Periodic Compliance Test Package Guide

Transcription

1 ADP Retirement Services Periodic Compliance Test Package Guide ADP, the ADP logo and ADP A more human resource are registered trademarks of ADP, LLC. All other trademarks and service marks are the property of their respective owners Copyright ADP, LLC. ALL RIGHTS RESERVED.

2 Table of Contents Why Is Reviewing This Periodic Compliance Test Package Important?... Page 2 Annual Limits... Page 3 What You Need To Review... Page 4 If You Need To Make Corrections... Page 10 What If The Periodic ADP Test Is Not Passing?... Page 12 GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 1

3 Why Is Reviewing This Test Package Important? Your company s plan must satisfy the year end compliance tests required by the Internal Revenue Code (IRC). Failure to satisfy these tests by the IRS deadline may result in penalties and/or plan disqualification. This package provides you a means to review the data that will be used for the year-end test in advance, ensuring that you receive an accurate year-end test. If the periodic test indicates that you may fail the year-end test, you may be able to take preventative measures now. To learn more about Compliance testing: For Program Events (Classes) and Learning Insight Resources On Demand (formerly Quick Coach Videos) visit the Education Center found in the Resource section of the Plan Sponsor Website. Return to Contents GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 2

4 Annual Limits The IRS Annual and Contribution Limits for the 2018 Plan Year Type of Limit for Testing and Contribution Determination (401(a)(17)) $270,000 $275,000 Social Security Taxable Wage Base $127,200 $128,400 for Key Employee Officer $175,000 $175,000 Type of Contribution (k) Maximum Annual Elective Deferrals (402(g) Limit) 401(k) Catch-Up Contributions NOTE: Participants who are 50 or older, or who will reach 50 during the calendar year, are allowed to make additional catch up elective deferrals over and above the current elective deferral limit. $18,000 $18,500 $6,000 $6,000 * In limited situations, the plan may not allow catch-up contributions. ** The limits may be reduced for short plan years. Return to Contents GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 3

5 What You Need To Review IMPORTANT: Incorrect compensation, contributions, compliance codes, or any other incorrect information you have provided to us will result in incorrect test results as well as incorrect contribution allocations and IRS Form 5500 filings. Please review the enclosed reports very carefully! Summary of Compliance Plan Provisions Details your plan s provisions according to our records. Comparison/Trend Summary The participation rate is based on the number of employees that are deferring compared to the total number of eligible employees (including employees who are eligible but choose not to defer). Helps you review your participant population census data to ensure your year-end test is accurate & complete. Provides insight into the importance of your plan s test results (as they compare to last year s test results). A useful tool to determine trends in the employee participation in your retirement plan. Periodic Data Integrity Report Use to ensure that the Periodic & Year End Compliance tests are accurate. Split into 3 sections: Indicative Data Summary Contribution & Data Summary Employees with the same name but different SSN Utilizes a letter code(s) for those participants with data warnings. When reviewing this summary, if the participation and deferral rates significantly change from one year to the next, it is critical that you carefully review and validate your participants census data in the compliance test package. If the participation and deferral rates are trending lower, please contact your ADP Retirement Services Client Service Team to learn how ADP can help you increase participation. GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 4

