March 15, 2014 Deadline for Non Discrimination Testing

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Information about March 15, 2014 Deadline for Non Discrimination Testing
Business & Mgmt

Published on February 18, 2014

Author: OConnorDavies

Source: slideshare.net

Description

Sponsors of certain defined contribution plans, namely, 401(k) and 403(b) plans, need to be aware that these plans are subject to non-discrimination tests known as the Actual Deferral Percentage (ADP) test and the Actual Contribution Percentage (ACP) test. The deadline to conduct these tests is March 15, 2014 - O'Connor Davies - NY CPA Firm - New York, 401k auditor

f Employee Benefit Plan Newsletter March 15, 2014 Deadline for Non-Discrimination Testing Louis F. LiBrandi, Principal Sponsors of certain defined contribution plans, namely, 401(k) and 403(b) plans, need to be aware that these plans are subject to non-discrimination tests known as the Actual Deferral Percentage (ADP) test and the Actual Contribution Percentage (ACP) test. [Section 403(b) plans are only required to perform the ACP test since these plans are subject to the Universal Availability rule, whereby the employer generally must make the plan available to all employees.] Further, safe harbor plans are not required to perform these tests, provided they meet certain criteria in terms of employer contribution formulas and vesting. Louis F. LiBrandi Principal llibrandi@odpkf.com 212.286.2600 Under ERISA, non-safe harbor plans must perform the ADP and/or ACP test annually in order to compare the average deferral rate and average contribution rate of Highly Compensated Employees (HCEs) versus Non-Highly Compensated Employees (NHCEs). HCEs are described as those employees with greater than 5% ownership in the entity sponsoring the plan or earning compensation at or above a stated amount. For purposes of testing the 2013 plan year, the compensation amount is $115,000. These tests are required in order to ensure that a plan does not unduly benefit HCEs at the expense of other employees. Testing should be completed by 2-½ months after the close of the plan year. For 2013 calendar year plans, this means the testing deadline is March 15, 2014. Failure to timely test and make any necessary corrections for the plan creates qualification issues and a potential 10% excise tax which is reported and paid to the IRS. Typically, corrections to the ADP test require making refunds of deferral amounts to the HCEs, or the HCEs forfeiting portions of the employer matching contribution. Recently, O’Connor Davies was asked to review a non-discrimination test performed by an outside party for a client’s 401(k) plan. Our review identified misclassified employees. This affected the refunds which needed to be made to the HCEs and lowered those refunds by over $20,000. The Employee Benefit Services Group at O’Connor Davies, LLP has extensive experience in the preparation and review of these and other non-discrimination tests (e.g., coverage and topheavy testing). Plan sponsors in need of this service should contact Louis LiBrandi atllibrandi@odpkf.com or 212-286-2600. About O’Connor Davies O'Connor Davies, LLP is a full service Certified Public Accounting and consulting firm that has a long history of serving clients both domestically and internationally and providing specialized professional services of the highest quality. With roots tracing to 1891, seven offices located in New York, New

Jersey and Connecticut, and approximately 500 professionals including 84 partners, the Firm provides a complete range of accounting, auditing, tax and management advisory services. O’Connor Davies is ranked as number 36 in Accounting Today's 2013 "Top 100 Firms" in the United States. The Firm is also within the 20 largest accounting firms in the New York Metropolitan area according to Crain's New York Business and the Westchester and Fairfield County Business Journals. O’Connor Davies, LLP is a member firm of the PKF International Limited network of legally independent firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. Our firm provides the information in this e-newsletter for general guidance only, and it does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. IRS CIRCULAR 230 DISCLOSURE: To comply with IRS regulations, we are required to inform you that unless expressly stated otherwise, any discussion of U.S. federal tax issues in this correspondence (including any attachments) is not intended or written to be used, and cannot be used, (i) to avoid any penalties imposed under the Internal Revenue Code, or (ii) to promote, market, or recommend to another party any transaction or matter addressed herein.

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