The year is coming to a close, and with that comes important responsibilities regarding your company’s 401(k) plan. To get you prepared for annual reporting, here’s a review of the most common questions from our plan sponsors.
What are plan sponsors required to report?
Year end reporting begins with plan sponsors annually collecting employee census and employer data including financial information about the assets held in the plan and transactions that have occurred over the year, the number of participants, and the service providers involved with the plan.
The data collected allows the plans sponsor to fulfill much needed tasks such as:
· Perform compliance testing
· Make corrective distributions
· Complete the annual Form 5500 filing with the DOL and IRS
Accuracy of your census information is critical to maintaining a compliant plan. We recommend sponsors use year end payroll reports to document and detail the following for each employee:
· Name
· Compensation level
· Relevant dates
(birth date / hire date / termination date / rehire date / retirement date)
· Number of hours worked
When are plan sponsors required to report this information?
Plan sponsors are required to file Form 5500 by the seventh month following plan year end. Extensions can be requested to extend the due date two and a half months. For example, a plan year ending December 31, 2016, would have an initial filing deadline of July 31, 2017 or an extended deadline of October 15, 2017.
Why do plan sponsors need to file year end reports?
The Employee Retirement Income Security Act (ERISA) requires that plan sponsors of 401(k) plans complete year end reporting to verify their plans meet qualification requirements and are compliant in order to maintain their tax-exempt status.
How do plan sponsors complete year end reporting?
Plan sponsors submit three reports covering specific plan data to assure that contributions are allocated fairly to each eligible participant.
Employee Census
The employee census includes information such as birth date, hire date, participation date, termination date and current employment status.
A plan sponsor uses this information to determine plan eligibility, entry dates and participant status.
Compensation, Hours, and Contributions
The compensation, hours, and contributions is used in compliance testing and for identifying highly compensated employees as well as key employees.
Year End Summary
The year end summary details owner and company related information to identify highly compensated employees, key employees, and controlled groups.
Along with federal reporting, plan sponsors are required to provide participants with a Summary Annual Report that details the plan’s annual activity.
Help is here.
Given the complexity of testing and detail of reporting that is required of plan sponsors, the IRS offers a dedicated resource on the workings of 401(k) plans and various tools to help small businesses.
Partnering with Inde is another solution, as we provide plan sponsors with complete year end reporting including signature ready tax forms, while providing guidance on current regulations and important compliance issues.
Questions about year end reporting? Let’s talk! Call us at 503-303-8590 or contact us online today.