Why Should my 401(k) Plan Use a Calendar Plan Year?

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Why Should my 401(k) Plan Use a Calendar Plan Year?

Defined contribution plans generally follow calendar years, which prevents compliance and administration complications that arise from an off-calendar plan year. Off-calendar plan years are typically structured to follow the fiscal year, with the rationale that the profit sharing contributions would be tied to fiscal year performance. This logic is somewhat flawed, since you are effectively giving the same profit sharing contribution at whatever point you decide to make the contribution, but you are increasing the administrative costs and risk of errors (administration or compliance) in running the off-calendar plan year.

Off Calendar Plan Year Issues:

  1. Compliance deadlines for recordkeepers and TPAs are more challenging to track for off calendar plan years
  2. Annual plan limits are confusing for off calendar year plans
  3. Off calendar plan years could be more expensive to administer since they would not be streamlined with the deadlines and plan limits of calendar plan years and would need custom scheduling, calculating and monitoring to ensure timeliness and compliance
  4. HR and payroll representatives will need to provide a plan year as well as a calendar year annual census for their recordkeeper/TPA, since some deferral limits will be based on calendar year regardless of the plan year dates

Calendar Plan Year vs. Off Calendar Plan Year Compliance Deadlines:

Calendar Year Plans Non-Calendar-Year Plans
ADP/ACP Refunds to Avoid Excise Tax The ADP/ACP refund must be postmarked by March 15th in order to avoid the 10% excise tax. The due date is 2 1/2 months following the close of the plan year.
Form 5500 Filing The Form 5500 must be electronically filed with the Department of Labor via the EFAST2 system no later than July 31st of the following year. The deadline can be extended to October 15th by filing Form 5558 by the July 31st deadline. The deadline is 7 months following the last day of the plan year.

 

 

 

Adoption of New Safe Harbor 401(k) Plan for the Current Year A company that does not have a retirement plan or that has a profit sharing plan can establish a safe harbor 401(k) plan for the current year as long as it is in place and all plan documents/amendments signed no later than September 30th. Deferrals must be withheld from the first payroll in October. In addition, the plan sponsor must provide the required safe harbor notice to all participants within 30-90 days before the effective date (July 1st – September 1st). The safe harbor provision must be in effect for at least the last 3 months of the plan year.
Summary Annual Report to Participants The SAR must be provided to all participants no later than September 30th of the following year; however, if the Form 5500 filing deadline is properly extended, the deadline for distributing the SAR is extended to December 15th. For non-calendar-year plans, the deadline is 2 months following the deadline for filing Form 5500.
Extended Form 5500 Filing The extended deadline for filing Form 5500 is October 15th for plans that filed Form 5558 by the initial July 31st deadline. This deadline cannot be further extended. The deadline is 9 1/2 months following the last day of the plan year.
Safe Harbor, Qualified Default Investment Alternative and Automatic Enrollment Notices to Participants The deadline for distribution the safe harbor, QDIA and/or automatic enrollment notices to participants for the next plan year is December 1st. The deadline is 30 – 90 days before the start of the upcoming plan year.

 

Extended Summary Annual Report to Participants The extended deadline for providing the SAR to participants is December 15th for plans that filed Form 5558 by the initial July 31st deadline. The deadline is 11 1/2 months following the close of the year or 2 months following the extended deadline for filing Form 5500.

 

2017-06-07T08:38:37+00:00 June 5th, 2017|Categories: 401k Resources|Tags: , , , , |Comments Off on Why Should my 401(k) Plan Use a Calendar Plan Year?