Compliance testing can be a daunting task for employers. We can make the process much simpler for all involved. With PENSERVCO, all the compliance testing is performed for you, giving you more time to focus on your business.
The Nondiscrimination and Limit Tests
ADP/ACP Tests
Actual Deferral Percentage and Actual Contribution Percentage tests are both used to ennsure that a plan is not discriminating in favor of High Compensated Employees. The ADP test is performed to determine if the plan is discriminating in favor of HCEs with respect to pre-tax and Roth employee contributions, while ACP tests looks at employer contributions.
Top-Heavy Tests
Top-Heavy tests also look for discrimination in favor of HCEs, but it is concerned with plan balances as opposed to plan contributions. A plan is top-heavy if the account values of key employees represent more than 60% of account values of all employees.
402(g) Limit Test
We make sure each participant does not contribute more than $19,500 in 2020 in their 401(k) account. This is the limit on pre-tax and Roth 401(k) salary contributions.
415 Annual Additions Test
IRS code 415 limits the employer-provided benefits participants can accrue in defined benefit plans and the amounts that can be contributed to defined contribution plans. We determine whether or not participants are within the guielines set forth by the code.
Coverage Test
Confirms that there are enough non-HCEs receiving benefits relative to the number of HCEs that receive them. An example would be a plan that excludes all employees in a specific city, all of whom happen to be non-HCEs, it might be discriminatory.
Your 401(k) comes with significant tax advantages, it's not impossible for a plan to fall into the trap of being almost exclusively enjoyed by company owners and executives. Let us help you stay compliant with 401(k) regulations while ensuring that all employees are fully encouraged to save for retirement.
