a strategic approach to ensuring their employees see and feel the value of their total rewards programs. In a competitive business environment, total rewards—the monetary and non-monetary benefits you offer—can be the difference maker for attracting and retaining top talent. Optimize how you promote your total rewards program The SECURE 2.0 Act gives employers an opportunity to create even stronger 401(k) and retirement benefit offerings. Some employers may hesitate at the opportunity, fearing operational demands or added costs. But strategic leaders can capitalize on the new law. We encourage companies to view SECURE 2.0 as a chance to implement new, modern 401(k) features and to highlight the value of their 401(k) benefit as part of their total rewards program. Benefits that make a difference Although many SECURE 2.0 provisions are mandatory, the Act gives employers some implementation flexibility along with some optional provisions. Review provisions to see how they could be leveraged to increase the value of your 401(k) program. A sample of the provisions that you may find add value to your total rewards program include: 401(k) match on student loan payments (Optional): Consider your current and ideal future employees. If it’s common for them to have student loan debt, this provision can help them kickstart their retirement savings when they otherwise may not have been able to save. Automatic enrollment (Required for plans established after 12/29/22): Data has shown that 401(k) participation—and employee savings—dramatically increases when you automatically enroll employees, rather than requiring them to opt in. Plus, because automatic enrollment makes opening a 401(k) the default, the enrollment process can be streamlined for all eligible employees. Automatic escalation (Required for plans established after 12/29/22): Adding to automatic enrollment is the automatic escalation provision, requiring employers to increase employee contributions by 1% per year to at least 10% (but no more than 15%). This escalation will help employees get closer to the 10% to 15% mark that many financial experts recommend as the desired retirement savings rate. Your company can use this mandatory provision as an opportunity to provide financial education to employees around adequate retirement savings. Long-term, part-time employee eligibility (Required): This is a mandatory provision that could have a large impact depending on your employee base. If you find that you have a large portion of employees that fit into this group, you can clearly communicate the benefit these employees will receive. Communication is the key to success Communication drives the success of the 401(k) plan changes you make due to SECURE 2.0. It’s a big opportunity to engage with your employees. Rather than simply rolling out operational changes and sending mandatory paperwork to employees, take the time to explain how these changes are designed to help employees and their families. Think of this not as an operational change to your 401(k), but rather as a strategic change to your total rewards program. Pro tip: As you implement provisions from the SECURE 2.0 Act, it’s also an opportunity for you to re-educate your workforce on all benefits you provide. Take the time to develop an internal communications plan for your total rewards program. Think holistically and show employees the total value of their benefits and compensation. Checklist: Leveraging SECURE 2.0 in your total rewards program As you implement SECURE 2.0 provisions, build out a checklist to make sure you consider all relevant details. Here’s a list to get you started. Talk with your 401(k) plan provider: Understand how they are operationalizing each provision and what that means for your processes. Determine which optional provisions you will implement: Research each provision, consider surveying employees to measure demand, and conduct a budget analysis. Determine how you will implement mandatory provisions: Work with your management team to decide how to implement mandatory provisions such as automatic enrollment and escalation. Provide pre-launch communication to employees: Explain that positive changes are coming and what to expect. Distribute launch communication to employees: Hold meetings and distribute materials explaining new benefits including their value, timing of changes, and how to access benefits. Consider using a formal “total rewards statement” to show the value to employees. Communicate to prospective employees: Update total rewards listings on your website, job descriptions, and other public-facing locations to attract your ideal employees. Measure adoption and value: Working with your 401(k) provider, measure the adoption of your 401(k) features and use the data to communicate value to stakeholders including employees, management, and your board of directors. For a full overview of what to consider when building out a 401(k) plan, check out our Plan Design article. Our modern 401(k) platform meets your modern total rewards program At Betterment at Work, we’ve built a modern 401(k) platform with an all-in-one admin dashboard and payroll integrations to save time managing your plan. Not only are we a leading provider of modern financial benefits, but our team of experts is by your side providing topical educational content. We also help you take your 401(k) plan a step further with financial wellness features. Support your employees with 1:1 Financial Coaching, 529 Plans, and our Student Loan Management platform, including the option to easily provide your employees 401(k) matches on qualified student loan payments.

At the top of HR lists in 2024: 401(k) match on student loan payments BlogPost 144594291885 At the top of HR lists in 2024: 401(k) match on student loan payments With the SECURE 2.0 Act here, employers can offer a 401(k) match on student loan payments. And the need may be larger than you think. “It’s at the top of our list.” That’s what Kraft-Heinz’s associate director of pensions said in an interview with Pensions&Investments. He was referring to a 401(k) match on student loan payments, one of the 90-plus provisions in the SECURE 2.0 Act. This optional provision allows for qualified student loan repayments to count as elective deferrals and qualify for 401(k) matching contributions from an employer. When an employer offers to match student loan contributions into a 401(k), employees can pay down their loans while also taking advantage of their 401(k) match. A proven benefit Prior to SECURE 2.0, 401(k) matching your employees’ student loan payments was not an option, but Abbot Laboratories saw a need (and an employee retention tool). In 2018, the IRS approved a request from Abbot to offer this new type of match. One year after launching the program, more than 1,000 Abbott employees had signed up, ranging in age from 20 to 60, proving there was demand for the benefit. Today, the provision in the SECURE 2.0 Act makes it possible for nearly all employers to offer a similar style benefit. Is the need greater than we think? It’s well known that Millennial and Gen-Z employees are often overburdened by student debt, but recent data shows that the need for a 401(k) match on student loan payments may be even greater than we think. A 2023 report by the National Institute on Retirement Security found that 13% of Gen-X employees (people born from 1965 to 1980) still have student loans, with an average balance of $40,000. The report went on to say, “...those Gen-Xers with student loan debt have lower net worths and are more likely to fall short of their retirement savings targets, at least in part due to student loan debt.” Knowing what your employees need As generations age, it will be important for each employer to understand the changing demographics, expectations, and needs of their employee base. If you are trying to attract a college-educated workforce, having relevant benefits in place will make hiring and retention more successful. Also, keeping track of the benefits offered by workforce competitors will allow for more strategic creation of benefits packages. Our solution for your need At Betterment at Work, our modern 401(k) platform helps streamline your administrative processes. We’ve designed offering a 401(k) match on student loan payments to be seamless and simple for you and your employees. Your employees simply record their qualified loan payments, and you can approve the match using an easy-to-use dashboard.

Don't have a 401(k) plan? Why now may be the best time to offer one BlogPost 142966270310 Don't have a 401(k) plan? Why now may be the best time to offer one Learn how the SECURE 2.0 Act can make it easier for your business to offer a 401(k) plan and attract top talent. A 401(k) plan. For many, that’s a boring topic. But for business owners and leaders—especially if you don’t offer one—a modern 401(k) plan could be your secret to building a strong, loyal workforce. Let’s dive in to see how a 401(k) could help you overcome hiring and retention challenges, and learn why now might be the time to start offering one. Your challenge: Attracting and retaining top talent People are leaving their jobs at record rates: In 2022, over 50 million people left their jobs according to FED data, setting a record, besting 2021’s nearly 48 million. People are leaving their jobs for various reasons: We surveyed 1,000 employees and found that burnout or work/life balance topped the list at 31% but 26% left because they found a job with better benefits. We also found that 51% said that a 401(k) from a prospective employer would entice them to leave their job. That number increased to 57% when a 401(k) employer match was added. The struggle to attract (and retain) top talent is real. But you have an opportunity. Your opportunity: Leveraging the SECURE 2.0 Act The SECURE 2.0 Act is packed full of 90-plus provisions. We've highlighted a few key provisions that make it easier to offer a 401(k) that benefits you and your employees. Some could reduce (or even pay for) your plan's implementation costs. Others help you capture the long-term employee retention benefit that a 401(k) provides. Please note that this is not intended as legal guidance or as a comprehensive resource on all SECURE 2.0 provisions. The information provided below is for education purposes only and is subject to change. Tax credits for small employer plans Quick facts: Effective date: December 29, 2022 Startup tax credit: Tax credits are available to offset the costs of a new plan for up to three years. According to the legislation, plan sponsors with 100 employees and fewer can claim up to $5,000 in their first year. Employer contribution credit: This clause allows eligible businesses starting a new plan after 12/29/22 to claim back costs associated with making employer contributions toward employees’ 401(k)s. If your company adopts employer contributions as a part of your plan design, you may be able to claim these costs for up to five years. Automatic enrollment credit: Employers that establish a new 401(k) plan after 12/29/22 with automatic enrollment can take advantage of this credit. Employers can claim this tax benefit for up to three tax years if they have 100 or fewer eligible employees. Your opportunity: Reduced plan cost: A tax credit reduces the amount of taxes you may owe. For smaller employers with lower plan costs, the tax credit may actually cover all 401(k) plan implementation costs in the first three years. Regardless, the SECURE 2.0 Act has made implementing a 401(k) more affordable for many businesses. Employers can offer a 401(k) match on student loans Quick facts: Effective date: January 1, 2024 401(k) student loan matching: Qualified student loan repayments could count as elective deferrals and qualify for 401(k) matching contributions from their employer. Employees who take advantage of this would be compliance tested separately. Your opportunity: Employee retention: If you have employees with student loans, often early in their careers, offering to match their loan payments with 401(k) contributions can help them jumpstart saving for retirement. This becomes an attractive benefit that can help retain talent. Required automatic enrollment and escalation Quick facts: Effective date: January 1, 2025 Auto-enrollment: Requires plans established after 12/29/22 to automatically enroll employees at a default rate between 3% and 10%. Auto-escalation: Requires plans to automatically increase contributions by 1% per year to at least 10% (but no more than 15%). Exemptions: Small businesses with 10 or fewer employees and businesses newer than three years old are exempt. Opt-out: Employees can change their contribution rate or opt out of the plan at any time. Plans must offer participants who are automatically enrolled the ability to request a withdrawal of their contributions within 90 days of their first contribution. Your opportunity: Employee retention and financial wellness: In a summary of the SECURE 2.0 Act, the United States Senate Committee on Finance states that auto-enrollment “significantly increases participation” in 401(k) plans. As an employer, the sooner your employees see value in their benefits, the sooner they may see the value in working for your business. Plus, saving earlier in life sets up employees for long-term financial health—and your business can play an important role in that process. Your solution: A modern 401(k) platform Because of the SECURE 2.0 Act, now may be the best time in recent history for many businesses to start offering a 401(k). But simply offering a 401(k) isn’t enough. You’ll want to do your research to make sure your plan has the features and technology to make your life, and your employees’ lives, easier. At Betterment at Work, we’ve designed a modern 401(k) platform for you and your employees: For you: We’ve streamlined onboarding, payroll integration, and detailed reporting—all accessible on one easy-to-use dashboard. Plus, we’re here to help make meeting SECURE 2.0 Act requirements simple. Save time on managing 401(k) student loan matches, auto-enroll, and auto-escalation through our simplified admin tools. For your employees: Employees can link outside accounts, get retirement advice, and take advantage of automated tax-smart strategies. Plus, our 401(k) match on student loan payments helps employees pay off their debt while gaining a 401(k) contribution if you choose to match their loan payments. For a full overview of what to consider when building out a 401(k) plan, check out our Plan Design article.

Does your current 401(k) plan help you leverage the SECURE 2.0 Act? BlogPost 142965263465 Does your current 401(k) plan help you leverage the SECURE 2.0 Act? Learn the two strategic areas that can give your 401(k) a competitive advantage as you navigate SECURE 2.0. Plus, get resources to help you along the way. With over 90 provisions, the SECURE 2.0 Act has created one of the largest opportunities in history for employers to support their employee’s financial wellness. But the Act is complex and it’s a lot to manage. This article covers what you should expect from your 401(k) partner as you navigate the Act, along with how to help your internal leadership team understand the Act’s implications. With a carefully planned strategy, you can get the most out of SECURE 2.0. Your opportunity: Leveraging the SECURE 2.0 Act The Act positions savvy HR and business leaders to create highly attractive 401(k) programs. Based on our research, 51% of employees would consider leaving their job for a 401(k), and if you add on employer matching contributions, the figure jumps to 57%. Some of the major SECURE 2.0 provisions that your 401(k) program needs to consider include: Optional 401(k) match on student loan payments Required auto-enrollment and auto-escalation Period of service requirements for long-term, part-time workers reduced to two years But how do you go about making the most of these provisions, with the goal of increasing the ROI on your 401(k) plan? Beyond understanding the provisions, we recommend focusing on two strategic areas to help give you and your executive team a competitive advantage: Technology Insights Here’s what you need to know to get the most from your 401(k) plan. While the information provided about SECURE 2.0 is accurate based on Betterment’s current understanding and analysis, the details described in Betterment’s content are subject to change based on additional regulatory guidance. Betterment content should not be considered legal or tax advice. Technology = Automation + Integration With SECURE 2.0, now is a good time to review if your 401(k) technology, including your recordkeeper and internal processes, are equipped to help you implement the new provisions. The Act is designed to help people save for retirement, but if your 401(k) platform isn’t built on modern technology, you may struggle to incorporate the provisions efficiently. You could be stuck with hours of costly manual work. Your 401(k) technology partner should be able to: Automate: You shouldn’t be manually updating tasks like auto-enroll and auto-escalation. If you choose to offer matching contributions on student loan payments, make sure your platform has the technology to process those transactions, as well. Integrate: Data management is only becoming more important in implementing the new provisions. You’ll want to make sure you have integrations with your payroll provider that allow you to move the right data between systems. See if you can integrate data like hours worked to allow for easier implementation of provisions like plan participation by long-term, part-time workers. Also, as provisions like the mandatory Roth catch-up contribution (which has been delayed until 2026) go live, your 401(k) platform should facilitate processing the right data to help stay in compliance and reduce manual work. Insights = Facts + Guidance SECURE 2.0 leaves you facing a myriad of information, and you need expert insights. It’s not enough to simply know the facts. You—and your internal stakeholders—need the right insights to make decisions that will help retain employees and generate a positive ROI for your business. Your 401(k) partner should be providing you with: Updates on SECURE 2.0 facts: The SECURE 2.0 provisions are important to understand so you know how your plan will be impacted—especially as they evolve with guidance from the government. Guidance beyond the facts: To create value with your 401(k), your plan partner should help you think through which optional provisions make sense to implement and how to get the most out of implementing mandatory provisions. For example, how to determine if 401(k) matching contributions on student loan payments are right for your business or how to set your auto-enrollment and auto-escalation levels. Just as important, look for a partner who can help you plan and send communications to your employees so they understand how they can get the most out of your plan. Setting your leadership team up for SECURE 2.0 success As you analyze your current 401(k) plan and its abilities to leverage the SECURE 2.0 Act, be sure to consider the perspectives of your organization’s leadership team or 401(k) committee. They will most likely want to understand how your current plan provider will help implement plan changes. Be prepared to answer the following questions for each leadership role. This is not an exhaustive list of questions, and roles may be slightly different at your company, but it should help you get into the mindset of each stakeholder. CEO / Board of Directors: What are the overall costs and/or ROI of implementing SECURE 2.0 provisions? What is the implementation plan to successfully roll out the changes? Is the 401(k) plan competitive within the industry? Chief Financial Officer / Chief Operating Officer: How will adopting SECURE 2.0 provisions impact plan administration efficiency and cost? Who is responsible for administering provisions and processes? Chief Risk / Compliance Officer: Are provision implementation deadlines being met? How does adopting these provisions impact 401(k) nondiscrimination testing? Are policies, procedures, and plan amendments being updated as needed? Chief Human Resources Officer: What is the best employee communications approach to implementing SECURE 2.0 provisions? Are current HR vendor integrations, like payroll, sufficient to implement SECURE 2.0 efficiently? Do the provisions have implications on the 401(k) plan’s role within the organization’s total rewards program? Your 401(k) plan provider should be a resource to help answer these questions as you implement SECURE 2.0 provisions. We have resources to help you leverage SECURE 2.0 Our tech is built so you can run a modern 401(k) program. Our platform helps streamline processes like: Automation: Enabling auto-enrollment and auto-escalation customized to your plan. Student Loan Management: A platform for you and your employees, including the ability to process 401(k) matches to student loan payments. Payroll Integrations: Integrating with payroll and benefits providers to make sure your data gets where it needs to go, to help reduce manual processes as you implement SECURE 2.0. Our 401(k) content provides insights to help you leverage SECURE 2.0. Our team of experts has created resources to help you increase the ROI on your 401(k) program. Free Email Course: We offer a free, six-month email series called “Beyond the Facts: SECURE 2.0” that guides you through some of the most important SECURE 2.0 decisions business leaders need to make, from implementing provisions to communicating with your employees. SECURE 2.0 Resource Site: Plus, we have a content library designed to brief you on the most important aspects of SECURE 2.0 so you can stay in the know and build a 401(k) that fits into your total rewards program.

401(k) Plan Forfeitures BlogPost 133386307606 401(k) Plan Forfeitures What are plan forfeiture assets and what they mean for plan sponsors. What is a plan forfeiture? When a 401(k) plan includes vesting requirements on employer contributions, any portion of an employee's balance that has not fully vested undergoes a process known as a plan forfeiture when that employee leaves the company. The unvested portion of their balance is reclaimed by the plan. These forfeited amounts are typically retained within the plan until they are put to use. What needs to be done with these assets? The proper handling of assets is essential. These assets can be used towards covering administrative costs or to cover employer contributions. As a fundamental rule-of-thumb, it's crucial to utilize forfeitures without delay, avoiding their retention beyond the plan year in which they originated. The IRS provides clear directives in this regard: Unallocated forfeitures within an account should not persist beyond the conclusion of the plan year in which they materialized. Forfeited amounts should not be carried over into subsequent plan years. In cases where forfeitures are utilized to offset plan expenses or employer contributions, there must exist plan language and administrative protocols within the plan document. These ensure that forfeitures are promptly utilized in the year they arose or, if suitable, in the subsequent plan year. The 401(k) plan document should explicitly define the course of action for managing forfeiture assets within a given plan. Plans operating under the Betterment at Work platform often incorporate a provision that enables Betterment to allocate forfeiture funds toward upcoming payrolls. What happens if these assets are not properly managed? Not adhering to the specified timing rules for using forfeitures could lead to a problem with plan qualification. This is usually known as an operational failure as the plan rules are not being followed. If the timely utilization of plan forfeitures was not met, remedies can be pursued through the IRS Employee Plans Compliance Resolution System (EPCRS). If the error is minor or is rectified by the end of the second plan year after its occurrence, it can often be resolved through self-correction (SCP) without involving the IRS. However, if the issue is more substantial, it would require action by formally submitting a request to the IRS under the Voluntary Correction Program (VCP). To ensure proper handling, plan sponsors must align their plan documents with timely forfeiture usage guidelines and establish a procedure to ensure their appropriate application. Betterment has you covered. When you use Betterment at Work to administer your organization’s 401(k) plan, our team will automatically handle the forfeiture process (and keep you in the loop as the plan’s fiduciary).

Meeting Your 401(k) Fiduciary Responsibilities BlogPost 56844814753 Meeting Your 401(k) Fiduciary Responsibilities To help your business avoid any pitfalls, this guide outlines your 401(k) fiduciary responsibilities. If your company has or is considering starting a 401(k) plan, you’ve probably heard the term “fiduciary.” But what does being a fiduciary mean to you as a 401(k) plan sponsor? Simply put, it means that you’re obligated to act in the best interests of your 401(k) plan, its participants and beneficiaries. It’s serious business. If fiduciary responsibilities aren’t managed properly, your business could face legal and financial ramifications. To help you avoid any pitfalls, this guide outlines ways to understand your 401(k) fiduciary responsibilities. A brief history of the 401(k) plan and fiduciary duties When Congress passed the Revenue Act of 1978, it included the little-known provision that eventually led to the 401(k) plan. The Employee Retirement Income Security Act of 1974, referred to as ERISA, is a companion federal law that contains rules designed to protect employee savings by requiring individuals and entities that manage a retirement plan, referred to as “fiduciaries,” to follow strict standards of conduct. Among other responsibilities, fiduciaries must always act with care and prudence and not engage in any conflicts of interest with regard to plan assets. When you adopt a 401(k) plan for your employees as a plan sponsor, you become an ERISA fiduciary. And in exchange for helping employees build retirement savings, you and your employees receive special tax benefits, as outlined in the Internal Revenue Code. The IRS oversees the tax rules, and the Department of Labor (DOL) provides guidance on ERISA fiduciary requirements and enforcement. As you can imagine, following these rules can sometimes feel like navigating a maze. But the good news is that an experienced 401(k) provider like Betterment can help you understand your fiduciary duties, and may even shoulder some of the responsibility for you as we’ll explain below. Key fiduciary responsibilities No matter the size of your company or 401(k) plan, every plan sponsor has fiduciary duties, broadly categorized as follows: You are considered the “named fiduciary” with overall responsibility for the plan, including selecting and monitoring plan investments. You are also considered the “plan administrator” with fiduciary authority and discretion over how the plan is operated. As a fiduciary, you must follow the high standards of conduct required by ERISA when managing your plan’s investments and when making decisions about plan operations. There are five cornerstone rules you must follow: Act in employees’ best interests—Every decision you make about your plan must be solely based on what is best for your participants and their beneficiaries. Act prudently—Prudence requires that you be knowledgeable about retirement plan investments and administration. If you do not have the expertise to handle all of these responsibilities, you will need to engage the services of those who do, such as investment managers or recordkeepers. Diversify plan investments—You must diversify investments to help reduce the risk of large losses to plan assets. Follow the plan documents—You must follow the terms of the plan document when operating your plan (unless they are inconsistent with ERISA). Pay only reasonable plan fees—Fees from plan assets must be reasonable and for services that are necessary for your plan. Detailed DOL rules outline the steps you must take to fulfill this fiduciary responsibility, which include reviewing fees on an ongoing basis, collecting and evaluating fee disclosures for investments and service provider’s revenue, and comparing (or benchmarking) fees to help ensure they are reasonable. You don’t have to pay a lot to get a quality 401(k) plan Fees can really chip away at your participants’ account balances (and have a detrimental impact on their futures). So take care to help ensure that the services you’re paying for are necessary for the plan and that the fees paid from plan assets are reasonable. To determine what’s reasonable you may need to benchmark the fees against those of other similar retirement plans. And if you have an existing 401(k) plan, it’s important to take note of the “ongoing” responsibility to review fees to determine their reasonableness. The industry is continually evolving and what may have been reasonable fees from one provider may no longer be the case! It’s your responsibility as a plan fiduciary to keep an eye on what’s available. Why it’s important to fulfill your fiduciary duties Put simply, it’s incredibly important that you meet your 401(k) fiduciary responsibilities. Not only are your actions critical to your employees’ futures, but there are also serious consequences if you fail to fulfill your fiduciary duties. In fact, plan participants and other plan fiduciaries have the right to sue to correct any financial wrongdoing. If the plan is mismanaged, you face a two-fold risk: Civil and criminal action (including expensive penalties) from the government and the potentially high price of rectifying the issue. Under ERISA, fiduciaries are personally liable for plan losses caused by a breach of fiduciary responsibilities and may be required to: Restore plan losses (including interest) Pay expenses relating to correction of inappropriate actions. While your fiduciary responsibilities can seem daunting, the good news is that ERISA also allows you to delegate many of your fiduciary responsibilities to 401(k) professionals like Betterment. Additional fiduciary responsibilities On top of the five cornerstone rules listed above, there are a few other things on a fiduciary’s to-do list: Deposit participant contributions in a timely manner —This may seem simple, but it’s extremely important to do it quickly and accurately. Specifically, you must deposit participants’ contributions to your plan’s trust account on the earliest date they can be reasonably segregated from general corporate assets. The timelines differ depending on your plan size: Small plan—If your plan has fewer than 100 participants, a deposit is considered timely if it’s made within seven business days from the date the contributions are withheld from employees’ wages. Large plan— If your plan has 100 participants or more, you must deposit contributions as soon as possible after you withhold the money from employees’ wages. It must be “timely,” which means typically within a few days. For all businesses, the deposit should never occur later than the 15th business day of the month after the contributions were withheld from employee wages. However, contributions should be deposited well before then. Fulfill your reporting and disclosure requirements—Under ERISA, you are required to fulfill specific reporting requirements. While the paperwork can be complicated, an experienced 401(k) provider like Betterment should be able to help to guide you through the process. It’s important to note that if required government reports—such as Form 5500—aren’t filed in a timely manner, you may be assessed financial penalties. Plus, when required disclosures—such as Safe Harbor notices—aren’t provided to participants in a timely manner, the consequences can also be severe including civil penalties, plan disqualification by the IRS, or participant lawsuits. Get help shouldering your fiduciary responsibilities For most employers, day-to-day business responsibilities leave little time for the extensive investment research, analysis, and fee benchmarking that’s required to responsibly manage a 401(k) plan. Because of this, many companies hire outside experts to take on certain fiduciary responsibilities. However, even the act of hiring 401(k) experts is a fiduciary decision! Even though you can appoint others to carry out many of your fiduciary responsibilities, you can never fully transfer or eliminate your role as an ERISA fiduciary. Take a look at the chart below to see the different fiduciary roles—and what that would mean for you as the employer: Defined in ERISA section Outside expert Employer No Fiduciary Status Disclaims any fiduciary investment responsibility Retains sole fiduciary responsibility and liability 3(21) Shares fiduciary investment responsibility in the form of investment recommendations Retains responsibility for final investment discretion 3(38) Assumes full discretionary authority for assets and investments Relieves employer of investment fiduciary responsibility (yet still needs to monitor the 3(38) provider) 3(16) Has discretionary responsibility for certain administrative aspects of the plan Relieves employer of certain plan administration responsibilities Betterment can help Betterment serves as a 3(38) investment manager for all plans that we manage and can serve as a limited 3(16) fiduciary with agreed upon administrative tasks as well. This means less work for you and your staff, so you can focus on your business. Get in touch today if you’re interested in bringing a Betterment 401(k) to your organization: 401k@betterment.com.

