401(k) Annual Administration - A Checklist for Business Owners Blog Feature
Eric Droblyen

By: Eric Droblyen on November 25th, 2020

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401(k) Annual Administration - A Checklist for Business Owners

Provider Shopping | Fiduciary Responsibility

401(k) plans are popular today because they offer generous tax benefits to employers and employees. However, to qualify for these benefits, 401(k) plans must complete a myriad of plan administration tasks each year. It’s ultimately up to employers to ensure each task is completed timely.  Meeting this important fiduciary responsibility can seem overwhelming, but it doesn’t need to be. The key is hiring a 401(k) provider that’s willing and able to do three things - 1) summarize all required tasks, 2) complete the more difficult and time-consuming ones, and 3) provide straightforward direction for completing the rest.

Annual 401(k) administration tasks generally fall into one of four categories – nondiscrimination testing, Form 5500 reporting, participant disclosure, and plan document maintenance. If you’re an employer, I recommend you manage the completion of these tasks each year using a checklist. 

Don’t have one for 2021? Use our checklist. It’s broken into 3 sections:

  • Deadline Tasks – Summarizes the tasks that must be completed by a specific deadline
  • Periodic Tasks – Summarizes the tasks that may need completed during the year
  • Plan Records – Summarizes the plan year records to keep for documentation purposes 

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Deadline Tasks

Many 401(k) administration tasks must be completed by a certain date each year. Below are 2021 deadlines for calendar-based plans. Enter the date each task is completed in the field to the right of task. Enter “N/A” if not applicable.

                                      4th Quarter 2020

Deadline

Date Complete

Initials

Distribute any applicable 2021 notices to plan participants. These include: 


12/2/20

 

 

1st Quarter 2021

Provide 4th quarter benefit statements to participants (due 45 days after quarter-end)

2/14/21

 

 

Distribute contribution refunds to correct a failed 2020 ADP/ACP test to avoid a 10% IRS excise tax (non-safe harbor plans only).

3/15/21

 

 

Fund 2020 employer contribution to take 2020 tax deduction (if partnership or S-Corp with no tax filing extension)

3/16/21

 

 

2nd Quarter 2021

Distribute Required Minimum Distributions (RMDs) to participants that became RMD-eligible during 2020.

4/1/21

 

 

Fund 2020 employer contribution to take 2020 tax deduction (if sole proprietor or C-Corp with no tax filing extension)

4/15/21

 

 

Distribute amount deferred in excess of IRC Section 402(g) limit ($19,500 for 2021)

4/15/21

 

 

Provide 1st quarter benefit statements to participants (due 45 days after quarter-end)

5/15/21

 

 

3rd Quarter 2021

File 2020 Form 5500 or 2 ½ month extension (Form 5558)

7/31/21

 

 

Provide 2nd quarter benefit statements to participants (due 45 days after quarter-end)

8/14/21

 

 

Fund 2020 employer contribution to take 2020 tax deduction (if partnership or S-Corp with tax filing extension)

9/15/21

 

 

Distribute Summary of Material Modification (SMM) or new Summary Plan Description (SPD) to participants if SPD modified during 2020

9/30/21

 

 

Distribute 2020 Summary Annual Report (SAR) to participants (if Form 5500 not extended)

9/30/21

 

 

4th Quarter 2021

Fund 2020 employer contribution to take 2020 tax deduction (if sole proprietor or C-Corp with tax filing extension)

10/15/21

 

 

File 2020 Form 5500 (if extension filed by 7/31)

10/15/21

 

 

Provide 3rd quarter benefit statements to participants (due 45 days after quarter-end)

11/14/21

 

 

Provide any applicable 2022 notices to plan participants. These include: 

12/2/21

 

 

Distribute 2020 Summary Annual Report (SAR) to participants (if Form 5500 extended)

12/15/21

 

 

Distribute contribution refunds to correct a failed 2020 ADP/ACP test with a 10% excise tax (non-safe harbor plans only).

12/31/21

 

 

Make any 2020 safe harbor or QNEC contributions

12/31/21

 

 

Execute (sign and date) any 2021 discretionary amendments

12/31/21

 

 

Distribute Required Minimum Distributions (RMDs) to participants that became RMD-eligible before 2020.

