Comprehensive Guide to Yearly Compliance Activities

Transcription

1 1 Comprehensive Guide to Yearly Compliance Activities

2 Table of Contents Plan Sponsor Webstation (PSW )... 3 Contacting Testing & Reporting... 4 What is Nondiscrimination Testing?... 5 What Services Does Fidelity Provide?... 7 Calendar for Annual Nondiscrimination Testing Cycle Completing Questionnaires Questionnaire Activity Chart Preparing & Submitting Your Data File Understanding & Viewing Your Results Test Results Verification Tips What If Your Plan(s) Fail Form 5500 and Form 8955-SSA Summary Annual Report Plan Year End Summary & Audit PYE Summary, Form 5500 & Form 8955-SSA Checklist Additional Resources

3 Plan Sponsor WebStation (PSW) Navigate in 4 Easy Clicks To access Nondiscrimination Test Activities: 1. Log into PSW. 2. Select the Administer Plans tab. 3. Select the Non-Discrimination Testing (NDT) link. 4. Select the Begin Year End Testing link. To access Form 5500 and Form 8955-SSA Activities: 1. Log into PSW. 2. Select the Administer Plans tab. 3. Select the Form 5500 and Form 8955-SSA link. 4. Select Review Plans with Client Action needed. To access Reports: 1. Log into PSW. 2. Select the Reporting tab. 3. Select the View an Existing Report link. 4. Select the Others Reports folder under Report Organizer. To access Team Workspace (Large plans only): 1. Log into PSW. 2. Select the Work With Fidelity tab. 3. Select the View Your Team Workspace Projects link. 4. Locate your project under Annual Events or Ongoing Service. To access Training & Support materials: 1. Log into PSW. 2. Select the Training & Support in the green heading. 3. Select Go to PSW Training Center link. 4. Select the Compliance, Testing, 5500 Reporting and Return of Excess link. To access Service Requests: 1. Log into PSW. 2. Select the Work With Fidelity tab. 3. Select View All Service Requests. 4. Select Active Requests. GREAT TIP: If you would like to grant PSW access to your auditor, please contact a member of your client service team. 3

4 Contacting Testing & Reporting You can contact us through several channels based on your preference. Nondiscrimination Testing, Form 5500 Reporting and Audit Support Fidelity Toll-free number Standard operating hours Mon. to Fri. 8:00am 6:00pm (ET) Enter your five digit plan number Select the Testing, 5500 or Audit prompt If applicable, contact your Service Delivery Manager directly. Service Requests Plan Sponsors can send a service request through PSW. Select the Work with Fidelity tab. Select Open a New Service Request. Under the Compliance section, choose Non-Discrimination Testing, Form 5500 or General Service Request for Audit Support. If your company or your Plan has one of the below characteristics, you may wish to contact your Testing & Reporting Services representative prior to testing to learn how the employee data you supply may be impacted. The company is a member of a Controlled Group or an Affiliated Service Group and not all members of the group have adopted your Plan. The Employer or company structure has changed during or before the Plan Year being tested. This includes both asset and stock transactions relating to mergers, acquisitions and spin-offs. 4

5 What is Nondiscrimination Testing? All qualified retirement plans must comply with the Internal Revenue Code s Nondiscrimination (NDT) requirements as well as the Employee Retirement Income Security Act of 1974 (ERISA) reporting and disclosure requirements. Compliance is demonstrated through a series of tests referred to as nondiscrimination testing. If a Plan fails to comply with the Nondiscrimination testing requirements, the result could be plan disqualification, which may lead to the distribution and current taxation of all plan assets. Therefore, it is imperative that all Plan Sponsors perform the required nondiscrimination tests at least annually and retain the results with the Plan s permanent records. REMEMBER: If the Plan is ever audited by the Internal Revenue Service, a copy of the tests may be required to be provided by the Plan Sponsor. Testing is required to be completed within 12 months following the plan year end. However, there are additional due dates that must be met for the Plan Sponsor to avoid paying excise tax and to maintain qualified status of the plan. Nondiscrimination Testing includes the following tests and calculations. Not all tests are required for all plans. Actual Deferral Percentage (ADP) Test Actual Contribution Percentage (ACP) Test IRC Section 402(g) Elective Deferral Limitation Test IRC Section 415(c) Defined Contribution Plan Annual Additions Limitation Test IRC Section 410(b) Minimum Coverage (Ratio Percentage Test) IRC Section 416 Top Heavy Determination Mid-Year Projection Testing QNEC Calculations QMAC Calculations IRC Section 401(a)(4) General Test IRC Section 401(a)(4) Benefits, Rights and Features Test IRC Section 414(s) Compensation Test IRC Section 410(b) Average Benefits Testing 5