Pros and Cons of Illinois Secure Choice for Small Businesses BlogPost 56841825957 Pros and Cons of Illinois Secure Choice for Small Businesses Answers to frequently asked questions about the Illinois Secure Choice retirement program for small businesses. Since it was launched in 2018, the Illinois Secure Choice retirement program has helped thousands of people in Illinois save for their future. If you’re an employer in Illinois, state laws require you to offer Illinois Secure Choice if you: Effective November 1, 2023, had 5 or more employees during all four quarters of the previous calendar year Have been in operation for at least two years Do not offer an employer-sponsored retirement plan If your company has recently become eligible for Illinois Secure Choice or you’re wondering whether it’s the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees Illinois Secure Choice? No. Illinois laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect Illinois Secure Choice. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is Illinois Secure Choice? Illinois Secure Choice is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees in the program. Specifically, the Illinois plan requires employers to automatically enroll employees at a 5% deferral rate, and contributions are invested in a Roth IRA. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice plan provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider Illinois Secure Choice? Illinois Secure Choice is a simple, straightforward way to help your employees save for retirement. It’s administered by a private-sector financial services firm and sponsored by the State of Illinois. As an employer, your role is limited and there are no fees to offer Illinois Secure Choice. 4. Are there any downsides to Illinois Secure Choice? Yes, there are factors that may make Illinois Secure Choice less appealing than other retirement plans like 401(k) plans. Here are some important considerations: Illinois Secure Choice is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in Illinois Secure Choice. For example, single filers with modified adjusted gross incomes of more than $144,000 in 2022 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. Illinois Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois Secure Choice only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to Illinois Secure Choice, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, Illinois Secure Choice does not. Limited investment options—Illinois Secure Choice offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer Illinois Secure Choice; however, employees do pay approximately $0.75 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of Illinois Secure Choice? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act 2.0, you can now receive up to $15,000 in tax credits over three years to help defray the start-up costs of your 401(k) plan. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Also, if you plan to make employer contributions, there could be even more tax incentives. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with Illinois Secure Choice, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. So, what should I do? For any employer who is concerned with attracting and retaining talent in today’s market, offering a 401(k) has become a table-stakes benefit. State mandated plans are designed to help employees save for retirement, but they may lack some of the benefits that offering a 401(k) plan affords. In order to compete for talent, but also to benefit your business’s bottom line with tax savings, we recommend thinking about designing a more thoughtful retirement option that will help you and your employees in the long run. Want to talk about how? Get in touch. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

Safe Harbor vs. Traditional 401(k) Plan: Which Is Right for You and Your Employees? BlogPost 56841826053 Safe Harbor vs. Traditional 401(k) Plan: Which Is Right for You and Your Employees? Weigh the pros and cons of each carefully before making a decision for your company. 401(k) lingo can sound like a foreign language. There's "MEPs" and "PEPs," “QDIAs” and “QACAs.” But for now, let's focus on Safe Harbor 401(k) plans. If you’ve concluded that a 401(k) is right for your company, the next decision you face is what kind of 401(k) plan. They come in two primary flavors, with the Safe Harbor variety providing an alternative to the Traditional 401(k) plan. Does the “Safe Harbor” name mean the traditional route is riskier? Not necessarily. There's a host of pros and cons to each plan type. The best fit for your company depends ultimately on your unique situation. Keep reading to try on a Safe Harbor for size. Editor’s note: If you’re reading this during the first half of the year, with eyes on possibly implementing a Safe Harbor plan the following year, time is of the essence! Learn more about Safe Harbor setup deadlines below. Table of contents Safe Harbor 401(k) plans in a nutshell How nondiscrimination testing can trip up small businesses Safe Harbor may make sense for you if … Safe Harbor setup deadlines What Betterment at Work brings to your Safe Harbor 401(k) setup Safe Harbor 401(k) plans in a nutshell Safe Harbor plans offer companies an enticing deal. Contribute to your employees’ 401(k)s, the federal government says, and we’ll give you a free pass on most compliance testing. There's plenty more nuance to them of course (keep reading for that), but this is the key distinction. In Traditional 401(k) plans, employer contributions are allowed but not required—and you face the added burden of annual testing. As with all things in life, Safe Harbor plans come with tradeoffs. Matching your employees’ contributions—or contributing regardless of whether they do through what’s called a nonelective contribution—is great for your employees' financial wellbeing, but it could also increase your overall employee budget by 3% or more depending on the size of your contribution. How nondiscrimination testing can trip up small businesses Federal law requires annual nondiscrimination tests, which help ensure 401(k) plans benefit all employees—not just business owners or highly compensated employees (HCEs). Because the federal government provides significant tax perks through 401(k) plans, it wants to make sure these benefits don’t more heavily favor high earners. The three main nondiscrimination tests are: Actual deferral percentage (ADP) test—Compares the average salary deferrals of HCEs to those of non-highly compensated employees (NHCEs). Actual contribution percentage (ACP) test—Compares the average employer matching contributions received by HCEs and NHCEs. Top-heavy test—Evaluates whether a plan is top-heavy, that is, if the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. The IRS defines a key employee as an officer making more than $200,000 in 2022 (indexed), an owner of more than 5% of the business, or an owner of more than 1% of the business who made more than $150,000 during the plan year. In practice, it’s easier for large companies to pass the tests because they have a lot of employees at many different income levels contributing to the plan. If, on the other hand, even just a few HCEs at a small-to-midsize business contribute a lot to the plan, but the lower earners don’t, there’s a chance the 401(k) plan will not pass nondiscrimination testing. You may be wondering: “What happens if my plan fails?” Well, you’ll need to fix the imbalance by either returning a portion of the contributions made by your highly compensated employees or by increasing the contributions of your non-highly compensated employees. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! If you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious consequences. Failing these tests, in other words, can be a real pain in the pocketbook. Safe Harbor may make sense for you if … Every company is different, but here’s a list of employer characteristics that tend to align best with the plan type. Your staff count is in the dozens, not hundreds. Not all small businesses are created equal. In general, however, the smaller your staff count, the more likely it is that the 401(k) contributions of high earners could outweigh those of their lower-compensated peers. If that happens under a Traditional 401(k) plan, you’re at a higher risk of failing nondiscrimination testing. Your staff includes a high percentage of part-time and/or seasonal employees. For companies with more fluid staff makeups, the same elevated risk of failing nondiscrimination testing applies. These types of workers are typically allowed to participate in plans yet often don’t contribute, thus negatively impacting testing. Your company has previously failed ADP or ACP compliance tests. This one’s a no-brainer. If Traditional 401(k) plans have given you testing fits in recent years, switching to a Safe Harbor plan could help avoid these costly tripups. Your company’s previous plans have been deemed “top-heavy.” Similar to the above, if you haven’t recently failed an ADP or ACP test as part of a Traditional 401(k) plan, but your plan was deemed “top-heavy,” you may have a higher risk of failing in the future. Your company has consistent and adequate cash flow. Safe Harbor 401(k) plans offer employees a pretty sweet deal. The company kicks in a minimum of 3-4% of their salaries, either contingent on a matching contribution or not (see: nonelective). That money vests immediately, too, which means employees can quit tomorrow and keep it. This commitment to your workforce’s retirement savings is the key cost consideration of Safe Harbor plans. It’s why we typically don’t recommend them for companies with less predictable cash flow year-over-year. You’d rather avoid administrative burdens. Take it from us: even successful compliance testing can be a hassle. And failures? They can lead not only to the aforementioned penalties but to uncomfortable conversations with impacted employees. They’ll need explanations for why their contributions are being returned, and they ultimately may not be able to maximize their 401(k). If you prefer peace-of-mind over these compliance worries, consider the Safe Harbor option. Safe Harbor setup deadlines If you’re strongly considering setting up a Safe Harbor plan or adding a Safe Harbor contribution to your existing plan, here are a few key deadlines you need to know: Starting a new plan For calendar year plans, October 1 is the final deadline for starting a new Safe Harbor 401(k) plan. But don’t cut it too close—you’re required to notify your employees 30 days before the plan starts—and you’ll likely need to talk to your plan provider before that. If we’re fortunate enough to serve in that role for you, that means we’ll need to sign a service agreement by August 1. Adding Safe Harbor to an existing plan If you want to add a Safe Harbor match provision to your current plan, you can include a plan amendment that goes into effect January 1 so long as employees receive notice at least 30 days prior. At Betterment, the deadline for you to request this amendment is October 31. Thanks to the SECURE Act, plans that want to become a nonelective Safe Harbor plan—meaning the employer contributes regardless of whether the employee does—have newfound flexibility. An existing plan can implement a 3% nonelective Safe Harbor provision for the current plan year if amended 30 days before the close of the plan year. Plans that decide to implement a nonelective Safe Harbor contribution of 4% or more have until the end of the following year in which the plan will become a Safe Harbor. Communicating with employees Every year, eligible employees need to be notified about their rights and obligations under your Safe Harbor plan (except for those with nonelective contributions, as noted above). The IRS requires notice be given between 30-90 days before the beginning of the plan year. What Betterment at Work brings to your Safe Harbor 401(k) setup An experienced plan provider like Betterment at Work can bring a lot to the table: Smooth onboarding | We guide you through each step of the onboarding process so you can start your plan quickly and easily. Simple administration | Our intuitive tech and helpful team keep you informed of what you need to do, when you need to do it. Affordability | We’re fully transparent about our pricing so no surprises await you or your employees. Investing choice | Give your employees access to a variety of low-cost, expert-built portfolios. Ready to get started – or simply get more of your questions answered? Reach out today. Or keep reading to learn more about whether the other big consideration for your 401(k) plan—auto-enrollment—is right for your situation.

Why Adding 529s to Your Financial Benefits Can Appeal to Working Parents BlogPost 120264224399 Why Adding 529s to Your Financial Benefits Can Appeal to Working Parents 529s can help your employees maximize money put aside for education Offering a better benefits package starts with a simple idea: your employees have diverse and ever-changing needs: Retirement may be their end goal, but there may be more pressing needs. Some of your staff might be striving to pay off their student loans. Others may need help saving for education. With Betterment at Work, it’s possible to help them with all three goals in one place. Let's take a closer look at 529 plans, an appealing benefit for working parents that helps them maximize money set aside for educational expenses. 529s help combat the steep cost of college The average cost of 4-year college tuition and fees has more than tripled since 1980. So it’s no wonder paying for kids’ education is a top concern among parents. 529s are special investing accounts that can help, and they’re growing in popularity. The number of 529s opened has increased by 55% since 2009. Funds in a 529 both grow and can be used tax-free for qualified expenses—things like tuition and fees, books and supplies, and even some room and board. You can even use them for up to $10,000 per year in K-12 tuition in all but a few states. Other benefits include a high balance limit—between $235,000 and $550,000 depending on the state—and low-maintenance investment options that automatically adjust risk as the beneficiary nears college age. Betterment at Work streamlines the 529 experience By offering your employees access to 529s through Betterment at Work, you add a unique benefit without adding another benefits provider. Manage your 529 offering right alongside your 401(k) and you can even offer an employer match, just like a 401(k). Just as importantly, your employees get a simple way to sign up for this savings tool. 529s can be a pain to shop for on your own, with nearly every state offering a plan open to anyone. The quality of those plans—everything from investment options and fees to website interfaces—can vary widely. Betterment at Work simplifies things. Employees can compare and select plans all within the Betterment app, and with integrated plans, they can automatically fund their 529 through payroll deductions. They can also see their 529 savings right alongside their 401(k) and connected student loans. 529s are available through our Pro and Flagship plans. Learn more or get started today.

Add a Friendly Face to Your Employees’ 401(k)s BlogPost 87590639458 Add a Friendly Face to Your Employees’ 401(k)s Why some of your 401(k) plan’s participants may need a little extra advice—and how to give it to them. Before our arrival more than a decade ago, the finance world typically worked one way for everyday investors: you had a “guy.” In rare cases—much too rare—it was a “gal,” but that’s a story for another day. This advisor may or may not have been a fiduciary, meaning someone legally obligated to act in your best interest. But if you wanted to invest, you had to go through them. And they likely charged a hefty sum for their services, given that today’s average fees for a traditional financial advisor are still more expensive than alternatives like Betterment. Something about this dynamic didn’t sit well with us, so we flipped the relationship on its head. We put our team of experts to work behind the scenes. Traders and tax experts, behavioral scientists and “quants,” they all worked together to infuse technology with their investing insights, leading to a piece of software that served up personalized advice and automated features at scale and for a fraction of the cost of what most investment firms charged. While plenty of investors—800,000 and counting—utilize our approach to automated investing, some still prefer to add a human advisor to that experience, someone to coach them through their money moves face-to-face. And you know what? We not only think that arrangement is okay, it sums up our investing philosophy well: automate what you can, and leave the rest to humans. The implications for your company’s 401(k) plan All of the above holds true for your employees and their 401(k)s. You can give them an intuitive platform to automate their retirement savings. You can match a percentage of their contributions as an incentive. You can share a robust library of educational resources to help explain investing. Some will thrive in this scenario, some will struggle, and some may not bother to sign up at all. So what are you, the plan sponsor, to do? Well, you can add Financial Coaching to your Betterment at Work 401(k), giving your employees access to professional financial advice from our team of advisors. These experts—all fiduciaries, by the way—add a warm touch to the cold arithmetic of retirement saving. They can help your employees not only maximize their 401(k)s, but sort through the rest of their financial lives. “You know, the biggest emotion I sense from clients after a session isn’t excitement; it’s a sense of relief,” says Corbin Blackwell, one of our advisors. “They’re smart people, but investing is scary. Sometimes you just need reassurance that you’re on the right track.” Or sometimes, your employees really do have unusual life circumstances that make for complicated financial decisions. The sort of scenarios that aren’t easy to automate. Maybe they’re high earners, for example, trying to weigh the pros and cons of a Roth IRA conversion. In any case, it’s helpful to have an advisor like Corbin available to talk with. Giving your employees this premium resource can help boost your plan’s participation rate and may improve their financial wellbeing. It can also elevate your 401(k) above your competitors. Retirement saving’s role in the recruiting arms race So far we’ve focused on the benefits of Financial Coaching to your existing employees. We haven’t touched on the appeal to prospective employees, the people you’re hoping fill your talent pipeline for years to come. To some of these workers, a 401(k) is an expectation and neither a surprise nor a delight. They’ve seen plenty of cookie cutter retirement benefits in past jobs and none stood out, at least for the right reasons. While some companies consider this business as usual, another box to check in their benefits package, others see an advantage just waiting to be taken. Because let’s be real, what actually stands out: a piece of paper in your benefits packet, or real-time access to an expert like Corbin? Don’t take our word for it, listen to the recruits. We surveyed workers—and 1-in-5 said access to a live financial advisor could entice them to leave their current job. Whether you’re already a Betterment at Work customer or considering becoming one, Financial Coaching carries the potential to differentiate not only your 401(k) plan but your company. It’s a straightforward way to show you care about the financial well-being of recruits and current employees alike.

The Tax Benefits of Offering a 401(k) BlogPost 56841825947 The Tax Benefits of Offering a 401(k) Seize the tax deductions (and credits!). Offering a 401(k) to your employees can unlock several tax benefits for your company. When employees contribute to their 401(k) accounts, they unlock some pretty sweet tax perks. But no less important are the potential tax benefits awaiting your own company by virtue of offering a 401(k) in the first place. We’re not a tax advisor, and none of this information should be considered tax advice for your company’s specific situation, but we’d be remiss if we didn’t lay out three key tax benefits that generally await companies that choose to sponsor a 401(k) plan: Company contributions are tax deductible Plan administration fees are (usually) tax deductible Small businesses can snag tax credits for starting a new plan and/or adding auto-enroll Keep reading for more details on each opportunity. Your company’s contributions to employees’ 401(k)s are tax deductible When you contribute to your employees’ 401(k)s, you not only supercharge their retirement savings and boost the appeal of your benefits, you can deduct your contributions from your company’s taxable income, assuming they don’t exceed the IRS’s limit. That annual contribution limit is 25% of compensation paid to eligible employees and doesn’t change from year to year. Compensation Pro-Tip: Consider a contribution over a raise It’s for this reason that dollar-for-dollar, contributing to your employees’ 401(k)s on a pre-tax basis (i.e. via a Traditional 401(k)) is more tax efficient for you and for them compared to giving them raises of an equivalent amount. Consider this example using $3,000: A $3,000 increase in employees’ base pay would mean a net increase to them of just $2,250, assuming 25% in income taxes and FICA combined. For the company, that increase would cost $2,422.12 after FICA adjusted for a 25% income tax rate. You contributing $3,000 to an employee’s 401(k), on the other hand, results in no FICA for both you and them. The employee receives the full benefit of that $3,000 today on a pre-tax basis, plus it has the opportunity to grow tax-free in a Traditional 401(k) until retirement. As the employer, the value of your tax deduction on that $3,000 contribution would be $750, meaning your cost is just $2,250—or 7% less than if you had provided a $3,000 salary increase. Your plan administration fees are (usually) tax deductible Although companies have the option of passing on their plan administration fees to employees—or splitting the tab—many employers opt to pay them entirely. In this case, these costs are typically considered a tax-deductible business expense. The result is a win-win: employees keep more funds invested in their 401(k) accounts and you reduce your company’s taxable income. Small businesses can snag valuable tax credits thanks to SECURE Act 2.0 With newly introduced SECURE Act 2.0 tax credits, employers – and especially small business owners – are in a better place than ever to start offering an employee-friendly retirement plan. Item #1.1 - Startup Tax Credit: Starting a new plan? There are tax credits available to offset the costs of that plan for up to three years with this new clause. According to the legislation, plan sponsors with 100 employees and fewer can claim up to $5,000 in their first year. Item #1.2 - Employer Contribution Credit: This clause allows businesses starting a new plan after 12/29/22 to claim back costs associated with making employer contributions toward employees’ 401(k)s. If your company adopts employer contributions as a part of your plan design, you may be able to claim these costs for up to 5 years. Item #1.3 - Automatic Enrollment Credit: Employers that establish a new 401(k) plan after 12/29/22 that include – you guessed it – automatic enrollment can take advantage of this credit. Employers can claim this tax benefit for up to 3 tax years, if they have less than 101 eligible employees. If eligible, these tax credits would subtract the value from the taxes you owe.

What Recent Bank Failures Mean for Retirement Investing BlogPost 106809066420 What Recent Bank Failures Mean for Retirement Investing A closer look at the recent banking crisis and its potential impact on retirement savings. Headlines recounting the failure of banks naturally draw concern, given they’re a marker of many of the darkest periods in American economic history. For anyone saving for retirement, this type of news likely comes with the fear of a downturn in their 401(k) and other investments. At Betterment, we manage our portfolios in a manner designed to help investors weather such risks and reach their goals. We discuss the potential impact of recent developments on retirement accounts in this note, addressing the risk of further troubles in the financial system, the possible effects on stock investments within portfolios, and the ramifications for bond allocations. Will the crisis spread to other banks and industries? A well known characteristic of bank runs is that they have an ability to snowball. They are by their nature self-reinforcing, so investors now worry whether, after Silvergate, Silicon Valley Bank (SVB), and Signature Bank, there may be more shoes to drop. We believe, however, that the extraordinary measures taken jointly by the Federal Reserve, Treasury department, and the FDIC have the ability to stop this bank run in its tracks. Such measures include ensuring all depositors at the failed banks would have full access to their funds and that other banks could borrow from the Fed on favorable terms to meet their liquidity needs. The FDIC has also entered an agreement with a subsidiary of New York Community Bancorp, to purchase Signature Bank. They continue to seek bids for SVB. Since then, stability concerns have also plagued Credit Suisse and First Republic Bank. In a series of rescue efforts, UBS is set to acquire Credit Suisse while several large U.S. banks have deposited a total of $30 billion into First Republic Bank. There may be more volatility to come, but the strong intervention on the part of policymakers and acquirers gives us confidence that these failing and struggling banks do not represent a significant systemic risk, i.e. one that threatens the entirety of the financial and banking systems. What is the fallout for investments in stocks? So far, apart from pockets of the market including small regional banks, stocks have held up well in the face of this historic hiccup in the financial system. Fortunately, Betterment constructs globally diversified portfolio strategies which reduce the risk of being overly exposed to a particular sector like banking. We have not seen our broad allocations to US, international developed, and emerging market stocks in portfolios suffer significant drawdowns, and we maintain conviction in holding these investments for the long-term. The Betterment Core portfolio does also hold an explicit allocation to small-cap and mid-cap value stocks, accessed via the Vanguard Small-cap Value Index Fund (Ticker: VBR) and Vanguard Mid-cap Value Index Fund (Ticker: VOE). These funds contain exposure to some of the regional banks that have experienced selloffs, and they were among the funds most impacted in the portfolio following the failures of Silvergate, SVB, and Signature Bank. Yet these funds remain well above their 2022 lows, and we believe the Core portfolio’s allocations to them are sized appropriately to manage risk, with VBR and VOE holding around 5.8% and 6.9% weights in a 90% stock version of the portfolio, respectively. What do the bank woes mean for bonds? Betterment recommends, and in most cases enables through an automatic glidepath, investors closer to retirement or who have already retired maintain a relatively larger weighting to bonds in their portfolio compared to investors with a longer time horizon. Bond prices have adjusted to a shift in expectations for the interest rate environment in the wake of the bank failures. Due to the financial instability, the market has begun to behave as though it expects the Federal Reserve may not aggressively increase its policy interest rate in the future. This repricing of expectations has generally caused a decline in fixed income yields, and the diversified bond funds used in Betterment portfolios have overall provided a positive return in the days after the failure of Silvergate, SVB, and Signature Bank. Given that inflation remains high, the risk remains that bonds will face challenges, yet we believe that the parts of the bond market to which we allocate within portfolios continue to be appropriate for retirement investors in how they balance risk with return.

SECURE Act 2.0: Signed into Law BlogPost 56844814757 SECURE Act 2.0: Signed into Law Formally called the SECURE 2.0 Act of 2022, the legislation expands retirement plan coverage and makes it easier for employers to offer retirement plan benefits. The SECURE 2.0 Act of 2022 was signed into law on December 29, 2022. Let’s break down each of the key provisions related to 401(k)s, between those that will be required versus those that will be optional, based on their effective year, and whether the provision is geared towards participants, new plans, or all plans (existing and new). Then we’ll highlight which provisions we’re most excited about and why. It's important to note that information regarding Secure 2.0 is subject to change and is not legal guidance. This is not a comprehensive resource with respect to employer-sponsored plans that Betterment does not support. REQUIRED 2023 Participants: Increases the Required Minimum Distribution (RMD) age to 73 in 2023; and to 75 in 2033. Also, failure to take RMD penalty reduced from 50% to 25%, or 10% if the shortfall is corrected within 2 years. 2024 Participants: Elimination of Required Minimum Distribution (RMD) for Roth 401(k) accounts. 2025 All plans with effective dates of 12/29/2022 or later: Automatic enrollment must go into effect by 1/1/2025. Deferrals must be between 3-10%, escalating to 10-15%. Newly auto-enrolled participants must have a 90-day window to request their funds back. All plans: Part-time employees who work at least 500 hours in at least two consecutive years must enter the plan (this was 3 years in the first SECURE Act). Participants: Participants aged 60-63 can contribute up to $10,000 (indexed) as catch up, others over 50 can contribute $7,500 (indexed). 2026 Participants: The IRS determined that anyone who earned $145,000 (indexed) or more in the prior year must make catch-up contributions in Roth dollars. OPTIONAL 2023 New plans: Increases tax credit to up to 100% of plan startup costs for employers with up to 50 employees. Plus a new tax credit on employer contributions for up to $1,000 per participating employee with wages less than $100,000 (indexed). All plans: Employers can provide small non-matching incentives (gift cards) to employees who begin contributing for the first time. All plans: Employers allowed to match in Roth dollars (must be 100% vested), based on selection made by participants. All plans: Employers can rely on participants to self-certify that they have had a safe harbor event that constitutes a deemed hardship. 2024 All plans: Qualified student loan payments can effectively be considered deferrals for purposes of 401k matching contributions. All plans: Emergency savings account within the 401(k) for non-highly compensated employees (NHCEs). Must be funded post tax (Roth), invested in cash or principal reservation vehicle and can be withdrawn from at least once per month, with 4 annual withdrawals fee free. Annual contribution limit is $2,500 (indexed) and automatic enrollment can be applied. All plans: Force out limit increase, from $5,000 to $7,000 All plans: Ability to offer one penalty free withdrawal of up to $1,000 from plans for “unforeseeable or immediate financial needs relating to personal or family emergency expenses.” New plans: SIMPLE IRA plans allowed to be replaced at any time during the year if certain criteria are met. This also waives the 2 year rollover limitation currently in place. New plans: Ability to establish a new, safe harbor plan with no employer contributions requirements and no compliance testing; however, contribution limits will reflect that of an IRA. Top 3 provisions we’re most excited about 1. Automatic enrollment for all (with exceptions). Participation rates at plans with automatic enrollments are much higher than those with voluntary enrollment, based on Betterment’s internal data (87% participation rate with auto-enrollment, 37% without, as of 02/03/23), as well as industry reports. If you’re offering a 401(k) plan to your employees, there’s no better way to get people to use the benefit than automatically enrolling them. Of course, people can always opt-out (which is not common), and the SECURE Act’s provision stipulates that people must be able to get a “refund” of any automatic contributions within 90 days. Which employers are exempt from the automatic enrollment requirement? Plans that have been in effect since before 12/29/22 do not need to add automatic enrollment (unless an existing plan adopts a multiple employer plan (MEP) following 12/29/22). New businesses in existence less than 3 years. Businesses with 10 or fewer employees. Keep in mind any plan is welcome to add automatic enrollment at any time! 2. Student loan payments may qualify for employer matching into a 401(k). More than 40 million Americans are grappling with $1.73 trillion dollars of student debt. Those Americans are less likely to contribute to a 401(k) plan as a result. But if their employer offers a match on 401(k) contributions, those people are missing out, even though they’re trying to do the right thing by paying off their loans. This provision would allow qualifying student loan payments to count as if they’re contributing to a 401(k) and receive their employer’s matching contribution into a 401(k) account, even though they are not contributing to it themselves. It just so happens that Betterment has been preparing for this provision! We already offer a Student Loan Management tool that allows employees to pay off their loans alongside their 401(k) contributions. In the coming months, we’ll be hard at work to build out what’s needed for this new matching contribution provision. 3. Significant tax credit increase if starting a new plan. The SECURE Act of 2019 already provided businesses with fewer than 100 employees a three-year tax credit for up to 50% of plan start-up costs. The new law increases the credit to up to 100% of the costs for employers with up to 50 employees. On top of that, SECURE Act 2.0 offers a new tax credit for 5 years to employers with 50 or fewer employees, encouraging direct contributions to employees. This new tax credit would be up to $1,000 per participating employee with wages less than $100,000 (indexed annually). The credit also applies to employers with 51-100 participants but the amount of the credit is phased out for this group. A few other provisions on our radar: Penalty-free withdrawals in case of domestic abuse. The new law allows domestic abuse survivors to withdraw the lesser of $10,000 or 50% of their 401(k) account, without being subject to the 10% early withdrawal penalty. In addition, they would have the ability to pay the money back over 3 years. Expansion of Employee Plans Compliance Resolution System (EPCRs). To ease the burdens associated with retirement plan administration, this new legislation would expand the current corrections system to allow for more self-corrected errors and exemptions from plan disqualification. Separate application of top heavy rules covering excludable employees. SECURE 2.0 should make annual nondiscrimination testing simpler by allowing plans to separate out certain groups of employees from top heavy testing. Separating out groups of employees is already allowed on ADP, ACP and coverage testing. “Retirement savings lost and found” directs the DOL to create a national, online lost and found database no later than January 1, 2025. So-called “missing participants'' are often either unresponsive or unaware of 401(k) plan funds that are rightfully theirs.

Your Employees Can’t Focus — and Money Worries Might be Why BlogPost 97347734137 Your Employees Can’t Focus — and Money Worries Might be Why Financial anxiety is impacting workers’ ability to do their jobs. Here’s how the benefits you offer can do something about it. From stock market whiplash to escalating inflation, the past year provided plenty for your workers to worry about with respect to their finances. And while you might think they can keep calm and carry on, new research by Betterment at Work is showing these worries are impacting their productivity. More than half (54%) of the 1,000 full-time U.S. employees surveyed in our latest Financial Wellness Barometer say financial anxiety makes it difficult for them to focus at work. So what’s an employer to do beyond increasing base pay? You’d be surprised how much benefits can help. In addition to offering a barometer of workers’ overall financial wellness and the unique struggles they face, our annual survey zeroes in on the benefits employees value most. Our survey found that while turnover has cooled since a year ago, it’s still well above average, showing the Great Reshuffle is far from over. More than half (54%) of workers surveyed would be enticed to change jobs for better benefits. Which benefits exactly? A 401(k) is mentioned most often among desirable financial wellness benefits, but it’s not the stopping point. Hot on its heels are two other benefits, with each one illustrated by a troubling trend. Breaking the retirement bank, in case of emergency An alarming number of surveyed workers (more than one-in-four) tapped into their retirement accounts to pay for short-term expenses. This behavior not only has big implications for their retirement goals, but can quickly become a bad habit. Instead of getting a high yield on cash set aside for short-term expenses, like the variable 4.25%* offered in a Betterment Cash Reserve account, savers who dip into their retirement accounts early are, with few exceptions, slapped with a 10% penalty by the IRS. All of this points to a notable lack of emergency funds—and explains why an employer-sponsored emergency fund is the second-most desired benefit beyond a 401(k). These funds act similar to a 401(k), with contributions automatically coming from a worker’s paycheck, albeit without the tax benefits of a retirement account. At a minimum, employers can help educate their workers on emergency funds and how to build them. Feeling the squeeze from student loans Nearly half of Millennial and Gen Z workers surveyed currently hold student loan debt — and a lot of it. Among all workers surveyed who hold this type of debt, the majority (59%) owe at least $10,000. Payments on federal student loans may still be paused through at least the first half of 2023, but the previously-announced $10,000 of debt relief on said federal loans is now in limbo. And with this much student debt saddling Americans, saving for retirement will likely continue taking a back seat to paying down student loans. This also shows why greater employer support would be welcome in this space. That support can take the form of 401(k) add-ons like our Student Loan Management.

