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.
Have you, as a plan administrator, ever received the non-discrimination testing results for your plan and ignored them? Believe it or not this happens quiet often, especially if the results are in favor of the benefit plan. Even if the results are in favor of the plan, as the administrator, it is your fiduciary responsibility to review the results to ensure their accuracy. Below are some items you should look at:
· Actual Deferral Percentage Test – Beyond the pass/fail indicator that many plan administrators look for, you should ensure that the correct number of HCEs and NHCEs is listed on the results. For any catch-up or recharacterized of funds, make sure that the adoption agreement allows for this provision.
· Top Heavy Test – This test is a good place to start identifying the definition of key employees for your plan, because when a plan is deemed top heavy contributions have to be made to all non-key employees equal to the lesser of 3% of compensation or a percentage equal to the highest contribution rate of any key employee. Also, gauge how close you are to the 60% limit, to help prepare for the upcoming year.
· Minimum Coverage Test – Benefit plans must cover at least 70% of all employees hence it is the plan administrator’s duty to make sure that he/she is providing their service provider with correct employee information. Check your adoption agreement to see which employees groups are not covered.
As you can see, there is more to the test results than just a mere pass/fail. A good plan administrator will have a filing system in place for these results and will always make sure that they read them thoroughly. Anything short of this practice can be costly for the plan down the line.
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