Although my New Year’s resolutions include less procrastination it’s likely that by the time Valentine’s Day gets here that good intention will long be in my rear view. As I draft these 2020 resolutions, my CPA reminds me once again of all the tax benefits, personal and corporate, that a qualified retirement plan can offer. Finding incentive for my 2020 resolutions, I’m reminded that my inaction in 2019 has limited my options for tax savings tools as the 2019 returns are prepared.
Our business is thinking of setting up a retirement plan. We’ve heard that there are new tax credits offered under the SECURE Act available to employers who set up new plans.
We established our company on February 1st of this year, and now we are planning to launch our 401(k) plan. We know there are number of tests and determinations that require us to look at company history, but as a new company, we don’t really have much of a history to look at.
My architectural firm sponsors a 401(k) plan. We have 38 architects and 2 administrative assistants. We currently provide a matching contribution to participants and, some years, a profit sharing contribution too. I’m reluctant to utilize a safe harbor design, because I really value the vesting schedule on our employer contributions to help retain my best talent, but the plan frequently fails ADP and ACP testing.
As a plan sponsor, I do my best to review the annual compliance reports my TPA sends to me, but to be honest, it might as well be written in a foreign language. For example, several of our participants were recently required to receive corrective refunds due to contributing too much for 2018. I thought it was because our plan was top heavy last year, but then my TPA mentioned something called an ADP test.
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.
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.
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 people who are highly compensated employee (HCEs), and it is causing havoc with our nondiscrimination testing. Last year, some employees had to take corrective distributions of their deferrals due to failing the ADP test for the first time.
Our company sponsors a 401(k) plan for our employees. The owners of the company have always been somewhat secretive in terms of sharing detailed information about themselves and their families. The current environment of selling information for marketing use and identity theft has only intensified that.
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 highest deferral percentages are to receive smaller refund amounts.
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