401(k) Considerations for Highly Compensated Employees BlogPost 56841935676 401(k) Considerations for Highly Compensated Employees Help ensure your 401(k) plan benefits every employee – from senior executives to entry-level workers. Read on for more information. A 401(k) plan should help every employee – from senior executives to entry-level workers – save for a more comfortable future. To help ensure highly compensated employees (HCEs) don’t gain an unfair advantage through the 401(k) plan, the IRS implemented certain rules that all plans must follow. Wondering how to navigate these special considerations for HCEs? Read on for answers to commonly asked questions. 1. What is an HCE? According to the IRS, an HCE is an individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or Received compensation from the business of more than $155,000 (if the preceding year is 2024), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation. 2. Why are there special considerations for HCEs? Does your plan offer a company match? If so, consider this example: Joe is a senior manager earning $200,000 a year. He can easily afford to max out his 401(k) plan contributions and earn the full company match (dollar-for-dollar up to 6%). Thomas is an entry-level administrative assistant earning $35,000 a year. He can only afford to contribute 2% of his paycheck to the 401(k) plan, and therefore, isn’t eligible for the full company match. Not only that, Joe can contribute more – and earn greater tax benefits – than Thomas. It doesn’t seem fair, right? The IRS doesn’t think so either. To ensure HCEs don’t disproportionately benefit from the 401(k) plan, the IRS requires annual compliance tests known as non-discrimination tests. 3. What is non-discrimination testing? In order to retain tax-qualified status, a 401(k) plan must not discriminate in favor of key owners and officers, nor highly compensated employees. This is verified annually by a number of tests, which include: Coverage tests – These tests review the ratio of HCEs benefitting from the plan (i.e., of employees considered highly compensated, what percent are benefiting) against the ratio of non-highly compensated employees (NHCEs) benefiting from the plan. Typically, the NHCE percentage benefiting must be at least 70% or 0.7 times the percentage of HCEs considered benefiting for the year, or further testing is required. These tests are performed across employee contributions, matching, and after-tax contributions, and non-elective (employer, non-matching) contributions. ADP and ACP tests – The Actual Deferral Percentage (ADP) Test and the Actual Contribution Percentage (ACP) Test help to ensure that HCEs are not saving significantly more than the employee base. The tests compare the average deferral (traditional and Roth) and employer contribution (matching and after-tax) rates between HCEs and NHCEs. Top-heavy test – A plan is considered top-heavy when the total value of the Key employees’ plan accounts is greater than 60% of the total value of the plan assets. (The IRS defines a key employee as an officer making more than $220,000 in 2024—and indexed each year after), an owner of more than 5% of the business, or an owner of more than 1% of the business who made more than $150,000 during the plan year.) 4. What if my plan doesn’t pass non-discrimination testing? You may be surprised to learn that it’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. However, small and mid-size businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but NHCEs don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. If your plan fails, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or increasing contributions to your NHCEs. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! Not to mention the fact that you may upset several top employees, which could have a detrimental impact on employee satisfaction and retention. 5. How can I avoid this headache-inducing situation? If you want to bypass compliance tests, consider a safe harbor 401(k) plan. A safe harbor plan is like a typical 401(k) plan except it requires you to: Contribute to the plan on your employees’ behalf, sometimes as an incentive for them to save in the plan Ensure the mandatory employer contribution vests immediately – rather than on a graded or cliff vesting schedule – so employees can always take these contributions with them when they leave To fulfill safe harbor requirements, you can elect one of the following employer contribution formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation Enhanced safe harbor match—Employer matches 100% of employee contributions, up to 4% of their compensation. Non-elective contribution—Employer contributes at least 3% of each employee’s compensation, regardless of whether they make their own contributions. Want to contribute more? You absolutely can – the above percentages are only the minimum required of a safe harbor plan. 6. How can a safe harbor plan benefit my top earners? With a safe harbor 401(k) plan, you can ensure that your HCEs will be able to max out your retirement contributions (without the fear that contributions will be returned if the plan fails nondiscrimination testing). 7. What are the upsides (and downsides) of a safe harbor plan? Beyond ensuring your HCEs can max out their contributions, a safe harbor plan can help you: Attract and retain top talent—Offering your employees a matching or non-elective contribution is a powerful recruitment tool. Plus, an employer contribution is a great way to reward your current employees (and incentivize them to save for their future). Improve financial wellness—Studies show that financial stress impacts employees’ ability to focus on work. By helping your employees save for retirement, you help ease that burden and potentially improve company productivity and profitability. Save time and stress—Administering your 401(k) plan takes time—and it can become even more time-consuming and stressful if you’re worried that your plan may not pass nondiscrimination testing. Bypass certain tests altogether by electing a safe harbor 401(k). Reduce your taxable income—Like any employer contribution, safe harbor contributions are tax deductible! Plus, you can receive valuable tax credits to help offset the costs of your 401(k) plan. Of course, these benefits come with a cost; specifically the expense of increasing your overall payroll by 3% or more. So be sure to evaluate whether your company has the financial capacity to make employer contributions on an annual basis. 8. Are there other ways for HCEs to save for retirement? If you decide against a safe harbor plan, you can always encourage your HCEs to take advantage of other retirement-saving avenues, including: Health savings account (HSA) – If your company offers an HSA – typically available to those enrolled in a high-deductible health plan (HDHP) – individuals can contribute up to $3,650, families can contribute up to $7,300, and employees age 55 or older can contribute an additional $1,000 in 2022. The key benefits are: Contributions are tax free, earnings grow tax-free, and funds can be withdrawn tax-free anytime they’re used for qualified health care expenses. The HSA balance carries over and has the potential to grow unlike a “use-it-or-lose-it” FSA. Once employees turn 65, they can withdraw money from an HSA for any purpose – not just medical expenses – without penalty. However, they will have to pay income tax, so they may want to consider reserving it for medical expenses in retirement. Traditional IRA – If employees make after-tax contributions to a traditional IRA, all earnings and growth are tax-deferred. For 2024, the IRA contribution maximum is $7,000 and employees age 50 or older can make an additional $1,000 catch-up contribution. Roth IRA – HCEs may still be eligible to contribute to a Roth IRA, since Roth IRAs have their own separate income limits. But even if an employee’s income is too high to contribute to a Roth IRA, they may be able to convert a Traditional IRA into a Roth IRA via the “backdoor” IRA strategy. To do so, they would make non-deductible contributions to their Traditional IRA, open a Roth IRA, and perform a Roth IRA conversion. This is a more advanced strategy, so for more information, your employees should consult a financial advisor. Taxable Account – A taxable account is a great way to save beyond IRS limits. If employees are maxed out their 401(k) and IRA and want to keep saving, they can invest extra cash in a taxable account. Want to learn more? Betterment can help. Helping HCEs navigate retirement planning can be a challenge. If you’re considering a safe harbor plan or want to explore new ways to enhance retirement savings for all your employees, talk to Betterment today. Betterment assumes no responsibility or liability whatsoever for the content, accuracy, reliability or opinions expressed in a third-party website, to which a published article links (a “linked website”) and such linked websites are not monitored, investigated, or checked for accuracy or completeness by Betterment. It is your responsibility to evaluate the accuracy, reliability, timeliness and completeness of any information available on a linked website. All products, services and content obtained from a linked website are provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title, non-infringement, security, or accuracy. If Betterment has a relationship or affiliation with the author or content, it will note this in additional disclosure.

Related Companies and Controlled Groups: What this means for 401(k) plans BlogPost 56841935652 Related Companies and Controlled Groups: What this means for 401(k) plans When companies are related, how to administer 401(k) plans will depend on the exact relationship between companies and whether or not a controlled group is deemed to exist. Understanding Controlled Groups Under IRS Code sections 414(b) and (c), a controlled group is a group of companies that have shared ownership and, by meeting certain criteria, can combine their employee bases into one 401(k) plan. The controlled group rules were put into place to ensure that the plan provides proper coverage of employees and that it does not discriminate against non-highly compensated employees. Parent-Subsidiary Controlled Group: When one corporation owns at least an 80% interest in another corporation. The 80% ownership threshold is determined either by owning 80% of the total value of the corporation’s shares of stock or by owning enough stock to hold 80% of the voting power. Brother-Sister Controlled Group: When two or more entities are controlled by the same person or group of people, provided that the following criteria are met: Common ownership: Same five or fewer shareholders own at least an 80% controlling interest in each company. Identical ownership: The same five or fewer shareholders have an identical share of ownership among all companies which, in the aggregate, is more than 50%. In this first example below, a brother-sister controlled group exists between Company A and Company B since the three owners together own more than 80% of Companies A and B, and their identical ownership is 75%. Owner Company A Company B Identical Ownership Mike 15% 15% 15% Tory 40% 50% 40% Megan 40% 20% 20% Total 95% 85% 75% In this second example below, a brother-sister controlled group does not exist between Company A and Company B since the identical ownership is only 15%, well below the required 50% threshold. Owner Company A Company B Company C Identical Ownership Jon 100% 15% 15% 15% Sarah 0% 40% 50% 0% Chris 0% 40% 20% 0% Total 100% 95% 85% 15% Combined Controlled Group: More complicated controlled group structures might involve a parent/subsidiary relationship as well as one or more brother/sister relationship. Three or more companies may constitute a combined controlled group if each is a member of a parent-subsidiary group or brother-sister group and one is: A common parent company included in a parent-subsidiary group and Is also included in a brother-sister group of companies. In the below example, we see that Company A and B are in a brother-sister controlled group as the common ownership for both are at least 80% and the identical ownership is greater than 50%. However, since Company B also owns 100% of Company C, there’s a parent-subsidiary controlled group, which results in a combined controlled group situation. Owner Company A Company B Company C Identical Ownership Ariel 80% 85% 80% Company B 100% Controlled groups and 401(k) plans If related companies are determined to be part of a controlled group, then employers of that controlled group are considered a single employer for purposes of 401(k) plan administration. So even if multiple 401(k) plans exist among the employers within a single controlled group, they must meet the requirements as if they were a single-employer for purposes of: Determining eligibility Determining HCEs ADP & ACP testing Coverage testing Top heavy testing Compensation and contribution limits Vesting determination Maximum contribution and benefit limits Given the complexities associated with controlled group rules and how it may impact 401(k) plan administration, we encourage companies that have questions related to controlled groups to consult with their attorney or tax accountant, as Betterment is not a licensed tax advisor. Betterment assumes no responsibility or liability whatsoever for the content, accuracy, reliability or opinions expressed in a third-party website, to which a published article links (a “linked website”) and such linked websites are not monitored, investigated, or checked for accuracy or completeness by Betterment. It is your responsibility to evaluate the accuracy, reliability, timeliness and completeness of any information available on a linked website. All products, services and content obtained from a linked website are provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title, non-infringement, security, or accuracy. If Betterment has a relationship or affiliation with the author or content, it will note this in additional disclosure.

True-Ups: What are they and how are they determined? BlogPost 56844814875 True-Ups: What are they and how are they determined? You've been funding 401(k) matching contributions, but you just learned you must make an additional “true-up” contribution. What does this mean and how was it determined? Employer matching contributions are a great benefit and can help attract and retain employees. It’s not unusual for employers to fund matching contributions each pay period, even though the plan document requires that the matching contribution be calculated on an annualized basis. This means that the matching contribution will need to be calculated both ways (pay period versus annualized) and may result in different matching contribution amounts to certain participants, especially those whose contribution amounts varied throughout the year. For many employers (and payroll systems), the per-pay-period matching contribution method can be easier to administer and help with company cash flow. Employer matching contributions are calculated based on each employee’s earnings and contributions per pay period. However, this method can create problems for employees who max out their 401(k) contributions early, as we will see below. Per-pay-period match: Consistent 401(k) contributions throughout the year Suppose a company matches dollar-for dollar-on the first 4% of pay and pays employees twice a month for a total of 24 pay periods in a year. The per period gross pay of an employee with an annual salary of $120,000, then, is $5,000. If the employee makes a 4% contribution to their 401(k) plan, their $200 per pay period contribution will be matched with $200 from the company. Per-pay-period matching contribution methodology for $120K employee contributing 4% for full year Employee contribution Employer matching contribution Total Contributions per pay period $200 $200 $400 Full year contributions $4,800 $4,800 $9,600 For the full year, assuming the 401(k) contribution rate remains constant, this employee would contribute a total of $4,800 and receive $4,800 from their employer, for a total of $9,600. Per-pay-period match: Maxing out 401(k) contributions early Employees are often encouraged to optimize their 401(k) benefit by contributing the maximum allowable amount to their plan. Suppose instead that this same employee is enthusiastic about this suggestion and, determined to maximize their 401(k) contribution, elects to contribute 20% of their paycheck to the company’s 401(k) plan. Sounds great, right? At this rate, however, assuming the employee is younger than age 50, the employee would reach the $19,500 annual 401(k) contribution limit during the 20th pay period. Their contributions to the plan would stop, but so too would the employer matching contributions, even though the company had only deposited $3,800 into this employee’s account, — $1,000 less than the amount that would have been received if the employee had spread their contributions throughout the year and received the full matching contribution for every pay period. Per-pay-period matching contribution methodology for $120K employee contributing 20% from beginning of year Employee contribution Employer matching contribution Total Contributions per pay period $1,000 $200 $1,200 Full year contributions $19,500 $3,800 $23,300 Employees who max out too soon on their own contributions are at risk of missing out on the full employer matching contribution amount. This can happen if the contribution rate or compensation (due to bonuses, for instance) varies throughout the year. True-up contributions using annualized matching calculation When the plan document stipulates that the matching contribution calculation will be made on an annualized basis, plans who match each pay period will be required to make an extra calculation after the end of the plan year. The annualized contribution amount is based on each employee’s contributions and compensation throughout the entire plan year. The difference between these annualized calculations and those made on a per-pay-period basis will be the “true-up contributions” required for any employees who maxed out their 401(k) contributions early and therefore missed out on the full company matching contribution. In the example above, the employee would receive a true-up contribution of $1,000 in the following year. Plans with the annualized employer matching contribution requirement (per their plan document) may still make matching contributions each pay period, but during compliance testing, which is based on annual compensation, matching amounts are reviewed and true-ups calculated as needed. The true-up contribution is normally completed within the first two months following the plan year end and before the company’s tax filing deadline. Making true-up contributions means employees won’t have to worry about adjusting their contribution percentages to make sure they don’t max out too early. Employees can front-load their 401(k) contributions and still receive the full matching contribution amount. Often true-up contributions affect senior managers or business owners; hence companies are reluctant to amend their plan to a per-pay-period matching contribution calculation. That said, employers should be prepared to make true-up contributions and not be surprised when they are required.

401(k) QNECs & QMACs: what are they and does my plan need them? BlogPost 56844814773 401(k) QNECs & QMACs: what are they and does my plan need them? QNECs and QMACs are special 401(k) contributions employers can make to correct certain compliance errors without incurring IRS penalties. Even the best laid plans can go awry, especially when some elements are out of your control. Managing a 401(k) plan is no different. For example, your plan could fail certain required nondiscrimination tests depending solely on how much each of your employees chooses to defer into the plan for that year (unless you have a safe harbor 401(k) plan that is deemed to pass this testing) QNECs and QMACs are designed to help employers fix specific 401(k) plan problems by making additional contributions to the plan accounts of employees who have been negatively affected. What is a QNEC? A Qualified Nonelective Contribution (QNEC) is a contribution employers can make to the 401(k) plan on behalf of some or all employees to correct certain types of operational mistakes and failed nondiscrimination tests. They are typically calculated based on a percentage of an employee’s compensation. QNECs must be immediately 100% vested when allocated to participants’ accounts. This means they are not forfeitable and cannot be subject to a vesting schedule. QNECs also must be subject to the same distribution restrictions that apply to elective deferrals in a 401(k) plan. In other words, QNECs cannot be distributed until the participant has met one of the following triggering events: severed employment, attained age 59½, died, become disabled, or met the requirements for a qualified reservist distribution or a financial hardship (plan permitting). These assets may also be distributed upon termination of the plan. What is a QMAC? A Qualified Matching Contribution (QMAC) is also an employer contribution that may be used to assist employers in correcting problems in their 401(k) plan. The QMAC made for a participant is a matching contribution, based on how much the participant is contributing to the plan (as pre-tax deferrals, designated Roth contributions, or after-tax employee contributions), or it may be based on the amount needed to bring the plan into compliance, depending on the problem being corrected. QMACs also must be nonforfeitable and subject to the distribution limitations listed above when they are allocated to participant’s accounts. QNECs vs. QMACs Based on % of employee’s compensation based on amount of employee’s contribution QNECs (Qualified Nonelective Contribution) QMACs (Qualified Matching Contribution) Commonly used to pass either the Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) test Most commonly used to pass the Actual Contribution Percentage (ACP) test Frequently Asked Questions about QNECs and QMACs How are QNECs and QMACs used to correct nondiscrimination testing failures? One of the most common situations in which an employer might choose to make a QNEC or QMAC is when their 401(k) plan has failed the Actual Deferral Percentage (ADP) test or the Actual Contribution Percentage (ACP) test for a plan year. These tests ensure the plan does not disproportionately benefit highly compensated employees (HCEs). The ADP test limits the percentage of compensation the HCE group can defer into the 401(k) plan based on the deferral rate of the non-HCE group. The ACP test ensures that the employer matching contributions and after-tax employee contributions for HCEs are not disproportionately higher than those for non-HCEs. When the plan fails one of these tests at year-end, the employer may have a few correction options available, depending on their plan document. Many plans choose to distribute excess deferrals to HCEs to bring the HCE group’s deferral rate down to a level that will pass the test. Your HCEs, however, may not appreciate a taxable refund at the end of the year or a cap on how much they can save for retirement. Making QNECs and QMACs are another option for correcting failed nondiscrimination tests. This option allows HCEs to keep their savings in the plan because the employer is making additional contributions to raise the deferral or contribution rate of the lower paid employees (non-HCEs) to a level that passes the test. How much would I have to contribute to correct a testing failure? For QNECs, the plan usually allows the employer to contribute the minimum QNEC amount needed to boost the non-HCE group’s deferral rate enough to pass the ADP test. The contribution formula may require that an allocation be a specific percentage of compensation that will be given equally to all non-HCEs, or it may allow the allocation to be used in a more targeted fashion that gives the amount needed to pass the test to just certain non-HCEs. QMACs are most commonly made to pass the ACP test. As with QNECs, there are allocation options available to the plan sponsor when making QMACs. A plan sponsor can make targeted QMACs, which are an amount needed to satisfy a nondiscrimination testing failure, or they can allocate QMACs based on the percentage of compensation deferred by a participant. QNECs and QMACs can both be made to help pass the ADP and ACP tests, but a contribution cannot be double counted. For example, if a QNEC was used to help the plan pass the ADP test, that QNEC cannot also be used to help pass the ACP test. How long do I have to make a QNEC or QMAC to correct a testing failure? QNECs/QMACs used to correct ADP/ACP tests generally must be made within 12 months after the end of the plan year being tested. Beware, however, if you use the prior-year testing method for your ADP/ACP tests. If you use this testing method, the QNEC/QMAC must be made by the end of the plan year being tested. For example, if you’re using the prior-year testing method for the 2022 plan year ADP test, the non-HCE group’s deferral rate for 2021 is used to determine the passing rate for HCE deferrals for 2022 testing. Using this prior-year method can help plans proactively determine the maximum amount HCEs may defer each year. But, if the plan still fails testing for some reason, a QNEC or QMAC would have to be made by the end of 2022, which is before the ADP/ACP test would be completed for 2022. QNECs and QMACs deposited by the employer’s tax-filing deadline (plus extensions) for a tax year will be deductible for that tax year. What other types of compliance issues may be corrected with a QNEC or QMAC? Through administrative mix-ups or miscommunications with payroll, a plan administrator might fail to recognize that an employee has met the eligibility requirements to enter the plan or fail to notify the employee of their eligibility. These types of errors tend to happen especially in plans that have an automatic enrollment feature. And sometimes, even when the employee has made an election to begin deferring into the plan, the election can be missed. These types of errors are considered a “missed deferral opportunity.” The employer may correct its mistake by contributing to the plan on behalf of the employee. How is a QNEC or QMAC calculated for a “missed deferral opportunity”? When a missed deferral opportunity is discovered, the employer can correct this operational error by making a QNEC contribution up to 50% of what the employee would have deferred based on their compensation for the year and the average deferral rate for the group the employee belongs to (HCE or non-HCE) for the year the mistake occurred. The QNEC must also include the amount of investment earnings that would be attributable to the deferral had it been contributed timely. If a missed deferral opportunity is being corrected and the plan is a 401(k) safe harbor plan, the employer must make a matching contribution in the form of a QMAC to go with the QNEC to make up for the missed deferrals, plus earnings. Is there a way to reduce the cost of QNECs/QMACs? Employers who catch and fix their mistakes early can reduce the cost of correcting a compliance error. For example, no QNEC is required if the correct deferral amount begins for an affected employee by the first payroll after the earlier of 3 months after the failure occurred, or The end of the month following the month in which the employee notified the employer of the failure. Plans that have an automatic enrollment feature have an even longer time to correct errors. No QNEC is required if the correct deferral amount begins for an affected employee by the first payroll after the earlier of 9½ months after the end of the plan year in which the failure occurred, or The end of the month after the month in which the employee notified the employer of the failure. If it has been more than three months but not past the end of the second plan year following the year in which deferrals were missed, a 25% QNEC (reduced from 50%) is sufficient to correct the plan error. The QNEC must include earnings and any missed matching contributions and the correct deferrals must begin by the first payroll after the earlier of: The end of the second plan year following the year the failure occurred, or The end of the month after the month in which the employee notified the employer of the failure. For all these reduced QNEC scenarios, employees must be given a special notice about the correction within 45 days of the start of the correct deferrals. For More Information These rules are complex, and the calculation of the corrective contribution, as well as the deadline to contribute, varies based on the type of mistake being corrected. You can find more information about correcting plan mistakes using QNECs or QMACs on the IRS’s Employee Plans Compliance Resolution System (EPCRS) webpage. And you can contact your Betterment for Business representative to discuss the correction options for your plan. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional. Betterment assumes no responsibility or liability whatsoever for the content, accuracy, reliability or opinions expressed in a third-party website, to which a published article links (a “linked website”) and such linked websites are not monitored, investigated, or checked for accuracy or completeness by Betterment. It is your responsibility to evaluate the accuracy, reliability, timeliness and completeness of any information available on a linked website. All products, services and content obtained from a linked website are provided “as is” without warranty of any kind, express or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title, non-infringement, security, or accuracy. If Betterment has a relationship or affiliation with the author or content, it will note this in additional disclosure.

Share the Wealth: Everything you need to know about profit sharing 401(k) plans BlogPost 56841825971 Share the Wealth: Everything you need to know about profit sharing 401(k) plans In addition to bonuses, raises, and extra perks, many employers elect to add profit sharing to their 401(k) plan. Read on for answers to frequently asked questions. Has your company had a successful year? A great way to motivate employees to keep up the good work is by sharing the wealth. In addition to bonuses, raises, and extra perks, many employers elect to add profit sharing to their 401(k) plan. Wondering if it might be right for your business? Read on for answers to frequently asked questions about profit sharing 401(k) plans. What is profit sharing? Let’s start with the basics. Profit sharing is a way for you to give extra money to your staff. While you could make direct payments to your employees, it’s very common to combine profit sharing with an employer-sponsored retirement plan. That way, you reward your employees—and help them save for a brighter future. What is a profit sharing plan? A profit sharing plan is a type of defined contribution plan that allows you to help your employees save for retirement. With this type of plan, you make “nonelective contributions” to your employees’ retirement accounts. This means that each year, you can decide how much cash (or company stock, if applicable) to contribute—or whether you want to contribute at all. It’s important to note that the name “profit sharing” comes from a time when these plans were actually tied to the company’s profits. Nowadays, companies have the freedom to contribute what they want, and they don’t have to tie their contributions to the company’s annual profit (or loss). In a pure profit sharing plan, employees do not make their own contributions. However, most companies offer a profit sharing plan in conjunction with a 401(k) plan. What is a profit sharing 401(k) plan? A 401(k) with profit sharing enables both you and your employees to contribute to the plan. Here’s how it works: The 401(k) plan allows employees to make their own salary deferrals up to the IRS limit. The profit sharing component allows employers to contribute up to the IRS limit, noting that the maximum includes the employee's contributions as well. After the end of the year, employers can make their pre-tax profit sharing contribution, as a percentage of each employee’s salary or as a fixed dollar amount Employers determine employee eligibility, set the vesting schedule for the profit sharing contributions, and decide whether employees can select their own investments (or not) What’s the difference between profit sharing and an employer match? Profit sharing and employer matching contributions seem similar, but they’re actually quite different: Employer match—Employer contributions that are tied to employee savings up to a certain percentage of their salary (for example, 50 cents of every dollar saved up to 6% of pay) Profit sharing—An employer has the flexibility to choose how much money—if any at all—to contribute to employees’ accounts each year; the amount is not tied to how much employees save. What kinds of profit sharing plans are there? There are four main types of profit sharing plans: Pro-rata plan—Every plan participant receives employer contributions at the same rate. For example, every employee receives the equivalent of 5% of their salary or every employee receives a flat dollar amount such as $1,000. Why is it good? It’s simple and rewarding. New comparability profit sharing plan (otherwise known as “cross-tested plans”)—Employees are placed into separate benefit groups that receive different profit sharing amounts. For example, business owners (or other highly compensated employees) are in one group that receives the maximum contribution and all other employees are in another group and receive a lower amount. Why is it good? It offers older owners the most flexibility. Minimum Gateway – In order to utilize new comparability, the plan must satisfy the Minimum Gateway Contribution – All non-highly compensated employees (NHCEs) must receive an allocation that is no less than the lesser of 5% of the participant's gross compensation, or 1/3 of the highest contribution rate given to any highly compensated employees (HCEs). General Test – Once the minimum gateway is passed, it must pass the general test which breaks up the plan into “rate groups” based on their Equivalent benefit Accrual Rate (EBAR). Every HCE is in their separate rate group, which includes all participants who have an EBAR equal to or greater than that HCE. If the ratio percentage for each rate group is 70% or higher, the plan passes, and no further testing is necessary. If each rate group does not satisfy the ratio percentage test, then we revert to using the average benefits test. The average benefits test is the more complicated test, and consists of two parts: the nondiscriminatory classification test and the average benefits test. Betterment will always try to make the test pass using the ratio test method first. Permitted disparity—Employees are given a pro-rata base contribution on their entire compensation (up until the IRS limit). In addition, employees who earn more than the integration level, will receive an excess contribution on the amount over that limit. The integration level that provides the highest disparity allowed (5.7%) is the Social Security Taxable Wage Base (SSTWB). Plans that choose to lower the integration amount will receive a reduced disparity limit. Why is it good? It offers younger HCE’s who make more than the SSTWB a greater benefit. Age-weighted profit sharing plan—Employees are given profit sharing contributions based on their retirement age. That is, the older the employee, the higher the contribution. Why is it good? It can help with employee retention. How do I figure out our company’s profit sharing contribution? First, consider which type of profit sharing plan you’ll be using—pro-rata, new comparability, permitted disparity, or age-weighted. Next, take a look at your company’s profits, business outlook, and other financial factors. Keep in mind that: There is no set amount that you have to contribute You don’t need to make contributions Even though it’s called “profit sharing,” you don’t need to show profits on your books to make contributions The IRS notes that the “comp-to-comp” or pro-rata method is one of the most common ways to determine each participant’s allocation. Using this method, you calculate the sum of all of your employees’ compensation (the “total comp”). To determine the profit sharing allocation, divide the profit sharing pool by the total comp. You then multiply this percentage by each employee’s salary. Here’s an example of how it works: Your profit sharing pool is $15,000, and the combined compensation of your three eligible employees is $180,000. Therefore, each employee would receive a contribution equal to 8.3% of their salary. Employee Salary Calculation Profit sharing contribution Taylor $40,000 $15,000 x 8.3% $3,333 Robert $60,000 $15,000 x 8.3% $5,000 Lindsay $80,000 $15,000 x 8.3% $6,667 What are the key benefits of profit sharing for employers? It’s easy to see why profit sharing helps employees, but you may be wondering how it helps your small business. Consider these key benefits: Provide a valuable benefit (while controlling costs)—With employer matching contributions, your costs can dramatically rise if you onboard several new employees. However, with profit sharing, the amount you contribute is entirely up to you. Business is doing well? Contribute more to share the wealth. Business hits a rough spot? Contribute less (or even skip a year). Attract and retain top talent—Profit sharing is a generous perk when recruiting new employees. Plus, you can tweak your profit sharing rules to aid in retention. For example, some employers may elect to have a graded or cliff profit sharing contribution vesting schedule to motivate employees to continue working for their company. Rack up the tax deductions—Profit sharing contributions are tax deductible and not subject to payroll (e.g., FICA) taxes! So if you’re looking to lower your taxable income in a profitable year, your profit sharing plan can help you make the highest possible contribution (and get the highest possible tax write-off). Motivate employees to greater success—Employees who know they’ll receive financial rewards when their company does well are more likely to perform at a higher level. Companies may even link profit sharing to performance goals to motivate employees. What are the rules? The IRS clearly defines rules for contribution limits and calculation rules, tax deduction limits, deadlines, and disclosures (as with any type of 401(k) plan!). Be sure to keep an eye out for any annual changes from the IRS. Are there any downsides to offering a profit sharing plan? Contribution rate flexibility is one of the greatest benefits of a profit sharing 401(k) plan—but it could also be one of its greatest downsides. If business is down one year and employees get a lower profit sharing contribution than they expect, it could have a detrimental impact on morale. However, for many companies, the advantages of a profit sharing 401(k) plan outweigh this risk. How do I set up a profit sharing 401(k) plan? If you already have a 401(k) plan, it requires an amendment to your plan document. However, you’ll want to take the time to think through how your profit sharing plan supports your company’s goals. Betterment can help. At Betterment, we’re here to help with a range of tasks from nondiscrimination testing to plan design consulting to ensure your profit sharing 401(k) plan is working the way your business needs. And as a 3(38) fiduciary, we take full responsibility for selecting and monitoring your investments so you can focus on running your business—not managing your retirement plan. Ready for a better profit sharing 401(k) plan? Get started here. The information provided is education only and is not investment or tax advice. 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.

