Important Questions to Ask Yourself as You Prepare Your 401(k) Plan for the End of the Year

Important Questions to Ask Yourself as You Prepare Your 401(k) Plan for the End of the Year

Like it or not, the end of 2016 is fast approaching and that means a very busy time for 401(k) plan sponsors. Here are some timely questions to guide you as you close out another year:

Have you delivered the Summary of Material Modifications (SMM) or Summary Plan Description (SPD)?

If your plan was amended in 2015, then you have until September 30th to deliver the SMM or the SPD.
Note: If you filed an extension to your Form 5500, then you have until December 15th.

Have you delivered the 2015 Summary Annual Report (SAR)?

You have until September 30th to deliver the 2015 SAR to your participants.
Note: If you filed an extension to your Form 5500, then you have until December 15th.

Is the Form 5500 filed?

If you filed the appropriate extension (a Form 5558) then you have until October 15th.
Note: You have until October 17th this year since the 15th fails on a Saturday to file your form 5500.

Are you prepared to meet the annual notice requirements?

You have as early as 90 days (October 1st) and up to 30 days (December 1st) before the plan’s year end date to distribute required 2017 notices including Safe Harbor, Qualified Default Investment Alternative, and Automatic Enrollment.
Note: There are other notices including a 404(c) and the 404(a)(5) participant fee disclosure notices that should also be delivered throughout the year.

Are all employer safe harbor contributions in for 2015?

The plan has until the end of 2016 to make safe harbor or Qualified Nonelective Contributions (QNEC).

If you have any questions about these year end requirements or any of the other important functions that occur throughout the year, please reach out to me atjamie@grinkmeyerleonard.com.

 

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

Contact Jamie

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SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.
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Are You Unknowingly Setting a Trap for Your Plan?

Are You Unknowingly Setting a Trap for Your Plan?

Rarely, if ever, does a person who has been tasked with running a 401(k) plan go into the job with the willful ill intent of corrupting the plan. However, there are certain areas of 401(k) plan management that seem to, time and time again, trip up even the most well-meaning plan sponsors. Here are three areas that can cause trouble:

1. The Plan Document

The plan document serves as the instruction manual for how to operate the 401(k) plan and covers everything from eligibility and enrollment to match formulas and vesting schedules. The area that we have found causes the most problems is the definition of compensation. Most commonly, the plan’s definition will include all W-2 income including bonuses. It is important to note that we have come across plans that do not withhold elective deferrals from bonuses simply because that wasn’t past practice or because no participant had ever asked for that. Too bad neither of those are good enough reasons for the DOL or the IRS if the plan is audited. In order to avoid the potential traps of the plan document, seek the assistance of knowledgeable third party administrators and advisers who can help you identify the details.

2. Employee Contributions

It is common knowledge that if you withhold money from an employee’s paycheck, you need to deposit that money into the area from which it was withheld – whether it be taxes, insurance, or 401(k). The potential trap in remitting 401(k) deferrals lies in the timing of those contributions. Government regulations require that participant contributions to a 401k be deposited to the plan on the earliest date that they can be reasonably segregated from the employer’s general assets. In no event may they be deposited later than the 15th business day of the month, following the month in which the participant contributions were deducted from their pay. Seems pretty straightforward, right? Well, there is a catch. First, you must deposit the deferrals as soon as administratively possible; so, if that means in 2 business days, then they must be deposited in 2 business days. Additionally, you set the standard for your plan. By way of example, if the contributions are withheld every other Friday and are always deposited on the following Wednesday, then you have established your deadline as within 3 business days. However, if you go vacation and the contributions that were withheld on Friday don’t get deposited until the following week’s Monday, then you are outside of your 3-day business standard.

3. Forfeitures

Forfeitures occur when your plan has a vesting schedule in place for employer contributions. If a participant leaves before he or she is fully vested, then the unvested portion of their 401(k) account becomes a forfeiture. Those forfeitures can then be used to pay certain plan related expenses (excluding settlor functions), to reduce employer contributions, to provide additional participant contributions, or to restore previously forfeited participant accounts. The trap with forfeitures comes in the timeliness of use. The IRS requires that forfeitures be used or allocated for the plan year in which they occur or, in certain cases, the following plan year. The plan is not allowed to let the forfeitures grow year after year without using them. Therefore, it is very important that you monitor your forfeiture account and watch how the plan uses it.

If you think that your plan may be vulnerable to falling into one of these traps, please reach out to me at jamie@grinkmeyerleonard.com and we will work to unset it.

 

Jamie Kertis, AIF®, QKAjamie kertis headshot
Retirement Plan Specialist
Grinkmeyer Leonard Financial
1950 Stonegate Drive / Suite 275 /Birmingham, AL 35242
Office: 205.970.9088 / Toll-Free: 866.695.5162
www.grinkmeyerleonard.com

Contact Jamie

Follow Jamie on LinkedIn

Follow Jamie’s Blog

SECURITIES AND ADVISORY SERVICES OFFERED THROUGH COMMONWEALTH FINANCIAL NETWORK, MEMBER WWW.FINRA.ORG/WWW.SIPC.ORG, A REGISTERED INVESTMENT ADVISER.  THIS COMMUNICATION STRICTLY INTENDED FOR INDIVIDUALS RESIDING IN THE STATES OF AL, FL, GA, KY, LA, MD, MS, OK, PA, SC, TN, TX. NO OFFERS MAY BE MADE OR ACCEPTED FROM ANY RESIDENT OUTSIDE THESE STATES DUE TO VARIOUS STATE REGULATIONS AND REGISTRATION REQUIREMENTS REGARDING INVESTMENT PRODUCTS AND SERVICES.