Small Business 401(k) Blog

The Frugal Fiduciary Small Business 401(k) Blog

Get the latest industry news, deadlines and tips you need to know to help tackle your fiduciary responsibility needs.

Blog Feature

Plan Design | Thought Leadership | Fiduciary Responsibility

How to Simplify Your 401k Admin with a Cycle 3 Plan Restatement

By: Eric Droblyen
July 21st, 2021

As a business owner, you must operate your 401(k) plan according to the terms of a written plan document. Most plans use an IRS preapproved document for this purpose. All preapproved documents must be fully rewritten (or restated) every six years to reflect recent law changes. The last 6-year restatement cycle was called “PPA” after the Pension Protection Act. A new cycle - called "Cycle 3" - opened last year. Between August 1, 2020 and July 31, 2022, all pre-approved 401(k) plans must be restated from a PPA to a Cycle 3 plan document. That means now.

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Testing | Plan Design

401(k) Earned Income – What Employers Need to Know

By: Eric Droblyen
June 9th, 2021

Owners of a partnership or sole proprietorship (or an LLC taxed as either) are considered “self-employed individuals” for 401(k) plan purposes. 401(k) plans must allocate and test the annual contributions made to self-employed individuals using a special definition of plan compensation called earned income. When applicable, earned income is calculated by the plan’s Third-Party Administrator (TPA) based on information prepared by the employer’s Certified Public Accountant (CPA). The CPA, in turn, will use the TPA's calculation to finalize the employer’s year-end tax returns. 

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401(k) Plan Design Checklist

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Subscribe to the The Frugal Financial Small Business 401(k) Blog and receive this free checklist for help in determing the best 401(k) plan design options and fit for your company.

Blog Feature

Plan Design | Controlled Groups | Plan Setup

Is Your Company Part of a Controlled Group?  You Need to Know or Risk 401(k) Plan Disqualification

By: Eric Droblyen
May 26th, 2021

When two or more companies with common ownership meet the IRS’ controlled group definition, they are considered a single employer for 401(k) plan purposes. 401(k) plans must often benefit the employees of all controlled group members to pass the IRC section 410(b) “coverage” test annually. Put differently - overlooking a member can often mean a failed coverage test. Steep IRS penalties - including plan disqualification - are possible when a failure goes uncorrected for years. A basic understanding of the controlled group rules can help employers avoid this trouble.

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Provider Shopping | Plan Design | Plan Setup

Starting a 401k? A Short Initial Plan Year is Probably a Bad Idea

By: Eric Droblyen
April 14th, 2021

401(k) plans must define a 12-month “plan year” for annual administration purposes. Most plans choose a calendar year for administrative ease. A new plan can specify a period that’s shorter than a full 12-months for its initial plan year by choosing a mid-year effective date. However, establishing a short plan year with a mid-year effective date is often a bad idea. Most plans are better off making their effective date retroactive to the first day of the normal plan year - January 1 in the case of a calendar-based plan – to establish a 12-month initial plan year.

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Blog Feature

Provider Shopping | Plan Design

Design a 401(k) Plan Like a Pro in 6 Steps

By: Eric Droblyen
March 31st, 2021

Small businesses can have dramatically different goals for their 401(k) plan. The process of matching business goals to available 401(k) plan options is called plan design. Expert plan design can help a business minimize contribution expenses, improve employee participation, and/or avoid nondiscrimination test failures. As a business owner, you should settle for no less than expert plan design guidance from your 401(k) provider. The entire process can take 30 minutes or less.

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Blog Feature

401(k) Fees | Plan Design | Fiduciary Responsibility

401(k) Plan Restatements - Save Fees With These Amendments

By: Eric Droblyen
February 3rd, 2021

401(k) plans must operate according to the terms of a written plan document to meet IRS qualification requirements. Most plans use an IRS preapproved document for this purpose. These documents must be fully rewritten (or restated) every six years to reflect recent law changes. The last 6-year restatement cycle was called “PPA” after the Pension Protection Act of 2006. A new cycle - called "Cycle 3" - opened last year. From August 1, 2020 to July 31, 2022, all pre-approved 401(k) plans must be restated onto a Cycle 3 document.

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