Compliance and plan administration guidelines

Meeting your plan’s compliance and administration requirements can be a complicated task. To assist you, we’ve put together this brief guide to compliance and administrative fundamentals. Your legal advisor and Retirement Plan Coordinator can give you more details.

Limits

  • Annual compensation limit*

    The annual limit of each participant’s compensation for 2023 was $330,000 and for 2024 is $345,000 when calculating contributions and tax-deductible contributions, as well as when performing nondiscrimination testing.

  • Annual deferral limit†

    Participants may contribute up to $22,500 in 2023 and up to $23,000 in 2024 to their 401(k), 403(b) and 457 plans. The $23,000 limit is aggregated for the following plan types:

    • 401(k), 403(b), SIMPLE plans & SARSEPs

    Participants in a 457(b) plan have a separate limit that includes both employee and employer contributions.

  • Annual additions limit‡

    Altogether, employer contributions, employee post-tax and pretax contributions, and forfeitures that are allocated to participant accounts for 2024 cannot exceed $69,000 ($66,000 for 2023) or 100% of annual compensation, whichever is less.

  • Annual catch-up limit†

    Participants age 50 or older may make additional catch-up contributions beyond the limits noted above. The catch-up contribution limit is up to $7,500 in 2023 and $7,500 in 2024.

  • Highly compensated employee definition

    • An employee will be considered to be a highly compensated employee (HCE) if he/she meets any of the following:

      • The employee owned more than 5% of a company sponsoring the plan at any time during the current plan year or during the preceding 12 months of the plan year.

      • Certain family members (i.e., spouse, children, parents or grandparents) of a more than 5% owner is treated as owning the same interest and is an HCE.

      • The employee had compensation in excess of $150,000 for 2023 and in excess of $155,000 in 2024 during the 12 months preceding the plan year and, if elected by the employer, were part of the top paid group.

  • Defined contribution deduction limit

    The deduction limit for defined contribution plans is 25% of eligible compensation. This limit includes profit sharing, pre-tax matching, safe harbor, Qualified Non-Elective Contribution (QNEC), Qualified Matching Contribution (QMAC) and corrective employer contribution. If plan has a 401(k) feature, employees’ pretax contributions no longer count toward the limit. Rather, employee contributions are considered part of compensation for purposes of finding the company’s maximum contribution.

Testing

  • Exemptions

    • 401(k) Safe Harbor Plan

      • A 401(k) plan that makes either a safe harbor matching or safe harbor profit-sharing contribution may be relieved of the need to perform any ADP or ACP tests. Additionally, for a plan that may become top heavy, the top-heavy rules may automatically be satisfied, if the safe harbor requirements are met.

      • To qualify as a safe harbor plan, specific requirements must be met with respect to contributions, vesting and employee notification. Plans can also attain safe harbor status by providing an automatic enrollment program that meets certain requirements.

    All 457 plans and 403(b) plans offered by state and local governments and religious organizations are exempt from the minimum coverage, ACP, ADP and top-heavy tests.

    Any 403(b) plans offered by nonprofit organizations (excluding religious organizations) are required to conduct ACP testing if they offer a matching contribution.

  • Actual deferral percentage test (ADP) / Actual contribution percentage test (ACP)

    • The ADP test is performed to determine whether the plan is discriminating in favor of HCEs with respect to employee deferrals (pre-tax/Roth).
    • The ACP test is performed to determine whether the plan is discriminating in favor of HCEs with respect to employer matching and after-tax contributions.
    • The tests compare the ADP/ACP of the HCEs against the ADP/ACP of the Non-Highly Compensated Employees (NHCEs) to determine whether the plan is discriminating in favor of the HCEs.
    • IRS regulations allow the use of either prior year or current year testing methods which is determined by your plan document.
       

  • Correcting ADP, ACP and top-heavy failures

    • If your plan fails either the ACP or ADP test, depending on your plan document, you can generally fix the problem by:

      • Making corrective distributions to HCEs (“refunds”). These corrective distributions must be made within 2½ months (6 months for plans with eligible automatic contribution arrangement (EACA) provisions that apply to all employees) after the close of the plan year to avoid a 10% excess tax on the excess amounts.