Getting Started with Betterment at Work BlogPost 56841935704 Getting Started with Betterment at Work Welcome! Here’s your step-by-step guide to getting your 401(k) up and running. You’ve done the due diligence. You’ve picked us as your 401(k) plan provider. You’ve signed a services agreement. Now what? Before we share the steps needed on your part to get your plan up and running, here’s another heartfelt thank you from us to you. Sponsoring a 401(k) plan is a big commitment on your part—the fiduciary responsibilities alone make it one. You’ve placed your trust in us as your plan provider, and we don’t take that lightly. It’s why we stay by your side every step of the way. Speaking of those steps, here are the first ones you’ll take after signing a services agreement: Step 1: Complete a questionnaire One business day after signing a services agreement, you’ll receive an email with a link to a questionnaire that confirms some basic information about your organization and sets up your plan in our system. This questionnaire can only be sent to one person at your organization, typically the person who’s been in contact with our Sales team. Step 2: Log in to your plan sponsor dashboard After completing the questionnaire, you’ll receive an email with a personalized link to your Betterment at Work plan sponsor dashboard, your home for ongoing plan management. After logging in, you’ll see a series of onboarding tasks to complete so we can finish setting up your organization’s plan. Let’s break down some of these tasks below. Step 3: Review and acknowledge the Investment Policy Statement (IPS) This outlines our general investing rules and can be found in your onboarding hub. Step 4: Purchase a fidelity bond Before your first payroll with Betterment at Work, you’ll need to purchase a fidelity bond. This is a form of insurance required of 401(k) plans that protects against acts of fraud or dishonesty. The bond must come from an insurance company certified by the Department of Treasury. While you’re completing steps 1-4, by the way, we’ll be simultaneously drafting your plan document and disclosure notices. Step 5: Review and sign your plan document Once your plan document is ready, you’ll receive an email to review and sign it. After you’ve signed the plan document, we’ll build out your plan on our platform. This can take up to two weeks to get all the details just right. Step 6: Tell your team about their new 401(k) provider! Right after you sign your plan document is a great time to let your team know about your company’s new 401(k) provider: Betterment! This gives employees ample time to get familiar with us before we email them directly with invitations to claim their accounts. It also helps ensure you give this notice the required 30 days or more before your first payroll with us. Not sure what to say? A suggested announcement message is available in your onboarding hub, and includes a link for your employees to register for our recurring Getting Started with your Betterment 401(k) webinar as well as select articles from our employee resource hub (betterment.com/my401k). Step 7: Add employees to your plan Once your plan is built out on our platform, the party really gets started. How employees are added to your plan depends on whether or not your payroll provider integrates with our platform: If your payroll provider is integrated with our platform, we’ll automatically sync employees. You’ll need to review and confirm the list is correct at least 30 days before payroll launch. If your payroll provider is *not* integrated with our platform, you’ll be asked to bulk upload a list of employees at least 30 days before payroll launch, then we’ll generate their accounts. Once your employees’ accounts have been created, we’ll send an email to each employee’s work email inviting them to claim their account and, in the process, create a login. If an employee already has a Betterment account via one of our individual products like an IRA, the claim email will go to their personal email address. Either way, they’ll need to use the unique link in this email to access their account the first time. Step 8: Prepare for your first payroll Check out your onboarding task hub for details on handling your first payroll. Step 9: Celebrate! Congratulations on uploading your first payroll with Betterment at Work! Your employees are now taking advantage of our clean design and straightforward tools to get more out of their 401(k)s. Their accounts will be funded once the ACH deposit is confirmed, which typically takes 1–3 business days depending on your bank. Once your onboarding process is complete, our Onboarding team will send you an email introducing you to our Plan Support team, who can help with all things related to your ongoing plan administration. To access your plan sponsor dashboard, log in here or by clicking "Log in" at the top of the page while visiting betterment.com/work.

Betterment 401(k) – Bulk Upload Tutorial for Plan Sponsors BlogPost 56841825953 Betterment 401(k) – Bulk Upload Tutorial for Plan Sponsors Betterment’s bulk upload tool allows you to add multiple employees to your plan quickly. This tutorial outlines best practices and shares helpful tips for using our bulk upload tool effectively. Step-by-step Tutorial Log in to the employer dashboard Navigate to: employees → add employees → add multiple employees Download the CSV template Open the CSV template using a program like Microsoft Excel, Apple Numbers, or Google Sheets Fill out one row for each employee you want to upload. Use the table below to understand the columns in the template: Column Description First Name The employee’s legal first name No special characters accepted Last Name The employee’s legal last name No special characters accepted Middle Initial Leave blank if the employee doesn’t have a legal middle name Social Security Number The employee’s government-issued Social Security Number If the employee is not a US Citizen, a Social Security Number still needs to be provided Social Security Numbers should be formatted with hyphens, e.g.: 123-45-6789 Email Betterment uses email to complete the employee sign-up process and to send employees important plan notifications and updates Date of Birth Date should be formatted as MM/DD/YYYY Employment Status This field accepts the following inputs: active (currently employed) terminated (formerly employed) deceased (deceased) disabled (on disability leave) unpaid_leave (unpaid leave) retired (retired former employee) Date of Hire Date of hire can be up to one year in the future Date should be formatted as MM/DD/YYYY Date of Termination This field is required if Employment Status is terminated, deceased, disabled or retired This field can be left blank for employees who are active or who are on unpaid leave Date of termination can be up to one year in the future Date should be formatted as MM/DD/YYYY Date of Rehire This field is required if Employment Status is active and Date of Termination is set Address Line 1 This field is required for all employees The employee’s residential address cannot be a PO Box If the employee’s address includes a comma, you must put that address within quotation marks Address Line 2 This field can be left blank if the employee’s residential address is only one line City Part of the employee’s residential address State Part of the employee’s residential address State should be written using the official two-letter postal abbreviation Examples: NY, FL, CA, TX 5 Digit ZIP Code Part of the employee’s residential address Eligible This field accepts an input of Y or N If an employee will be hired in the future, you must enter N for Eligible, and enter a date in the Entry on column. This indicates that the employee will become eligible for the plan on the future date you’ve specified. Entry on This field defines the date on which an employee will become eligible for the 401(k) plan This date can be in the past or the future Date should be formatted as MM/DD/YYYY Electronic Access This field accepts an input of Y or N Can this employee receive emails and access Betterment’s website at a computer they use regularly as part of their job? Union Member This field accepts an input of Y or N Is this employee a member of a union? Date Joined Union Required if the employee is a member of a union Date should be formatted as MM/DD/YYYY Can be left blank for non-union employees Participant Type This field accepts the following inputs: primary (all participants who are currently in the plan, whether active, terminated, deceased, disabled, retired, or on leave) beneficiary (beneficiary of a deceased participant) alternate_payee (a person who will be the payee of a divorce or other legal settlement) Deferral Rate If an employee was participating in a 401(k) plan you had with a previous provider, please indicate their contribution rate from that provider. This will be used as their new default rate at Betterment. The employee will be able to log into their account to change this prior to their first contribution with Betterment. Traditional deferral amount and percent cannot both be present. Roth deferral amount and percent cannot both be present. If you’re not switching to Betterment from a previous provider, you can leave this field blank. After you’re done filling out the document, export the file as a CSV. Upload your CSV file to Betterment. If you receive any errors after uploading your file, review the errors and make changes to your CSV file. Re-upload the file to Betterment after making changes. Once your file is accepted without any errors, you’ll be asked to review the names of the newly created employees. This helps ensure that you’re uploading the correct file to your plan. When you’re done reviewing, click the ‘add employees’ button. Next, the upload process will begin. Once your employees have been uploaded, they’ll receive an email inviting them to complete the sign-up process. Finally, check the employees page to make sure there are no outstanding errors that occurred during the employee creation process. Address any errors that may have occurred. You’re all set! All new participant profiles will be visible on the employees page. You can return to the employees page to make changes to an employee’s profile at any time. Frequently Asked Questions Do I have to do anything else? Nope! You’re all set. Betterment will email all required disclosures to your new plan participants. Do I have to send any notices to my employees? No, Betterment will send all notices to your employees automatically via email. When will my employees be alerted? Employees will be notified by email as soon as their account is created. How can my employees join the plan after I upload their information to Betterment? Employees can check their email for an invite from Betterment to complete the sign-up process. My employee has a P.O. Box as their address. Can I use that address with Betterment? No. To comply with regulations for opening accounts, we require a physical address to verify an employee's identity. Betterment will not send physical mail to an employee’s address (unless they opt into paper statements, which is rare); we will otherwise only use their physical address for account verification. Questions? Contact us.

Plan Design Matters BlogPost 56841935694 Plan Design Matters Thoughtful 401(k) plan design can help motivate even reluctant retirement savers to start investing for their future. Designing a 401(k) plan is like building a house. It takes care, attention, and the help of a few skilled professionals to create a plan that works for both you and your employees. In fact, thoughtful plan design can help motivate even reluctant retirement savers to start investing for their future - read more to learn how. How to tailor a 401(k) plan you and your employees will love As you embark on the 401(k) design process, there are many options to consider. In this article, we’ll take you through the most important choices so you can make well-informed decisions. Since certain choices may not be available on the various pricing models of any given provider, make sure you understand your options and the trade-offs you’re making. Let’s get started! 401(k) eligibility When would you like employees to be eligible to participate in the plan? You can opt to have employees become eligible: Immediately – as soon as they begin working for your company After a specific length of service – for example, a period of hours, months, or years of service It’s also customary to have an age requirement (for example, employees must be 18 years or older to participate in the plan). You may also want to consider an “employee class exclusion” to prevent part-time, seasonal, or temporary employees from participating in the plan. Once employees become eligible, they can immediately enroll – or, you can restrict enrollment to a monthly, quarterly, or semi-annual basis. If you have immediate 401(k) eligibility and enrollment, in theory, more employees could participate in the plan. However, if your company has a higher rate of turnover, you may want to consider adding service length requirements to alleviate the unnecessary administrative burden of having to maintain many small accounts of employees who are no longer with your organization. Enrollment Enrollment is another important feature to consider as you structure your plan. You may simply allow employees to enroll on their own, or you can add an automatic enrollment feature. Automatic enrollment (otherwise known as auto-enrollment) allows employers to automatically deduct elective deferrals from employees’ wages unless they elect not to contribute. With automatic enrollment, all employees are enrolled in the plan at a specific contribution rate when they become eligible to participate in the plan. Employees have the freedom to opt out and change their contribution rate and investments at any time. As you can imagine, automatic enrollment can have a significant impact on plan participation. In fact, according to research by The Defined Contribution Institutional Investment Association (DCIIA), automatic enrollment 401(k) plans have participation rates greater than 90%! That’s in stark contrast to the roughly 50% participation rate for plans in which employees must actively opt in. With the passage of SECURE 2.0, auto-enrollment goes into effect on eligible plans on January 1, 2025. Deferrals must be between 3-10%, escalating to 10-15%. Newly auto-enrolled participants have a 90-day window to request their funds back. Many financial experts recommend a retirement savings rate of 10% to 15%, so using a higher automatic enrollment default rate would give employees even more of a head start. Auto-escalation Auto-escalation is an important feature to look out for as you design your plan. It enables employees to increase their contribution rate over time as a way to increase their savings. With auto-escalation, eligible employees will automatically have their contribution rate increased by 1% every year until they reach a maximum cap of 15%. Employees can also choose to set their own contribution rate at any time, at which point they will no longer be enrolled in the auto-escalation feature. For example, if an employee is auto-enrolled at 6% with a 1% auto-escalation rate, and they choose to change their contribution rate to 8%, they will no longer be subject to the 1% increase every year. Compensation You’re permitted to exclude certain types of compensation for plan purposes, including compensation earned prior to plan entry and fringe benefits for purposes of compliance testing and allocating employer contributions. You may choose to define your compensation as: W2 (box 1 wages) plus deferrals – Total taxable wages, tips, prizes, and other compensation 3401(a) wages – All wages taken into account for federal tax withholding purposes, plus the required additions to W-2 wages listed above Section 415 Safe Harbor – All compensation received from the employer which is includible in gross income Employer contributions Want to encourage employees to enroll in the plan? Free money is a great place to start! That’s why more employers are offering profit sharing or matching contributions. Some common employer contributions are: Safe harbor contributions – With the added bonus of being able to avoid certain time-consuming compliance tests, safe harbor contributions often follow one of these formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—The most common employer match formula is 100% of employee contributions, up to 4% of their compensation, but this could vary. Non-elective contribution—Employer contributes at least 3% of each employee’s compensation, regardless of whether they make their own contributions. Discretionary matching contributions – You decide what percentage of employee 401(k) deferrals to match and the maximum percentage of pay to match. For example, you could elect to match 50% of contributions on up to 6% of compensation. One advantage of having a discretionary matching contribution is that you retain the flexibility to adjust the matching rate as your business needs change. Non-elective contributions – Each pay period, you have the option of contributing to your employees’ 401(k) accounts, regardless of whether they contribute. For example, you could make a profit sharing contribution (one type of non-elective contribution) at the end of the year as a percentage of employees’ salaries or as a lump-sum amount. In addition to helping your employees build their retirement nest eggs, employer contributions are also tax deductible (up to 25% of total eligible compensation), so it may cost less than you think. Plus, we believe offering an employer contribution can play a key role in recruiting and retaining top employees. 401(k) vesting If you elect to make an employer contribution, you also need to decide on a vesting schedule (an employee’s own contributions are always 100% vested). Note that all employer contributions made as part of a safe harbor plan are immediately and 100% vested (although QACA plans can be subject to a 2-year cliff). The three main vesting schedules are: Immediate – Employees are immediately vested in (or own) 100% of employer contributions as soon as they receive them. Graded – Vesting takes place in a gradual manner. For example, a six-year graded schedule could have employees vest at a rate of 20% a year until they are fully vested. Cliff – The entire employer contribution becomes 100% vested all at once, after a specific period of time. For example, if you had a three-year cliff vesting schedule and an employee left after two years, they would not be able to take any of the employer contributions (only their own). Like your eligibility and enrollment decisions, vesting can also have an impact on employee participation. Immediate vesting may give employees an added incentive to participate in the plan. On the other hand, a longer vesting schedule could encourage employees to remain at your company for a longer time. Service counting method If you decide to use length of service to determine your eligibility and vesting schedules, you must also decide how to measure it. Typically, you may use: Elapsed time – Period of service as long as employee is employed at the end of period Actual hours – Actual hours worked. With this method, you’ll need to track and report employee hours Actual hours/equivalency – A formula that credits employees with set number of hours per pay period (for example, monthly = 190 hours) 401(k) withdrawals and loans Naturally, there will be times when your employees need to withdraw money from their retirement accounts. Your plan design will have rules outlining the withdrawal parameters for: Termination In-service withdrawals (at attainment of age 59 ½; rollovers at any time) Hardships Qualified Domestic Relations Orders (QDROs) Required Minimum Distributions (RMDs) Plus, you’ll have to decide whether to allow participants to take 401(k) plan loans (and the maximum amount of the loan). While loans have the potential to derail employees’ retirement dreams, having a loan provision means employees can access their money if they need it and employees can pay themselves back plus interest. If employees are reluctant to participate because they’re afraid their savings will be “locked up,” then a loan provision can help alleviate that fear. Investment options When it comes to investment methodology, there are many strategies to consider. Your plan provider can help guide you through the choices and associated fees. For example, at Betterment, we believe that our expert-built ETF portfolios offer investors significant diversification and flexibility at a low cost. Plus, we offer ETFs in conjunction with personalized advice to help today’s retirement savers pursue their goals. Get help from the experts Your 401(k) plan provider can walk you through your plan design choices and help you tailor a plan that works for your company and your employees. Once you’ve settled on your plan design, you will need to codify those features in the form of a formal plan document to govern your 401(k) plan. At Betterment, we draft the plan document for you and provide it to you for review and final approval. Your business is likely to evolve—and your plan design can evolve, too. Drastic increase in profits? Consider adding an employer match or profit sharing contribution to share the wealth. Plan participation stagnating? Consider adding an automatic enrollment feature to get more employees involved. Employees concerned about access to their money in an uncertain world? Consider adding a 401(k) loan feature. Need a little help figuring out your plan design? Talk to Betterment. Our experts make it easy for you to offer your employees a better 401(k) —at one of the lowest costs in the industry.

Everything You Need to Know About 401(k) Blackout Periods BlogPost 56841935706 Everything You Need to Know About 401(k) Blackout Periods Maybe you’ve heard of a 401(k) blackout period, but if you don’t know exactly what it is or how to explain it to your employees, read on. You’ve probably heard of a 401(k) plan blackout period – but do you know what it is and how to explain it to your employees? Read on for answers to the most frequently asked questions about blackout periods. What is a blackout period? A blackout period is a time when participants are not able to access their 401(k) accounts because a major plan change is being made. During this time, they are not allowed to direct their investments, change their contribution rate or amount, make transfers, or take loans or distributions. However, plan assets remain invested during the blackout period. In addition, participants can continue to make contributions and loan repayments, which will continue to be invested according to the latest elections on file. Participants will be able to see these inflows and any earnings in their accounts once the blackout period has ended. When is a blackout period necessary? Typically, a blackout period is necessary when: 401(k) plan assets and records are being moved from one retirement plan provider to another New employees are added to a company’s plan during a merger or acquisition Available investment options are being modified Blackout periods are a normal and necessary part of 401(k) administration during such events to ensure that records and assets are accurately accounted for and reconciled. In these circumstances, participant accounts must be valued (and potentially liquidated) so that funds can be reinvested in new options. In the event of a plan provider change, the former provider must formally pass the data and assets to the new plan provider. Therefore, accounts must be frozen on a temporary basis before the transition. How long does a blackout period last? A blackout period usually lasts about 10 business days. However, it may need to be extended due to unforeseen circumstances, which are rare; but there is no legal maximum limit for a blackout period. Regardless, you must give advance notice to your employees that a blackout is on the horizon. What kind of notice do I have to give my employees about a blackout period? Is your blackout going to last for more than three days? If so, you’re required by federal law to send a written notice of the blackout period to all of your plan participants and beneficiaries. The notice must be sent at least 30 days – but no more than 60 days – prior to the start of the blackout. Typically, your plan provider will provide you with language so that you can send an appropriate blackout notice to your plan participants. If you are moving your plan from another provider to Betterment, we will coordinate with your previous recordkeeper to establish a timeline for the transfer, including the timing and expected duration of the blackout period. Betterment will draft a blackout notice on your behalf to provide to your employees, which will include the following: Reason for the blackout Identification of any investments subject to the blackout period Description of the rights otherwise available to participants and beneficiaries under the plan that will be temporarily suspended, limited, or restricted The expected beginning and ending date of the blackout A statement that participants should evaluate the appropriateness of their current investment decisions in light of their inability to direct or diversify assets during the blackout period If at least 30 days-notice cannot be given, an explanation of why advance notice could not be provided The name, address, and telephone number of the plan administrator or other individual who can answer questions about the blackout Who should receive the blackout notice? All plan participants with a balance should receive the blackout notice, regardless of their employment status with your company. In addition, we suggest sending the notice to eligible active employees, even if they currently don’t have a balance, since they may wish to start contributing and should be made aware of the upcoming blackout period. What should I say if my employees are concerned about an upcoming blackout period? Reassure your employees that a blackout period is normal and that it’s a necessary event that happens when significant plan changes are made. Also, encourage them to look at their accounts and make any changes they see fit prior to the start of the blackout period. Thinking about changing plan providers? If you’re thinking about changing plan providers, but are concerned about the ramifications of a blackout period, know that Betterment is here to help. Our team is here to guide you through the process, and we are committed to making the transition as seamless as possible for you and your participants.

Understanding 401(k) Fees BlogPost 56841935690 Understanding 401(k) Fees Come retirement time, the number of 401(k) plan fees charged can make a major difference in your employees’ account balances—and their futures. Did you know that the smallest 401(k) plans often pay the most in fees? We believe that you don’t have to pay high fees to provide your employees with a top-notch 401(k) plan. In fact, Betterment offers comprehensive plan solutions at one of the lowest costs in the industry. Why do 401(k) fees matter? The difference between a 1% fee and a 2% fee may not sound like much, but in reality, higher 401(k) fees can take a major bite out of your participants’ retirement savings. Consider this example: Triplets Jane, Julie, and Janet each began investing in their employers’ 401(k) plan at the age of 25. Each had a starting salary of $50,000, increased by 3% annually, and contributed 6% of their pre-tax salary with no company matching contribution. Their investments returned 6% annually. The only difference is that their retirement accounts were charged annual 401(k) fees of 1%, 1.5%, and 2%, respectively. Forty years later, they’re all thinking about retiring and decide to compare their account balances. Here’s what they look like: Annual 401(k) fee Account balance at age 65 Jane 1% $577,697 Julie 1.5% $517,856 Janet 2% $465,894 Information is hypothetical and provided for educational purposes only. As such, these figures do not reflect Betterment’s management fee and do not reflect any actual client performance As you can see, come retirement time, the amount of fees charged can make a major difference in your employees’ account balances—and their futures. Why should employers care about 401(k) fees? You care about your employees, so naturally, you want to help them build brighter futures. But beyond that, it’s your fiduciary duty as a plan sponsor to make sure you’re only paying reasonable 401(k) fees for services that are necessary for your plan. The Department of Labor (DOL) outlines rules that you must follow to fulfill this fiduciary responsibility, including “ensuring that the services provided to the plan are necessary and that the cost of those services is reasonable” and has published a guide to assist you in this process. Generally, any firm providing services of $1,000 or more to your 401(k) plan is required to provide a fee disclosure, which is the first step in understanding your plan’s fees and expenses. It’s important to note that the regulations do not require you to help ensure your fees are the lowest available, but that they are reasonable given the level and quality of service and support you and your employees receive. Benchmark the fees against similar retirement plans (by number of employees and plan assets, for example) to see if they’re reasonable. What are the main types of fees? Typically, 401(k) fees fall into three categories: administrative fees, individual service fees, and investment fees. Let’s dig a little deeper into each category: Plan administration fees—Paid to your 401(k) provider, plan administration fees typically cover 401(k) set-up fees, as well as general expenses such as recordkeeping, communications, support, legal, and trustee services. These costs are often assessed as a flat annual fee. Investment fees—Investment fees, typically assessed as a percentage of assets under management, may take two forms: fund fees that are expressed as an expense ratio or percentage of assets, and investment advisory fees for portfolio construction and the ongoing management of the plan assets. Betterment, for instance, acts as investment advisor to its 401(k) clients, assuming full fiduciary responsibility for the selection and monitoring of funds. And as is also the case with Betterment, the investment advisory fee may even include personalized investment advice for every employee. Individual service fees—If participants elect certain services—such as taking out a 401(k) loan—they may be assessed individual fees for each service. Wondering what you and your employees are paying in 401(k) fees? Fund fees are detailed in the funds’ prospectuses and are often wrapped up into one figure known as the expense ratio, expressed as a percentage of assets. Other fees are described in agreements with your service providers. High quality, low fees Typically, mutual funds have dominated the retirement investment landscape, but in recent years, exchange-traded funds (ETFs) have become increasingly popular. At Betterment, we believe that a portfolio of ETFs, in conjunction with personalized, unbiased advice, is the ideal solution for today’s retirement savers. Who pays 401(k) fees: the employer or the participant? The short answer is that it depends. As the employer, you may have options with respect to whether certain fees may be allocated to plan participants. Expenses incurred as a result of plan-related business expenses (so-called “ settlor expenses”) cannot be paid from plan assets. An example of such an expense would be a consulting fee related to the decision to offer a plan in the first place. Other costs associated with plan administration are eligible to be charged to plan assets. Of course, just because certain expenses can be paid by plan assets doesn’t mean you are off the hook in monitoring them and ensuring they remain reasonable. Plan administration fees are often paid by the employer. While it could be a significant financial responsibility for you as the business owner, there are three significant upsides: Reduced fiduciary liability—As you read, paying excessive fees is a major source of fiduciary liability. If you pay for the fees from a corporate account, you reduce potential liability. Lowered income taxes—If your company pays for the administration fees, they’re tax deductible! Plus, you can potentially save even more with the new SECURE Act tax credits for starting a new plan and for adding automatic enrollment. Increased 401(k) returns—Do you take part in your own 401(k) plan? If so, paying 401(k) fees from company assets means you’ll be keeping more of your personal retirement savings. Fund fees are tied to the individual investment options in each participant’s portfolio. Therefore, these fees are paid from each participant’s plan assets. Individual service fees are also paid directly by investors who elect the service, for example, taking a plan loan. How can you minimize your 401(k) fees? Minimizing your fees starts with the 401(k) provider you choose. In the past, the price for 401(k) plan administration was quite high. However, things have changed, and now the era of expensive, impersonal, unguided retirement saving is over. Innovative companies like Betterment now offer comprehensive plan solutions at a fraction of the cost of most providers. Betterment combines the power of efficient technology with personalized advice so that employers can provide a benefit that’s truly a benefit, and employees can know that they’re invested correctly for retirement. No hidden fees. Maximum transparency. Costs are often passed to the employee through fund fees, and in fact, mutual fund pricing structures incorporate non-investment fees that can be used to pay for other types of expenses. Because they are embedded in mutual fund expense ratios, they may not be explicit, therefore making it difficult for you to know exactly how much you and your employees are paying. In other words, most mutual funds in 401(k) plans contain hidden fees. At Betterment, we believe in transparency. Our use of ETFs means there are no hidden fees, so you and your employees are able to know how much you’re paying for the underlying investments themselves. Plus, our pricing structure unbundles the key offerings we provide—advisory, investment, record keeping, and compliance—and assigns a fee to each service. A clearly defined fee structure means no surprises for you—and more money working harder for your employees.

What is a 401(k) QDIA? BlogPost 56841935680 What is a 401(k) QDIA? A QDIA (Qualified Default Investment Alternative) is the plan’s default investment. When money is contributed to the plan, it’s automatically invested in the QDIA. What is a QDIA? A 401(k) QDIA (Qualified Default Investment Alternative) is the investment used when an employee contributes to the plan without having specified how the money should be invested. As a "safe harbor," a QDIA relieves the employer from liability should the QDIA suffer investment losses. Here’s how it works: When money is contributed to the plan, it’s automatically invested in the QDIA that was selected by the plan fiduciary (typically, the business owner or the plan sponsor). The employee can leave the money in the QDIA or transfer it to another plan investment. When (and why) was the QDIA introduced? The concept of a QDIA was first introduced when the Pension Protection Act of 2006 (PPA) was signed into law. Designed to boost employee retirement savings, the PPA removed barriers that prevented employers from adopting automatic enrollment. At the time, fears about legal liability for market fluctuations and the applicability of state wage withholding laws had prevented many employers from adopting automatic enrollment—or had led them to select low-risk, low-return options as default investments. The PPA eliminated those fears by amending the Employee Retirement Income Security Act (ERISA) to provide a safe harbor for plan fiduciaries who invest participant assets in certain types of default investment alternatives when participants do not give investment direction. To assist employers in selecting QDIAs that met employees’ long-term retirement needs, the Department of Labor (DOL) issued a final regulation detailing the characteristics of these investments. Learn more about what kinds of investments qualify as QDIAs below. Why does having a QDIA matter? When a 401(k) plan has a QDIA that meets the DOL’s rules, then the plan fiduciary is not liable for the QDIA’s investment performance. Without a QDIA, the plan fiduciary is potentially liable for investment losses when participants don’t actively direct their plan investments. Plus, having a QDIA in place means that employee accounts are well positioned—even if an active investment decision is never taken. If you select an appropriate default investment for your plan, you can feel confident knowing that your employees’ retirement dollars are invested in a vehicle that offers the potential for growth. Does my retirement plan need a QDIA? Yes, it’s a smart idea for all plans to have a QDIA. That’s because, at some point, money may be contributed to the plan, and participants may not have an investment election on file. This could happen in a number of situations, including when money is contributed to an account but no active investment elections have been established, such as when an employer makes a contribution but an employee isn’t contributing to the plan; or when an employee rolls money into the 401(k) plan prior to making investment elections. It makes sense then, that plans with automatic enrollment must have a QDIA. Are there any other important QDIA regulations that I need to know about? Yes, the DOL details several conditions plan sponsors must follow in order to obtain safe harbor relief from fiduciary liability for investment outcomes, including: A notice generally must be provided to participants and beneficiaries in advance of their first QDIA investment, and then on an annual basis after that Information about the QDIA must be provided to participants and beneficiaries which must include the following: An explanation of the employee’s rights under the plan to designate how the contributions will be invested; An explanation of how assets will be invested if no action taken regarding investment election; Description of the actual QDIA, which includes the investment objectives, characteristics of risk and return, and any fees and expenses involved Participants and beneficiaries must have the opportunity to direct investments out of a QDIA as frequently as other plan investments, but at least quarterly For more information, consult the DOL fact sheet. What kinds of investments qualify as QDIAs? The DOL regulations don’t identify specific investment products. Instead, they describe mechanisms for investing participant contributions in a way that meets long-term retirement saving needs. Specifically, there are four types of QDIAs: An investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date (for example, a professionally managed account like the one offered by Betterment) A product with a mix of investments that takes into account the individual’s age or retirement date (for example, a life-cycle or target-date fund) A product with a mix of investments that takes into account the characteristics of the group of employees as a whole, rather than each individual (for example, a balanced fund) The fourth type of QDIA is a capital preservation product, such as a stable value fund, that can only be used for the first 120 days of participation. This may be an option for Eligible Automatic Contribution Arrangement (EACA) plans that allow withdrawals of unintended deferrals within the first 90 days without penalty. We’re excluding further discussion of this option here since plans must still have one of the other QDIAs in cases where the participant takes no action within the first 120 days. What are the pros and cons of each type of QDIA? Let’s breakdown each of the first three QDIAs: 1. An investment service that allocates contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date Such an investment service, or managed account, is often preferred as a QDIA over the other options because they can be much more personalized. This is the QDIA provided as part of Betterment 401(k)s. Betterment factors in more than just age (or years to retirement) when assigning participants their particular stock-to-bond ratio within our Core portfolios. We utilize specific data including salary, balance, state of residence, plan rules, and more. And while managed accounts can be pricey, they don’t have to be. Betterment’s solution, which is relatively lower in cost due to investing in exchange traded funds (ETFs) portfolios, offers personalized advice and an easy-to-use platform that can also take external and spousal/partner accounts into consideration. 2. A product with a mix of investments that takes into account the individual’s age or retirement date When QDIAs were introduced in 2006, target date funds were the preferred default investment. The concept is simple: pick the target date fund with the year that most closely matches the year the investor plans to retire. For example, in 2020 if the investor is 45 and retirement is 20 years away, the 2040 Target Date Fund would be selected. As the investor moves closer to their retirement date, the fund adjusts its asset mix to become more conservative. One common criticism of target date funds today is that the personalization ends there. Target date funds are too simple and their one-size-fits-all portfolio allocations do not serve any individual investor very well. Plus, target date funds are often far more expensive compared to other alternatives. Finally, most target date funds are composed of investments from the same company—and very few fund companies excel at investing across every sector and asset class. Many experts view target date funds as outdated QDIAs and less desirable than managed accounts. 3. A product with a mix of investments that takes into account the characteristics of the group of employees as a whole This kind of product—for example, a balanced fund—offers a mix of equity and fixed-income investments. However, it’s based on group demographics and not on the retirement needs of individual participants. Therefore, using a balanced fund as a QDIA is a blunt instrument that by definition will have an investment mix that is either too heavily weighted to one asset class or another for most participants in your plan. Better QDIAs—and better 401(k) plans Betterment provides tailored allocation advice based on what each individual investor needs. That means greater personalization—and potentially greater investment results—for your employees. At Betterment, we monitor plan participants’ investing progress to make sure they’re on track to reach their goals. When they’re not on target, we provide actionable advice to help get them back on track. As a 3(38) investment manager, we assume full responsibility for selecting and monitoring plan investments—including your QDIA. That means fiduciary relief for you and better results for your employees. The exchange-traded fund (ETF) difference Another key component that sets Betterment apart from the competition is our exclusive use of ETFs. Here's why we use them: Low cost—ETFs generally cost less than mutual funds, which means more money stays invested. Diversified—All of the portfolios used by Betterment are designed with diversification in mind, so that investors are not overly exposed to individual stocks, bonds, sectors, or countries—which may mean better returns in the long run. Efficient—ETFs take advantage of decades of technological advances in buying, selling, and pricing securities. Helping your employees live better Our mission is simple: to empower people to do what’s best for their money so they can live better. Betterment’s suite of financial wellness solutions, from our QDIAs to our user-friendly investment platform, is designed to give your employees a more personalized experience. We invite you to learn more about what we can do for you.