6 Below is a comparison chart of the most common Nondiscrimination tests, describing how each test is performed, the data used for each test, and for which plan year the plan is being tested. ADP/ACP Tests Annual Additions (415) 402(g) Deferral Limits Minimum Coverage Top Heavy Tests What? Compares contribution rates of HCEs to NHCEs Individual eligible employee limit Individual eligible employee limit Compares benefits of HCEs to NHCEs Compares plan assets of Key EEs and Non-key EEs Data Tested Contributions and compensation Contributions and compensation Employee contributions The % of employees benefiting in each category Account balances and added back in-service withdrawals Test Year Affected Current Year Current Year Current Year Current Year Next Year (Prospective Test) GREAT TIP: If this is your first year completing a questionnaire and/or submitting data, click here to browse our glossary full of helpful definitions. 6

7 What Testing Services Does Fidelity Provide? This section contains detailed information about each of the Nondiscrimination Tests Fidelity offers: o o o o o o IRC Section 401(k) Actual Deferral Percentage Test (ADP) IRC Section 401(m) Actual Contribution Percentage (ACP) IRC Section 402(g) Annual Deferral Limit Test IRC Section 415(c) Annual Additions Limit Test IRC Section 410(B) Minimum Coverage Ratio Percentage Test IRC Section 416 Top Heavy Test 7

8 IRC Section 401(k) Actual Deferral Percentage Test (ADP) ADP Overview The ADP compares the contribution rates of Highly Compensated Employees (HCE) to those of Non-Highly Compensated Employee (NHCE). Each employee is classified, based on Internal Revenue Code rules, as either an HCE or a NHCE. An Actual Deferral Ratio (ADR) is then determined for each Eligible Employee by dividing his/her 401(k) Contributions by his/her testing compensation. An average deferral percentage (ADP) is determined for all eligible HCEs and separately for all NHCEs. The ADP for the HCEs generally cannot exceed the lesser of 2 times or 2 plus the average ADP for the NHCEs. NOTE: See Glossary for the definition of a Highly Compensated Employee (HCE) and 5% Owner. What Data is Tested? Pre-Tax Salary Deferrals and Roth Contributions Generally, a failed ADP Test can be corrected by using one of the following Corrective Actions: Alternative 1. Distribute the Excess Contribution to the affected HCEs (Return of Excess) Based on IRS regulations, Excess Contributions are distributed first to the HCEs with the highest dollar amount of 401(k) Contributions. Employer Matching Contributions, attributable to excess contributions, must be forfeited with earnings. How do you correct a failing ADP Test? Alternative 2. QNEC or QMAC The employer may contribute additional Qualified Non-elective Contributions (QNEC) or Qualified Matching Contributions (QMAC) to the NHCEs. Review your plan document for the type of QNEC/QMAC selected. This option may not be available for plans that use Prior Year Testing Method since Qualified Contributions must be funded within 12 months following the year for which the NHCE rates have been calculated. If additional contributions are chosen as the Corrective Action, the employer may, after the end of the Plan Year, make employer contributions according to Plan provisions. Consult your ERISA advisor if you are considering this method. Alternative 3. Combination of alternative 1 and 2 (generally only available if the plan is using the Current Year Testing Method). Consult your ERISA advisor if you are considering this method. Deadline for correcting the failure 2 ½ months following the plan year end or else the plan must pay a 10% excise tax on the amount of excess contributions. (ex: if PYE is 12/31, correction should be processed by 3/15) For corrective distributions related to plan years beginning after January 1, 2008, if the plan contains an eligible automatic contribution arrangement (EACA), then the plan has 6 months after the close of the plan year (rather than 2 ½ months) to make corrective distributions. Correction of the Plan s failing ADP Test should occur within 12 months after the close of the plan year (i.e. December 31, 2015 for the plan year ending December 31, 2014) in accordance with the Internal Revenue Code. If correction is not made within this time period, the plan sponsor should seek legal guidance regarding available correction methods under EPCRS. 8

