We never want to bother you, but it is important for us to gather precise information about your employee census data and company structure. Retirement plans are required to pass complex annual compliance testing to make sure that the plan is following the rules established by the Internal Revenue Service (IRS) and the Department of Labor (DOL). In order to run these tests accurately, we need to know about all employees who were paid during the year, not just the ones that are participating in the plan.

The information we need for each employee is as follows:

  • Date of Birth – This information allows us to verify employees have met the age requirement for the plan and to calculate Equivalent Benefit Accrual Rates (or EBARs) for our plans with more complex testing.
  • Date of Hire – This allows us to verify employees have met the service requirement for the plan.
  • Date of Termination – This allows us to calculate the contribution if there is a last day requirement. We also use this information to automatically send distribution paperwork to those that are eligible and to process automatic rollovers.
  • Compensation – All of our testing requires us to have the correct compensation for each employee. Most of our testing is driven by plan compensation. This also requires us to gather K-1s and Schedule C information on partnerships and sole proprietors to compute eligible compensation.
  • Deferrals – There are many tests that involve the 401(k) deferrals.
  • Hours – Hours are used in some cases to determine eligibility for the plan as well as for vesting purposes.

One of the most common failures in retirement plan compliance is using the wrong definition for compensation. That is why we ask for a file in Excel that contains the demographic information required for plan testing such as dates of birth, hire and termination as well as compensation information. We also ask for a PDF of the YTD payroll report from your payroll provider, QuickBooks, or your internal payroll system. This allows us to make sure that we are using the correct amount of compensation and that we are accounting for every employee.

Supplying thorough and precise information each year allows us to proactively administrate your plan. If we have incorrect information, we cannot perform the compliance testing in an accurate manner. Passing these nondiscrimination tests is what keeps your plan in compliance and maintains its qualified status.

It does take time to perform the various compliance tests that are required, so please be sure to send your information to us as soon as possible. If you have any questions about the year end information required for your plan, please reach out to your plan consultant.