All About Vesting of Employer Contributions BlogPost 56841825955 All About Vesting of Employer Contributions Employers have flexibility in defining their plan’s vesting schedule, which can be an important employee retention tool. Regardless of age, employees (as well as job seekers), are thinking about saving for their future. 401(k) plans, therefore, are a very attractive benefit and can be an important competitive tool in helping employers attract and retain talent. And when a company sweetens the 401(k) plan with a matching or profit sharing contribution, that’s like “free money” that can be hard for prospective and current employees to pass up. But with employer contributions comes the concept of “vesting,” which both employees and employers should understand. What is Vesting? With respect to retirement plans, “vesting” simply means ownership. In other words, each employee will vest, or own, a portion or all of their account in the plan based on the plan’s vesting schedule. All 401(k) contributions that an employee makes to the plan, including pre-tax and/or Roth contributions made through payroll deduction, are immediately 100% vested. Those contributions were money earned by the employee as compensation, and so they are owned by the employee immediately and completely. Employer contributions made to the plan, however, usually vest according to a plan-specific schedule (called a vesting schedule) which may require the employee to work a certain period of time to be fully vested or “own” those funds. Often ownership in employer contributions is made gradually over a number of years, which can be an effective retention tool by encouraging employees to stay long enough to vest in 100% of their employer contributions. What is a 401(k) Vesting Schedule? The 401(k) vesting schedule is the set of rules outlining how much and when employees are entitled to (some or all of) the employer contributions made to their accounts. Typically, the more years of service, the higher the vesting percentage. Different Types of 401(k) Vesting Schedules Employers have flexibility in determining the type and length of vesting schedule. The three types of vesting are: Immediate Vesting - This is very straight-forward in that the employee is immediately vested (or owns) 100% of employer contributions from the point of receipt. In this case, employees are not required to work a certain number of years to claim ownership of the employer contribution. An employee who was hired in the beginning of the month and received an employer matching contribution in his 401(k) account at the end of the month could leave the company the next day, along with the total amount in his account (employee plus employer contributions). Graded Vesting Schedule - Probably the most common schedule, vesting takes place in a gradual manner. At least 20% of the employer contributions must vest after two years of service and 100% vesting can be achieved after anywhere from two to six years to achieve 100% vesting. Popular graded vesting schedules include: 3-Year Graded 4-Year Graded 5-Year Graded 6-Year Graded Yrs of Service % Vested % Vested % Vested % Vested 0 - 1 33% 25% 20% 0% 1 - 2 66% 50% 40% 20% 2 - 3 100% 75% 60% 40% 3 - 4 100% 80% 60% 4 - 5 100% 80% 5 - 6 100% Cliff Vesting Schedule - With a cliff vesting schedule, the entire employer contribution becomes 100% vested all at once, after a specific period of time. For example, if the company has a 3 year cliff vesting schedule and an employee leaves for a new job after two years, the employee would only be able to take the contributions they made to their 401(k) account; they wouldn’t have any ownership rights to any employer contributions that had been made on their behalf. The maximum number of years for a cliff schedule is 3 years. Popular cliff vesting schedules include: 2-Year Cliff 3-Year Cliff Yrs of Service % Vested % Vested 0 - 1 0% 0% 1 - 2 100% 0% 2 - 3 100% Frequently Asked Questions about Vesting What is a typical vesting schedule? Vesting schedules can vary for every plan. However, the most common type of vesting schedule is the graded schedule, where the employee will gradually vest over time depending on the years of service required. Can we change our plan’s vesting schedule in the future? Yes, with a word of caution. In order to apply to all employees, the vesting schedule can change only to one that is equally or more generous than the existing vesting schedule. Known as the anti-cutback rule, this prevents plan sponsors from taking away benefits that have already accrued to employees. For example, if a plan has a 4-year graded vesting schedule, it could not be amended to a 5- or 6-year graded vesting schedule (unless the plan is willing to maintain separate vesting schedules for new hires versus existing employees). The same plan could, however, amend its vesting schedule to a 3-year graded one, since the new benefit would be more generous than the previous one. Since my plan doesn't currently offer employer contributions, I don't need to worry about defining a vesting schedule, right? Whether or not your organization plans on making 401(k) employer contributions, for maximum flexibility, we recommend that all plans include provisions for discretionary employer contributions and a more restrictive vesting formula. The discretionary provision in no way obligates the employer to make contributions (the employer could decide each year whether to contribute or not, and how much). In addition, having a restrictive vesting schedule means that the vesting schedule could be amended easily in the future. When does a vesting period begin? Usually, a vesting period begins when an employee is hired so that even if the 401(k) plan is established years after an employee has started working at the company, all of the year(s) of service prior to the plan’s establishment will be counted towards their vesting. However, this is not always the case. The plan document may have been written such that the vesting period starts only after the plan has been in effect. This means that if an employee was hired prior to a 401(k) plan being established, the year(s) of service prior to the plan’s effective date will not be counted. What are the methods of counting service for vesting? Service for vesting can be calculated in two ways: hours of service or elapsed time. With the hours of service method, an employer can define 1,000 hours of service as a year of service so that an employee can earn a year of vesting service in as little as five or six months (assuming 190 hours worked per month). The employer must be diligent in tracking the hours worked to make sure vesting is calculated correctly for each employee and to avoid over-forfeiting or over-distributing employer contributions. The challenges of tracking hours of service often lead employers to favor the elapsed time method. With this method, a year of vesting is calculated based on years from the employee’s date of hire. If an employee is still active 12 months from their date of hire, then they will be credited with one year of service toward vesting, regardless of the hours or days worked at the company. If there is an eligibility requirement to be a part of the plan, does vesting start after an employee becomes an eligible participant in the plan? Typically, no, but it is dependent on what has been written into the plan document. As stated previously, the vesting clock usually starts ticking when the employee is hired. An employee may not be able to join the plan because there’s a separate eligibility requirement that must be met (for example, 6 months of service), but the eligibility computation period is completely separate from the vesting period. The only instance where an ineligible participant may not start vesting from their date of hire is if the plan document excludes years of service of an employee who has not reached the age of 18. How long does an employer have to deposit employer contributions to the 401(k) plan? This is dependent on how the plan document is written. If the plan document is written for employer contributions to be made every pay period, then the plan sponsor must follow their fiduciary duty to make sure that the employer contribution is made on time. If the plan document is written so that the contribution can be made on an annual basis, then the employer can wait until the end of the year ( or even until the plan goes through their annual compliance testing) to wait for the contribution calculations to be received from their provider. What happens to an employer contribution that is not vested? If an employee leaves the company before they are fully vested, then the unvested portion (including associated earnings) will be “forfeited” and returned to the employer’s plan cash account, which can be used to fund future employer contributions or pay for plan expenses. For example, if a 401(k) plan has a 6-year graded vesting schedule and an employee terminates service after only 5 years, 80% of the employer contribution will belong to the employee, and the remaining 20% will be sent back to the employer when the employee initiates a distribution of their account.

Betterment’s 401(k) Investment Approach BlogPost 56844814877 Betterment’s 401(k) Investment Approach Helping employees make better decisions and providing choice to those who want it. Dan Egan, Betterment’s VP of Behavioral Finance and Investing, explains why Betterment’s investment approach is effective for all 401(k) participants Investment Approach Q&A Betterment’s 401(k) investment approach differs from that of traditional providers, but can you give us a little history about the 401(k) environment pre-Betterment? If I go back to the first job where I had a 401(k) probably about 20 years ago, there was a lineup of funds, and it was up to me as a 401(k) participant to figure out which funds to pick and in what ratios, how much to save and so on. The research coming from that period showed that people often ended up in an analysis paralysis state, where there was so much choice and so many things to consider. It was very difficult for people to know whether they were investing at the appropriate risk level, how much they were paying and so on. Many people were so overloaded that they decided to forego saving for retirement rather than risk making a “bad” decision. But as the industry matured, and everyone realized that more choice does not necessarily lead to better decision-making, the Pension Protection Act (PPA) was passed in 2006. The idea here was not to eliminate choice, but to encourage good defaults that would encourage 401(k) plan participation. How exactly did the PPA encourage more 401(k) participation? For one thing, it allowed for safe harbor investments in the form of QDIAs, or qualified default investment alternatives. The most popular QDIAs were target date funds, which are linked to an individual’s age so if you're 40, it’s assumed that you will be investing for the next 25 years and retiring at 65. Target dates have a glidepath so that the stock allocation becomes more conservative over time, so the employee doesn't have to do anything like managing a portfolio or rebalancing. After the PPA, it became much more common for employees to be auto-enrolled using a target date fund or something like it, and all of sudden, they no longer had to make choices. People were no longer worried about picking and choosing from a whole bunch of individual funds or even individual stocks. And the plan designs promoted by the PPA really worked: plan participation rates that had been languishing saw rates increase to more than 90% after implementing auto-enrollment. By the time Betterment started its 401(k) platform, the changes brought about by the PPA were already well established. So talk a little bit now about how Betterment's 401(k) investment approach differs from that of traditional 401(k) providers. Betterment takes and builds upon a lot of the ideas in a target date fund and goes further. Number one, we are not a fund provider. We are independent from fund companies. So part of our job as a 3(38) investment fiduciary is to be an investment advisor and financial advisor, and do the due diligence on all of the funds that we make available. If you're picking from amongst eight large-cap US stock funds, there's not a lot of variation in what their returns are going to look like and you can generally predict performance versus a benchmark knowing the fund costs. So part of our job is to actually do the work on the behalf of participants, to narrow down the field of funds towards just the ones that stand out within a given asset class and that are cost-effective. We then ask more specific questions including not just how old someone is, but also more personalized questions like when someone plans on retiring. Some people want to retire as early as possible. That might be 55, 57, 62 (which is the earliest possible age you can start collecting Social Security). Other people want to keep working as late as possible, which is 70 or 72. Those are extremely different retirement plans that should have different portfolios based upon those hugely different time horizons. So unlike a target date fund, which says, this is your age and you're done, Betterment is going to ask about your age, but also things like, when do you want to retire? Putting together a retirement plan might also involve your spouse or significant others, retirement assets, and even doing tax optimization across the account types that you have available to you. And how does that help the employee? A lot of it is about making it easy for consumers to make better decisions, not imposing a bunch of choices on them. You have to remember, the vast majority of people are not frequently thinking about stocks and investing. They don't want to have to look up prospectuses and put together a risk managed portfolio. So Betterment does the work for them to make it easy for them to understand how to get to where they want to be. I want to be clear that that's not necessarily about removing choice, it's about making it easy to get to a solution quickly. It’s also about minimizing the number of unnecessary choices for most people while maintaining choice for people who want it. At Betterment, 401(k) investors can still modify your risk level. You can say, "Yeah, maybe it makes sense for me to be at 90% stocks, but I'm not comfortable with it. I want to be at 30% stocks." Or they can modify their allocations using our flexible portfolio strategy, so that they can come in and say, "Actually I don't like international [investments] as much." So it's not about removing choice. And we let them see the consequences of that in terms of risk and return. So employees in Betterment 401(k)s have choice, but how do you respond to people who might already have a 401(k) or are already invested in funds outside of their 401(k), and have a favorite fund that they feel is an absolute must have? I’m not necessarily against people who have put time and effort into researching something and wanting to invest in it. But I think it is focusing on the wrong thing. When you look at long-run research statistics on funds, the predictability of fund success within a category is low. A fund that outperformed last quarter is unlikely to continue to outperform this quarter. So I would say that the fund is very rarely the most important aspect of the 401(k) plan or decision. And I’d guess most participants don't have a favorite fund. Again, going back to research we've looked at across a wide array of companies, most people are looking to minimize how much burden is imposed upon them in making decisions about what they should do for their retirement. There is generally a very small minority who have very strong views about what the right investments are. And that trade-off shows up in that we will generally look at low-cost funds, well-diversified funds. We do offer a range of choice in terms of portfolio strategy: do you want a factor-tilted portfolio or a socially-responsible portfolio or an income portfolio? Without necessarily saying that you're responsible for doing the fund due diligence yourself. It is true that we offer a trade-off: we're not the wild west where you can go out and get anything you want. And that is because that level of discretion is rarely used by plan participants. There's a lot of potential to do the wrong thing when somebody has a completely open access plan. Not to mention, all plan fiduciaries have an obligation to act in the best interests of their plan participants as a whole. So they have to evaluate what makes the most sense for the majority of plan participants, not a small, vocal minority. Somewhat related, what is your response to people who argue that Betterment’s all-ETF fund line-up is too limited? A 401(k) plan made up exclusively of ETFs is no less limiting than a 401(k) plan made up exclusively of mutual funds. Because mutual funds have been around much longer, it’s true that their universe is larger, but I think anyone would be hard pressed to argue that our expert-built and third-party portfolios are not enough to choose from. ETFs are critical to Betterment’s investment approach and a better alternative for 401(k) plans, in large part because mutual funds have complex fee structures and are typically more expensive than ETFs which have transparent and low costs. So why do so many plans still use mutual funds? We believe it’s not despite these issues but because of them, since fees embedded in mutual fund expense ratios are often used to offset the costs of 401(k) vendors servicing the plan. In addition, many legacy recordkeeping systems do not have the technology to handle ETF intraday trading and must restrict their clients to using funds that are only valued at the end of the day. Betterment’s 401(k) plan comes with a 0.25% investment advisory fee. What do employers and employees get for that? I think there's actually two levels to this. The first is “does this actually cost me more?” It’s definitely more transparent in its cost, but most 401(k) plans charge more via higher fund fees. The fund fees may even include embedded fees that go to pay for other plan services. In these more traditional models, the fees are hidden from you, the consumer. But trust me: everybody is getting paid. It's just a matter of whether or not you're aware how much and who you're paying. That also sets up the very important second aspect which is: what is this investment manager responsible for and what are they incentivized to do well? What does Betterment do for 25 basis points? Well, number one, that's how we make sure that we're independent from the fund companies; we don’t get paid by them. Every quarter, we go out and we look at all of the funds that are available in the market. We review them, independent of who provides them, looking at cost, liquidity, tax burdens, and more. And if we find a better fund, because we take no money from fund companies, we're going to move to that better fund. So one thing that you're paying for is, in effect, not only ongoing due diligence and checking, but you're paying for independence, which means that you know we’re unbiased when changes are made inside of your portfolio. The other thing you get is that we want to earn that 25 basis points by serving clients better. So we want to invest in things like personalized retirement portfolios (available to every 401(k) participant) where we are actually able to give better retirement advice that takes into account you, your partner, all the various kinds of retirement accounts you have: Roth, IRA, taxable, trust, and more. Or asset location, for example, which works across tax-advantaged retirement accounts so that employees can keep more of their money and enjoy higher levels of spending in retirement. Employees with a Betterment 401(k) can learn more about our investment options here; plan sponsors can explore them here.

ESG Investments in 401(k) Plans BlogPost 61641688365 ESG Investments in 401(k) Plans The DOL proposal provides clarity with ESG investing. In the beginning of 2021, the Department of Labor (DOL) released a “final rule” entitled “Financial Factors in Selecting Plan Investments,” pertaining to ESG (environmental, social, governance) investments within a 401(k) plan. In March 2021, the DOL under the Biden administration stated that they were not going to enforce the previous administration’s rule until they had completed their own review. Most recently, the Biden DOL released its own proposal, reworking parts of the rule to be more favorable to the inclusion of ESG investments within 401(k)s and clarifying areas that had a chilling effect on fiduciaries performing their responsibilities. So what’s changed? 2020 Rule New Proposal Evaluating investments Investment choices must be based on “pecuniary” factors, which include time horizon, diversification, risk, and return. Clarifies that ESG factors are permissible and are financially material in the consideration of investments. Qualified default investment alternative (QDIA) Cannot select investment based on one or more non-pecuniary factors. ESG factors are permissible, allowing the possibility of wider adoption of ESG funds and portfolios. Tie-breaker test (when deciding between investments) Non-financial factors such as ESG are permissible. However, they must have detailed documentation. Permitted to select investments based on “collateral benefits” such as ESG. Where collateral benefits form the basis for investment choice, disclosure of collateral benefits required. Detailed tie-breaker documentation not required. Proxy voting Fiduciaries are not required to vote every proxy or exercise every shareholder right. Revised language stresses the importance of proxy voting in line with fiduciary obligations. Special monitoring for proxy voting when outsourcing responsibilities. Proxy voting activities must be recorded. Additional special monitoring is not required. Removal of record keeping of proxy activities. Safe harbors: a fiduciary can choose not to vote proxy if (a) the proposal is related to business activities or investment value (b) percentage ownership or the proposal being voted on is not significant enough to materially impact. Removal of safe harbors. Voting to further political or social causes “that have no connection to enhancing the economic value of the plan's investment” through proxy voting or shareholder activism is a violation. Opens the door to ESG factors when voting proxies as under the proposed rule that they are economically material. Why is this important? Under the proposal, the DOL clarifies that “climate change and other ESG factors can be financially material and when they are, considering them will inevitably lead to better long-term risk-adjusted returns, protecting the retirement savings of America’s workers.” Under the previous rule, many ESG factors would not count as a “pecuniary” factor. However, in actuality ESG factors have a high likelihood of impacting financial performance in the long run. For example, climate change can shift environmental conditions, force companies to transition and adapt to these shifts, lead to disruptions in business cycles and new innovations, and ultimately be a material financial risk over time when a company declines from failing to adapt. For retirement plans, the DOL’s revised proposal acknowledges that ESG risks could be important to consider when reviewing investments for strategic portfolio construction. Driving impact through ESG investing and proxy voting works. We’ve seen this concept in action with Engine No. 1 winning three ExxonMobil board seats in a six month long proxy battle. The change in having three new board members that are conscious of climate change and favor transitioning away from fossil fuels will benefit the company in the long term as renewable energy grows in prominence. After its successful proxy battle with Exxon, Engine No. 1 reported cordial discussions with representatives of Chevron Corp. regarding the company’s emissions reduction strategy, and also has reportedly built a stake in General Motors and expressed support for GM’s management actions relating to increased electric vehicle production and GM’s long-term strategy. Ernst & Young also published data showing an increasing trend of how more Fortune 100 companies are incorporating ESG initiatives into proxy statements. For example, 91% disclosed they are incorporating workplace diversity into their initiatives in 2021 versus 61% in 2020. Demand for ESG products will continue We believe demand for ESG-focused investing will continue to grow, and it is important that regulations are clarified to accommodate this trend. Bloomberg projects that global assets in ESG will exceed $50 trillion by 2025, which is significant as it will represent a third of projected global assets under management. In the US, $17 trillion is invested in ESG assets. Trends within ESG ETFs tell the same story where fund flows this year have increased by more than 1000% compared to flows seen just three years ago. How Betterment incorporates ESG investing in 401(k) plans At Betterment, we believe investing through an ESG lens matters, and can be important to 401(k) participants investing on a longer time horizon. We’ve found many ways to thoughtfully weave ESG investing into our portfolio strategies. Betterment has a 10+ years track record of constructing globally diversified portfolios, along with a history of implementing ESG investment strategies in 401(k)s using our Socially Responsible Investing (SRI) portfolios. The SRI portfolios come with three different focuses: Broad Impact, Social Impact, and Climate Impact. Each of these portfolios allow our clients to choose how they want to invest to best align their portfolio with their values. Perceptions of higher fees in the ESG investment space has been a misconception that has historically posed an obstacle to the adoption of pro-ESG regulation. Expense ratios of ESG ETFs have declined to 0.20%, which is low compared to the 0.47% average expense ratio of all ETFs in the US. Within Betterment’s SRI portfolios, and depending on the investor’s overall portfolio allocation to stocks relative to bonds, the asset weighted expense ratios of the Broad Impact, Social, and Climate portfolios range from 0.12-0.18%, 0.13-0.20%, 0.13-0.20% respectively. Another misconception is that in order to adopt ESG investing, you have to sacrifice performance goals. As a 3(38) investment fiduciary, Betterment reviews fund selection on an ongoing basis to ensure we’ve performed our due diligence in selecting investments suitable for participants' desired investing objectives. To determine if there were in fact any financial tradeoffs associated with an SRI portfolio strategy relative to the Betterment Core, we examined evidence based on historical returns. When adjusting for the stock allocation level and Betterment fees, we found that: There were no material performance differences. The portfolios were highly correlated overall. In certain time periods the SRI portfolios outperformed the Betterment Core portfolio. Another example of how we’ve incorporated ESG impact investing is through the addition of the Engine No. 1 Transform 500 ETF (VOTE) into all three of our SRI portfolio strategies in 2021. With VOTE ETF, you can still maintain exposure to the 500 largest companies within the US at an inexpensive expense ratio of 0.05%. That may seem counterintuitive since it mirrors owning the S&P 500 Index, however the magic happens behind the scenes as the fund manager uses share ownership to vote proxies in favor of ESG initiatives. This is a new form of shareholder activism and another way performance goals, exposure, and fees do not have to be sacrificed to make a difference. What’s next? We are hopeful that ease of interpretation with this rule may allow wider adoption of ESG products as investment options and may lead to greater incorporation of ESG factors in the decision making process as we do believe they are material. This has been a focus of Betterment’s as we seek to remain ahead of the trend with our product solutions. We will continue to monitor ongoing developments and keep you informed. Note: Higher bond allocations in your portfolio decrease the percentage attributable to socially responsible ETFs.

Understanding 401(k) Compensation BlogPost 56844814765 Understanding 401(k) Compensation Using an incorrect definition of compensation is on the top ten list of mistakes the IRS sees in voluntary correction filings. Compensation is used to determine various elements of any 401(k) plan including: Participant elective deferrals Employer contributions Whether the plan satisfies certain nondiscrimination requirements Highly compensated employees (HCEs) for testing purposes The IRS permits a plan to use multiple definitions of compensation for different purposes, but there are rules surrounding which definition can be used when. This is why using an incorrect definition of compensation is on the top ten list of mistakes the IRS sees in voluntary correction filings. General Definition of Plan Compensation There are three safe harbor definitions outlined in IRC Section 415(c)(3) that can be used to define “plan compensation” used to allocate participant contributions. W-2 Definition—Wages reported in box 1 of W2 PLUS the taxable portion of certain insurance premiums and taxable fringe benefits. The 3401(a) Definition–Wages subject to federal income tax withholding at the source PLUS taxable fringe benefits. The 415 Definition–Wages, salaries, and other amounts received for services rendered such as bonuses, and commissions. It also includes items such as taxable medical or disability benefits and other taxable reimbursements. In some contexts, the plan is required to use this definition for purposes of determining HCEs and the maximum permissible contributions. For all of these definitions, pre-tax elective deferrals are included in reported compensation. In addition, it’s important to note the annual cost of living adjustments on compensation as well as contribution limits by the IRS. These will impact the amount of allowable employer and employee contributions. Compensation for Non-Discrimination Testing As defined in IRC Section 414(s), this definition of compensation is primarily used for various nondiscrimination tests. Safe harbor match or safe harbor nonelective plans, for example, must use this definition to bypass the actual deferral percentage (ADP) and the actual contribution percentage (ACP) test. Each of the three 415(c)(3) definitions also satisfy the 414(s) compensation definition of compensation and can be used for non-discrimination testing. However, a 414(s) definition of compensation can include certain modifications that are not permissible where a 415(c)(3) definition is required. It is not uncommon for the 414(s) definition to exclude fringe benefits such as personal use of a company car or moving expenses. Exclusions of certain forms of pay must be clearly stated and identified in the plan document but may trigger additional nondiscrimination testing (known as compensation ratio testing) to make sure non-highly compensated employees are not disproportionately affected. Additional Compensation Definitions Pre-entry or pre-participation Compensation Plans that have a waiting or eligibility period may elect to exclude compensation earned prior to entering the plan from the compensation definition. This may help alleviate some of the financial burden associated with an employer match or profit-sharing contribution. Although such an exclusion would not trigger any compensation discrimination test, a plan that is deemed “top-heavy” (more than 60% of assets belong to key employees) must calculate any required employer contribution using the full year’s worth of compensation. Post-severance Compensation Post severance compensation are amounts that an employee would have been entitled to receive had they remained employed. It usually includes amounts earned but not yet paid at time of termination (bonuses, commissions), payments for unused leave such as vacations or sick days, and any distributions made from a qualified retirement plan. To be considered as post-severance pay eligible and included in the definition of plan compensation, amounts must be paid before the later of the last day of the plan year in which the employee terminated or two and a half months following the date of termination. Taxable Fringe Benefits Non-cash items of value given to the employee, such as the use of a company car for personal use, must be reported as taxable income. A plan can exclude taxable fringe benefits from its compensation definition and therefore not be subject to the compensation ratio test. Bonuses, Commissions, and Overtime These types of payments are considered plan compensation unless specifically excluded in the plan document. Many employers decide to exclude them because they are not regularly recurring, but should be aware that such exclusions will trigger the compensation ratio test. However, such exclusions must be specifically detailed in the plan document. For example, If a company offers a performance bonus, hiring bonus, and holiday bonus but decides to exclude the hiring and holiday bonuses from the definition of plan compensation, then it must be specific, since “bonus” would be too broad and include all types. Reimbursements and Allowances Allowances (amounts received without required documentation) are taxable, while reimbursements for documented and eligible expenses are not taxable. Allowances are therefore included in the definition of plan compensation while reimbursements are not. An allowance is generally considered a taxable fringe benefit so it is reported and follows certain rules above in regards to compensation definitions. International Compensation Tax implications can easily rise when dealing with international workers and compensation. Employers with foreign affiliates that sponsor non-US retirement plans still may be subject to the US withholding and reporting requirements under the Foreign Account Tax Compliance Act (FATCA) to combat tax evasions. Companies with employees who either work outside of the U.S. or who work in the U.S. with certain visas will need to carefully review each employee’s status and 401(k) eligibility. Rules and requirements vary by country. However, when 401(k) eligibility is based on citizenship or visa status, work location and compensation currency is not a factor. Define Plan Compensation Carefully Payroll is often a company’s largest expense, so it’s no surprise that companies devote significant time and energy to develop their compensation strategies. However, companies need to be mindful of the implications of their compensation program. Even simple pay structures do not necessarily translate into simple 401(k) plan definitions of compensation. It’s important to review the plan document carefully to be sure compensation definitions used reflect the desires of the company, that the definitions chosen are accurately applied, and that implications are clearly understood. Betterment is not a tax advisor, nor should any information herein be considered tax advice. Please consult a qualified tax professional.

