Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.
Nondiscrimination tests for retirement plans should be performed annually and provided to plan sponsors so that they can be reviewed. Participation and eligibility for a plan must be setup so that it allows a nondiscriminatory cross-section of HCEs and NHCEs to receive benefits from the plan. This is one way of making sure that the plan maintains its qualified status. Below are some failed test corrections that a plan administrator should be aware of:
- ADP/ACP – allocating a QNEC and making corrective distributions to HCEs
- Top-heavy Test – Plan is subject to minimum contribution requirements
Your service provider will generally provide you with a list of all tests performed and corrective methods if necessary. It is always a good practice to make sure you keep your testing results in a designated folder so that it can easily be retrieved. The information can be important especially if the plan decides to implement an amendment to their document or during an audit.
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