The IRS requires 401(k) plans to undergo yearly compliance testing. This testing aims to ensure the plan does not unfairly favor business owners and highly paid employees (HCEs) over other employees.
For businesses with multiple related entities, like a parent company and its subsidiaries, the regulations governing compliance testing become more complex. The IRS treats all the entities within a legally related group (LRG) as a single employer. In general, this means employee and pay information for all related companies must be considered together to determine if the 401(k) plan meets the non-discrimination rules across the entire group.
With Guideline, we’ve made it easy to see a holistic view of compliance status for Actual Deferral Percentage (ADP) and Annual Contribution Percentage (ACP) testing for all entities within your legally related group to help you avoid failures and costly corrections. Here’s how to review your organization's compliance status.
How to check ADP and ACP test status across all entities
There are a few ways to access your Compliance dashboard within your Guideline administrator account:
From the homepage, navigate to the Compliance section, then click on “View compliance dashboard.”
From the main menu, click on your company name, then navigate to Compliance in the dropdown menu.
LRG compliance status section
At the top of your compliance dashboard, you’ll be able to review the ADP and ACP test status of all entities.
Needs attention: The group has failed compliance testing and each plan may require corrections. Depending on the issue, we’ll contact the trustee of the plans that are contributing to failures. If you receive a task or email, you’ll see next steps to correct your plan, depending on the reason.
Passed: The group is within passing requirements.
Nondiscrimination tests section
This section provides details on the status of nondiscrimination testing results for ADP and ACP tests. You can learn more about each test by hovering over the name in the "Test" column. At this time, Top Heavy test results are not available in the dashboard. We’ll send a notification to the plan trustee if any related corrections are required for this test.
To view detailed information about a test status, click the “View details” button.
Within the Test Details page, you’ll be able to see your ADP and ACP test results and review next steps for fixing issues and tips to avoid failures in the future. If you failed a test, we’ll also send you a task to correct your plan.
By regularly checking the Compliance dashboard and addressing any warnings or failures, organizations can avoid costly corrections and ensure they meet IRS non-discrimination requirements, ultimately providing a fair and compliant retirement plan for all employees.