12/31/21

 

 

Periodic Tasks

Below is a list of notable tasks you may need to complete during the 2021 plan year. Enter your initials to the right of each item you have reviewed. Enter “N/A” if not applicable.

Item

Initials

Review plan operation to ensure compliance with plan document. Failure to follow the terms of the plan document is a common problem found during a plan audit

 

Ensure all eligible employees are given the opportunity to enroll in plan. By supplying EF with information regarding all employees who receive a Form W-2, you may reduce the risk of omitting eligible employees

 

Ensure each newly eligible employee receives the following items before they are eligible to participate:

  • Forms or website instructions necessary to enroll
  • Beneficiary designation form 
  • Summary Plan Description (SPD)
  • Applicable participant notice(s) (safe harbor, automatic enrollment, QDIA)
  • Participant fee disclosure notice

 

Ensure plan definition of compensation is being used to calculate participant deferrals and employer contribution allocations. If plan specifies a different definition of compensation for a particular contribution type, be sure that different definition is being correctly applied

 

If the plan allows participant loans, ensure all loans are repaid according to the terms of the plan’s loan policy and each loan’s promissory note.

 

Ensure employee salary deferrals and loan payments are deposited timely. Employers must deposit deferrals as soon as they can be segregated from employer assets. Most employers deposit salary deferrals when making payroll tax deposits

 

Periodically complete plan “housekeeping” (recommended quarterly), including:

  • Cash-out small account balances related to terminated participants
  • Process any defaulted loans
  • Use any unallocated forfeitures

 

Limit 401(k) deferrals to IRC 402(g) limit ($19,500 for 2021). Pre-tax and Roth 401(k) deferrals (if applicable) are combined for purposes of the IRC 402(g) limit

 

Plan Records

Due to ERISA document retention rules, you must retain detailed 401(k) records - including testing results, transactions and employee activity - for at least 6 years. Compliance with these rules is important because missing records can make it more difficult to answer questions about plan operations – which can increase your liability unnecessarily.

Below is a list of items you should retain related to the 2021 plan year. Enter your initials to the right of each item you have reviewed for sufficiency. Enter “N/A” if not applicable.

Item

Initials

Annual Valuation – Contains the participant-level transactions for the plan year, including contribution, distribution and fee activity. If received quarterly, file all four quarters.

 

Annual Trustee/Custodian report – Contains the trust-level transactions for the plan year, including all purchases and sales that occurred in trust. If received quarterly, file all four quarters.

 

Annual Nondiscrimination Testing – 401(k) plans have various testing requirements. Most common tests include:

  • Coverage (IRC Section 410(b)) testing
  • Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) testing (non-safe harbor 401(k) plans only) 
  • Excess Deferral (IRC Section 402(g)) testing 
  • Annual Addition (IRC Section 415(c)) testing 
  • Top Heavy (IRC Section 416) testing 
  • Rate Group (IRC Section 401(a)(4)) testing (“new comparability” plans only)

 

Annual Participant Notices Any notices provided to participants, including (as applicable):

  • Participant fee disclosure (ERISA 404a-5) notice 
  • Safe harbor 401(k) plan notice
  • Qualified Default Investment Alternative (QDIA) notice 
  • Automatic (negative) enrollment notice

 

Form 5500 – Copy of Form 5500 with related schedules as filed with Department of Labor (DOL)

 

Independent Audit Report – If required to be filed with Form 5500

 

Summary Annual Report – Summary of Form 5500 provided to participants

 

Feel confident, not overwhelmed!

There is no reason to feel overwhelmed by your 401(k) plan’s annual administration responsibilities. With the help of a qualified 401(k) provider, they are easy to understand and manage using a checklist. Don’t feel that way? I have a simple solution – replace your 401(k) provider!  

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About Eric Droblyen

Eric Droblyen began his career as an ERISA compliance specialist with Charles Schwab in the mid-1990s. His keen grasp on 401k plan administration and compliance matters has made Eric a sought after speaker. He has delivered presentations at a number of events, including the American Society of Pension Professionals and Actuaries (ASPPA) Annual Conference. As President and CEO of Employee Fiduciary, Eric is responsible for all aspects of the company’s operations and service delivery.

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