As a plan sponsor, it's important to ensure your 401(k) plan complies with all IRS and DOL regulations. The consequences of failing to meet these requirements may include penalties and loss of tax benefits for the plan.

We’re here to help you manage these responsibilities effectively and guide you through what you should be prepared for on an annual basis. You can see a view of what tasks are completed and yet to come in your compliance dashboard. Each of these tasks has different deadlines and the completion of some tasks may need to be completed before others can be generated or completed. For example, the company info task may need to be completed before non-discrimination testing tasks can be done.

Here is a breakdown of the essential required tasks involved in managing your company's 401(k) plan.

Every year, a task titled “Review and update your company information” will appear on your administrator dashboard. This information is requested annually because compliance testing, compensation collection, and profit-sharing contribution options can all be impacted by these details.

To complete the task, you’ll need to provide information about your entity (business) type, owners and certain family members of owners, and company officers.

This task can be completed anytime before other compliance tests begin Guideline does not prevent other tasks from being completed if this task is not complete, and we will assume no changes are applicable. However, it is best to review and provide updated information as early as possible. Certain company details may affect your compensation, profit sharing, and compliance testing, so accurate information is essential to confirm your plan is compliantly administered.

Guideline cannot complete compliance testing in non-safe harbor plans or enable optional profit-sharing or employer contribution adjustments without full and accurate compensation data. Employee compensation is also needed to confirm participants have remained within certain contribution limits.

In some cases, Guideline is able to collect this information via your payroll integration. However, you may be asked to provide compensation data manually to Guideline if the following scenarios apply.

Specific employment or company types:

Certain payroll setups:

While you have until approximately the end of the year to complete this task, we recommend providing this information as early as possible. It’s important to note that compensation provided through the task must not be estimated. If partial or estimated compensation is reported for self-employed owners, compliance testing will be inaccurate and the owner may receive incorrect match, safe harbor non-elective contributions, and/or profit sharing allocations.

It’s important to note that if compliance testing cannot be completed due to unavailable compensation data by the testing deadlines, excise taxes could apply.

Like most processes at Guideline, we cannot calculate specific employer contributions without accurate compensation data. Most of these contributions are based on a percentage of compensation and all calculations need to consider compensation to ensure the annual additions limit is not exceeded.

Employer contributions are generally tax deductible and may result in a tax credit for certain plans. In order to deduct or receive a credit for the expense, it must be contributed to the plan before the business’ tax filing due date (plus extensions). In addition, the Guideline plan document requires employer contributions to be contributed before their tax filing due date (plus extensions).

Your plan may require additional contributions for the previous year to ensure participants (including owners) receive the full amount of employer matching or nonelective contributions they are entitled to. You can expect to receive communications and next steps from Guideline if your plan requires end-of-year adjustments.

In some cases, you may receive requests for additional information. You can learn more about true-ups and end-of-year adjustments here.

Profit sharing is an optional contribution employers may choose to give participants after the end of the plan year. Participants can receive a profit sharing contribution as long as they are eligible to participate in the plan, even if they do not personally contribute.

If your plan is eligible for this type of contribution, you will typically be able to complete a task through your dashboard. To ensure the profit sharing allocation you choose is accurate and compliant, be sure to complete any company information and compensation tasks before attempting to allocate a profit sharing contribution.

Profit sharing contributions are a tax-deductible business expense. To ensure the contributions are allocated to your participants in time, please complete the profit sharing task at least two weeks prior to your intended tax filing deadline. If your plan is non-safe harbor, these additional contributions will be factored into your required annual testing (they count toward top heavy minimum contributions if applicable).

There are several limit tests that apply to 401(k) plans.

The IRS limits the amount of employee contributions (deferrals) that can be made in a calendar year. If any participant exceeds these limits within a single plan or legally related group, Guideline typically handles the correction directly with those participants by April 15 of the year following the plan year when the excess occurred.

If participants made 401(k) contributions to plans not recordkept by Guideline, they are required to report them to us no later than March 1. If the excess is due to contributions to more than one unrelated plan and Guideline is not informed of the external contribution on time, Guideline is not permitted to distribute the excess after April 15 under IRS rules. If the excess is within one plan or within plans of a legally related group (LRG), Guideline must distribute the excess once detected, even if after April 15.

