Your guide to end-of-the-year 401(k) notices

The final quarter of 2017 has arrived, and with it the reminders of important year-end notices for retirement plan sponsors. Here’s a quick guide to some important notices, and why they matter:

October 1: Safe Harbor establishment

The deadline to establish a new safe harbor 401(k) plan for 2017 was October 1.

For those companies still wanting to contribute to a retirement plan for 2017, they might consider establishing a profit-sharing plan for this year, and then starting a safe harbor 401(k) plan early in 2018.

For those unfamiliar with safe harbor plans, the main advantage is that they provide a means for business owners and highly-compensated executives to contribute the maximum amounts to their 401(k) accounts.

This can, at times, create a problem if the company’s workforce does not contribute enough for the plan to pass its various discrimination tests regarding the amount deferred by the highly comped, versus non-highly compensated employees.

In exchange for enhanced matching or a contribution for all employees that is immediately vested, the highly comped employees are not restricted in the amount of salary they can defer, up to statutory plan limits.

In summary, these plans can greatly enhance the ability of business owners and highly- compensated employees to save for their own retirements.

November 1: SIMPLE conversion to a 401(k)

For employers offering a SIMPLE IRA who want to convert the plan to a 401(k), the deadline for notifying employees is November 1.

Rules stipulate that an employer cannot offer both a SIMPLE IRA and a 401(k) in the same calendar year.

When planning the conversion, employees under 59½ who pull their money out of a SIMPLE plan within the first two years of participation face a 25% penalty fee of their investment balances for doing so.

Employers, then, will want to ensure that they don’t unintentionally subject their employees to this penalty.

Safe Harbor plan for 2018

Employees must be provided with a notice that the plan will offer a safe harbor provision no later than December 1 of each calendar year.

This notification is required for existing plans that already offer safe harbor provisions, and for existing plans that wish to convert to a safe harbor plan in 2018.

Summary

Clients who offer small business 401(k) plans may not be aware of all required year-end notices, or of the benefits of a safe harbor plan.

You can help plan sponsors are on top of the requirements and important dates, while establishing yourself as a trusted expert on the subject.