9 How to initiate the distribution of the ADP excess with Fidelity Identify the desired correction method and perform the following steps to correct the Actual Deferral Percentage Test. If using Alternative 1, then follow the procedures below: Step 1. Step 2. Step 3. Step 4. Step 5. Access the ADP Test Report and save the ADP Test Failure Report to your desktop. Open a PSW Return of Excess service request. Attach the ADP Test Failure Report to the Return of Excess service request and Submit If your plan converted to Fidelity during the affected Return of Excess plan year, an investment earnings statement may be required in some instances. Fidelity will mail the Corrective Distribution check to the participant unless noted otherwise. In addition, Fidelity will generate the IRS Form 1099-R and mail it to the participant. NOTE: Do not adjust any IRS Form W-2s for affected participants. Implications to Participants: The Amount of Excess Contributions (not eligible for catch-up) will be adjusted for the applicable earnings/losses. The adjusted amount will be sent via check to the Participant s home address within 10 business days from the receipt of the completed ROE form. The corrective distributions will be taxable to the participant in the tax year in which the check was issued. The corrective distribution is not subject to the 10% early withdrawal penalty and is not eligible for rollover. A 10% Federal income tax will be withheld from the distribution unless otherwise directed on the ROE form. The employer matching contribution that is associated with the elective deferral contributions distributed to participants as corrective distributions, with earnings, must be removed from the participant s account, regardless of vesting. This money will be forfeited to the plan s forfeiture/suspense account. How can you reduce your chances of failing in the future? Services Encourage increased participation of NHCEs who are eligible to participate in the plan. Limit or decrease the Employee Deferral Contribution amounts for the HCEs. Consider offering an Employer Matching Contribution as an incentive to participate. Consider amending the plan in order to operate the plan as a Safe Harbor Plan, which may deem the plan to pass the ADP Test, Actual Contribution Percentage Test, and may satisfy the minimum contribution requirement for a plan that is deemed to be Top Heavy. If the Prior Year Testing Method is elected in the Plan Document or Adoption Agreement, use the prior year's Non-Highly Compensated ADP results as a gauge to determine what the ADP should be for the HCEs. Limit the contributions for the HCEs using this gauge as a guide. TIP: Discuss alternative testing methods with a Fidelity Testing & Reporting representative. 9