401(k) Glossary of Terms BlogPost 56841935656 401(k) Glossary of Terms Whether you're offering a 401(k) for the first time or need a refresh on important terms, these definitions can help you make sense of industry jargon. 3(16) fiduciary: A fiduciary partner hired by an employer to handle a plan’s day-to-day administrative responsibilities and ensure that the plan remains in compliance with Department of Labor regulations. 3(21) fiduciary: An investment advisor who acts as co-fiduciary to review and make recommendations regarding a plan’s investment lineup. This fiduciary provides guidance but does not have the authority to make investment decisions. 3(38) fiduciary: A codified retirement plan fiduciary that’s responsible for choosing, managing, and overseeing the plan’s investment options. 401(k) administration costs: The expenses involved with the various aspects of running a 401(k) plan. Plan administration includes managing eligibility and enrollment, coordinating contributions, processing distributions and loans, preparing and delivering legally required notices and forms, and more. 401(k) committee charter: A document that describes the 401(k) committee’s responsibilities and authority. 401(k) compensation limit: The maximum amount of compensation that’s eligible to draw on for plan contributions, as determined by the IRS. 401(k) contribution limits: The maximum amount that a participant may contribute to an employer-sponsored 401(k) plan, as determined by the IRS. 401(k) force-out rule: Refers to a plan sponsor’s option to remove a former employee’s assets from the retirement plan. The sponsor has the option to “force out” these assets (into an IRA in the former employee’s name) if the assets are less than $5,000. 401(k) plan: An employer-sponsored retirement savings plan that allows participants to save money on a tax-advantaged basis. 401(k) plan fees: The various fees associated with a plan. These can include fees for investment management, plan administration, fiduciary services, and consulting fees. While some fees are applied at the plan level — that is, deducted from plan assets — others are charged directly to participant accounts. 401(k) plan fee benchmarking: The process of comparing a plan’s fees to those of other plans in similar industries with roughly equal assets and participation rates. This practice can help to determine if a plan’s fees are reasonable per ERISA requirements. 401(k) set-up costs: The expenses involved in establishing a 401(k) plan. These costs cover plan documents, recordkeeping, investment management, participant communication, and other essential aspects of the plan. 401(k) withdrawal: A distribution from a plan account. Because a 401(k) plan is designed to provide income during retirement, a participant generally may not make a withdrawal until age 59 ½ unless he or she terminates or retires; becomes disabled; or qualifies for a hardship withdrawal per IRS rules. Any other withdrawals before age 59 ½ are subject to a 10% penalty as well as regular income tax. 404(a)(5) fee disclosure: A notice issued by a plan sponsor that details information about investment fees. This notice, which is required of all plan sponsors by the Department of Labor, covers initial disclosure for new participants, new fees, and fee changes. 404(c) compliance: Refers to a participant’s (or beneficiary’s) right to choose the specific investments for 401(k) plan assets. Because the participant controls investment decisions, the plan fiduciary is not liable for investment losses. 408(b)(2) fee disclosure: A notice issued by a plan service provider that details the fees charged by the provider (and its affiliates or subcontractors) and reports any possible conflicts of interest. The Department of Labor requires all plan fiduciaries to issue this disclosure. Actual contribution percentage (ACP) test: A required compliance test that compares company matching contributions among highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). Actual deferral percentage (ADP) test: A required compliance test that compares employee deferrals among highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). Annual fee disclosure: A notice issued by a plan sponsor that details the plan’s fees and investments. This disclosure includes plan and individual fees that may be deducted from participant accounts, as well as information about the plan’s investments (performance, expenses, fees, and any applicable trade restrictions). Automated Clearing House (ACH): A banking network used to transfer funds between banks quickly and cost-efficiently. Automatic enrollment (ACA): An option that allows employers to automatically deduct elective deferrals into the plan from an employee’s wages unless the employee actively elects not to contribute or to contribute a different amount. Beneficiary: The person or persons who a participant chooses to receive the assets in a plan account if he or she dies. If the participant is married, the spouse is automatically the beneficiary unless the participant designates a different beneficiary (and signs a written waiver). If the participant is not married, the account will be paid to his or her estate if no beneficiary is on file. Blackout notice: An advance notice of an upcoming blackout period. ERISA rules require plan sponsors to notify participants of a blackout period at least 30 days in advance. Blackout period: A temporary period (three or more business days) during which a 401(k) plan is suspended, usually to accommodate a change in plan administrators. During this period, participants may not change investment options, make contributions or withdrawals, or request loans. Catch-up contributions: Contributions beyond the ordinary contribution limit, which are permitted to help people age 50 and older save more as they approach retirement. You can check the allowances for catch-up contributions here. Compensation: The amount of pay a participant receives from an employer. For purposes of 401(k) contribution calculations, only compensation is considered to be eligible. The plan document defines which form, for example the W-2, is referred to in determining the compensation amount. Constructive receipt: A payroll term that refers to the impending receipt of a paycheck. The paycheck has not yet been fully cleared for deposit in the employee’s bank account, but the employee has access to the funds. Deferrals: Another term for contributions made to a 401(k) account. Defined contribution plan: A tax-deferred retirement plan in which an employee or employer (or both) invest a fixed amount or percentage (of pay) in an account in the employee’s name. Participation in this type of plan is voluntary for the employee. A 401(k) plan is one type of tax-deferred defined contribution plan. Department of Labor (DOL): The federal government department that oversees employer-sponsored retirement plans as well as work-related issues including wages, hours worked, workplace safety, and unemployment and reemployment services. Distributions: A blanket term for any withdrawal from a 401(k) account. A distribution can include a required minimum distribution (RMD), a loan, a hardship withdrawal, a residential loan, or a qualified domestic relations order (QDRO). Docusign: A third-party platform used for exchanging signatures on documents, especially during plan onboarding. EIN: An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Eligible automatic enrollment arrangement (EACA): An automatic enrollment (ACA) plan that applies a default and uniform deferral percentage to all employees who do not opt out of the plan or provide any specific instructions about deferrals to the plan. Under this arrangement, the employer is required to provide employees with adequate notice about the plan and their rights regarding contributions and withdrawals. ERISA: Refers to the Employee Retirement Income Security Act of 1974, a federal law that requires individuals and entities that manage a retirement plan (fiduciaries) to follow strict standards of conduct. ERISA rules are designed to protect retirement plan participants and secure their access to benefits in the plan. Excess contributions: The amount of contributions to a plan that exceed the IRS contribution limit. Excess contributions made in any year (and their earnings) may be withdrawn without penalty by the tax filing deadline for that year, and the participant is then required to pay regular taxes on the amount withdrawn. Any excess contributions not withdrawn by the tax deadline are subject to a 6% excise tax every year they remain in the account. Exchange-traded fund (ETF): Passively managed index funds that feature low costs and high liquidity. ETFs make it easy to manage portfolios efficiently and effectively. All of Betterment’s 401(k) investment options are ETFs. Fee disclosure: Information about the various fees related to a 401(k) plan, including plan administration, fiduciary services, and investment management. Fee disclosure deadline: The date by which a plan sponsor must provide plan and investment-related fee disclosure information to participants. The DOL requires you to send your participant fee disclosure notice at least once in any 14-month period without regard to whether the plan operates on a calendar-year or fiscal-year basis. Fidelity bond: Also known as a fiduciary bond, this bond protects the plan from losses due to fraud or dishonesty. Every fiduciary who handles 401(k) plan funds is required to hold a fidelity bond. Fiduciary: An individual or entity that manages a retirement plan and is required to always act in the best interests of employees who save in the plan. In exchange for helping employees build retirement savings, employers and employees receive special tax benefits, as outlined in the Internal Revenue Code. When a company adopts a 401(k) plan for employees, it becomes an ERISA fiduciary and takes on two sets of fiduciary responsibilities: “Named fiduciary” with overall responsibility for the plan, including selecting and monitoring plan investments “Plan administrator” with fiduciary authority and discretion over how the plan is operated Most companies hire one or more outside experts (such as an investment advisor, investment manager, or third-party administrator) to help manage their fiduciary responsibilities. Form 5500: An informational document that a plan sponsor must prepare to disclose the identity of the plan sponsor (including EIN and plan number), characteristics of the plan (including auto-enrollment, matching contributions, profit-sharing, and other information), the numbers of eligible and active employees, plan assets, and fees. The plan sponsor must submit this form annually to the IRS and the Department of Labor, and must provide a summary to plan participants. Smaller plans (less than 100 employees) may instead file Form 5500-SF. Hardship withdrawal: A withdrawal before age 59 ½ intended to address a severe and immediate need (as defined by the IRS). To qualify for a hardship withdrawal, a participant must provide the employer with documentation (such as a medical bill, a rent invoice, funeral expenses) that shows the purpose and amount needed. If the hardship withdrawal is authorized, it must be limited to the amount needed (adjusted for taxes and penalties), may still be subject to early withdrawal penalties, is not eligible for rollover, and may not be repaid to the plan. Highly compensated employee (HCE): An employee who earned at least $155,000 in compensation from the plan sponsor during 2024, or owned more than 5% interest in the plan sponsor’s business at any time during the current or previous year (regardless of compensation). Inception to date (ITD): Refers to contribution amounts since the inception of a participant’s account. Internal Revenue Service (IRS): The U.S. federal agency that’s responsible for the collection of taxes and enforcement of tax laws. Most of the work of the IRS involves income taxes, both corporate and individual. Investment advice (ERISA ruling): The Department of Labor’s final ruling (revised in 2020) on what constitutes investment advice and what activities define the role of a fiduciary. Investment policy statement (IPS): A plan’s unique governing document, which details the characteristics of the plan and assists the plan sponsor in complying with ERISA requirements. The IPS should be written carefully, reviewed regularly, updated as needed, and adhered to closely. Key employee: An employee classification used in top-heavy testing. This is an employee who meets one of the following criteria: Ownership stake greater than 5% Ownership stake greater than 1% and annual compensation greater than $150,000 Officer with annual compensation greater than $200,000 (for 2022) Non-discrimination testing: Tests required by the IRS to ensure that a plan does not favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). Non-elective contribution: An employer contribution to an employee’s plan account that’s made regardless of whether the employee makes a contribution. This type of contribution is not deducted from the employee’s paycheck. Non-highly compensated employee (NHCE): An employee who does not meet any of the criteria of a highly compensated employee (HCE). Plan sponsor: An organization that establishes and offers a 401(k) plan for its employees or members. Qualified default investment alternative (QDIA): The default investment for plan participants who don’t make an active investment selection. All 401(k) plans are required to have a QDIA. For Betterment’s 401(k), the QDIA is the Core Portfolio Strategy, and a customized risk level is set for each participant based on their age. Qualified domestic relations order (QDRO): A document that recognizes a spouse’s, former spouse’s, child’s, or dependent’s right to receive benefits from a participant’s retirement plan. Typically approved by a court judge, this document states how an account must be split or reassigned. Plan administrator: An individual or company responsible for the day-to-day responsibilities of 401(k) plan administration. Among the responsibilities of a plan administrator are compliance testing, maintenance of the plan document, and preparation of the Form 5500. Many of these responsibilities may be handled by the plan provider or a third-party administrator (TPA). Plan document: A document that describes a plan’s features and procedures. Specifically, this document identifies the type of plan, how it operates, and how it addresses the company’s unique needs and goals. Professional employer organization (PEO): A firm that provides small to medium-sized businesses with benefits-related and compliance-related services. Profit sharing: A type of defined contribution plan in which a plan sponsor contributes a portion of the company’s quarterly or annual profit to employee retirement accounts. This type of plan is often combined with an employer-sponsored retirement plan. Promissory note: A legal document that lays out the terms of a 401(k) loan or other financial obligation. Qualified non-elective contribution (QNEC): A contribution that a plan is required to make if it’s found to be top-heavy. Required minimum distribution (RMD): Refers to the requirement that an owner of a tax-deferred account begin making plan withdrawals each year starting at age 72. The first withdrawal must be made by April 1 of the year after the participant reaches age 72, and all subsequent annual withdrawals must be made by December 31. Rollover: A retirement account balance that is transferred directly from a previous employer’s qualified plan to the participant’s current plan. Consolidating accounts in this way can make it easier for a participant to manage and track retirement investments, and may also reduce retirement account fees. Roth 401(k) contributions: After-tax plan contributions that do not reduce taxable income. Contributions and their earnings are not taxed upon withdrawal as long as the participant is at least age 59½ and has owned the Roth 401(k) account for at least five years. You can check annual limits here. Roth vs. pre-tax contributions: Pre-tax contributions reduce a participant’s current income, with taxes due when funds are withdrawn (typically in retirement). Alternatively, Roth contributions are deposited into the plan after taxes are deducted, so withdrawals are tax-free. Safe Harbor: A plan design option that provides annual testing exemptions. In exchange, employer contributions on behalf of all employees are required. Saver’s credit: A credit designed to help low- and moderate-income taxpayers further reduce their taxes by saving for retirement. The amount of this credit — 10%, 20%, or 50% of contributions, based on filing status and adjusted gross income — directly reduces the amount of tax owed. Stock option: The opportunity for an employee to purchase shares of an employer’s stock at a specific (often discounted) price for a limited time period. Some companies may offer a stock option as an alternative or a complement to a 401(k) plan. Summary Annual Report (SAR): A summary version of Form 5500, which a plan sponsor is required to provide to participants every year within two months after the Form 5500 deadline – September 30 or December 15 (if there was an extension given for Form 5500 filing). Summary Plan Description (SPD): A comprehensive document that describes in detail how a 401(k) plan works and the benefits it provides. Employers are required to provide an SPD to employees free of charge. Third-party administrator (TPA): An individual or company that may be hired by a 401(k) plan sponsor to help run many day-to-day aspects of a retirement plan. Among the responsibilities of a TPA are compliance testing, generation and maintenance of the plan document, and preparation of Form 5500. Traditional contributions: Pre-tax plan contributions that reduce taxable income. These contributions and their earnings are taxable upon withdrawal, which is typically during retirement. Vesting: Another word for ownership. Participants are always fully vested in the contributions they make. Employer contributions, however, may be subject to a vesting schedule in which participant ownership builds gradually over several years.

How Does a Multiple Employer Plan Compare to a Single Employer 401(k) Plan? BlogPost 56841935700 How Does a Multiple Employer Plan Compare to a Single Employer 401(k) Plan? Are MEPs and PEPs the new solution for workplace retirement savings or should I pick my own 401(k) plan? Multiple employer plans (MEPs) have been around for many years, but the rules governing these types of retirement plans limit their availability to many employers. In an effort to help more small and mid-sized companies offer retirement savings plans to their employees, the SECURE Act ushered in new changes so that, beginning in 2021, any business can join a new type of MEP, called a Pooled Employer Plan (PEP). Because of this new development, MEPs and PEPs have become buzzwords in the industry and no doubt you’ll see advertisements touting the benefits of these one-size-fits-all type plans. But are they really the magic bullet policymakers are hoping will solve the “retirement savings crisis”? That remains to be determined, but for many employers, sponsoring their own 401(k) plan with the right plan provider is the best way to ensure their goals for a retirement savings plan are met. What is a MEP? A multiple employer plan or MEP is a retirement plan, often structured as a 401(k) plan, that is established and administered by an “MEP organizer.” The MEP organizer makes the plan available to many different employers. If the MEP meets certain requirements set forth in the tax laws and ERISA (Employee Retirement Income Security Act), it will be treated as a single plan managed by the organizer and not as a series of separate plans administered by each participating employer. The MEP organizer serves as plan fiduciary and typically assumes both administrative and investment management responsibilities for all employers participating in the MEP. An MEP is viewed by the Department of Labor (DOL) as a single plan eligible to file one Form 5500 only if the employers participating in the MEP are part of the same trade or association or are located in the same geographical area. There must be some commonality between the participating employers besides just participating in the MEP. A Professional Employer Organization (PEO) may also sponsor an MEP for its employer clients. What is a PEP? The rules limiting the benefits of an MEP to employers with commonality limited the usefulness of MEPs for many small businesses. To allow broader participation in MEPs, the SECURE Act added a new type of MEP, called a Pooled Employer Plan or PEP, effective for plan years beginning in 2021. A PEP is a 401(k) plan that will operate much like a MEP with a plan organizer and multiple participating employers, but there are a few important differences. Any employer can join a PEP; the businesses do not have to have any common link for the PEP to be considered a single plan. But the PEP must be sponsored by a “Pooled Plan Provider” (PPP) that has registered with the DOL and IRS. The Pooled Plan Provider must be designated in the PEP plan document as the named fiduciary and the ERISA 3(16) plan administrator. This service provider is also responsible for ensuring the PEP meets the requirements of ERISA and the tax code, including ensuring participant disclosures are provided and nondiscrimination testing is performed. The PPP must also obtain a fidelity bond and ensure that any other entities acting as fiduciary to the PEP are bonded. What are the benefits of participating in a MEP or PEP? Small businesses may refrain from adopting a retirement plan for their employees because of the administrative burdens, fiduciary liability, and cost associated with workplace plans. MEPs have been identified in recent years as a way to address these concerns for employers and potentially increase access to workplace retirement plans for employees of small and mid-size businesses. The MEP structure can alleviate much of the administrative and fiduciary burdens for participating employers, and potentially reduce costs. Reduced fiduciary responsibility – The MEP organizer or the PPP takes on fiduciary responsibility for managing the plan and for selecting and monitoring service providers. This generally includes selecting investments that will be offered in the plan. Reduced administrative responsibility – The MEP organizer or the PPP is responsible for day-to-day administration and complying with all applicable rules and regulations for plan operations. Investment pricing – A MEP/PEP arrangement pools plan assets of all participating employers, which may allow the MEP/PEP to obtain better pricing on investments. Reduced plan expenses – MEPs/PEPs allow small businesses to benefit from economies of scale by sharing the expenses for plan documents, general plan administration, and one Form 5500. Because of these benefits, interest in MEPs has grown over the years, leading to the rule changes that open the MEP opportunity to all employers through a PEP. How do MEPs & PEPs Differ from a Single 401(k) Plan? Many of the responsibilities associated with managing a retirement plan that can challenge plan sponsors are taken on by the MEP organizer or the PPP. This third party is responsible for making almost all the decisions related to managing the plan, hiring and monitoring service providers, and overseeing the plan’s investments and operations. The MEP/PEP entity must perform these services on behalf of all participating employers and will be held to the high fiduciary standards of ERISA for these duties. Once the employer has prudently selected the MEP/PEP entity, the employer is relieved of the day-to-day operational oversight and investment management. However, this transfer of responsibilities also means a transfer of control over key decisions regarding the plan. Conversely, when an employer establishes its own 401(k) plan for its employees, the employer retains many of these operational and investment responsibilities, which the employer typically fulfills with the support of service providers. The employer can design the plan based solely on their goals and objectives for the plan and their employees’ needs. The flexibility retained by an employer adopting a single 401(k) plan includes: Selecting the plan design features that fit their employees’ needs Picking the service provider that will assist them in operating the plan and provide relevant education and guidance to their employees Choosing the menu of investments that will be offered to participants in the plan or engaging an investment advisor to manage or guide investment selection Deciding whether to offer personalized advice to employees When Might a Single 401(k) Plan Might Be Better? While the shared expenses and reduced responsibilities of participating in a MEP/PEP can be attractive to small and midsize employers, sometimes what one employer sees as a benefit, another employer sees as a disadvantage. For example, because the MEP/PEP entity is operating one plan for many employers, the plan may be designed with the features that will be most widely accepted by most employers. There is typically little customization available in order to keep plan operations efficient (and cost effective) for the MEP/PEP entity. Participating employers generally have no control over service providers, plan design, or the participant experience. Additionally, although the structure of a MEP/PEP is meant to reduce administrative and investment expenses for participating employers, it remains to be seen if the cost of these plans will be competitive with the low-cost 401(k) plans available today without compromising on the quality and breadth of services. PEPs will open up the multiple employer plan market to all employers for the first time ever. And there are many financial organizations and service providers preparing to capitalize on this new solution by launching PEP products. Although the DOL has provided some guidance, the industry is still awaiting additional guidance on a number of critical elements necessary for building the PEP plan product, including plan documents, acceptable compensation arrangements for service and investment providers, administrative responsibilities for PPPs, and special Form 5500 rules. With so many unknowns yet in the PEP market, it’s difficult to predict whether this new type of multiple employer plan will hit the mark for small business owners. Employers can benefit from the simplicity of a single service provider solution and receive professional fiduciary and administrative support right now with a 401(k) solution designed specifically for small and midsized plans. Ready for the right 401(k) solution? Betterment at Work offers an all-in-one dashboard for employers that aims to simplify plan administration at one of the lowest costs in the industry. Our guided onboarding, dedicated customer support team, and expert-built portfolios can help you deliver a 401(k) plan that works both for your organization and your employees.

Crypto in 401(k) Plans: The Department of Labor’s Guidance BlogPost 70222918931 Crypto in 401(k) Plans: The Department of Labor’s Guidance The US Department of Labor (DOL) released fresh guidance on cryptocurrency investments for fiduciaries of retirement plans. This article describes the DOL’s guidance and its implications for retirement plans. The US Department of Labor (DOL) issued on March 10th what can be considered a warning to retirement plan fiduciaries that already or will in the future provide cryptocurrency options for 401(k) plan participants. In the wake of President Biden signing an executive order that directs the federal government to develop plans for regulating cryptocurrencies (and digital assets), the DOL published Compliance Assistance Release No. 2022-01, a note that details its perspective on crypto investments and hints that the department’s Employee Benefits Security Administration will conduct investigations of plans that currently offer crypto and related investment options. This article will describe the DOL’s guidance and its implications for retirement plans. What does the DOL note say? The release issued by the DOL primarily serves as a heads up of some of the concerning aspects of crypto investing that should be very carefully considered by plan fiduciaries in order to avoid a breach of their duty to “act solely in the financial interests of plan participants and adhere to an exacting standard of professional care.” The release does not explicitly forbid crypto and related investment options within 401(k)s but instead lists risks associated with such investments. It also conveys that fiduciaries must be able to answer how they “square” providing crypto, if offered, with their fiduciary duties in the context of these risks. The specific risks the DOL identifies are shown below. Risk Description Speculative and Volatile Investments The DOL warns that many crypto investments are subject to extreme volatility, exhibiting sharp swings higher and lower, with the potential that a large drawdown could significantly impair a plan participant’s retirement savings. The Challenge for Plan Participants to Make Informed Investment Decisions The DOL notes that difficulties exist for unsophisticated investors to “separate the facts from the hype” and make informed decisions when it comes to crypto, especially when compared with more traditional investments Custodial and Recordkeeping Concerns The vulnerabilities of much of the current crypto investment infrastructure to hacks and theft is a specific concern to the DOL given the severity of a plan participant losing the entirety of their crypto position Valuation Concerns The difficulty of determining a fundamental value of crypto investments compared to traditional asset classes, along with differences in accounting treatment and reporting among crypto market intermediaries, make up additional concerns to the DOL Evolving Regulatory Environment According to the DOL, “fiduciaries who are considering whether to include a cryptocurrency investment option will have to include in their analysis how regulatory requirements may apply to issuance, investments, trading, or other activities and how those regulatory requirements might affect investments by participants in 401(k) plans” What does this mean for Betterment at Work? 401(k) plans accessed through the Betterment at Work platform currently do not offer crypto investment options. As a 3(38) investment fiduciary, Betterment reviews investments on an ongoing basis to ensure we’ve performed our due diligence in selecting investments suitable for participants' desired investing objectives. As crypto markets and the regulatory environment around retirement plans evolve, Betterment will re-evaluate the suitability of crypto investments within retirement accounts. We will continue to monitor ongoing developments and keep you informed, similar to our efforts to track the DOL’s guidance for Environmental, Social, and Governance-related investing within retirement plans. The above material and content should not be considered to be a recommendation. Investing in digital assets is highly speculative and volatile, and only suitable for investors who are able to bear the risk of potential loss and experience sharp drawdowns. Digital assets are not legal tender and are not backed by the U.S. government. Digital assets are not subject to FDIC insurance or SIPC protections.

What is a 401(k) Plan Audit? BlogPost 56841935658 What is a 401(k) Plan Audit? Betterment can help you understand what to expect for a 401(k) plan audit. The Employee Retirement Income Security Act of 1974 (ERISA) requires that certain 401(k) plans be audited annually by a qualified independent public accountant subject. The primary purpose of the audit is to ensure that the 401(k) plan is operating in accordance with Department of Labor (DOL) and Internal Revenue Service (IRS) rules and regulations as well as operating consistent with the plan document, and that the plan sponsor is fulfilling their fiduciary duty. A 401(k) plan audit can be fairly broad in scope and usually includes a review of transactions that took place throughout the plan year such as payroll uploads, distributions, corrective actions, and any earnings that were allocated to accounts. It will also include a review of administrative procedures and identify potential areas of concern or opportunities for improvement. When does a 401(k) plan need an audit? Whether or not your plan requires an audit is determined by the number of participants with a balance in your plan at the beginning of the plan year. “Participants” include active employees with an account balance, eligible employees not currently contributing but with an account balance, as well as terminated participants with an account balance. Generally speaking, ERISA requires an audit for any plan that had 100 or more participants with an account balance (so-called “large plans”) at the beginning of the plan year. However, as shown in the table below, there are exceptions to this general rule, captured in the “80-120 Participant Rule,” to address plans that may have fluctuating participant counts close to that 100-person cut-off. Number of participants with a balance at beginning of plan year Filing status on previous year’s Form 5500 80-120 Participant Rule 100-120 participants Small Plan Considered a Small Plan (no audit required) until plan has more than 120 participants 80-100 participants Large Plan Considered a Large Plan (audit optional) until plan has fewer than 80 participants It is therefore important to review the plan’s participant count before engaging an auditor, especially if the participant count fluctuates between 80 and 120. If your plan falls under the Large Plan category, it is advisable to engage a qualified independent auditor as soon as possible. How do I prepare for a 401(k) plan audit? To get started, you’ll need to hire an independent auditor. Your auditor will request plan-related documents, which will likely include: Executed plan document or an executed adoption agreement Any amendments to the plan document Current IRS determination letter (these are attached in the plan document we provide for plan sponsors to execute) Current and historical summary plan description and summaries of material modifications Copy of the plan’s fidelity bond insurance Copy of the most recent compliance test performed Service agreements These documents should be easily accessible and current, which is especially important if changes have been made to your plan. In addition, the auditor will need financial reports of your plan. As part of its 3(16) fiduciary support services, Betterment provides an audit package which includes: Participant contribution report Plan activity report Payroll records Schedule of plan assets Distributions and/or loans report Fees report Reports regarding investment allocation of plan assets Trustee certification/agreement It is possible that the auditor could request copies of the committee or board minutes that document considerations and decisions about the plan, including choosing service providers and monitoring plan expenses. What will happen during a 401(k) plan audit? Once the auditor receives all the necessary documents, they will review the plan to gain a solid understanding of the plan’s operations, internal controls and plan activity. The auditor will pick a sample of employees for distributions, loans or rollovers (activity of assets moving out or in of plan) and will request documentation that support such activity. This may include loan applications, distribution paperwork and the image of the check or proof of funds being delivered to the participant. Once the assessment of the samples and financials are complete, the auditor will draft something called an “accountant’s opinion.” The plan sponsor should carefully review this document, which outlines any control deficiencies found during the audit. The auditor will also provide a final financial statement that must be attached to the plan’s Form 5500 filing with the DOL. Important deadlines for 401(k) plan audits Annual audits should be completed before the Form 5500 filing deadline. Form 5500s are required to be filed by the last day of the seventh month after the plan year ends. For example, if your plan year ends on December 31, your Form 5500 is due on July 31 of the following year. However, you may file an extension with the DOL using Form 5558 to get an additional 2 ½ months to file, pushing the due date to October 15 for calendar year plans. It’s important to meet the required deadline to avoid any DOL penalties. Ready to learn more about how Betterment can help you with plan audits (and so much more)? Let’s talk.

