• Why does Trinity request information from my company every year?

You have hired Trinity to perform the required compliance and administration for your company’s retirement plan. In order for Trinity to provide these services, we need certain data that we can only get directly from you. This data includes your company census information and verification of general business and plan information. Without this information, we are unable to perform the services you have hired and already paid us to do; and, in addition, your plan risks becoming noncompliant with government regulations.

• What is the maximum contribution someone can make to a retirement plan this year?

A summary of the 2009 limits is listed here.

The maximum amount that can be contributed to a Defined Contribution Plan (e.g. 401(k) Profit Sharing) for 2009 is $49,000. This includes contributions from all sources including 401(k) deferrals, Employer Match and Profit Sharing. If you are 50 years of age or older you may make an additional “catch up” contribution of $5,500.

The maximum amount that can be funded for a Defined Benefit Plan for 2009 is $195,000.

• Do I have to give my employees a company contribution each year?

No. One of the attractive features in a Defined Contribution Plan (e.g. 401(k) Profit Sharing) is that contributions can be made on a discretionary basis. Match contributions can either be driven by a formula (e.g. 50% up to 6%) or be on a discretionary basis. Profit Sharing contributions are typically exclusively discretionary.

• Do I have to include all of my employees in the retirement plan?

No. It is possible to exclude employees through a variety of means. The most common is simply to have eligibility provisions that require employees to attain a certain age and length of service before they are able to enroll. There are also certain classes of employees you are allowed to exclude by law (e.g. union). In certain circumstances, you can exclude classes of employees of your choosing providing all nondiscrimination requirements are met.

• Why is all of this paperwork (plan documents, 5500’s, testing reports, etc.) necessary for my plan?

In order for the contributions in your retirement plan to be made on a tax-favorable basis, the government has established qualifications your plan must comply with each year in order to maintain this tax-favored status. So, all of the paperwork that you have to deal with related to your retirement plan is a part of the necessary and required activity of maintaining your tax-qualified status. Failure to do any of these activities can result in significant penalties or (worst case) disqualification of the plan.

• How soon must I deposit the 401(k) withholdings for my employees?

Employers have sometimes held that they can wait until the 15th of the following month before the need to deposit any 401(k) withholding amounts for employees. This is not so. The DOL expects the deposits to be made “as soon as they can be reasonably segregated from the employer’s general assets.” There are new proposed regulations that would provide a safe harbor if the contributions are deposited no later than the 7th business day following the withholding.  Click here to be taken to the Department of Labor's website for a summary of the proposed regulations.

As a practical implication, an employer who has a weekly payroll should not be accumulating 6 weeks worth of deferrals then making one deposit. Instead, there should be a deposit made after each payroll where employee 401(k) deferrals are withhold.

• What is the deadline for depositing company contributions like Match and Profit Sharing?

The deadline for depositing employer contributions is the employer’s tax return including extensions. So a calendar year plan could make deposits for this plan year by September 15 of the following year.

• I’ve been told I am a “highly compensated employee” – what does this mean?

One of the primary qualifications (see question 5) for your retirement plan is that the contributions that are made to the plan are nondiscriminatory in amount. This is done by performing certain calculations comparing the contributions between two categories of people – Highly Compensated Employees (HCE’s) vs. Non-Highly Compensated Employees (NHCE’s).

An HCE is someone is meets any of the following criteria:
          -Owns more than 5% of the company
          -A family member of the 5% owner (spouse, child, parent)
          -Earns more than $105,000 (index)

• Why do I involuntarily receive money back from my retirement plan every year?

This is called a “corrective distribution” and the reason why you are receiving money you have contributed to the plan back is because 1) the plan has likely failed 401(k) test, and 2) you are a Highly Compensated Employee.

No plan should consistently fail the 401(k) test (also known as the ADP test) without the Plan Sponsor knowing exactly why and what 3 to 5 solutions are available to prevent this from occurring again.

• Why should I be concerned with Top Heavy Testing?

In short, if a plan is determined to be top heavy there can be severe consequences. If the Key Employees in the plan hold more than 60% of the plan assets, the plan is top heavy and one potential corrective measure is the employer will be required to make a 3% contribution to all eligible employees.

Every Plan Sponsor should not only be fully aware of what their plan’s top heavy testing percentage is, but also know what factors could influence this number in a dramatic and unexpected way.