Are you on track to pass your 401(k) testing for 2014?

It’s not too late to “check-in” with Alliance Benefit Group North Central States, Inc. (ABGNCS) to see if your retirement plan is on track for 2014. If your retirement plan year is the same as a calendar year, August and September is a good time to send your retirement administrative team an email requesting a preliminary Actual Deferral Percentage (ADP) test. 

Safe Harbor Plan? No need to worry! You are in position to pass the ADP test. If you are not a Safe Harbor Plan, you may want to pay attention to how much your Highly Compensated Employees (HCE) are deferring.

In 2014, a HCE is anyone who:

1.     During 2013 (year prior to being tested) received compensation in excess of $115,000.

2.     Any employee who, during 2013 or 2014, was a more than 5% owner, or

3.     Any employee spouse, child, grandparent, or parent of a more than 5% owner.

 If your plan is prior-year tested, a passing rate for this group has already been established. Your administrative team can run a preliminary test to see if you are on track to pass the ADP test.

If your plan is current-year tested, then your passing rate for 2014 is a moving target.  You will want to check in with your administrative team at least once during the year to see how you are doing, and maybe even more often.

Another idea you may want to implement to plan for a successful 2014 is using a planning tool:

1.     Create a spreadsheet with all of the 2014 HCEs listed.

2.     Enter their annual salaries.

3.     Enter their annual deferrals.

4.     Enter a formula to divide deferrals by salaries. Each HCE will have a percent here.

5.     At the end, you will add each individual percent and divide by the number of HCEs. This number is key and will let you know if you are on track, or if adjustments need to be made before the end of the year.

Here is an example of a planning tool:

Hopefully the information we've provided will help you plan for testing. Please contact your retirement administration team if you would like to begin the process. 

The Author: Lisa Dahl, QKA

Senior Account Manager
abgncs.com/RetirementAdministration
ldahl@abg-mn.com

Disclaimer: This blog is of an informative and educational nature, and should not be considered legal, financial or operational advice. 

Please contact the appropriate parties for those services. Thank you.