Topic Archive: Retirement Plan Design

Are Rehires Immediately Eligible for our 401(k) Plan?

DWC | 11/19/19

Facts

We just rehired an employee that used to work for us but who terminated almost 4 years ago.  She was eligible for our 401(k) plan during her previous tenure but took a distribution of her account shortly after she left.

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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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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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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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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 the Deadline to Implement a Retirement Plan for the Current Year?

DWC | 08/13/19

Facts

Returning from sunny days at the beach, I’ve begun discussing my company’s year-end financial projections with my accountant.  Those conversations have been about as fun as a sunburn; it looks like my company and I are looking at a hefty tax bill.  My accountant has suggested on more than one occasion that I consider implementing a retirement plan to help minimize my tax burden, but I’ve just never gotten around to it.  Now, I’m kicking myself.

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Is It Possible to Convert a Pre-Tax 401(k) Account to a Roth Account?

DWC | 08/6/19

Facts

We recently had one of the participants in our 401(k) plan ask if it is possible to convert her balance from pre-tax to Roth.  She has been a participant in our plan for many years and has both her own deferrals as well as company contributions (both match and profit sharing). Based on her current financial situation, she believes it would be more advantageous to convert to Roth so that she can receive distributions tax-free when she retires.

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Can We Require Employees to be Employed at Year-End to Receive a Safe Harbor Contribution?

DWC | 07/30/19

Facts

Our company sponsors a safe harbor 401(k) plan.  Each participant receives a safe harbor nonelective contribution equal to 3% of his or her annual pay.  Our TPA calculates the safe harbor contribution for us after the close of each year, and we deposit it sometime before we file our company tax return for that year.  Each year, we have a couple of participants who terminated employment before year end, and we end up making contributions for them even though they are long gone by the time we make the deposit.

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What Do We Need to Consider When Switching from a SIMPLE IRA to a 401(k)?

DWC | 07/9/19

Facts

We’ve sponsored a SIMPLE IRA for our employees for years and while it’s served its purpose, we are beginning to feel the limitations inherent in the plan.  As we begin to grow, we’d love to be able to add provisions for eligibility and to be able to reward our key performers.  I’m hesitant about making a change from this “known” commodity to a 401(k) plan but feel like we’ve outgrown our current plan.

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Safe Harbor 401(k) Match vs. Nonelective: Two Words for the Same Thing or Two Different Options

DWC | 06/11/19

Facts

I recently got a promotion at work, and one of my new job responsibilities is to help manage our company’s retirement plan.  It is a safe harbor 401(k) plan.  A number of our employees are about to become eligible for the plan, and they are asking me questions about the company matching contribution.  From what I can tell, we make a contribution for everyone who is eligible even if they are not contributing for themselves.

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