A common operational failure for retirement plans is when plan sponsors fail to apply the correct definition of compensation for retirement plan testing and benefit allocation purposes. Using an incorrect compensation total can impact the average deferral percentage (ADP) and actual contribution percentage (ACP) tests, leading to an inaccurate “pass”, or triggering a refund of excess deferral or contribution unnecessarily.  It can also impact correct calculations of employee deferral, employer match, and profit-sharing amounts.  To ensure the correct compensation total is used, refer ..read more

What Are Controlled Groups and Controlled Group Rules? Controlled group rules exist to prevent business owners from subdividing their company into two separate companies – one employing highly compensated employees (HCEs) with a retirement plan and the other employing non-highly compensated employees (NHCEs) with a lesser plan or no retirement plan at all. A controlled group is a group of companies that have shared ownership and, by meeting certain criteria, are eligible to combine their employee bases into one 401(k) plan. A simple example is a parent-subsidiary group in which the parent ..read more

402(g) Limit on Elective Deferrals – It’s Personal Code section 402(g) limits the amount an individual can defer to a 401(k) plan during a calendar year, and it applies at an individual level, not at a plan level. An individual’s elective deferrals are the sum of all pretax and Roth deferrals to a 401(k) plan plus any salary reductions under a 403(b) plan, a SAR-SEP, and SIMPLE-IRA.  Because the 402(g) limit is a personal limit, the total contributions to all plans for the year are used to determine whether the maximum is exceeded. Code section 401(a)(30) requires that the deferrals to ..read more

In-Service Distributions from Defined Benefit Plans In December 2019, the Bipartisan American Miners Act of 2019 (BAMA) was signed into law and allowed in-service distributions for plan participants to commence at age 59 ½.  The previous age requirement to allow these distributions was age 62.  This provision is voluntary for plan sponsors and must be reflected in the current plan document to allow for age 59 ½ distributions.   For a defined contribution plan, such as a 401(k) or 403(b), an in-service distribution at 59 ½ is a fairly straightforward process.  Howeve ..read more

Understanding Your Retirement Plan’s Force-out Provisions Are you aware of your plan’s force-out provisions? If not, now would be an excellent time to find out. What force-out limit does your plan contain? When you find out, send out the appropriate paperwork to terminated participants.  How force-outs are handled is a plan document issue, and like any other plan provision, must be followed. The Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) changed the cash out rule. It requires that account balances between $1,000 and $5,000 must be rolled over to an individual ..read more

Getting 401(k) Participants Back in the Game in a Post Pandemic World There is no doubt the coronavirus pandemic has impacted financial decisions many workers made during 2020. As the primary means of saving for retirement, 401(k) post pandemic balances were adversely hit by the impact of these decisions. Some employees tapped into their savings by taking a loan or distribution from their accounts. Even more, they cut back or eliminated their contributions, as did their employers in an attempt to weather the storm. Markets began tumbling precipitously in March of 2020, and some participants ..read more

SECURE Act: Plan Amendment Options The SECURE Act was signed into law on December 20, 2019. Your plan will require an amendment prior to the end of your 2022 plan year. Below are provisions that you will be able to elect in the plan amendment: Qualified Birth or Adoption Distribution (“QBAD”): A Participant may request a distribution of up to $5,000 (per child or Eligible Adoptee) as a QBAD. This $5,000 limit shall be reduced by QBADs made with respect to the same child or Eligible Adoptee by other plans maintained by the Employer or a related employer described in Code §414(b), (c), (m ..read more

A common operational failure for retirement plans is when plan sponsors fail to apply the correct definition of compensation for retirement plan testing and benefit allocation purposes. Using an incorrect compensation total can impact the average deferral percentage (ADP) and actual contribution percentage (ACP) tests, leading to an inaccurate “pass”, or triggering a refund of excess deferral or contribution unnecessarily.  It can also impact correct calculations of employee deferral, employer match, and profit-sharing amounts.  To ensure the correct compensation total is used, refer ..read more

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