What is a 401(k) Plan?
The most common form of a 401(k) Retirement Plan is a salary reduction agreement where the plan that allows employees to reduce their compensation and that amount contributed to the plan on a pre-tax basis.
401(k) plans typically do not stand alone, they are a feature added to Profit Sharing Plan. The intent is to allow both the employee and employer take responsibility for providing retirement benefits.
What are some of the common problems with a 401(k) Plan?
One problem that often occurs is when employers ask a 401(k) retirement plan to do something it was never meant to do - maximize their benefits in the 401(k) plan.
Employers who try to “max out” their 401(k) plan often run into compliance test failure and receive money back at the end of the year because they found out they contributed too much compared to everyone else.
This is frustrating for employers because they are prevented from enjoying the full benefits of the 401k plan due to something not entirely in their control – the participation level and rates of their employees.
Furthermore, compliance testing for 401(k) retirement plans is rigorous and inflexible, and so employers often feel as if they don’t have options.
Does this describe your 401(k) plan experience? If so you plan may need to be modified.
- Do you adjust the deferral rates of HCE’s during the year?
- Do you perform a mid-year ADP compliance test?
- Do you receive corrective distributions (401(k) refunds) from a failed test?
You need more 401k information and advice. How can Trinity Pension Consultants help?
Unfortunately, many employers who find themselves in this situation often receive generic solutions to their 401(k) testing problems (e.g., “just go Safe Harbor”), and many times, this isn’t the only or the best option.
Trinity Pension Consultants knows all of the 401k solutions that are available – and there are many! Trinity can discuss with you the following ideas:The significance of failing the 401(k) test
- The fallacy of increased participation
- The difference in 401(k) testing methods
- The two ways to make corrections
- The reason why most employers (i.e. owners) should skip the 401(k)
401(k) retirement plans don’t have to be a messy headache. If your goal as an owner is to maximize your contribution, let Trinity help you simplify your retirement plan experience by designing your plan around your goal and your company profile.
For more information on how Trinity Pension Consultants can help you with a 401(k) Plan, call Anthony Warren at 330-869-3747.
