Year-End Guide for 401(k) Plan Administrators
The end of the year is quite a busy time. If you are the administrator of a defined contribution plan, such as a 401(k) plan, your to-do list mostly likely includes ensuring year-end employee contributions, employer match contributions and any additional employer contributions are calculated appropriately and remitted to the plan in a timely manner. Here are some questions to ask yourself before remitting the last contribution of the year.
- Did participants receive the proper deferral? Keep in mind those participants who elected to maximize their contributions or make catch-up contributions
- Was the correct compensation used to calculate contributions? Plan administrators should refer to the definition of compensation outlined in the plan document to properly treat holiday bonuses, gift cards, special pay, and other taxable compensation such as group term life or long term disability, all of which may only affect the last payroll of the year. In addition, the plan may have a different definition of compensation for each type of contribution (employee, employer match and additional employer contribution).
- Did the plan calculate contributions in accordance with Internal Revenue Service (IRS) pension plan limits, plan limitations or plan eligibility requirements, such as requiring a participant to be employed on the last day of the of the plan year in order to receive an employer contribution?
- Last but not least, are there any plan forfeitures from non-vested participant accounts that could be utilized to reduce the employer match, employer contributions or plan administrative expenses? Pursuant to IRS regulations, forfeitures must be used or allocated in the same plan year as incurred and not be accumulated in a suspense account over several years. Plan sponsors should also refer to the plan document to ensure forfeitures are used in accordance with the plan’s provisions.