Benefit Insights | Automatic Enrollment Is On The Rise Winter 2019

A NON-TECHNICAL REVIEW OF QUALIFIED RETIREMENT PLAN LEGISLATIVE AND ADMINISTRATIVE ISSUES IT’S TESTING SEASON! QUALIFIED PLANS MUST PERFORM ANNUAL TESTING TO BE An employee is an HCE if: SURE THAT THE PLAN DOESN’T UNFAIRLY DISCRIMINATE IN • they own more than 5% of the company (including family FAVOR OF “HIGHLY COMPENSATED EMPLOYEES” (HCEs) OR EXCEED THE CONTRIBUTION LIMITS SET FORTH BY THE IRS. Depending on your plan provisions, it isn’t just one calculation, but a series of tests that show that your plan is not discriminatory. If your plan is audited, the auditor is looking for proof of this compliance. attribution rules), or • they received compensation exceeding a threshold set by the IRS in the prior plan year ($120,000 in 2017 for the 2018 plan year HCE determination). An employee is a “Key” employee if they meet any of the following criteria: Since most retirement plans operate on a calendar year basis, testing season is now! If a testing failure occurs, correcting the failure by March 15 th can save the plan sponsor excise taxes and additional filings. Getting year-end data in early, including • They own more than 5% of the company (including family attribution rules). • They own more than 1% of the company (including family complete census information, is paramount. Though Rea & attribution rules) and have an annual compensation greater Associates does all the heavy lifting to ensure your plan passes than $150,000. the appropriate testing, all plan sponsors should understand the basics of testing so that they can confirm all tests and any appropriate corrections are completed each year. The following are some helpful definitions to get you through the basics of compliance testing. • They are an officer of the company and have compensation of at least $175,000. WHAT DO THE DIFFERENT COMPLIANCE TESTS MEAN? ANNUAL NON-DISCRIMINATION TESTING (ADP/ACP) – If your plan is a 401(k) plan, the ADP and ACP tests are a comparison IS AN HCE THE SAME AS A KEY EMPLOYEE? between the average rates of deferral and matching contributions of HCEs to non-HCEs. Regulations generally An HCE and a Key employee are two separate definitions used allow for a 2% disparity between the two groups. If your to test different aspects of a retirement plan. Who qualifies as an plan has opted for a safe harbor election in any given year, it HCE is determined on an annual basis. automatically satisfies the ADP and ACP testing. WINTER 2019 BENEFIT INSIGHTS