6 What You Need To Review, Continued Census A Based on participants compliance codes recorded by your company via your company s last scheduled pay date on or before the Periodic Test date. This information is critical for: Accurate test results. Required Minimum Distribution. Allocation of employer contributions (e.g. non-elective contributions). The IRS Form 5500 filing. Dates Status (STAT) Permanently Excluded Employees (EXCL) Key Highly Compensated Employee (HCE) Eligible (ELIG) Invalid or missing codes/ dates The termination dates and eligibility dates are pulled from our recordkeeping system. The Dates of Birth and Dates of Hire are pulled from payroll. Used to determine if an individual is eligible for catch-up (age 50 by 12/31 of the year the plan year ends). All dates are used to determine if an individual has met the plan s age & service requirements and for age & service disaggregation in the ADP and/or ACP test (if applicable). Used to determine eligibility for employer contributions if you have a last day rule. Impact the Minimum Coverage Test (included in the year end test package) and potentially the ACP test. Possible codes are: A-Active, D Deceased or Disabled, L Leave of Absence, R Retired, T Terminated. As indicated in your plan s Adoption Agreement Not allowed to join the plan even if they have met the age & service requirements. Code employees as excluded immediately upon hire so that once they meet the eligibility requirements the test codes them correctly. Part time employees are not allowed to be permanently excluded from your company s plan. Key employees = Yes Non-key employees = No Former key employees = Prior Certain family members must be coded as Key due to stock attribution rules. HCE based on ownership = Owner HCE based on pay = Pay Non HCE = No Certain family members must be coded as HCE due to stock attribution rules. Employee who has met the age & service requirements by an entry date regardless of whether the employee is actively making salary deferral contributions or has since terminated service with the employer. ADP will make a best choice determination of Key and HCE. Based on compensation and hire date you have provided in your payroll file. Best choice codes appear in plain English and are identified by an asterisk or ampersand. GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 5

7 What You Need To Review, Continued Invalid or Missing Codes/Dates ADP will make a best choice determination of Key and Highly Compensated Employee (HCE). Based on compensation and hire date you have provided in your payroll file. Best choice codes appear in plain English and are identified by an asterisk or ampersand. Category If... Then Employee is assumed to be... Exclusion Code Blank Not excluded X Key Code HCE Code Eligibility Identified as a more than 5% owner HCE Not identified as a more than 5% owner HCE Individual identified as owner for prior year test. Not identified as a more than 5% owner HCE (HCE code = 1) and prior year compensation in our records exceeds HCE dollar limit and if applicable is determined to be one of top 20% highest paid employees Not identified as a more than 5% owner (HCE code = 1) and prior year compensation does not exceed HCE dollar limit or prior year compensation in our records exceeds HCE dollar limit and not determined to be one of top 20% highest paid employees (if applicable) No compensation in the prior year and date of hire is in current year No compensation in the prior year, date of hire is prior to current year, and current year s compensation exceeds the HCE dollar limit for the prior year. No compensation in the prior year, date of hire is prior to current year, and current year s compensation does not exceed the HCE dollar limit for the prior year. Eligibility Date on the Plan Sponsor Website is in the past Eligibility Date on the Plan Sponsor Website is blank or in the future Employee is on the Bypassed tab on the Plan Sponsor Website Employee is on the Unapproved tab on the Plan Sponsor Website Employee is identified as Excluded in your payroll records Key 2 Non-Key 5 HCE-OWNER 1 HCE-PAY 2 Non-HCE 0 Non-HCE 0 HCE-PAY 2 Non-HCE 0 Eligible Non-Eligible Non-Eligible Non-Eligible Non-Eligible As if coded: K X X X X If anyone has missing, invalid or inaccurate codes, your plan s test results may be invalid. More detailed information is included in the Plan Administration Manual. GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 6

8 What You Need To Review, Continued Census B Displays hours & contributions. Hours YTD Contributions Current year conversion plans Total plan year-to-date hours as supplied with the last pay date file on or before the Periodic Test date. This column appears if: Your plan is designed to determine service for eligibility based on Hours of Service. Review the salary deferral and matching contribution amounts (if applicable). These amounts reflect all contributions from the beginning of the plan year to the Periodic Test date that have been submitted to ADP. Salary deferral contributions will be capped at the annual 402(g) limit and will not reflect catch-up contributions. Only payroll matching contributions are reflected. The match contribution must be calculated and deposited with each payroll in which an employee makes a salary deferral. The projected tests may not account for contributions that were made prior to the conversion date. Be sure you review the information contained in these reports with extra care if your company: 1. made changes in payroll products, payroll company codes, and/or payroll regions. 2. had any payroll adjustments, extra payrolls that corrected contributions, updated compliance codes, or compensation. 3. did not provide compensation for all participants. 4. had executives who did not get paid through ADP Payroll. 5. had any employees receiving differential wage payments to employees in active military service (this pay is to be included in compensation). 6. had any permanently and total disabled participants receiving salary continuation payments (this pay is not to be included in compensation). Additional information concerning the treatment of differential wage payments to employees in active military service and the treatment of Post-Severance Pay under your plan is available in the Plan Administration Manual, Chapter 2. GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 7

