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We Failed the ADP Test! What Did We Do Wrong and How Do We Fix It?

DWC 02/26/19
Facts Our TPA just sent us our annual compliance report, and it says we failed testing! This is the first year we’ve failed anything, and now we’re being told that we need to take money out of the plan in order to remedy the failure. I don’t understand why this is happening.
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How Can We Pass Nondiscrimination Testing with Low Non-HCE Participation?

DWC 01/22/19
Facts I am fed up with sponsoring my current retirement plan.  My wife and I contribute the maximum amount we can in deferrals each year.  Due to low participation by our employees, we fail ADP testing every year and have to take refunds.
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Can We Reduce the Number of HCEs in our Plan?

DWC 01/15/19
Facts We set up our company 401(k) plan soon after we started our business.  At the time, we were a small tech company with only a couple of employees.  Over the years the company has grown exponentially, and business has been good to us…really good. Because of this, the demographics of our company have changed completely.  We have too many of our ...
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What Is a True-Up Matching Contribution?

DWC 09/18/18
Facts Our 401(k) plan provides for a matching contribution of 50% of the first 6% deferred by each participant (for a maximum match of 3% of pay per year).  We deposit the matching contributions to the plan each pay period at the same time we deposit employee deferrals.  After year-end for the last couple of years, our TPA has informed us that we ...
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How Are Corrective Refunds Determined for a Failed ADP Test?

DWC 08/21/18
Facts Our 401(k) plan failed the ADP test for the first time this year.  We decided to correct the failure by making refunds to the highly compensated employees instead of making additional contributions for the other participants.  However, when we got the actual refund amounts from our TPA, we were surprised to see that those HCEs with the ...
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Decoding the Alphabet Soup: What's With All the Acronyms? | Part 1

DWC 07/24/18
Facts People in the retirement plan business sure do like their acronyms.  All these letters get thrown around, and I do not know what half of them mean.
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What Is the Deadline to Correct a Failed ADP/ACP Test?

DWC 04/24/18
Facts Every couple of years, our 401(k) plan fails the ADP/ACP test by a small margin. Since we don’t always fail the test, gathering our year-end census information to send to our TPA sometimes isn’t as high a priority as some of the other projects necessary to close out the year.
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When Can We Change Our ADP/ACP Testing Method?

DWC 10/10/17
Facts We have a 401(k) plan that allows for both employee deferrals and a company match. Our annual testing each year is based on the amounts contributed in the previous year. That has allowed us to notify our highly compensated employees of the maximum they can contribute each year to ensure we pass testing.
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The views expressed in this blog are those of the authors and do not necessarily represent the views of any other person or organization. All content is provided for informational purposes only and is not intended to be tax or legal advice.