The Importance and Benefits of Offering Employer Match BlogPost 56841825951 The Importance and Benefits of Offering Employer Match Some employees resist saving because they feel retirement is too far away, can’t afford it, or can’t grasp the benefit. You can help change that mentality by offering a 401(k) employer match. Beyond being an attractive employee benefit, a 401(k) plan can act as a catalyst for employees at all career stages to save for retirement. Some employees, however, will resist saving because they feel retirement is too far away, or can’t afford it, or can’t make room in their budget (and current spending levels). However, as a 401(k) plan sponsor, you can help change that mentality by offering a 401(k) employer matching contribution. What is a 401(k) employer matching contribution? With an employer match, a portion or all of an employee’s 401(k) plan contribution will be “matched” by the employer. Common matching formulas include: Dollar-for-Dollar Match: Carla works for ABC Company, which runs payroll on a semi-monthly basis (two times a month = 24 pay periods a year). Her gross pay every period is $2,000. She has decided to defer 4% of her pre-tax pay every pay period, or $80 (4% x $2,000). The ABC Company 401(k) plan generously offers a dollar-for-dollar match up to 4% of compensation deferred. With each payroll, $80 of Carla’s pay goes to her 401(k) account on a pre-tax basis, and ABC Company also makes an $80 matching contribution to Carla’s 401(k) account. At a 4% contribution rate, Carla is maximizing the employer contribution amount. If she reduces her contribution to 3%, her company matching contribution would also drop to 3%; but if she increases her contribution to 6%, the formula dictates that her employer would only contribute 4%. Partial Match (simple): Let’s take the same scenario as above, but ABC Company 401(k) plan matches 50% on the first 6% of compensation deferred. This means that it will match half of the 401(k) contributions. If Carla contributes $80 to the 401(k) plan, ABC Company will contribute $40 on top of her contribution as the match. Tiered Match: By applying different percentages to multiple tiers, employers can encourage employees to contribute to the plan while controlling their costs. For example, ABC Company could match 100% of deferrals up to 3% of compensation and 50% on the next 3% of deferrals. Carla contributes 4% of her pay of $2,000, which is $80 per pay period. Based on their formula, ABC Company will match her dollar-for-dollar on 3% of her contribution ($60 = 3% x $2,000), and 50 cents on the dollar on the last 1% of her contribution for a total matching contribution of $70 or 3.5%. The plan’s matching formula is chosen by the company and specified in the plan document or may be defined as discretionary, in which case the employer may determine not only whether or not to make a matching contribution in any given year, but also what formula to use. Is there a limit to how much an employer can match? The IRS limits annual 401(k) contributions, and these limits change from year to year. It’s also important to note that the IRS caps annual compensation that’s eligible to be matched. Potential Benefits of Providing an Employer Match Attract talent: Offering a 401(k) is a great way to set your company apart from the competition, and a matching contribution sweetens the deal! A Betterment at Work study found that 68 percent of respondents would prioritize having better financial wellness benefits above an extra week of vacation! Better 401(k) plan participation: Unlike other types of employer contributions, a matching contribution requires employees to contribute their own money to the plan. In other words, the existence of the match drives plan participation up (not contributing is like leaving money on the table), encouraging employee engagement and increasing the likelihood of having your plan pass certain compliance tests. Financial well-being of employees: A matching contribution shows employees that you care about their financial well-being and are willing to make an investment in their future. The additional funds can help employees reach their retirement savings goal. Improved retention: The match is essentially “free money” that can be considered part of an employee’s compensation, which can be hard to give up. And by applying a vesting schedule to the employer match, you can incentivize employees to stay longer with your company to gain the full benefits of the 401(k) plan. Employer tax deduction: matching contributions are tax deductible, which means you can deduct them from your company’s income so long as they don’t exceed IRS limits. Offering a 401(k) plan is already a huge step forward in helping your employees save for their retirement. Providing a 401(k) matching contribution enhances that benefit for both your employees and your organization. Ready for a better 401(k) solution? Whether you’re considering a matching contribution or not, Betterment is here to help. We offer an all-in-one dashboard that seeks to simplify plan administration, at one of the lowest costs in the industry., Our dedicated onboarding team, and support staff are here to help you along the way. 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.

Helping Employees Set Up an Emergency Fund BlogPost 56841825939 Helping Employees Set Up an Emergency Fund Employers are looking for ways to help their employees save for unexpected financial emergencies. Betterment’s 401(k) platform can help. Your water heater fails. Your car breaks down on the side of the road. Your spouse loses their job because of a global pandemic. Life is filled with challenges, and some are more stressful and expensive than others. As a business owner, you’ve likely witnessed firsthand how financial emergencies can impact your employees. Not only does the stress affect employees’ personal lives, it can also affect their work performance, attendance, and focus. That’s why an emergency fund —with enough money to cover at least a few months of expenses—is such an important part of your employees’ overall financial plan. However, many people lack this critical safety net. Rainy day funds are running dry According to research by the Federal Reserve and reported on by the Employee Benefit Research Institute (EBRI), less than 25% of working families had liquid savings of more than three months of their family income. And even when asked if they have 75% of funds needed for three months, that jumps to just over one quarter. When faced with an emergency, employees without an emergency fund may turn to credit cards, take a payday loan, or even raid their retirement savings—triggering early withdrawal penalties and derailing their retirement savings progress. Having a solid emergency fund may help prevent employees from spiraling into a difficult financial predicament with wide-reaching implications. Emergency fund 101 So, what should your employees consider when setting up an emergency fund? At Betterment, we recommend: Saving at least three to four months of expenses—If employees have an emergency fund, they’ll feel more confident focusing on other important goals like retirement or home ownership. Investing emergency fund money—By investing their money—not socking it away in a low-interest savings account—employees don’t run the risk of losing buying power over time because of inflation. Making it automatic—Setting up a regular, automatic deposit can help employees stick to their savings plan because it reduces the effort required to set aside money in the first place. All of this is summarized for employees here: How to Build an Emergency Fund. Helping employees save for today—and someday Some employees may feel like they have to choose between building their emergency fund and saving in their workplace retirement plan. But it doesn’t have to be a choice. With the right 401(k) plan provider, your employees can save for retirement and build an emergency fund at the same time. For example, the Betterment platform is more than just a 401(k) in that it provides: Quick and easy emergency saving fund set-up Betterment makes it easy to establish an emergency savings fund—helping ensure employees don’t need to dip into their 401(k) when faced with unexpected financial difficulties. If your employees aren’t sure how much to save, Betterment can calculate it for them using their gross income, zip code, and research from the American Economic Association and the National Bureau of Economic Research.Betterment will also estimate how much employees need to save to build the emergency fund they want to reach their target amount in their desired time horizon. Using our goals forecaster, employees can model how much they need to save each month to reach their emergency fund goal and view different what-if scenarios that take into account monthly savings, time horizons, and target amounts. Linked accounts for big picture planning Our easy-to-use online platform links employee savings accounts, outside investments, IRAs—even spousal/partner assets—to create a real-time snapshot of their finances, making it easy for them to see the big picture. That means that in a single, holistic view, employees can track both their 401(k) plan account and their emergency fund. Personalized advice to help employees save for today (and someday) By offering personalized advice, Betterment can help your employees make strides toward their long- and short-term financial goals. Ready for a better way to help your employees prepare for the inevitable—and the unexpected? Talk to Betterment today.

What is a 401(k) Plan Restatement? BlogPost 56841935638 What is a 401(k) Plan Restatement? Every six years, the IRS requires that all qualified retirement plans be “restated.” Find out what this means for your plan. Every six years, the IRS requires all qualified retirement plans to update their plan documents to reflect recent legislative and regulatory changes - that’s every six years as counted by the IRS, regardless of how long your plan has been active. Some updates are made during the normal course of business through plan amendments, but others require more substantial rewriting of plan documents through a formal process known as a “plan restatement.” This process began on August 1, 2020 and closed on July 31, 2022. Plan restatements are required by the IRS and not optional. Those who do not comply may be subject to significant IRS penalties. If you work with a third party administrator (TPA), they are the ones who handle the plan restatement, and we will coordinate with them when the next cycle begins. What is a plan restatement? A restatement is a complete re-writing of the plan document. It includes voluntary amendments that have been adopted since the last time the document was re-written, along with mandatory amendments to reflect additional legislative and regulatory changes. The latest mandatory restatement period for defined contribution plans is referred to as “Cycle 3” because it was the third required restatement that follows this six-year cycle. Is plan restatement mandatory or voluntary? This plan restatement is mandatory, even if your plan was amended for various reasons in the recent past. Plans that did not meet the July 31, 2022 restatement deadline are subject to penalties, up to and including revocation of tax-favored status. This means contributions might not be deductible and would be immediately included as income to employees. Why do plans have to be restated? Retirement plans are governed by ever-changing laws and regulations imposed by Congress, the IRS, and the Department of Labor (DOL). To remain in compliance and current with those laws and regulations, plan documents must be updated from time to time. Some of these changes may be reflected through plan amendments, but it is impractical for plans to amend their documents for every new law or regulation. What has changed since the last restatement? The deadline for the last mandatory restatement was July 31, 2022. Before that the previous deadline was April 30, 2016, and was based on documents approved by the IRS two years prior and only reflected legislative and regulatory updates through 2010. Since then, there have been a number of regulatory and legislative changes impacting retirement plans such as availability of plan forfeitures to offset certain additional types of company contributions and good faith amendments like the SECURE and CARES Acts. Haven’t we amended our plan to address these changes? Yes. Recognizing that plans would have to continuously update their plans to address changing regulations, the IRS allows for so-called “snap-on” amendments (also known as good faith amendments). However, it is more difficult to interpret a plan document (and therefore operate a plan consistent with the plan document) when there are so many amendments. A restatement cycle requires a full rewrite to incorporate “snap-on” amendments into the body of the document, often in greater detail. How will Betterment help with the plan restatement process? Betterment will draft and deliver the restated plan document to you for review and approval. Once you approve the restated plan document, we will see to it that plan provisions are accurately reflected in our recordkeeping system and provide you with the necessary disclosures for you to deliver to your participants. What does the plan restatement package include? The plan document restatement packages include the following, as applicable, based on your plan’s provisions: Adoption agreement Basic plan document that includes the detailed legal language describing each of the provisions Summary Plan Description (SPD) for distribution to plan participants Administrative policies for participant loans and qualified domestic relations orders (QDROs) Good faith amendments (currently, for the SECURE and CARES Acts) Will this restatement process take a lot of my time? Betterment will ensure that your plan document is properly drafted and delivered to you for execution. However, you have several important roles: Inform Betterment about any organizational changes that may impact your 401(k) plan. Review your restated plan document once you receive it, especially the plan highlight and plan provision (such as eligibility requirements) sections, to be sure they accurately reflect your plan. Distribute the Summary Plan Description (SPD), to be provided to you after you execute the restated plan document, to your plan participants. Is there a fee for this plan restatement? A standard plan restatement will be provided as part of our included compliance services to you. Any additional changes will trigger amendment fees.

Understanding 401(k) Annual Compliance Testing BlogPost 56841825967 Understanding 401(k) Annual Compliance Testing These yearly required tests are meant to ensure everyone is benefiting from your 401(k) plan. If your company has a 401(k) plan—or if you’re considering starting one in the future—you may have heard about annual compliance testing, also known as nondiscrimination testing. But what is it really? And how can you help your plan pass these important compliance tests? Read on for our explanation. What is annual compliance testing? Mandated by ERISA, annual compliance testing helps ensure that 401(k) plans benefit all employees—not just business owners or highly compensated employees. Because the government provides significant tax benefits through 401(k) plans, it wants to ensure that these perks don’t disproportionately favor high earners. We’ll dive deeper into nondiscrimination testing, but let’s first discuss an important component of 401(k) compliance: contribution limits. What contribution limits do I need to know about? Because of the tax advantages given to 401(k) plan contributions, the IRS puts a limit on the amount that employers and employees can contribute. Here’s a quick overview: Limit What is it? Notes for 2023 plan year Employee contribution limits (“402g”) Limits the amount a participant may contribute to the 401(k) plan. The personal limit is based on the calendar year.1 Note that traditional (pre-tax) and Roth (post-tax) contributions are added together (there aren’t separate limits for each). $22,500 is the maximum amount participants may contribute to their 401(k) plan for 2023. Participants age 50 or older during the year may defer an additional $7,500 in “catch-up” contributions if permitted by the plan. Total contribution limit (“415”) Limits the total contributions allocated to an eligible participant for the year. This includes employee contributions, all employer contributions and forfeiture allocations. Total employee and employer contributions cannot exceed total employee compensation for the year. $66,0002 plus up to $7,500 in catch-up contributions (if permitted by the plan) for 2023. Cannot exceed total compensation. Employer contribution limit Employers’ total contributions (excluding employee deferrals) may not exceed 25% of eligible compensation for the plan year. N/A This limit is an IRS imposed limit based on the calendar year. Plans that use a ‘plan year’ not ending December 31st base their allocation limit on the year in which the plan year ends. This is different from the compensation limits, which are based on the start of the plan year. Adjusted annually; see most recent Cost of Living Adjustments table here. What is nondiscrimination testing designed to achieve? Essentially, nondiscrimination testing has three main goals: To measure employee retirement plan participation levels to ensure that the plan isn’t “discriminating” against lower-income employees. To ensure that people of all income levels have equal access to—and awareness of—the company’s retirement plan. To encourage employers to be good stewards of their employees’ futures by making any necessary adjustments to level the playing field (such as matching employees’ contributions) Where do I begin? Before you embark on annual compliance testing, you’ll need to categorize your employees by income level and employee status. Here are the main categories (and acronyms): Highly compensated employee (HCE)—According to the IRS, an employee who meets one or more of the following criteria: Prior (lookback) year compensation—For plan years ending in 2023, earned over $135,000 in the preceding plan year; some plans may limit this to the top 20% of earners (known as the top-paid group election), which would be outlined in your plan document; or Ownership in current or prior year—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation Non-highly compensated employee (NHCE)—Someone who does not meet the above criteria. Key employee—According to the IRS, an employee who meets one or more of the following criteria during the plan year: Ownership over 5%—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation. Ownership over 1%—Owns more than 1% of the stock, voting power, capital, or profits, and earned more than $150,000. Officer—An officer of the employer who earned more than $215,000 for 2023; this may be limited to the lesser of 50 officers or the greater of 3 or 10% of the employee count. Non-key employee—Someone who does not meet the above criteria. What are the tests that need to be performed? Below are the tests typically performed for 401(k) plans. Betterment will perform each of these tests on behalf of your plan and inform you of the results. 1. 410(b) Coverage Tests—These tests determine the ratios of employees eligible for and benefitting from the plan to show that the plan fairly covers your employee base. Specifically, these tests review the ratio of HCEs benefitting from the plan against the ratio of NHCEs benefitting from the plan. Typically, the NHCE percentage benefitting must be at least 70% or 0.7 times the percentage of HCEs considered benefitting for the year, or further testing is required. These annual tests are performed across different contribution types: employee contributions, employer matching contributions, after-tax contributions, and non-elective (employer, non-matching) contributions. 2. Actual deferral percentage (ADP) test—Compares the average salary deferral of HCEs to that of non-highly compensated employees (NHCEs). This test includes pre-tax and Roth deferrals, but not catch-up contributions. Essentially, it measures the level of engagement of HCEs vs. NHCEs to make sure that high income earners aren’t saving at a significantly higher rate than the rest of the employee base. Specifically, two percentages are calculated: HCE ADP—The average deferral rate (ADR) for each HCE is calculated by dividing the employee’s elective deferrals by their salary. The HCE ADP is calculated by averaging the ADR for all eligible HCEs (even those who chose not to defer). NHCE ADP—The average deferral rate (ADR) for each NHCE is calculated by dividing the employee’s elective deferrals by their salary. The NHCE ADP is calculated by averaging the ADR for all eligible NHCEs (even those who chose not to defer). The following table shows how the IRS limits the disparity between HCE and NHCE average contribution rates. For example, if the NHCEs contributed 3%, the HCEs can only defer 5% (or less) on average. NHCE ADP HCE ADP 2% or less → NHCE% x 2 2-8% → NHCE% + 2 more than 8% → NHCE% x 1.25 3. Actual contribution percentage (ACP) test—Compares the average employer contributions received by HCEs and NHCEs. (So this test is only required if you make employer contributions.) Conveniently, the calculations and breakdowns are the same as with the ADP test, but the average contribution rate calculation includes both employer matching contributions and after-tax contributions. 4. Top-heavy determination—Evaluates whether or not the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. Simply put, it analyzes the accrued benefits between two groups: Key employees and non-Key employees. A plan is considered top-heavy when the total value (account balance with adjustments related to rollovers, terminated accounts, and a five-year lookback of distributions) of the Key employees’ plan accounts is greater than 60% of the total value (also adjusted as noted above) of the plan assets, as of the end of the prior plan year. (Exception: The first plan year is determined based on the last day of that year). If the plan is considered top-heavy for the year, employers must make a contribution to non-key employees. The top-heavy minimum contribution is the lesser of 3% of compensation or the highest percentage contributed for key employees. However, this can be reduced or avoided if no key employee makes or receives contributions for the year (including forfeiture allocations). What happens if my plan fails these tests? If your plan fails the ADP and ACP tests, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or by making additional employer contributions to your NHCEs. If you have to refund contributions, that money may be subject to state and federal taxes. Plus, if you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious ramifications. Why is it common to fail testing? Small and mid-size businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but non-highly compensated employees (NHCEs) don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. It’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. How can I help my plan pass the tests? It pays to prepare for nondiscrimination testing. Here are a few tips that can make a difference: Add automatic enrollment —By adding an auto-enrollment feature to your 401(k) plan, you can automatically deduct elective deferrals from your employees’ wages unless they opt out. It’s a simple way to boost participation rates and help your employees start saving. In fact, the government is getting more behind auto-enrollment; SECURE 2.0 mandates plans that launched after Dec. 29, 2022 add automatic enrollment to the plan by Jan. 1, 2025. Add a Safe Harbor provision to your 401(k) plan—Safe Harbor plan design typically makes compliance testing easier to pass. Make it easy to enroll in your plan—Is your 401(k) plan enrollment process confusing and cumbersome? If so, it might be stopping employees from enrolling. Consider partnering with a tech-savvy provider like Betterment that can help your employees enroll quickly and easily—and support them on every step of their retirement saving journey. Learn more now. Encourage your employees to save—Whether you send emails or host employee meetings, it’s important to get the word out about saving for retirement through the plan. That’s because the more NHCEs that participate, the better chance you have of passing the nondiscrimination tests. (Plus, you’re helping your team save for their future.) Add automatic escalation - By adding automatic escalation, you can ensure that participants who are automatically enrolled in the plan continue to increase their deferral rate by 1% annually until a cap is reached (generally 15%). It’s a great way to increase your employees retirement savings and to engage them in the plan. How can Betterment help? Nondiscrimination testing and many other aspects of 401(k) plan administration can be complex. That’s why we do everything in our power to help make it easier for you as a plan sponsor. We help with year-end compliance testing, including ADP/ACP testing, top-heavy testing, annual additions testing, deferral limit testing, and coverage testing. With our intuitive online platform, you can better manage your plan and get the support you need along the way. Ready to learn more? Let's talk. 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. The information contained in this article is meant to be informational only and does not constitute investment or tax advice.

What Employers Should Know About Timing of 401(k) Contributions BlogPost 56841825963 What Employers Should Know About Timing of 401(k) Contributions One of the most important aspects of plan administration is making sure money is deposited in a timely manner—to ensure that employer contributions are tax-deductible and employee contributions are in compliance. Timing of employee 401(k) contributions (including loan repayments) When must employee contributions and loan repayments be withheld from payroll? This is a top audit issue for 401(k) plans, and requires a consistent approach by all team members handling payroll submission. If a plan is considered a ‘small plan filer’ (typically under 100 eligible employees), the Department of Labor is more lenient and provides a 7-business day ‘safe harbor’ allowing employee contributions and loan repayments to be submitted within 7 business days of the pay date for which they were deducted. If a plan is larger (>100 eligible employees), the safe harbor does not apply, and the timeliness is based on the earliest date a plan sponsor can reasonably segregate employee contributions from company assets. Historically, plans leaned on the outer bounds of the requirement (by the 15th business day of the month following the date of the deduction effective date), but today with online submissions and funding via ACH, a company would generally be hard-pressed to show that any deposit beyond a few days is considered reasonable. To ensure timely deposits, it’s imperative for plan sponsors to review their internal processes regularly. All relevant team members -- including those who may have to handle the process infrequently due to vacations or otherwise -- understand the 401(k) deposit process completely and have the necessary access. I am a self-employed business owner with income determined after year-end. When must my 401(k) contributions be submitted to be considered timely? If an owner or partner of a company does not receive a W-2 from the business, and determines their self-employment income after year-end, their 401(k) contribution should be made as soon as possible after their net income is determined, but certainly no later than the individual tax filing deadline. Their 401(k) election should be made (electronically or in writing) by the end of the year reflecting a percentage of their net income from self employment. Note that if they elect to make a flat dollar 401(k) contribution, and their net income is expected to exceed that amount, the deposit is due no later than the end of the year. Timing of employer 401(k) contributions We calculate and fund our match / safe harbor contributions every pay period. How quickly must those be deposited? Generally, there’s no timing requirement throughout the year for employer matching or safe harbor contributions. The employer may choose to pre-fund these amounts every pay period, enabling employees to see the value provided throughout the year and to benefit from compound interest. Note that plans that opt to allocate safe harbor matching contributions every pay period are required to fund this at least quarterly. When do we have to deposit employer contributions for year-end (e.g., true-up match or safe harbor deposits, employer profit sharing)? Employer contributions for the year are due in full by the company tax filing deadline, including any applicable extension. Safe harbor contributions have a mandatory funding deadline of 12 months after the end of the plan year for which they are due; typically for deductibility purposes, they are deposited even sooner.

Everything You Need to Know about Form 5500 BlogPost 56841825973 Everything You Need to Know about Form 5500 If you’d like to get a general idea of what it takes to file a Form 5500 for a 401(k) plan, here are the top five things you need to know. As you can imagine, the Internal Revenue Service (IRS) and the Department of Labor (DOL) like to keep tabs on employee benefit plans to make sure everything is running smoothly and there are no signs of impropriety. One of the ways they do that is with Form 5500. You may be wondering: What is Form 5500? Well, Form 5500—otherwise known as the Annual Return/Report of Employee Benefit Plan—discloses details about the financial condition, investments, and operations of the plan. Not only for retirement plans, Form 5500 must be filed by the employer or plan administrator of any pension or welfare benefit plan covered by ERISA, including 401(k) plans, pension plans, medical plans, dental plans, and life insurance plans, among others. If you’re a Betterment client, you don’t need to worry about many of these Form 5500 details because we do the heavy lifting for you. But if you’d like to get a general idea of what it takes to file a Form 5500 for a 401(k) plan, here are the top five things you need to know. 1. There are three different versions of Form 5500—each with its own unique requirements. Betterment drafts a signature-ready Form 5500 on your behalf. But if you were to do it yourself, you would select from one of the following form types based on your plan type: Form 5500-EZ – If you have a one-participant 401(k) plan —also known as a “solo 401(k) plan”—that only covers you (and your spouse if applicable), you can file this form. Have a solo 401(k) plan with less than $250,000 in plan assets as of the last day of the plan year? No need to file a Form 5500-EZ (or any Form 5500 at all). Lucky you! Form 5500-SF– If you have a small 401(k) plan—which is generally defined as a plan that covers fewer than 100 participants on the first day of the plan year—you can file a simplified version of the Form 5500 if it also meets the following requirements: It satisfies the independent audit waiver requirements established by the DOL. It is 100% invested in eligible plan assets—such as mutual funds and variable annuities—with determinable fair values. It doesn’t hold employer securities. Form 5500– If you have a large 401(k) plan—which is generally defined as a plan that covers more than 100 participants—or a small 401(k) plan that doesn’t meet the Form 5500-EZ or Form 5500-SF filing requirements, you must file a long-form Form 5500. Unlike Form 5500-EZ and Form 5500-SF, Form 5500 is not a single-form return. Instead, you must file the form along with specific schedules and attachments, including: Schedule A -- Insurance information Schedule C -- Service provider information Schedule D -- Participating plan information Schedule G -- Financial transaction schedules Schedule H or I -- Financial information (Schedule I for small plan) Schedule R -- Retirement plan information Independent Audit Report Certain forms or attachments may not be required for your plan. Is your plan on the cusp of being a small (or large) plan? If your plan has between 80 and 120 participants on the first day of the plan year, you can benefit from the 80-120 Rule. The rule states that you can file the Form 5500 in the same category (i.e., small or large plan) as the prior year’s return. That’s good news, because it makes it possible for large retirement plans with between 100 and 120 participants to classify themselves as “small plans” and avoid the time and expense of completing the independent audit report. 2. You must file the Form 5500 by a certain due date (or file for an extension). You must file your plan’s Form 5500 by the last business day of the seventh month following the end of the plan year. For example, if your plan year ends on December 31, you should file your Form 5500 by July 31 of the following year to avoid late fees and penalties. If you’re a Betterment client, you’ll receive your signature-ready Form 5500 with ample time to submit it. Plus, we’ll communicate with you frequently to help you meet the filing deadline. But if you need a little extra time, Betterment can file for an extension on your behalf using Form 5558—but you have to do it by the original deadline for the Form 5500. The extension affords you another two and a half months to file your form. (Using the prior example, that would give you until October 15 to get your form in order.) What if you happen to miss the Form 5500 filing deadline? If you miss the filing deadline, you’ll be subject to penalties from both the IRS and the DOL: The IRS penalty for late filing is $250 per day, up to a maximum of $150,000. The DOL penalty for late filing can run up to $2,259 per day, with no maximum. There are also additional penalties for plan sponsors that willfully decline to file. That said, through the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP), plan sponsors can avoid higher civil penalty assessments by satisfying the program’s requirements. Under this special program, the maximum penalty for a single late Form 5500 is $750 for small 401(k) plans and $2,000 for large 401(k) plans. The DFVCP also includes a “per plan” cap, which limits the penalty to $1,500 for small plans and $4,000 for large plans regardless of the number of late Form 5500s filed at the same time. 3. The Form 5500 filing process is done electronically in most cases. For your ease and convenience, Form 5500 and Form 5500-SF must be filed electronically using the DOL’s EFAST2 processing system (there are a few exceptions). EFAST2 is accessible through the agency’s website or via vendors that integrate with the system. To ensure you can file your Form 5500 quickly, accurately, and securely, Betterment facilitates the filing for you. Whether you file electronically or via hard copy, remember to keep a signed copy of your Form 5500 and all of its schedules on file. Once you file Form 5500, your work isn’t quite done. You must also provide your employees with a Summary Annual Report (SAR), which describes the value of your plan’s assets, any administrative costs, and other details from your Form 5500 return. The SAR is due to participants within nine months after the end of the plan year. (If you file an extension for your Form 5500, the SAR deadline also extends to December 15.) For example, if your plan year ends on December 31 and you submitted your Form 5500 by July 31, you would need to deliver the SAR to your plan participants by September 30. While you can provide it as a hard copy or digitally, you’ll need participants’ prior consent to send it digitally. In addition, participants may request a copy of the plan’s full Form 5500 return at any time. As a public document, it’s accessible to anyone via the DOL website. 4. It’s easy to make mistakes on the Form 5500 (but we aim to help you avoid them). As with any bureaucratic form, mistakes are common and may cause issues for your plan or your organization. Mistakes may include: Errors of omission such as forgetting to indicate the number of plan participants Errors of timing such as indicating a plan has been terminated because a resolution has been filed, yet there are still assets in the plan Errors of accuracy involving plan characteristic codes and reconciling financial information Errors of misinterpretation or lack of information such as whether there have been any accidental excess contributions above the federal limits or failure to report any missed contributions or late deposits Want to avoid making errors on your Form 5500? Betterment prepares the form on your behalf, so all you need to do is review, sign, and submit—it’s as simple as that. 5. Betterment drafts a signature-ready Form 5500 for you, including related schedules When it comes to Form 5500, Betterment does nearly all the work for you. Specifically, we: Prepare a signature-ready Form 5500 that has all the necessary information and related schedules Remind you of the submission deadline so you file it on time Guide you on how to file the Form 5500 (it only takes a few clicks) and make sure it’s accepted by the DOL Provide you with an SAR that’s ready for you to distribute to your participants Ready to learn more about how Betterment can help you with your Form 5500 (and so much more)? Let’s talk.

