January may be flying by, but the New Year is still fresh. This is still a great time to make sure that the qualified 401k plan you offer your employees helps them effectively save for retirement and remains qualified. Not sure where to start? Here are six ways to get the most out of your 401k plan:
1. Review Your Match Formula
An employer match can be critical to helping your employees meet their retirement goals and stretching the match formula is a great way to entice employees to save more. Instead of matching 100 percent on the first 2 percent of deferrals, consider changing your contribution formula to 50 percent on the first 4 percent of deferrals, or 25 percent on the first 8 percent of deferrals instead. Each one of these formulas will result in a 2 percent wage cost to you, the employer, but changing the formula may encourage additional employee saving. Instead of saving 4 percent of their income (2 percent employee income plus 2 percent employer match), the employee may be motivated to increase contributions to their retirement plan to 10 percent (8 percent employee income plus 2 percent employer match). Contact your TPA to discuss different strategies.
2. Check Your Contribution Limits
Did you know that the 401(k) and 403(b) plan deferral limits have increased to $18,000? Employees older than 50, now have the option to defer an additional $6,000 of their wages toward retirement. Encourage your employees to review their payroll deduction to ensure that they are on target to meet their personal savings goals.
3. Offer Your 401(k) Plan To All Eligible Employees
If your 401(k) plan has an entry date of Jan. 1, be sure all newly eligible employees were provided the opportunity to participate in the plan. Even if you have an employee who doesn’t want to participate, I recommend that you obtain a signed election form that indicates a 401(k) election of “0 percent.” By doing this, you have documentation that they employee was offered the chance to participate, even though they decided not to.
4. Provide Employee Census To Your TPA
Your third party administrator (TPA) needs yearly plan census information to conduct compliance testing, verify 401(k) and to calculate matching contributions and profit sharing allocations. The deadline for most compliance tests is March 15.
5. Check Your Fidelity Bond
The Employee Retirement Income Security Act (ERISA) requires a fidelity bond for every plan fiduciary and for those who handle the funds or property of a plan. The bond must be at least 10 percent of the company’s plan assets. It’s a good idea to ensure that your bond is still meeting the 10 percent minimum requirement.
6. Restate Your Plan Document
Prototype documents for 401(k) plans currently are in a restatement window; therefore, if your plan uses a prototype document, it must be updated to meet new IRS standards. This document restatement period is a great time to examine your plan provisions. For example, do you want to change eligibility requirements or add a loan provision that you have contemplated adding in the past? This is a good time to make those changes. The deadline for restating 401(k) prototype documents is April 30, 2016. Managing your company’s retirement plan can be confusing or overwhelming at times, but it doesn’t have to be. Email Rea & Associates today to learn more. By Steve Renner, QKA (New Philadelphia office)