March 15 401(k) compliance deadline can be focal point to re-examine plan design

2009 was a challenging year for employers and employees. From our vintage point, we are seeing more employers than in recent years finding it necessary to return excess 401(k) contributions to Highly Compensated Employees by the March 15 deadline or provide a supplemental 100% vested contribution called a Qualified Non-Elective Contribution, a/k/a “QNEC”.

 

Unfortunately, passing 401(k) discrimination tests is not as easy as it was for Bill and Ted passing  their history test in the 1989 classic comedy, Bill & Ted’s Excellent Adventure. If you missed it (it comes around from time to time on cable), Bill S. Preston, Esq. played by Alex Winter and and Ted Logan played by Keanu Reeves are two high school slackers that use a time machine to go back in time to bring back a group of famous historical figures to use in their presentation. 

 

Those illustrious individuals, shown above, that were thrust into 1989 California (and what a trip that was) included Napoleon Bonaparte, Billy the Kid, Socrates, Sigmund Freud, Ludwig van Beethoven, Genghis Khan, Joan of Arc, and Abraham Lincoln.

Unfortunately, we don’t have a time machine or the late George Carlin who played Rufus from the future who supplied the lads with the time machine. But going forward, the March 15 deadline can be an excellent focal point for employers to rethink those plan design elements that might help improve 401(k) discrimination results. 

Returns of excess 401(k) contributions by HIghly Compensated Employees can sometimes be avoided changing the plan to: 

  • Add an employer safe harbor contribution
  • Add an employer safe harbor match
  • Change the waiting period
  • Change the definition of compensation
  • Add automatic enrollment

But any of these changes means, of course, starting the planning process now – or maybe have history repeat itself a year from now. 


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