9 What You Need To Review, Continued Census C Displays the compensation type(s) and amount(s) used within the test package. Based on your plan s provisions the compensation amounts are either year-todate values or amounts paid while a participant in the plan. Used for Exceptions Gross ADP Test ACP Test Total compensation for the plan year as defined in the Adoption Agreement ADP Test ACP Test None Not listed if Gross is used for ADP Test or if the same compensation is used for ADP and ACP Test. Not listed if compensation for ADP Test is also used for the ACP Test. Test ADP and ACP Test Not listed if Gross is used for ADP and ACP Tests. Match Allocation NEC Allocation Allocation Match allocation based on plan provisions NEC allocation based on plan provisions Allocation of employer contributions based on plan provisions Not listed if Gross is used or if the same compensation is used for match and NEC allocations. Not listed if Gross is used or if the same compensation is used for match and NEC allocations. Used if the compensation for match and NEC allocations is the same but is not Gross. Unless your plan is a Safe Harbor plan, please review the Periodic Assumptions and Method section of the test where we describe the assumptions as well as the method of projection used for this test. The results are based on the information you provided in your payroll records as of the last regularly scheduled paydate on or before the Periodic Test date. Since the compensation limit for testing is $275,000, if an individual s projected compensation exceeds $275,000, it is reflected at the $275,000 limit. Current year conversion plans If you have a short year upon converting to ADP, the compensation may be overstated. GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 8

10 What You Need To Review, Continued Census D Displays eligibility dates for salary deferral, match and NEC. Used to determine if a participant is to be included in certain tests within the test package. Displays compensation from eligibility used in the ADP/ACP tests. If corrections are needed, refer to the section titled If You Need to Make Corrections. Periodic Actual Deferral Percentage Test HCE/NHCE Listing Periodic Actual Contribution Percentage Test (if applicable) HCE/NHCE Testing Projections TYPE ANNUAL LIMIT PROJECTED LIMIT $275,000 $275,000 Salary Deferral $18,500 $18,500 Per Payroll Match (if applicable) Projected until the employee reaches the Salary Deferral Limit. If your plan provides for a year end discretionary match, we cannot provide the Actual Contribution Percentage (ACP) Test at this time. Return to Contents GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 9

11 If You Need To Make Corrections If coding, dates, status or compensation is incorrect: Data Type Exclusion Code HCE Code Key Code Eligibility Dates How to Make Corrections Correct the code in the payroll system or with the next file transmission. Correct the code in the payroll system or with the next file transmission. Correct the code in the payroll system or with the next file transmission. Correct the Salary Deferral Eligibility Dates using the Eligible and Ineligible tabs on the Plan Sponsor Website.* To get to these screens, from the left navigation menu click on Employees and then Review Eligibility, View Pending Enrollments, or Approve Eligible Employees. Plans with approval required: If required by your plan, you must affirmatively approve the Salary Deferral Eligibility Dates displayed by clicking on the Approve button. You will also need to review the Unapproved tab for employees with a past Salary Deferral Eligibility Date that you never approved, and take action accordingly. *Exception: If your plan design specifies that you are responsible for calculating employee s Eligibility and/or your plan offers a per-payroll Non-Elective Contribution; correct the code/date in your payroll system or with your next transmission. Bypassed Employees Correct the status on the Plan Sponsor Website. Adding the Bypass Indicator: If you are very confident that an employee will never attain the required eligibility requirements, you may indicate a Bypass reason from the drop down list on the Eligible tab on the Plan Sponsor Website: Always Ineligible Contractor Vendor Other (e.g., beneficiary) After you save your changes, ADPRS will immediately cease calculating the date an employee will become eligible to begin contributing to the plan. Bypassed individuals will be displayed on the Bypassed tab until you designate otherwise. Removing the Bypass Indicator: If an employee you previously bypassed no longer should be bypassed, go to the Bypassed tab on the Plan Sponsor Website and update the individual by blanking out the Bypass Reason and the Salary Deferral Eligibility Date. After you save your changes, ADPRS will once again begin calculating the date an employee will become eligible to begin contributing to the plan; and the employee will automatically reappear on the Eligible or Ineligible tab (as applicable) for your review. Important: The Bypass flag is not intended to be used to denote class or union exclusions. GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 10

