Year End Steps a 401(k) Plan Sponser Should Take

As a 401(k) plan sponsor, it’s your duty to ensure that your company’s retirement plan is in compliance for next year. If you’re not quite sure what steps you need to take, don’t fret. These are the steps you’ll need to take to ensure you’re prepared.

Key Takeaways:

• Notify your employees if you’re planning on starting a new plan in January.

• Be sure to keep plan records for at least six years and ensure they stay updated.

• Correct any 401(k) plan failures to maintain plan qualification and prevent paying costly fines.

• Benchmark your plan to ensure that the one you’ve chosen meets your needs.

Step one: Secure the proper forms

When adopting in a 401(k), you’ll receive a plan document that must be written to comply with all IRS guidelines. You, as the plan sponsor, would then delegate your plan administrator to provide your participants with a series of forms and notices. From there, the plan administrator is required to maintain plan records for six years. These forms include the following: · Summary Plan Description (SPD): The plan administrator must provide participants with this document. The SPD details information about the plan, how it operates, and how to file benefits claims if necessary.

• Participant notices: Examples of these documents include plan amendment documents, fee disclosures, automatic enrollment, Qualified Default Investment Alternative (QDIA) and safe harbor notices.
• Participant payroll records: Documents that contain the pay information for each plan participant.
• Participant deferral and investment elections: Documents containing the amount of participant contributions and their investment selections.
• Nondiscrimination test results: The results of a set of tests created by the IRS to ensure that an employer’s plan doesn’t favor highly compensated employees. · Copy of Form 5500: This document provides information about the retirement plan’s finances, operation, and compliance with regulations set forth by the government. It’s important to note that the deadline for filing the Form 5500 is July 31st of the plan year.

Step two: ensure employees are notified

Whether your company doesn’t currently offer a plan or you’re switching to a new plan provider, as a 401(k) plan sponsor, you must notify your employees in advance if you’re starting a new plan in January. Make it a point to discuss it in a meeting, email, mailing, or all these methods so your employees are well informed of what to expect. Employees will also need to be provided with detailed information about the plan and their rights as participants. This is detailed in the SPD, mentioned above. Additional notices are required to be distributed to participants if the plan includes automatic enrollment, safe harbor features or a qualified default investment alternative.

Step three: correct nondiscrimination test failures If your key employee balances are more than 60% of plan assets, your plan is top-heavy. If you find that this is the case, you can correct this by contributing 3% of employee compensation directly to non-key employee’s retirement accounts. These contributions must be made by the end of the plan year and can be offset by employer match or profit-sharing contributions.

One way employers can reduce their risk of a top-heavy plan in the future is to adjust their plan design by lowering contribution limits for highly compensated employees or increasing the allowable contribution limits for non-highly compensated employees. Another option is to adopt an ePlan Services safe harbor plan. The benefit of a safe harbor plan is that it’s generally exempt from Average Deferral Percentage (ADP) testing, Average Contribution Percentage (ACP) testing, and top-heavy testing, all of which compare the amounts of highly compensated employees to non-highly compensated employees.

A safe harbor plan requires the employer to make contributions to participant plans, but a safe harbor 401(k) also allows employers to skip certain nondiscrimination tests. You can choose from two types of safe harbor plans:

• Traditional Safe Harbor: With a traditional safe harbor plan, employers must make contributions to an employee’s account whether it is a matching or non-elective contribution. These funds are immediately vested.
• Auto enrollment Safe Harbor: Also known as a Qualified Automatic Enrollment Contribution Arrangement (QACA), this plan automatically enrolls your employees unless they make the choice to opt out.

A safe harbor 401(k) plan makes it easy to help your employees prepare for their future and lets you focus on taking care of business without the stress of compliance testing. To maintain your peace of mind, contact ePlan Services today to help set up a safe harbor plan for your business.

Step three: perform plan benchmarking

If you already have a retirement plan, congrats, you’ve done a great job keeping it in compliance and keeping track of participant information. However, as the year comes to a close, it’s important to take a look at your plan and determine if it’s still giving you the most value for your money. Compare your plan to other plans and consider the services they provide, the benefits they offer, and any transaction fees. Do these prices seem in line with or more cost-effective than competitors? Don’t just assume that your plan is the right fit for next year just because it was this year, crunch the numbers to ensure you’re still making the most beneficial choice for your business.

To wrap up

A 401(k) plan sponsor has the task of making sure all loose ends are tied up before the start of a new year. Therefore, you must make sure your plan is still providing your business with the most value for its buck, ensure that all records are accounted for and accurate, and ensure that any plan failures are corrected.