401(k) Compliance: The Importance of Good Year-end Data

401(k) Compliance: The Importance of Good Year-end Data

January 14, 2020
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It’s the first quarter of the year, so you’ve got some important plan compliance deadlines on the horizon. You probably outsource a lot of the compliance legwork to your recordkeeper or TPA (third party administrator), but ultimately, it’s your responsibility as the plan sponsor to make sure that your plan stays in compliance.

That can seem overwhelming, but you can help the compliance work go more smoothly. My advice boils down to these three main takeaways:

1.      Make sure you’re submitting the correct data to your provider.

2.      Meet the deadlines your provider gives you.

3.      Ask questions if you need clarification.

Before joining ARP, I spent 16 years in the TPA world working on all aspects of plan compliance. So I can act as a liaison between you and the provider, helping you better understand the compliance processes, the timing, the lingo, how to submit accurate data, and how to fix problems.

Here’s a quick look at the first quarter’s key compliance deadlines looming now:

Provide/confirm prior year census data: January

Every year, your provider asks you for the year-end data needed to complete all testing and reporting. By far the biggest factor in whether the year-end process goes smoothly is whether a sponsor provides accurate data.

Here are a few tips to help you get it right:

1.      Clearly understand what data your provider needs you to submit and ask questions if you need more information. Their job is to make sure you understand, and it’ll be harder in the long run if you don’t.

2.      Make sure you know how your plan document defines compensation, and submit compensation data that’s consistent with the definition (ex: does your plan exclude certain forms of compensation?).

3.      Know where to best pull year-end data from. Payroll registers are a good start, but be aware that pulling compensation directly from W-2s is not always accurate; total gross compensation is seldom shown on a W-2.  

4.      When possible, ensure that the data can be pulled and remitted electronically. Manual entry is much more likely to lead to errors.

Run and review compliance testing: late January-early March

After you give your provider the data it needs, the provider does all the number-crunching work that makes testing possible and sends you the results to review. While the end results of pass / fail are easy to understand, sometimes the actual tests are not. Plan sponsors are not testing experts, but they should at minimum review the underlying data and decipher the results.  

While the test is seldom run incorrectly, there are issues that can arise here. If the provided data is incorrect, there is a good chance the test results are also incorrect. Always do a check of the data on the plan testing to ensure it is accurate!

Confirm employer allocation: March or April

Unless it gets an extension, a partnership needs to file its tax return by March 15, and a C-Corporation has an April 15 deadline. In order to take the deduction for its employer contribution to the retirement plan for the related plan year, your organization needs to fully fund the contribution by the time of its tax filing deadline, including extensions.

The work on confirming the accurate employer allocation amount starts earlier. After you give your provider the census data, it will run the numbers for the employer contribution based on the plan document’s provisions and goals of the plan sponsor. You can help prevent problems by taking time to give your provider accurate data up front, especially on compensation and deferrals, and doing it by the provider’s deadline. If you do that, the rest of the process almost always falls into line correctly.

I know your compliance workload can seem daunting this time of year. But for every minute you spend now making sure that you get it right the first time, you’re saving yourself from spending a lot more time fixing problems down the road. You’ll be glad later that you did. 

Questions about any of this information? Give us a call at …. We’ll help you get it all right and set you up for success.


This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.