HELP! A plan sponsor's guide to surviving year end reporting

HELP! A plan sponsor's guide to surviving year end reporting

The year is winding down, and with that comes certain federally mandated responsibilities regarding your company’s 401(k) plan. To answer common plan sponsor questions about year end reporting, here’s the why, what and how.

Why do plan sponsors need to file year end reports?
The Employee Retirement Income Security Act (ERISA) requires that sponsors of defined retirement contribution plans complete year end reporting to make sure their plans meet federal qualification requirements, are compliant, and can legally maintain tax-exempt status. 

What are plan sponsors required to report?
Year end reporting revolves around plan sponsors annually collecting census and employer data including the number of participants, financial information about the assets held in the plan, and the service providers involved with the plan.

This data serves as the basis for several imperative plan-related tasks:

  • Compliance testing
  • Making corrective distributions to pass the 401(k) discrimination test (meaning the plan does not discriminate in favor of highly compensated employees)
  • Completing the annual Form 5500 filing with the U.S. Department of Labor (DOL) and Internal Revenue Service (IRS)

The accuracy of the census information can’t be overstated as it relates to these administrative functions. Carefully document and detail the following for each employee:

  • Name
  • Compensation level
  • Relevant dates (birth/hire/termination/rehire/retirement)
  • Number of hours worked – even if they worked for only a portion of the year or don’t actively participate in the plan

How do plan sponsors complete year end reporting?
Annual submissions consist of three reports, each covering specific plan areas to assure that contributions are allocated fairly to each eligible participant.

Census List
The census list includes employee information such as birth, hire, participation, termination dates and current employment status.

This information is used to determine plan eligibility, plan entry dates, and participant status (active/inactive).

Earnings, Deduction and Benefit List
The earnings, deduction and benefit list provides participant earnings, plan contributions and hours worked.

This information is used in compliance testing and for identifying highly compensated employees (HCEs) and key employees.

Year End Reporting Summary
The year end reporting summary details owner- and company-related information to identify company owners and family members of owners who are employees that need to be coded as HCEs key employees, if there are officers who may fall into these categories as well, and to reveal any controlled group issues.

In addition to this federal reporting, plan sponsors are obligated to provide participants with a Summary Annual Report (SAR) that chronicles the plan’s annual return/report and the Form 5500 filed with the federal government. 

Help is here
Given the potential volume and complexity of the information plan sponsors must collect and report, the IRS offers information for small businesses on the workings of 401(k) plans and reporting.

Partnering with PAi also simplifies reporting, as we’ve automated the process – no paper documents or unwieldy spreadsheets! Our online system has built-in checks and balances that alert us to nonconforming information which we review and either take care of on the plan sponsor’s behalf or get them involved, if needed, for resolution.

Questions about year end reporting? You don't have to go it alone! Call us at 800-236-7400 or contact us online today.

John Nahacky, JD, CPC - Compliance Manager - jenahacky@pai.com - 800-236-7400 x3250

John is the subject matter expert on 401(k) rules, regulations, compliance, plan design, and year end requirements.