The Frugal Fiduciary Blog

It’s 401k Testing Season! What Small Businesses Need to Know About 401k Testing

Posted by Eric Droblyen on Feb 24, 2016

Each plan year, ERISA requires every 401(k) plan to complete certain tests to confirm they do not discriminate in favor of Highly Compensated Employees (HCEs) or exceed IRS contribution limits. Generally, this annual testing is completed as soon as possible following the close of a plan year. For 401k plans with a plan year that ended December 31, 2015, that means now.

While most employers hire a professional third-party administrator (TPA) to complete this work, all employers should understand testing basics to confirm all necessary tests are completed and any failed tests are corrected each year.   Otherwise, costly penalties, plan disqualification or fiduciary liability are more likely.

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Topics: 401(k), 401k testing

Managing 401k Deadlines for the 2016 Plan Year – A Checklist Can Help

Posted by Eric Droblyen on Nov 18, 2015

A myriad of tasks must be completed each year to keep a 401k plan in compliance with ERISA. When considered together, ERISA compliance tasks can seem overwhelming to a 401k plan sponsor. When they are unpacked, however, it’s clear they are manageable - especially when you consider many of the more difficult and time consuming tasks may already be handled by a professional Third-Party Administrator (TPA).

ERISA compliance tasks generally fall into one of four categories - nondiscrimination testing, government reporting, participant disclosure, and plan document maintenance. To ensure these tasks are completed timely each year, I recommend the use of a checklist.

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Topics: 401k testing

New Year’s resolution: Be a better fiduciary to my plan.

Posted by Greg Carpenter on Jan 24, 2014

New Year's Small Business 401(k) Plan Resolution
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Topics: low cost 401(k) plan, 401(k) Investments, 401k blog, small business 401k, 401(k), Form 5500, 401k testing

401k Testing and Compliance: Is a Safe Harbor Plan Really Frugal?

Posted by Greg Carpenter on Mar 11, 2013

At Employee Fiduciary, March is a busy month. And no, I’m not talking about putting together our NCAA brackets. Corporate tax returns are due March 15, which means we are helping our clients analyze the deductibility of 2012 contributions. We are busy completing 401k plan testing and compliance.

In a perfect world, all employees would make the maximum contributions to their plan and reap the rewards come retirement time. But for many employees, putting aside money for retirement is difficult - many need their paycheck in its entirety just for everyday living expenses. On the other hand, highly compensated employees have the ability to make larger contributions to the plan. The IRS has rules that limit deductibility of plan contributions. Basically, the wealthy can max out only if the less well compensated make significant contributions as well.

Because of this, we have seen many of our own clients choose to invest in a 401k plan with “safe harbor” provisions. The 401k safe harbor plan allows highly compensated owner-employees to make maximum contributions even if their employees make smaller contributions - or no contribution at all.

With this kind of plan in place, a small business owner doesn’t run the risk of failing a non-discrimination test (safe harbor plans don’t require discrimination testing) and triggering a refund of contributions, which then are taxed as part of personal income.

But what’s the catch? And does it violate the principles of frugality?

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Topics: 401k blog, 401(k) Plan Consultations, 401(k), 401k testing

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