401K Plans – Quarterly -Timely Enrollment for Eligible Employees & Preliminary Non-Discrimination Testing

(The short as I could make it version)

Those of you in charge of the company 401K plan, please make sure the newly eligible employees get enrolled in the plan and that the preliminary mid-year non-discrimination testing is completed. Hopefully, your plan’s third-party administrator, TPA, is on top of this, but ultimately it’s your responsibility. Yes, you read that right. Most TPA/recordkeeper agreements have language in their documents, making you the final responsible party. Also, not providing them with the necessary, accurate, and timely information is on you as well. If you’re unsure of what’s needed most TPA’s will assist you with this process.

Every plan has different eligibility criteria. Generally, it’s one year of service and at least 21 years of age. The entrance dates are usually the first day of the quarter or month. It’s up to you to ensure all newly eligible employees are offered Enrollment into the plan. They can decline it if they want, but you’ll need proof it was offered to them. Most TPAs will have an online login for this process. This is an excellent way for the company to build loyalty and connect with its employees. Another reason to make sure new Enrollment is implemented is for the non-discrimination testing.

Non-Discrimination Testing
Depending on your agreement with your provider, non-discrimination testing should be done periodically during the year to keep highly compensated employees from overcontributing. If this isn’t caught early, the highly compensated employees will have to get a taxable refund of their over contributions. Basically a reversal of the contributions. TPA will tell you and show you the access contributions results, but it’s not automatically done. You’ll need to authorize the access contribution refund-reversal. Another option would be for the employer to make additional contributions to bring up the contributions of the non-highly compensated employees in order to pass the test.

Employee Investment Education
When new employees enter the plan, it’s a good idea to have your advisor give an investment and plan educational class. It will make your employees feel more comfortable about their retirement and grow that all-important employer-employee relationship.

As always, seek the advice of your financial professionals before implementing any method on your own.

Thank You & Congratulations

Glad to see you took action on behalf of your finances !!!

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Ken Gibbons, CPA & CPFA