Managing 401(k) Deadlines for the 2016 Plan Year – A Checklist Can Help

A myriad of tasks must be completed each year to keep a 401(k) plan in compliance with ERISA. When considered together, ERISA compliance tasks can seem overwhelming to a 401(k) plan sponsor. When they are unpacked, however, it’s clear they are manageable - especially when you consider many of the more difficult and time consuming tasks may already be handled by a professional Third-Party Administrator (TPA).

ERISA compliance tasks generally fall into one of four categories - nondiscrimination testing, government reporting, participant disclosure, and plan document maintenance. To ensure these tasks are completed timely each year, I recommend the use of a checklist.A checklist for the upcoming 2016 plan year can be found here. The ERISA compliance tasks included in this checklist can be found below. Since not all plans have the same requirements, it’s important that you confirm your plan’s specific requirements with your plan’s TPA. Once you’ve confirmed your 2016 checklist includes all required tasks, you can use it to monitor the completion of these tasks.

Deadlines for the 2016 Plan Year

All 401(k) plans have ERISA compliance tasks that must be completed by a deadline each plan year. Assuming a calendar year-end, some of the most common tasks a plan must complete for 2016 plan year include:

Ad Hoc Tasks

Certain ERISA compliance tasks do not have a deadline, but may be required during a plan year. These tasks include:

• Ensure your plan’s day-to-day operation complies with the terms of its written plan document. Failure to follow the terms of the plan document is considered an “operational defect” by the IRS. A plan can be disqualified for not fixing an operational defect.

• Distribute the annual participant fee disclosure required under ERISA 404a-5 to any plan-eligible employee as well as terminated employees or beneficiaries with an account balance.

  • This notice must be provided every 12 months.
  • Provide an amended notice if a plan change will change the information contained in the notice 30-90 days before the effective date of the plan change.

• Give all eligible employees the opportunity to enroll in plan when they have met plan age and service requirements. Employees should receive the following items before they are eligible for plan participation:

  • Forms or website instructions necessary to enroll
  • Beneficiary designation form
  • Summary Plan Description (SPD)
  • Applicable participant notice(s) (fee disclosure, safe harbor, automatic enrollment, QDIA)
    
    
• Ensure your plan’s definition of compensation is used to calculate plan contributions. If plan specifies a different definition of compensation for a particular contribution type, be sure that different definition is being correctly applied
  
  
• If your plan allows participant loans, ensure all loans are repaid according to the terms of the plan’s loan policy and each loan’s promissory note.
  
  
• Deposit employee 401(k) deferrals and loan payments timely. Employers must deposit deferrals as soon as they can be segregated from employer assets. Most employers deposit salary deferrals when making payroll tax deposits
  
  
• Complete plan “housekeeping” (recommended quarterly), including:
  
  
  • Cash-out small account balances related to terminated participants
  • Process any defaulted loans
  • Use any unallocated forfeitures
    
    
• Limit 401(k) deferrals to IRC 402(g) limit ($18,000 for 2016). Pre-tax and Roth 401(k) deferrals (if applicable) are combined for purposes of the IRC 402(g) limit

Meeting annual ERISA compliance requirements does not need to be difficult.

The key to easily understanding and meeting ERISA compliance requirements for 401(k) fiduciaries is transparency. When you unpack these requirements, it’s clear they are manageable – especially when you consider most of the heavy lifting is done by a TPA.

Once your 2016 checklist is complete, we recommend you keep a copy with other 2016 plan year documentation. Taking this step can help a 401(k) plan sponsor demonstrate a prudent process in meeting their fiduciary responsibilities.