Rules and RegulationsDid your 401(k) plan fail the Average Deferral Percentage (ADP) Test? Have you deducted more than 25% of payroll as an employer contribution? Have all 401(k) deposits been made within 7 days of payroll deduction?
ERISA laws a complex and very technical. Our depth of knowledge lets you run your business while we ensure you are protected from the IRS/DOL over plan compliance issues. |
Alternative to a Failing 401(k) Discrimination (ADP) Test |
We had been administering a 401(k) Plan for a 10 person engineering company for several years when the demographics of the workforce changes enough to start causing failures in the 401(k) discrimination testing. The company was in a position to provide very nominal employer benefits through a Safe Harbor provision to overcome this testing failure. After lengthy in person discussions with the company's owner, he expressed his desire to continue making the maximum 401(k) contribution and he needed to maintain a plan in order to attract and retain top-tiered talent. The company was in a growth phase and needed to carefully monitor their expenses.
The solution we offered to the owner was a Safe Harbor Match where the highly compensated employees (he being the only one) would be excluded from receiving an employer benefit. This arrangement allowed for all three objectives to be met: (1) the owner could make maximum 401(k) contributions, (2) the expense to the company would be nominal, and (3) the company could keep the plan operating without incurring a significantly increased cost. |
Who is a Participant? |
Participants are classified into one of four main categories: Active, Retired/Separated and receiving benefits, Retired/Separated and entitled to future benefits, or Deceased individuals whose beneficiaries are receiving or are entitled to future benefits.
From Page 17 of the 2015 Form 5500 instructions (or page 11 of 2015 Form 5500-SF instructions):
An employee who meets eligibility and contributes to a 401(k) Plan is considered a participant. An employee who meets eligibility and elects to not contribute to a 401(k) Plan is also considered a participant. And as the table above shows, a participant is defined in additional ways. It is of critical importance that we receive all employee data from our clients as we perform our administrative tasks. This data includes a full employee census (with dates of birth, hire, and termination) along with all W2s. Our proactive diligence keeps the plan operating smoothly, helps us identify any issues, and more importantly, helps prevent issues in the first place. |