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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.

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Testing | Plan Design | Plan Setup

How to Attribute Family Ownership When 401(k) Plan Testing

By: Eric Droblyen
November 27th, 2019

It’s impossible to complete annual 401(k) plan testing accurately without a clear understanding of the plan sponsor’s ownership structure. This information is used to determine the company’s controlled or affiliated service group status as well as the Highly Compensated Employee (HCE) and key employee status of plan participants. To make these determinations properly, certain “family attribution” rules must be applied correctly. These IRS rules exist to thwart ownership structures that would otherwise permit a 401(k) plan to discriminate in favor of business owners.

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Retirement Plan Types | Safe Harbor 401(k) | Testing

Safe Harbor or Traditional 401(k) Plan – How to Decide

By: Eric Droblyen
March 6th, 2019

Safe harbor 401(k) plans are the most popular type of 401(k) used by small businesses today. Unlike a traditional 401(k) plan, they automatically pass the ADP/ACP and top heavy nondiscrimination tests when mandatory contribution and participant disclosure requirements are met. This trade-off is worth it for many business owners, who often bear the brunt of the consequences when their 401(k) plan fails testing. However, a safe harbor 401(k) plan is not the best fit for every small business. They can cost more than a traditional 401(k) plan, but offer less plan design flexibility – making it harder for some business owners to meet their plan priorities

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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.

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Safe Harbor 401(k) | Testing | Fiduciary Responsibility

401(k) Contribution Deadlines – You Don’t Want to Miss Them!

By: Eric Droblyen
January 9th, 2019

All 401(k) plan contributions have deposit deadlines – and it’s up to 401(k) fiduciaries to meet them. Yet, many employers are unclear about the deadlines applicable to their 401(k) plan. That confusion can easily lead to late contributions. When that happens, there are always consequences for the employer. They range from mild (losing a tax deduction, making participants whole for lost earnings) to severe (plan disqualification, IRS and/or civil penalties). Fortunately, these consequences are easily avoided with some basic education.

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Safe Harbor 401(k) | Testing | Plan Design

401(k) Matching Contributions – What Employers Need to Know

By: Eric Droblyen
June 13th, 2018

One of most effective ways an employer can persuade their employees to participate in a 401(k) plan is by matching a portion of their pre-tax or Roth 401(k) salary deferrals.  This is unsurprising when you consider matching contributions are like a guaranteed return on salary deferrals - or “free” money. 

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Safe Harbor 401(k) | Testing

When ADP/ACP Testing Fails, 401k Fiduciaries Should Understand Their Options

By: Eric Droblyen
March 23rd, 2016

Today, most 401k plans operate on a calendar-based plan year cycle. March 15 was an important date for many of these plans – it was the deadline to make any corrective distributions due to a failed 2015 plan year Average Deferral Percentage (ADP) or Average Contribution Percentage (ACP) test in order to avoid a 10% IRS excise tax. Failing an ADP/ACP test is not fun. Highly Compensated Employees (HCEs) don’t want their 401k contributions refunded (and out-of-pocket taxes increased), while employers don’t want angry HCEs or the stress of correcting a failed ADP/ACP test by March 15. Although approximately 30% of 401k plans subject to ADP/ACP testing fail, it’s an outcome most small businesses want to avoid. Below are steps a 401k fiduciary can take to do that.

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Testing | Fiduciary Responsibility

It’s 401(k) Testing Season! What Small Businesses Need to Know About 401(k) Testing

By: Eric Droblyen
February 24th, 2016

Each plan year, ERISA requires every 401(k) plan to complete certain tests to confirm they do not discriminate in favor of Highly Compensated Employees (HCEs) or exceed IRS contribution limits. Generally, this annual testing is completed as soon as possible following the close of a plan year. For 401k plans with a plan year that ended December 31, 2018, that means now. While most employers hire a professional third-party administrator (TPA) to complete this work, all employers should understand testing basics to confirm all necessary tests are completed and any failed tests are corrected each year.   Otherwise, costly penalties, plan disqualification or fiduciary liability are more likely.

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