401(k) Annual Filing Steps Flashcards
- Review Plan Documents and Records
Objective: Ensure all documents are up-to-date and align with the previous year’s 401(k) activities.
Action: The advisory firm begins by reviewing the plan’s governing documents, including the adoption agreement and plan document. This ensures there have been no changes to the plan design or amendments throughout the year.
The advisory firm verifies that the plan year is consistent with the business’s fiscal year.
- Collect Data from the TPA
Objective: Obtain the necessary data for compliance testing and reporting.
Action: The advisory firm works with the TPA to gather important plan data, such as:
Total contributions (employee deferrals, employer contributions, match, and profit-sharing contributions).
Payroll information (wages, compensation data, and hours worked) for testing purposes.
Participant account balances.
Investment performance data and reports.
The TPA will also provide summary plan descriptions, participant notices, and any amendments made to the plan during the year.
- Conduct Compliance Testing
Objective: Ensure the plan satisfies the IRS non-discrimination requirements.
Action: The advisory firm, in coordination with the TPA, performs the necessary compliance tests. Common tests include:
Actual Deferral Percentage (ADP) Test: Ensures that highly compensated employees (HCEs) do not defer more than lower-paid employees in an excessive manner.
Actual Contribution Percentage (ACP) Test: Ensures that matching contributions do not disproportionately favor HCEs.
Top-Heavy Test: Ensures that the plan does not disproportionately benefit key employees.
Universal Availability Rule: Verifying that all eligible employees have the opportunity to participate.
If any tests fail, the TPA may propose corrective measures (such as refunding excess contributions or increasing contributions for non-HCEs).
- Complete Form 5500
Objective: File Form 5500 with the IRS to report plan data, financials, and compliance.
Action: The advisory firm works with the TPA to complete Form 5500, which includes the following sections:
Part I: Basic plan information, such as employer details and plan type.
Part II: Plan characteristics (e.g., type of plan, whether it includes a Safe Harbor provision).
Part III: Financial information, including a summary of assets, liabilities, and plan expenses.
Part IV: Information regarding service providers and whether the plan is covered by an audit.
For plans with over 100 participants, Schedule H (financial statements) must be attached. Smaller plans may file a Schedule I (simplified version).
The advisory firm ensures that all data is accurate and consistent, working with the TPA to make sure that the financial data is aligned with the plan’s year-end statement.
- Submit Participant Notices
Objective: Ensure that required participant disclosures are provided.
Action: The advisory firm confirms that the TPA has distributed required participant notices, such as:
Safe Harbor notice (if applicable).
Summary Annual Report (SAR): A summary of the Form 5500 filing that must be provided to all plan participants.
401(k) fee disclosure: A document that outlines the fees associated with the plan, which is required annually to be sent to participants.
- Prepare the Plan’s Financial Statements
Objective: Provide financial documentation for IRS filing and participant disclosures.
Action: For larger plans (over 100 participants), an independent audit of the financials is often required. The advisory firm works with the TPA and external auditors (if necessary) to complete these financial statements, which will then be attached to the Form 5500.
For smaller plans, the financial information may be less detailed, but must still meet the minimum reporting requirements set by the IRS.
- Verify Correct Contributions and Deferrals
Objective: Ensure that all contributions and deferrals have been correctly processed and filed.
Action: The advisory firm reviews the contributions made throughout the year to verify they align with the plan’s design (employee deferrals, employer match, non-elective contributions). They work with the TPA to ensure that contributions are being made in the correct amounts and on time.
The advisory firm also ensures that payroll data is consistent with the participant contributions reported in the Form 5500.
- Review Plan Compliance and Corrective Actions
Objective: Resolve any issues with the plan’s compliance before filing.
Action: The advisory firm ensures that all necessary corrective actions have been taken if the plan failed any compliance tests, such as:
Corrective distributions of excess deferrals or contributions.
Adjustments to the plan to bring it into compliance with the IRS or DOL rules.
They will confirm that the TPA has made any necessary adjustments to resolve errors, like improper matching or non-compliance with eligibility.
- Final Review and Filing
Objective: Ensure that all filings are accurate and submitted on time.
Action: After reviewing all the documents, the advisory firm and TPA will finalize the Form 5500, participant notices, and financial statements. The advisory firm will ensure that the filing deadline is met, typically by July 31st for the preceding calendar year’s plan data.
The Form 5500 is filed electronically via the IRS’s EFAST2 system. The advisory firm may assist in submitting the form or work with the TPA to do so.
- Post-Filing Support and Recordkeeping
Objective: Maintain compliance and respond to any IRS or DOL inquiries.
Action: Once the filing is complete, the advisory firm ensures that the client retains a copy of the Form 5500 and all related documents for recordkeeping. They may also assist the client in responding to any potential IRS or DOL audits or inquiries.
The advisory firm continues to monitor the plan throughout the year to ensure continued compliance with IRS and DOL requirements.
- Plan Review and Optimization
Objective: Evaluate and optimize the 401(k) plan for the following year.
Action: After filing is complete, the advisory firm may work with the client to review the plan’s performance and determine if adjustments are needed for the upcoming plan year. This may include:
Adjusting employer contribution formulas.
Changing the investment menu.
Adding new plan features based on employee feedback or business goals.