      • Making an additional contribution to the plan, known as a Qualified Non-Elective Contribution (QNEC). These additional contributions are due by the last day of the plan year following the plan year of failure.

    • If your plan fails the top-heavy test, then you must meet minimum contribution requirements for non-key employees (subject to minimum vesting requirements) by the due date of your company’s tax return, including extensions.

  • Minimum coverage test

    This determines whether you have the minimum number of employees covered under the plan in order to remain tax qualified. One way to pass is for non-highly compensated employees (NHCEs) benefiting under the plan to make up at least 70% of the percentage of highly compensated employees (HCEs) benefiting. This test also is known as the ratio percentage test.

  • Top-heavy test

    • Any qualified plan in which key employees hold more than 60% of the vested and non-vested account balances is deemed top-heavy.

    • An employee is a key employee if he or she meets one of the following requirements:

      • More than a 5% owner at any time during the relevant plan year

      • More than a 1% owner at any time during the relevant plan year and has annual compensation greater than $150,000.

      • An officer at any time during the relevant plan year with compensation in excess of the applicable limit. For 2024 the applicable compensation limit is $220,000. For 2023, the applicable limit is $215,000.

Filings

The Department of Labor and Internal Revenue Service require many filings. Contact your Retirement Plan Coordinator if you have questions or need help with any forms.

  • Form 5500

    Most qualified plan sponsors (and some 403(b) plan sponsors) are required to file an annual Form 5500 series report with the Department of Labor. You must file the form by the last day of the 7th calendar month after the end of the plan year. A one-time extension is available by filing IRS Form 5558 on or before the normal due date of the return. The Form 5558 must be filed with the IRS.

  • Retirement plan distributions (IRS Form 1099-R)

    Plans are required to file Form 1099-R with the IRS for any distributions made from the plan during the year. This form is also required to report “deemed” distributions due to defaulted participant loans. The form must be furnished to the distributee by January 31st of the calendar year following the year of distribution.

  • Income tax withholding (IRS Form 945)

    Your plan must file this form to report withheld federal income tax from nonpayroll payments, including distributions from qualified retirement plans. Form 945 must be filed with the IRS by January 31st of each year, reporting withholding during the prior calendar year. However, if all withheld tax has been deposited in a timely manner to the IRS, the deadline is extended to February 10th.

  • Any additional state or local filings

    Many states and municipalities have their own tax rules that govern retirement plan distributions. Make sure your plan is filing those forms as needed.

Other disclosures

  • Summary annual report (SAR)

    You are required to send participants a summary annual report on the plan’s financial information (contained in Form 5500) within nine months after the plan year-end or two months after the Form 5500 filing deadline, including extensions, whichever is later. The SAR can be sent electronically.

  • Summary plan description (SPD)

    You must provide a SPD automatically to participants within 90 days of becoming covered by the plan. However, a new plan has 120 days after becoming subject to ERISA to distribute the SPD. An updated SPD must be furnished every 5 years if changes are made to SPD information or the plan is amended. Otherwise the SPD must be furnished every 10 years.

    In addition to the Summary Plan Description, plan participants are entitled to receive a Summary of Material Modifications when there is a material modification in the terms of the plan or any change to the information in the Summary Plan Description. The Summary of Material Modifications must be written in a manner that the average participant can understand. The material must be furnished within 210 days after the close of the plan year in which the modification was made.

  • Plan amendments

    Any amendments made to your plan should be in writing and made in accordance with the terms of the plan document. If a material amendment, participants must be notified of the change by being furnished a summary of material modifications.

  • DOL disclosure requirements

    The Department of Labor has disclosure requirements for administrators of ERISA-covered retirement plans under Section 404(a)(5). When a plan allocates investment responsibilities to participants or beneficiaries, the plan administrator must take steps to ensure that such participants and beneficiaries, on a regular and periodic basis, are made aware of their rights and responsibilities with respect to the investment of assets held in, or contributed to, their accounts and are provided sufficient information regarding the plan and the plan’s investment options, including fee and expense information, to make informed decisions with regard to the management of their individual accounts.

For more information on these guidelines, please contact your legal advisor or Retirement Plan Coordinator.

* Based on the year in which the Plan Year begins

† Applies to calendar year

‡ Based on the year in which the Limitation Year ends

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