401(k) Plans in Challenging Economic Times: Reducing or Eliminating Employer Contributions Midyear

Faced with unprecedented economic pressures, and a strong need to cut costs, many employers are considering reducing or suspending employer contributions to their 401(k) plans. Any midyear change to a 401(k) plan employer contribution must be carefully evaluated prior to implementation. Generally, 4...

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Veröffentlicht in:Journal of Retirement Planning 2009-05, Vol.12 (3), p.17
Hauptverfasser: Barth, Bruce B, Christie, Cynthia R, Spiess, Virginia E
Format: Artikel
Sprache:eng
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Zusammenfassung:Faced with unprecedented economic pressures, and a strong need to cut costs, many employers are considering reducing or suspending employer contributions to their 401(k) plans. Any midyear change to a 401(k) plan employer contribution must be carefully evaluated prior to implementation. Generally, 401(k) plans are required to be tested annually to ensure that they do not, disproportionately, benefit HCEs (at present, a HCE is an employee who had annual compensation of $105,000 or more for 2008). Nondiscrimination testing can create significant administrative burdens for employers, especially if the tests are failed. Although the testing is generally performed by a third-party administrator, an employer sponsoring a plan is often responsible for determining how the failure will be corrected, communicating with employees on corrective refunds and forfeitures, and revising Form W-2 reporting if amounts previously deferred must later be included in income. Safe harbor 401(k) plans automatically satisfy the requirements of the ADP and ACP tests, as well as the top-heavy test, if certain notice, contribution, vesting, and allocation conditions are met. A plan is generally required to be operated as a safe harbor plan for an entire plan year, although a new 401 (k) plan may take advantage of the ADP safe harbor if its initial plan year is at least three months long
ISSN:1520-0361