You can learn how excess deferrals are taxed here.

Sponsors within an LRG at Guideline can help by ensuring that participants who are participating in more than one LRG entity have their accounts linked and that final year-end payrolls are processed timely.

Either Guideline or your payroll provider will typically monitor employer limits throughout the year and attempt to stop excess contributions from being contributed to the plan. However, due to the nature of payroll, this process may not be perfect. Here are a few examples scenarios where the limits can be exceeded and require correction after the end of the year:

All contribution limits should be corrected as soon as administratively feasible after the end of the plan year. In general, there are no direct tax consequences to exceeding the compensation limit and/or annual additions limit. However, the IRS expects these limits to be closely monitored. Excesses should be rare. If there is a pattern of not timely correcting limits, the plan could be at risk for disqualification by the IRS.

Compliance testing is required by the Internal Revenue Service (IRS) after year-end to ensure a company’s 401(k) plan does not unfairly favor owners and highly compensated employees (HCEs).

ADP and ACP test deferrals and matching contributions (if applicable) respectively; while top-heavy testing looks at overall account balances. Safe harbor plans are exempt from ADP and ACP testing and are often not required to contribute top-heavy minimums.

You can learn more about nondiscrimination testing here.

If your plan falls outside permissible ADP or ACP limits, Guideline will provide you with correction options and steps to take in the first quarter of the following year (as long as you provide compensation data in a timely manner, if applicable).

Correcting ADP/ACP Testing Failures

Top-heavy corrections timing

A plan that is top heavy must contribute top-heavy minimum contributions (THMC) to certain non-key employees. While top-heavy status does not depend on compensation, the THMC does (THMCs are a percentage of compensation, up to 3%), so this cannot be processed without accurate compensation data. Note that as long as a safe harbor plan does not make other employer contributions (beyond the safe harbor contribution), top heavy minimum contributions are not required.

Sponsors should contribute THMCs before their tax filing deadline so that the contributions can be deducted from employer taxes.

Employers that sponsor a retirement plan governed by ERISA are obligated to file Form 5500 annually with the DOL. Guideline includes preparation and electronic filing of this form at no added cost in accordance with regulatory deadlines. However, if your plan has more than 100 participants, you will typically be responsible for arranging and paying for a plan audit through an independent public accounting firm.

You can learn about Form 5500 and the versions here.

The Form 5500 filing is due on the last day of the seventh month after the end of the plan year, (typically July 31). For any plans without 5500s filed by this date, including plans requiring an audit, Guideline will automatically file extensions for the October 15 extended deadline.

Please prioritize the completion of any compliance tasks as soon as you have complete and accurate information to avoid delaying your 5500 filing.

There are several other Form filings that Guideline prepares, and / or files, on your behalf.

Guideline automatically files this form to request a Form 5500 filing extension when needed. You do not need to request this be completed and there is no penalty for filing an extension.

The Form 8955-SSA is used to report participants who no longer work for your company but still have a vested account balance within your plan. Once those participants move money out of their accounts, Form 8955-SSA will be filed again to report those distributions.

You may receive a task to provide information for participants if we do not have accurate or complete personal information, such as social security numbers. Please complete it as soon as possible so the form can be submitted. The deadline for this form is July 31, and the extended deadline is October 15.

A Form 5330 is a tax form to report excise tax for numerous situations. Guideline uses the form to report prohibited transactions, and ADP/ACP test refunds completed after the applicable deadline.

For late deposits the excise tax total reported is 15% of the lost earnings applicable to late remitted employee deferrals and loan payments correction in the plan year being reported. Guideline will prepare this form, notify you, and publish it to your Resource Library with filing instructions. You are responsible for signing, and submitting the form to the IRS along with payment. The deadline to submit this signed form with payment is July 31 (seven months following the close of the plan year in which it applied).

For ADP/ACP test refunds completed after the applicable deadline, the excise tax is 10% of the applicable correction refund plus any associated earnings. Guideline will prepare this form, notify you, and publish it to your Resource Library with filing instructions. You are responsible for signing, and submitting the form to the IRS along with payment. The deadline to submit this signed form with payment is 15 months following the close of the plan year in which the test failed.