12 If You Need To Make Corrections, Continued Data Type Deferral Percentage Corrections How to Make Corrections Participants can phone into the voice system or log onto the Participant Web Site to make corrections. Non-ADP Payroll Clients: If you are a Standard Data Layout (SDL), Universal File Layout (UFL) or Web Direct Client you must also adjust the deferral percentage in your payroll system. Dates of Birth Correct the date in the payroll system or with the next file transmission. Dates of Hire Correct the date in the payroll system or with the next file transmission and contact ADP Retirement Services Client Services Department to have the Date of Hire updated. ADP Payroll Clients: Dates of Hire revised in ADP Payroll will not automatically feed to the Recordkeeping System. Hours of Service If your plan is designed to determine service for eligibility based on Hours of Service; correct the hours in the payroll system or with the next file transmission. ADP Payroll Clients: Contact your ADP Payroll Representative to make the necessary adjustment to the Accumulated Hours of Service Memo Code. Correct the compensation in the payroll system or with the next file transmission. If you changed company codes and the compensation is overstated or contribution amounts are incorrect, contact ADP Retirement Services Client Services Department. Corrections should be made as soon as possible to ensure the next Periodic Test or the Year-end Compliance Test will be correct. Return to Contents GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 11

13 What If The Periodic ADP Test Is Not Passing? Participation Encourage participation from Non-Highly Compensated Employees: Communicate the benefits of the plan. Provide match contributions or a higher rate of matching contributions. Access participant communications & workshops available on the Plan Sponsor Website. Review the participation rate on the Summary page 3 or 4. Percentage Reduction Method Review the suggested cutbacks. Highly Compensated Employees who contributed the highest percentage to the plan can consider reducing their deferral percentage through the voice system or the participant web site. If you are a Standard Data Layout (SDL), Universal File Layout (UFL) or Web Direct client, any participant deferral percentage changes made on the Participant Website or VRU must be reflected in your payroll system. Please refer to the Deduction Change Report for the most recent participant deferral percentages. If these employees do not reduce their percentage, refunds may need to be distributed to some, if not all, of the Highly Compensated Employees after the end of the plan year or your company may make a contribution to the Non-Highly Compensated Employees. This will be illustrated on the Year-end Compliance Test Package. You may wish to take some action now. These actions are not a guarantee that corrective action will not be necessary at year end, but it may improve year end test results. No Action Your plan may not satisfy the year-end nondiscrimination tests. This may result in refunds distributed to some, if not all, of the Highly Compensated Employees or having your company make a contribution to the Non-Highly Compensated Employees. The cutbacks reflected on the Periodic Test only consider cutbacks that may satisfy the ADP test. You may wish to determine further cutbacks if your plan fails the ACP Test. Save Smart Feature if you make suggested contribution percent changes please review to see if any affected participant currently have elected the Save Smart feature. Affected participants will need to opt out of this feature, otherwise their contribution rate will automatically be increased. Return to Contents GUIDE TO YOUR PERIODIC COMPLIANCE TEST PACKAGE 12