Topic Archive: Question of the Week

What is a Short Plan Year and What Does It Mean for My Deferrals?

DWC | 11/12/19

Facts

Our company operates on a calendar tax year, but our 401(k) plan runs on a fiscal year ending each June 30th.  It is a real hassle to manage two different year-ends, so we asked our TPA about aligning the two.  They said we could amend the plan to make that happen, but there is also something about it creating a short year which would require us to go through year-end compliance testing twice during the transition.

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What Do You Do with the SIMPLE IRA Sponsored by the Company You Just Acquired?

DWC | 11/5/19

Facts

My company recently acquired another firm.  As we work to combine all of our operations, we’ve discovered a few differences in our employee benefits, specifically our retirement plans.  While we’ve sponsored a 401(k) plan for several years, the company we bought has a SIMPLE IRA.  I’ve done a little research and found that when a company offers a SIMPLE, it cannot also sponsor any other types of plans.

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Is It Possible to Split Eligibility to Allow for Deferrals but to Postpone Safe Harbor Contributions?

DWC | 10/29/19

Facts

We allow new employees to join our 401(k) plan on the first of the month after they are hired.  They become eligible to make deferrals and also receive the company safe harbor contribution at that time.  We don’t have high turnover, but employees who leave often do so within the first year of joining us.  We don’t mind allowing new hires to contribute to the plan out of their own paychecks, but since safe harbor contributions must be immediately vested, it feels like we are wasting company money by giving a contribution to someone who might leave in a relatively short timeframe.

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Are We Required to Make Safe Harbor Contributions for HCEs?

DWC | 10/22/19

Facts

My company sponsors a safe harbor 401(k) plan so that all of the highly compensated employees can maximize their deferrals without worrying about failing the ADP test each year.  Although we fully intend to make the same level of contribution for the HCEs that we do for the non-HCEs, we would prefer to not to be required to do so in order to maintain flexibility with our cash flow.

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Is There a Plan Design that Combines the Benefits of Automatic Enrollment and Safe Harbor?

DWC | 10/15/19

Facts

My company sponsors a 401(k) plan, and we fail the annual ADP test pretty consistently.  We really want to increase participation; not only to help our test results, but also to encourage our employees to save for retirement.  Automatic enrollment would help with participation, but we would have to set the default rate too high in order for it to solve our testing problem.

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Can Automatically Enrolled Participants Who Forgot to Opt Out Withdraw Their Deferrals?

DWC | 10/8/19

Facts

We are thinking of adding automatic enrollment to our 401(k) plan.  One of our concerns, however, is that we might end up with a bunch of tiny account balances for participants who forget to opt out until they see their first paycheck with automatic deferrals taken out.

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Is It Possible to Avoid an Audit for the First (Short) Year of Our Plan?

DWC | 10/1/19

Facts

Our company has about 200 employees, and we launched a new 401(k) plan on October of last year.  We were eager for all of our existing employees to get excited about this new benefit, so we waived the waiting period to join so that everyone would be eligible on day one.  The good news is that it worked, and we had a lot of our employees sign up for the plan.  The bad news is that no one warned us ahead of time (and that our current TPA just told us) that we must have the plan audited for that three-month period because we have more than 100 employees eligible when we launched the plan.  Adding insult to injury, we have to rush to get it done in time to file our first Form 5500 by October 15th!  Yikes!

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How Do I Calculate How Much Money is Available for a 401(k) Loan?

DWC | 09/24/19

Facts

The participants in my company’s 401(k) plan are regularly inquiring about how much money they have available for a loan.  When I report back the amount available to them, it’s not unusual for me to hear groans and exclamations from them that “this is my money” (particularly if they’re disappointed they aren’t able to access more). I know there are certain parameters related to participant loans set forth in the plan document, but it seems like there’s more to the magic formula that I’m just not able to explain to the participants.

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What is Automatic Enrollment and How Does it Work?

DWC | 09/17/19

Facts

Our company sponsors a 401(k) plan, but very few of our participants are contributing.  We started the plan as an added benefit to help attract and retain employees, but we also truly want to encourage our employees to save for retirement.  I’ve heard a lot about something called automatic enrollment and how it can be a great tool to get people to save, but I really don’t know much more about it.

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What is a Successor Plan and Does It Prevent Me from Starting a New 401(k) Plan?

DWC | 09/10/19

Facts

My company used to sponsor a 401(k) plan for my employees.  Due to an unforeseen financial hardship, we terminated the plan two years ago.  Now that we are back on solid footing, I would like to start up another 401(k) plan.  I checked with the TPA we were working with, and they said something about a possible successor plan issue.  I’m not really sure what that means.

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