Year End 401(k) Plan Housekeeping
The days are getting shorter and the nights are getting colder! This can mean only one thing. Summer is over and in a blink of an eye the holiday season will signal the end of another year!
This is also an excellent time for those responsible for the administration of their company’s 401(k) Plans to make sure a number of administrative and compliance tasks have been completed for another year.
So here is our “to do” list of 10 housekeeping tasks which should be completed in the next 30 days:
402(g) Salary Deferral Limits The salary deferral limit for 2007 is $15,500.
Review employee contribution records to determine if any employee’s salary deferral contributions exceed the limit. Also review for employees who normally maximize their contributions each year and will fall short this year.
Participant Loan Defaults Participants who have failed to make timely payments on their plan loans may be required to report the loan as defaulted to the IRS. Although this check should be completed quarterly, year-end is a great time to make sure all loan defaults are properly recognized.
Preliminary ADP/ACP Testing This task is especially important if in prior years your 401(k) Plan has failed the ADP or ACP test and refunds were required for your highly compensated employees. By running a preliminary test, corrective action may be taken before the end of the year to mitigate or eliminate the HCE refunds for 2007.
Safe Harbor Notices Many plan small plans utilize safe harbor contribution formulas to ensure the plan meets the IRS discrimination testing rules each year. Plan participants must be notified of the Safe Harbor status each year.
Form 5500 and Summary Annual Report The extended deadline for completion of the Form 5500 for 2006 has already passed (October 15, 2007). Make sure all plan participants have received a copy of the Summary Annual Report. Department of Labor regulations require participants be provided a copy within 2 months after the filing of the Form 5500 with the Department of Labor.
Terminated Participants Force-Out Distributions Your plan may allow terminated participants with small account balances to be forced out of the plan. Review plan administrative reports and make sure these force out distributions have been completed. By reducing the number of participants you will keep the cost of the administration lower and possibly the plan’s requirement to undergo an independent audit.
Match Contribution Maximums Many plans limit the amount of employer matching contribution to a dollar limit or percentage limit. Participants typically reach those limits at this point of the year. Check match contribution calculations to make sure the limits have not been exceeded.
Create a time-line and work plan for year end administration This is a great time to strategize with your service provider on a game plan for completing the required year end compliance testing and contribution calculations. This information is an integral part of the data your company will need to finalize tax and financial reporting for the end of the year. A solid time-line for completion of the 401(k) plan information will help ensure the year-end reporting is completed in a timely manner.
Plan Document Amendments Any modifications of any of the terms or operation of the plan that have occurred during the year must be documented by a plan amendment. Amendments adopted by December 31, 2007 can be made effective retroactively to January 1, 2007. Examples of modifications requiring a plan amendment would include alteration of the plan’s contribution allocation formula, change in plan entry requirements, or a revision of the plan’s vesting schedule.
SPD and SMM for Participants Participants must be informed of any material change of the plan document. When the plan document has been amended, a Summary of Material Modifications must be provided to the participants to notify them of how the plan amendment has effected the information originally provided to participants in the Summary Plan Description. Also, this is a good time to ensure that all eligible participants have received a copy of the Summary Plan Description
Retirement Solution Advisors, LLC - 410 W Grand Ave. - Chicago, IL 60610
Phone: (312) 923 8700 ext. 232 - Fax: (312) 923 8701
E-mail: steve.johnson@rsadvisorsllc.com
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