My advisors handle everything for the plan, why do I need to know any of this stuff?
No matter who is handling your plan, as a fiduciary, you are personally responsible for keeping the plan in compliance. If your plan is noncompliant, you will be the one paying the penalties and/or going to court. Even if you have advisors taking care of most of your plan's responsibilities, it is in your best interest to know what is being done and monitor your compliance practices.
Are part time employees eligible for the plan?
A qualified plan cannot specifically exclude part time employees. There may be certain eligibility restrictions in the plan document, but part time status does not necessarily mean they cannot participate in the plan. QPPI can help with any questions about who is eligible and who may be excluded.
Are temporary/leased employees eligible for the plan?
It depends on your individual situation. If you use an employment agency, you may have leased employees, and they may need to be included in testing and/or contributions. It is important that you provide this information to whoever is handling your plan administration and required testing.
How often do I need to deposit 401(k) deferral contributions and loan repayments?
As soon as administratively possible on or after each pay date. Small plans (less than 100 participants) that deposit contributions within 7 business days of each pay date are considered to be timely. There is no 7-day grace period for plans with 100 or more participants.
What happens if I don't follow these deposit timing rules?
Late deposits of 401(k) deferrals and loan payments are required to be reported on Form 5500 and if not corrected properly could result in significant penalties. Lost earnings must be deposited to the plan and an excise tax paid to the IRS with Form 5330. The Department of Labor also offers the Voluntary Fiduciary Correction Program. Our office can assist you with this correction.
What is a Highly Compensated Employee?
A Highly Compensated Employee is an over 5% owner, certain family members of over 5% owners (spouse, parent, grandparent or child), and depending on the plan document, an employee that earned over $155,000 (2024) in the prior year.
What is a Key Employee?
A Key Employee is an over 5% owner, an over 1% owner who earns at least $150,000, an Officer who earns at least $220,000 (2024) and certain family members of an over 5% owner (spouse, parent, grandparent or child).
What is Top Heavy and how does it affect me?
A plan is Top Heavy when more than 60% of the assets are allocated to Key Employees (see above). If a Key Employee receives any contributions (including 401(k) deferrals) during a Top Heavy Plan Year, the Employer may be required to contribute a minimum contribution up to 3% to 5% of compensation depending on your individual situation.
My employee wants to take their money out of the plan, what's the big deal, it's their money?
Technically it's the plan's money and the plan is intended to provide for retirement. There are very complex rules associated with distributions and if they are not followed, both the employer and employee could face penalties and tax consequences. Of course you want to help your employee, but it is important to follow the plan document and disclosure regulations while doing so. Our office is happy to assist with distributions and disclosures.
If I take my Required Minimum Distribution (RMD) from my IRA do I still need to take one from the plan?
Yes, the RMD rules for qualified plans are different from the rules pertaining to IRAs. RMD's must be withdrawn from each qualified plan; combined calculations are not permitted. The plan should not be included in your IRA calculation and your IRA's should not be included in the plan calculation.