Pros and Cons of OregonSaves for Small Businesses BlogPost 56841935640 Pros and Cons of OregonSaves for Small Businesses Answers to frequently asked questions about the OregonSaves retirement program for small businesses. Launched in 2017, OregonSaves was the first state-based retirement savings program in the country and has since surpassed managing $100 million in assets. Employers with 5 or more employees are already required to offer a plan; for employers with 4 employees or fewer, the deadline is March 1, 2023. If you’re wondering whether OregonSaves is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees OregonSaves? No. Oregon laws require businesses to offer retirement benefits, but you don’t have to elect OregonSaves. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is OregonSaves? OregonSaves is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees into the program. Specifically, the Oregon plan requires employers to automatically enroll employees at a 5% deferral rate with automatic, annual 1% increases until their savings rate reaches 10%. All contributions are invested into a Roth IRA. As an eligible employer, you must facilitate the program, set up the payroll deduction process, and send the contributions to OregonSaves. The first $1,000 of an employee’s contributions will be invested in the OregonSaves Capital Preservation Fund, and savings over $1,000 will be invested in an OregonSaves Target Retirement Fund based on age. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. (They can also opt out of the annual increases.) 3. Why should I consider OregonSaves? OregonSaves is a simple, straightforward way to help your employees save for retirement. Brought to you by Oregon State Treasury, the program is overseen by the Oregon Retirement Savings Board and administered by a program service provider. As an employer, your role is limited and there are no fees to provide OregonSaves to your employees. 4. Are there any downsides to OregonSaves? Yes, there are factors that may may make OregonSaves less appealing than other retirement plans. Here are some important considerations: OregonSaves is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in OregonSaves. For example, single filers with modified adjusted 2022 gross incomes of more than $144,000 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. OregonSaves is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—OregonSaves only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to OregonSaves, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, OregonSaves does not. Limited investment options—OregonSaves offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer OregonSaves; however, employees do pay approximately $1 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have far lower employee fees. Fees are a big consideration because they can seriously erode employee savings over time. 5. Why should I consider a 401(k) plan instead of OregonSaves? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you can benefit from: Tax credits—Thanks to 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 over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with OregonSaves, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that OregonSaves is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

Pros and Cons of the New York State Secure Choice Savings Program BlogPost 67075491422 Pros and Cons of the New York State Secure Choice Savings Program Answers to small businesses' frequently asked questions The New York State Secure Choice Savings Program was established to help private-sector workers in the state who have no access to a workplace retirement savings plan. Originally enacted as a voluntary program in 2018, Gov. Kathy Hochul signed a law on Oct. 22, 2021, that requires all employees of qualified businesses be automatically enrolled in the state's Secure Choice Savings Program. If you’re an employer in New York, state laws require you to offer the Secure Choice Savings Program if you: Had 10 or more employees during the entire prior calendar year Have been in business for at least two years Have not offered a qualified retirement plan during prior two years If you’re wondering whether the Secure Choice Savings Program is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees the Secure Choice Savings Program? No. State laws require businesses with 10 or more employees to offer retirement benefits, but you don’t have to elect the Secure Choice Savings Program if you provide a 401(k) plan (or another type of employer-sponsored retirement program). 2. What is the Secure Choice Savings Program? The Secure Choice Savings Program is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the New York plan requires employers to automatically enroll employees at a 3% deferral rate. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice Savings Program provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider the Secure Choice Savings Program? The Secure Choice Savings Program is a simple, straightforward way to help your employees save for retirement. According to SHRM, it is managed by the program’s board, which is responsible for selecting the investment options. The state pays the administrative costs associated with the program until it has enough assets to cover those costs itself. When that happens, any costs will be paid out of the money in the program’s fund. 4. Are there any downsides to the Secure Choice Savings Program? Yes, there are factors that may make the Secure Choice Savings Program less appealing than other retirement plans. Here are some important considerations: The Secure Choice Savings Program is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate. For example, single filers with modified adjusted gross incomes of more than $144,000, as of 2022, would not be eligible to contribute. If they mistakenly contribute to the Secure Choice Savings Program—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. New York Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—Employees may save up to $6,000 in an IRA in 2022 ($7,000 if they’re age 50 or older), while in a 401(k) plan employees may save up to $20,500 in 2022 ($27,000 if they’re age 50 or older). So even if employees max out their contribution to the Secure Choice Savings Program, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, the Secure Choice Savings Program does not. Limited investment options—Secure Choice Savings Program offers a relatively limited selection of investments. 5. Why should I consider a 401(k) plan instead of the Secure Choice Savings Program? For many employers—even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to 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 over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over the course of three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with New York Secure Choice that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that New York’s Secure Choice Savings Program is most appropriate for your company, visit the New York Secure Choice website to learn more. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now.

Why You Should Have a 401(k) Committee and How to Create One BlogPost 56844814863 Why You Should Have a 401(k) Committee and How to Create One A 401(k) committee can help improve plan management and alleviate your administrative burden. Are you thinking about starting a 401(k) plan or have a plan and are feeling overwhelmed with your current responsibilities? If you answered “yes” to either of these questions, then it might be time to create a 401(k) committee, which can help improve plan management and alleviate your administrative burden. Want to learn more? Read on for answers to frequently asked questions about 401(k) committees. 1. What is a 401(k) committee? A 401(k) committee, composed of several staff members, provides vital oversight of your 401(k) plan. Having a 401(k) committee is not required by the Department of Labor (DOL) or the IRS, but it’s a good fiduciary practice for 401(k) plan sponsors. Not only does it help share the responsibility so one person isn’t unduly burdened, it also provides much-needed checks and balances to help the plan remain in compliance. Specifically, a 401(k) committee handles tasks such as: Assessing 401(k) plan vendors Evaluating participation statistics and employee engagement Reviewing investments, fees, and plan design 2. Who should be on my 401(k) committee? Most importantly, anyone who serves as a plan fiduciary should have a role on the committee because they are held legally responsible for plan decisions. In addition, it’s a good idea to have: Chief Operating Officer and/or Chief Financial Officer Human Resources Director One or more members of senior management One or more plan participants Senior leaders can provide valuable financial insight and oversight; however, it’s also important for plan participants to have representation and input. Wondering how many people to select? It’s typically based on the size of your company – a larger company may wish to have a larger committee. To avoid tie votes, consider selecting an odd number of members. Once you’ve selected your committee members, it’s time to appoint a chairperson to run the meetings and a secretary to document decisions. 3. How do I create a 401(k) committee? The first step in creating a 401(k) committee is to develop a charter. Once documented, the committee charter should be carefully followed. It doesn’t have to be lengthy, but it should include: Committee purpose – Objectives and scope of authority, including who’s responsible for delegating that authority Committee structure – Number and titles of voting and non-voting members, committee roles (e.g., chair, secretary), and procedure for replacing members Committee meeting procedures – Meeting frequency, recurring agenda items, definition of quorum, and voting procedures Committee responsibilities – Review and oversight of vendors; evaluation of plan statistics, design and employee engagement; and appraisal of plan compliance and operations Documentation and reports – Process for recording and distributing meeting minutes and reporting obligations Once you’ve selected your committee members and created a charter, it’s important to train members on their fiduciary duties and impress upon them the importance of acting in the best interest of plan participants and beneficiaries. With a 401(k) committee, your plan may be able to run more smoothly and effectively.

What is a Fidelity Bond? BlogPost 56841935644 What is a Fidelity Bond? 401(k) plan sponsors are required to purchase a fidelity bond to protect the plan against fraudulent or dishonest acts. Here are answers to common questions. What is a fidelity bond? A fidelity bond is a type of insurance required for those responsible for the day-to-day administration and handling of “funds or other property” of an ERISA (Employee Retirement Income Security Act of 1974) benefit plan such as a 401(k). The purpose of the bond is to protect the plan from losses due to acts of fraud or dishonesty including theft, embezzlement, larceny, forgery, misappropriation, wrongful abstraction, wrongful conversion and willful misapplication. What are “Funds Or Other Property”? “Funds or other property” refers to 401(k) plan assets. In addition to publicly-traded stocks, bonds, mutual funds, and exchange-traded funds, all employee and employer contributions are considered “funds,” whether they come in the form of cash, check or property. Who must be covered by a fidelity bond? Under ERISA, it is illegal to receive, disburse, or exercise custody or control of plan funds or property without having a fidelity bond in place. Therefore, anyone who handles or manages 401(k) funds must be covered by a fidelity bond. This includes anyone who has: Physical contact with cash, checks, or similar property Authority to secure physical possession of cash, checks, or similar property through access to a safe deposit box, bank accounts, etc. Authority to transfer plan funds either to oneself or a third party Authority to disburse funds Authority to sign or endorse checks Supervisory or decision-making authority over plan funds This requirement is not just limited to plan managers and plan sponsor employees. Third party service providers that have access to the plan’s funds or exercise decision-making authority over the funds may also require bonding. This includes investment advisors and third-party administrators (TPAs). How much coverage is required? ERISA requires each person handling the plan to be covered for at least 10% of the amount of funds they handle. The coverage can’t be less than $1,000 or more than $500,000, (unless the plan includes employer securities, in which case the maximum amount can be $1,000,000). The exception to the 10% rule applies to ‘non-qualifying plan assets” that may represent more than 5% of the plan’s total assets. Qualifying assets include items held by a financial institution such as a bank, insurance company, mutual funds, etc. Non-qualifying assets are those not held by any financial institution including tangibles such as artwork, collectibles, non-participant loans, property, real estate and limited partnerships. Fidelity bonds have a minimum term of one year. Longer-term bonds will typically include an inflation provision so the value of the bond will increase automatically. The bond amount should be reviewed and updated as the plan assets increase or decrease. Where can I obtain a fidelity bond? The bond must be issued by an underwriter from an insurance company that is listed on the Department of Treasury’s Listings of Approved Sureties. These are companies that have been certified by the Treasury Department. Fidelity bond application During the application process, some plan information may be required. Common items the application will ask is the plan name, address, IRS plan number (ex. 001), and trustee information. Most of the items asked can be found under the administrative information section (usually second to last page) within the Summary Plan Description (SPD). What happens if I don’t cover my plan with a Fidelity Bond? The existence and amount of the plan’s fidelity bond must be reported on your plan’s annual Form 5500 filing. Not having a bond, or not having sufficient coverage based on plan assets, may trigger a Department of Labor audit and may risk the plan’s tax-qualified status. Additionally, the plan fiduciaries may be held personally liable for any losses that may occur from fraudulent or dishonest acts.

Pros and Cons of CalSavers for Small Businesses BlogPost 56841825941 Pros and Cons of CalSavers for Small Businesses Answers to frequently asked questions about the CalSavers Retirement Savings Program If you’re an employer in California with 5 or more employees, you must offer the CalSavers Retirement Savings Program—or another retirement plan such as a 401(k). Faced with this decision, you may be asking yourself: Which is the best plan for my employees? To help you make an informed decision, we’ve provided answers to frequently asked questions about CalSavers: 1. Do I have to offer my employees CalSavers? No. California laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect CalSavers. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is CalSavers? CalSavers is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the CalSavers plan requires employers with at least five employees to automatically enroll employees at a 5% deferral rate with automatic annual increases of 1%, up to a maximum contribution rate of 8%. As an eligible employer, you must withhold the appropriate percentage of employees’ wages and deposit it into the CalSavers Roth IRA on their behalf. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider CalSavers? CalSavers is a simple, straightforward way to help your employees save for retirement. CalSavers is administered by a private-sector financial services firm and overseen by a public board chaired by the State Treasurer. As an employer, your role is limited to uploading employee information to CalSavers and submitting employee contributions via payroll deduction. Plus, there are no fees for employers to offer CalSavers, and employers are not fiduciaries of the program. 4. Are there any downsides to CalSavers? Yes, there are factors that may make CalSavers less appealing than other retirement plans. Here are some important considerations: CalSavers is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in CalSavers. For example, single filers with modified adjusted gross incomes of more than $140,000 would not be eligible to contribute. If they mistakenly contribute to CalSavers—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. CalSavers is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—CalSavers only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to CalSavers, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, CalSaver does not. Limited investment options—CalSavers offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer CalSavers; however, employees do pay $0.83-$0.95 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of CalSavers? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to 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 over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with CalSavers, that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that CalSavers is most appropriate for your company, visit the CalSavers website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

What state-mandated plans could mean for your small business BlogPost 75621740899 What state-mandated plans could mean for your small business Increasingly, states are requiring that businesses provide retirement plans to employees. Learn if you may need to enroll in one of these state-mandated plans. State-mandated retirement plans are on the rise due to local and state legislation requiring businesses to provide retirement benefits to their employees. With the growing number of private workers not having access to these crucial benefits, many states decided they had to act. In 2015, the Department of Labor (DOL) issued guidance to support the states effort to help promote retirement benefits within their respective states. What are state-mandated retirement plans? When we talk about “state-mandated plans,” what we mean is that, increasingly, more and more states have passed legislation that require businesses to provide retirement benefits for their employees. In these states, the employer has the option of enrolling their employees in the state-sponsored program or sponsor their own workplace retirement plan offered by providers like Betterment. A state-sponsored plan is typically an individual Retirement Account (IRA) in which the employer sets up for their participants to contribute. Certain features may differ between states so it’s a good idea to check in with your state's specific program. Is a state-mandated retirement plan required for my company and what is the deadline to register? Legislation is continuously being updated for each respective state and new states are emerging with future plans to offer this. To date, we’ve tried to provide resources as enough information becomes available on Betterment’s website. You can find more details on states like California, New York, Oregon and Illinois at the links provided. In most states, the mandate only applies if an employer meets certain criteria, such as having been in business for at least 2 years and having greater than 9 employees, as an example. If you have questions, it’s best to reach out to a representative of your state directly or consult your state’s retirement website (if applicable). That said, a state-mandated plan might not be the best plan for your business. Read on to learn more of the pros and cons. What are the benefits of a state-mandated retirement program? Registration to the program can be relatively quick They have limited employer responsibilities & fees No fiduciary responsibility for the employer Participants gain access to retirement benefits for a modest fee Automatic features can force savings (from which employees can opt out) What are the downsides of a state-mandated retirement program? Deferral limits are much lower than 401(k) plans Employees not able to defer taxes if state plan only utilizes Roth May offer limited financial wellness tools compared to 401(k) providers like Betterment May not be as flexible compared to a 401(k) plan Program may not be as competitive with other retirement vehicles for talent acquisition Missed deadlines can cause penalties to the employer Overall, state-mandated programs are a good push to increase the overall percentage of workers who have access to retirement benefits. As of 2021, 32% of private industry workers do not have any access to retirement benefits. If you are or will be required to offer your employees retirement benefits as a result of a state mandate, please know that you have options in setting up your company’s retirement plan and we are here to help. So, what should I do? For any employer who is concerned with attracting and retaining talent in today’s market, offering a 401(k) has become a table stakes benefit. At the end of the day, state mandated plans are designed to help employees save for retirement, but they may lack some of the benefits that offering a 401(k) plan affords. In order to compete for talent, but also to benefit your business’s bottom line with tax savings, we recommend thinking about designing a more thoughtful retirement option that will help you and your employees in the long run. Want to talk about how? Get in touch.

Understanding your 401(k) Plan Document BlogPost 56841935714 Understanding your 401(k) Plan Document Betterment will draft your 401(k) plan document, but it’s important that you understand what it includes and that you follow it as written. What exactly is a Plan Document? A 401(k) plan is considered a qualified retirement plan by the Internal Revenue Service (IRS), and as such, must meet certain requirements to take advantage of significant tax benefits. Every 401(k) retirement plan is required to have a plan document that outlines how the plan is to be operated. The plan document should reflect your organization’s objectives in sponsoring the 401(k) plan, including information such as plan eligibility requirements, contribution formulas, vesting requirements, loan provisions, and distribution requirements. As regulations change or your organization changes plan features and/or rules, the plan document will need to be amended. Your provider will likely draft your plan’s document, but because of your fiduciary duty, it is important that you as plan sponsor review your plan document, understand it, and refer to it if questions arise. Whether you are a small business or a large corporation, failure to operate the plan in a manner consistent with the document as written can result in penalties from the IRS and/or the Department of Labor (DOL). Understanding Your Fiduciary Responsibilities Although any given 401(k) plan may have multiple (and multiple types of) fiduciaries based on specific plan functions, the plan document identifies the plan’s “Named Fiduciary” who holds the ultimate authority over the plan and is responsible for the plan’s operations, administration and investments. Typically the employer as plan sponsor is the Named Fiduciary. The employer is also the “plan administrator” with responsibility for overall plan governance. While certain fiduciary responsibilities may be delegated to third parties, fiduciary responsibility can never be fully eliminated or transferred. All fiduciaries are subject to the five cornerstone rules of ERISA (Employee Retirement Income Security Act) when managing the plan’s investments and making decisions regarding plan operations: Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them; Carrying out their duties prudently; Following the plan documents (unless inconsistent with ERISA); Diversifying plan investments; and Paying only reasonable plan expenses. One of the best ways to demonstrate that you have fulfilled your fiduciary responsibilities is to document your decision-making processes. Many plan sponsors establish a formal 401(k) plan committee to help ensure that decisions are appropriately discussed and documented. Which Type of 401(k) Plan is Best for Your Organization? The plan document will identify the basic plan type: Traditional 401(k) plans provide maximum flexibility with respect to employer contributions and associated vesting schedules (defining when those contributions become owned by the employee). However, these plans are subject to annual nondiscrimination testing to ensure that the plan benefits all employees—not just business owners or highly compensated employees (HCEs). Safe Harbor 401(k) plans are deemed to pass certain nondiscrimination tests but require employers to contribute to the plan on behalf of employees. This mandatory employer contribution must vest immediately—rather than on a graded or cliff vesting schedule. QACA Safe Harbor plans are an exception, which may have up to a two-year cliff vesting schedule. Profit-sharing 401(k) plans include an additional component that allows employers to make more significant contributions to their employee accounts. Besides helping to attract and retain talent, small businesses can find this feature especially helpful In highly profitable years, since it reduces taxable income. There is no one plan type that is better than another, but this flexibility allows you to determine which type makes the most sense for your organization. Eligibility Requirements to Meet Your Needs Although the IRS mandates that employees age 21 or older with at least 1 year of service are eligible to make employee deferrals, employers do have considerable flexibility in setting 401(k) plan eligibility: Age -- employers often choose to adopt a minimum age of 18. Service -- employers can establish requirements on elapsed time or hours. Entry date -- employers may allow employees to participate in the plan immediately upon hiring but often require some waiting period. For example, employees may have to wait until the first of the month or quarter following their hire date. This flexibility allows employers to adopt eligibility requirements appropriate to their business needs. For instance, a company with high turnover or lots of seasonal workers may institute a waiting period to reduce the number of small balance accounts and the associated administrative costs. Automatic Enrollment may be the Way to Go Enrollment in a 401(k) plan can either be voluntary or automatic. As retirement savings has become ever more essential for workers, employers are increasingly choosing to adopt automatic enrollment, whereby a set percentage is automatically deferred from employee paychecks and contributed to the plan, unless an employee explicitly elects to “opt out” or not contribute. The benefit of automatic enrollment is that human inertia means most employees take no action and start saving for their future. As of September 2022, only 13% of participants who were auto-enrolled opted out per Betterment’s internal analysis. Employee Contribution Flexibility Provides Valuable Flexibility The plan document will specify the types of contributions (or “elective deferrals”) that eligible employees can make to the plan via payroll deduction. Typically these will be either pre-tax contributions or Roth (made with after-tax dollars) contributions. Allowing plan participants to decide when to pay the taxes on their contributions can provide meaningful flexibility and tax diversification benefits. Elective deferrals are often expressed as either a flat dollar amount or as a percentage of compensation. Employee contribution limits are determined each year by the IRS. The plan document must specify whether the plan will allow catch-up contributions for those age 50 and older. Able and/or Willing to Contribute to Employee Accounts? The plan document will also include provisions regarding employer contributions, which can be made on either a matching or non-matching basis. Matching contributions are often used to incentivize employees to participate in the plan. For example, an employer may match 50% of every $1 an employee contributes, up to a maximum of 6% of compensation. For traditional 401(k) plans, matching contributions can be discretionary so that the employer can determine not only how much to contribute in any given year but whether or not to contribute at all. As stated above, matching employer contributions are required for Safe Harbor 401(k) plans. The plan document may also permit the employer to make contributions other than matching contributions. These so-called “nonelective” contributions would be made on behalf of all employees who are considered plan participants, regardless of whether they are actively contributing. Vesting Schedules and Employee Retention Vesting simply means ownership. Employees own, or are fully vested, in their own contributions at all times. Employers with traditional 401(k) plans, however, often impose a vesting schedule on company contributions to encourage employee retention. Although there are a wide variety of approaches to vesting, one of the most common is to use a graded vesting schedule. For instance, an employee would vest in the employer contribution at a rate of 25% each year and be 100% vested after 4 years. Employer contributions as part of Safe Harbor 401(k) plans are vested immediately, aside from QACA Safe Harbor plans. Let Betterment help you create a 401(k) that works for you and your employees As a full-service provider, Betterment aims to make life easy for you. We will draft your plan document based on your preferences and our industry expertise of best practices. We will work with you to keep your plan in compliance and can prepare amendments based on your changing needs. Sign up for a free demo to learn about the impact our 401(k) plan can have on your business.

Thinking of Changing 401(k) Providers? Here’s What to Consider BlogPost 56841935712 Thinking of Changing 401(k) Providers? Here’s What to Consider If you’re considering changing 401(k) providers, be sure to spend some time assessing your current situation and prioritizing your criteria. If you’re reading this, you may have reservations about your current 401(k) provider—and that’s okay. It’s not unusual for companies to change their 401(k) provider from time to time or feel out potential alternatives. We’d argue it’s even best practice to periodically take stock of your current situation. You want to feel confident your plan is keeping up with industry best practices and that you and your employees are getting good value for your money. So how do you go about it? In this guide, we’ll walk you through: Four criteria to consider before switching providers How to switch providers, step-by-step What to expect when switching your plan to Betterment at Work Four criteria to consider before switching 401(k) providers Let’s start with a friendly reminder: because choosing a 401(k) provider is a fiduciary act, you should carefully evaluate your options and clearly document the process. Even just a few criteria can go a long way in that pursuit. Taken altogether, they can give you a better sense of whether you should make a move or stay put. So if you haven’t read through your current agreement recently, now’s a good time to re-familiarize yourself and see how those terms stack up with the following criteria. It isn’t an exhaustive list by any means, but if you find they fall short in these criteria, it may be time to assess other options. Cost 401(k) plan fees can be complicated, but we’ll simplify things a little by sorting them into three categories: Plan administration fees Plan administration fees are (in most cases) paid by you, the plan sponsor, and cover things like plan setup, recordkeeping, auditing, compliance, support, legal, and trustee services. Investment fees Investment fees are typically paid by plan participants and are often assessed as a percentage of assets under management. They come in two forms: - Fund fees, aka “expense ratios,” charged by the individual funds or investments themselves. - Advisory fees charged by the provider for portfolio construction and the ongoing management of plan assets. Individual service fees If participants elect certain services, such as taking out a 401(k) loan, they may be assessed individual fees for each service. Plan providers are required to disclose costs such as these—as well as one-off fees relating to events such as amendments and terminations—in fee disclosure documents. All in all, fees can vary greatly from company to company, especially depending on the amount of assets in their plans. Larger plans, thanks to their purchasing power and economies of scale, tend to pay less. While comparisons can be hard to come by, one source is the 401k Averages Book. You’ll just need to pay—ahem—a fee to access their data. Support Support can encompass any number of areas, but it really boils down to this: do you and your employees feel forgotten and left to fend for yourselves, or do you feel the comforting and consistent presence of a trusted partner? The quality of service received by both groups—both you the plan sponsor and the plan participants—matters equally, so be sure to ask your employees about their experience. How easy is the provider’s user interface for them to navigate? Was it simple to set up their account and get started toward their goals? What kind of education are they being served along the way? One indicator of good participant support is when a majority of them are making contributions at healthy rates. From the plan sponsor’s perspective, many of the same questions regarding setup and day-to-day operations apply. Crucially, however, your support should extend to matters of compliance and auditing: Are the documents provided for your review and approval accurate and timely? When you’ve needed to consult on compliance issues, do you receive clear and helpful answers to your questions? Does the provider deliver a comprehensive audit package to you if you need it and collaborate well with your auditor? There’s also the question of payroll integration. Does your current 401(k) provider support it? How smoothly have things been running? Betterment at Work supports both 360-degree integration, where your payroll system and 401(k) system can send information back and forth, and 180-degree integration, where the data flows only one way, from your payroll system to the 401(k) system. If payroll integration is something you’re looking for in a new provider, be sure you understand these different levels of integration and which responsibilities you may retain. Investment Options For starters, it’s worth thinking about the investment philosophy of your current provider and whether that approach aligns with the needs of your employee demographic. What sort of investment options and guidance do they provide your employees? Some providers could offer a handful of target date funds and mutual funds then call it a day. This could be less than ideal for several reasons. For one, target date funds are essentially a rigid, one-size-fits-all solution to the problem of 401(k) investors not adjusting their risk exposure as they near retirement. If, however, an employee wants to customize their allocation according to their risk appetite, or if they plan to work past their retirement date, the target date fund may no longer be suitable for them. They’re left to figure out for themselves how and where to invest. Contrast that with Betterment at Work, where our portfolios can be customized based on a participant’s planned retirement date or their appetite for risk in general. Mutual funds, meanwhile, tend to cost more, anywhere from 2.5x to 5x more on average, and perform worse over the long run. This is why Betterment builds and manages its portfolios with lower-cost exchange traded funds (ETFs). All things considered, our investment options are designed for the long-term to help your employees reach their retirement goals. Wherever your plan’s investment options land, you still have an obligation as a fiduciary to operate the plan for the benefit of your employees. This means it’s not about what you or a handful of managers want from an investment perspective, but what serves the best interests of the majority of your employees. Finally, one important consideration is whether the plan provider is an ERISA 3(38) investment fiduciary like Betterment. This alleviates the burden of you, the plan sponsor, having to select and monitor the plan investments yourself. Instead, the plan provider assumes the responsibility for investment decisions, saving you time and stress. We’ll touch on other forms of fiduciary responsibility in the section below. Plan design Changing providers doesn’t mean you’re terminating your 401(k) plan and starting from scratch. That has legal ramifications, including not being able to establish another 401(k) plan for at least a year. It does present an opportunity to consider changing the design of your plan, like adding a Safe Harbor match provision. There are also features like auto-enroll and auto-escalation, which Betterment at Work offers at no additional cost. Now’s also a good time to know what level of fiduciary responsibility your current provider assumes and whether you’d want a new provider to have that same level of responsibility, take on more, or whether you’re comfortable taking on more fiduciary responsibility yourself. In terms of investments, the provider may serve as the ERISA 3(21) fiduciary, which provides only investment recommendations, or the aforementioned ERISA 3(38) fiduciary (like Betterment at Work), which provides discretionary investment management. Or they may not be a fiduciary at all. In terms of administration, the provider may or may not provide ERISA 3(16) services (Betterment at Work does). There can be a wide range of functions that fall within that, so refer to your agreement to be sure you know exactly which services they are responsible for and which by default, fall to you as plan administrator. How to switch providers, step-by-step So you’ve done and documented your research and reached the conclusion that it’s time to make a change. What next? Better understanding the mechanics of a move can help you manage expectations internally and create reasonable timelines. Typically, changing providers takes at least 90 days, with coordination and testing needed between both providers to reconcile all records and ensure accurate and timely transfer of plan assets. Once you’ve identified your chosen successor provider and executed a services agreement with them, high-level steps include: Notify your current provider of your decision. You may hear them refer to this as a “deconversion” process. Establish a timeline for asset transfer and a go-live date with the new provider. Review your current plan document with the new provider. This will give you the chance to discuss any potential plan design changes. Be sure to raise any challenges you’ve faced with your current plan design as well as any organizational developments (planned expansion, layoffs, etc) that may impact your plan. Set up the investments. If your new provider is a 3(38) investment fiduciary, you’ll likely have nothing to do here since the provider has discretionary investment responsibilities and will make all decisions with respect to fund selection and monitoring. If your new provider is NOT a 3(38) investment fiduciary, then you’ll have the responsibility for selecting funds for your plan. The plan provider will likely have a menu of options for you to choose from. However, this is an important fiduciary responsibility, and if you (or others at your organization) do not feel qualified to make these decisions, then you should consider hiring an investment expert. Review and approve revised plan documents. Communicate the change to employees (including required legal notices), with information on how to set up and access their account with the new provider. Wait through the blackout period. The blackout period is a span of time—anywhere from 2 to 4 weeks depending on your old provider—when employees can’t make contributions, change investments, make transfers, or take loans or distributions. Participants’ accounts are typically still invested up until the old provider liquidates them and sends them to the new provider. From there, they’re re-invested by the new provider. Outstanding employee loans are also transferred from the old provider to the new provider. Confirm the transfer of assets and allocation of plan assets to participant accounts at your new provider. What to expect when switching your plan to Betterment at Work As you can see from the steps above, switching 401(k) plan providers isn’t as simple as flipping a switch. But that doesn’t mean some providers don’t make it easier than others. We pride ourselves on streamlining the process for new clients in a number of ways: As a 3(38) fiduciary, we handle all investment decisions for you. That’s one less thing to worry about when serving the interests of your employees. We also create accounts for eligible employees and participants, saving them the hassle. You can track the entire onboarding process, meanwhile, in your employer dashboard. Regardless of whether you end up making a switch, we hope the criteria above helped you take better stock of your current 401(k) offering. Before, during, or after that decision, we’re here to help.