10 IRC Section 401(m) Actual Contribution Percentage Test (ACP) A plan which allows for Employer Matching Contributions or Employee After-Tax Contributions may be subject to the Actual Contribution Percentage Test (ACP Test) each Plan Year according to Internal Revenue Code Section 401(m). ACP Overview What Data is Tested? Each participant is classified, based on Internal Revenue Code rules, as either a Highly Compensated Employee (HCE) or a Non-Highly Compensated Employee (NHCE). An Actual Contribution Ratio (ACR) is determined for each Eligible Employee by dividing his/her match and after-tax contributions by his/her testing compensation. An average contribution percentage (ACP) is determined for all eligible HCEs and separately for all NHCEs. The average ACP of the HCEs generally cannot exceed the lesser of 2 times or 2 plus the average ACP of the NHCEs. Employer Matching Contributions and/or Employee After Tax Contributions Generally, a failed ACP test can be corrected by one of the following Corrective Actions: Alternative 1. Distribute the Excess Aggregate Contribution to the affected HCEs (Return of Excess) How do you correct a failing ACP Test? Alternative 2. Based on IRS regulations, Excess Aggregate Contributions are distributed (to the extent vested)/forfeited first to the HCEs with the highest dollar amount of 401(m) Contributions. Employer Matching Contributions, attributable to Employee After-Tax Contributions, must be forfeited with earnings. The employer may contribute additional Qualified Non-elective Contributions (QNEC) or Qualified Matching Contributions (QMAC) to the NHCEs, if the plan is using the Current Year Testing Method. If additional contributions are chosen as Corrective Action, the employer may, after the end of the Plan Year, make employer contributions according to plan provisions. Consult your ERISA Attorney if you are considering this option. Alternative 3. Combination of alternative 1 and 2 (generally only available if the plan is using the Current Year Testing Method). Consult your ERISA Attorney if you are considering this option. Deadline for correcting the failure 2 ½ months following the plan year end or else the plan must pay a 10% excise tax on the amount of excess contributions. (ex: if PYE is 12/31, correction should be processed by 3/15. For corrective distributions related to plan years beginning after January 1, 2008, if the plan contains an eligible automatic contribution arrangement (EACA), then the plan has 6 months after the close of the plan year (rather than 2 ½ months) to make corrective distributions. Correction of the Plan s failing ADP Test should occur within 12 months after the close of the plan year (i.e. December 31, 2015 for the plan year ending December 31, 2014) in accordance with the Internal Revenue Code. If correction is not made within this time period, the plan sponsor should seek legal guidance regarding available correction methods under EPCRS. 10

11 Identify the desired correction method and perform the following steps to correct the Actual Contribution Percentage: How to initiate the correction with Fidelity Step 1. Step 2. Step 3. Step 4. Step 5. Access the ACP Test Report and save the ACP Test Failure Report to your desktop. Open a PSW Return of Excess service request Attach the ACP Test Failure Report to the Return of Excess service request and submit. If your plan converted to Fidelity during the affected Return of Excess plan year, an investment earnings statement may be required in some instances. Fidelity will mail the Corrective Distribution check to the participant unless noted otherwise. In addition, Fidelity will generate the IRS Form 1099-R and mail it to the participant. NOTE: Do not adjust any IRS Form W-2s for affected participants. The vested portion of the Excess Aggregate Contributions will be adjusted for the applicable earnings/losses. Implications to Participants: The adjusted amount will be sent via check to the Participant s home address within 10 business days from the receipt of the completed ROE form. The corrective distributions will be taxable to the participant in the tax year in which the check was issued. The unvested portion will be forfeited. The corrective distribution is not subject to the 10% early withdrawal penalty and is not eligible for rollover. A 10% Federal income tax will be withheld from the distribution unless otherwise directed on the ROE form. How can you reduce your chances of failing in the future? Encourage increased participation of NHCEs who are eligible to participate in the plan. Consider amending the plan in order to operate the plan as a Safe Harbor Plan, which may help enable the plan to pass the ACP Test and satisfy the minimum contribution requirement for a Top Heavy Plan. Discuss alternative testing methods with a Fidelity Testing & Reporting Services representative. 11

12 IRC Section 402(g) Annual Deferral Limit Test 402(g) Overview The 402(g) test calculates the dollar amount of Employee Deferral Contributions an individual may elect to defer in a calendar year as limited by the IRC section 402(g). During the 2014 calendar year, a participant is allowed to make Employee Deferral Contributions up to a maximum of $17,500. For plans that provide for catch-up contributions, participants attaining age 50 or greater during 2014 are permitted to defer an additional $5,500, up to a maximum Employee Deferral Contribution of $23,000, without exceeding the 402(g) Limit. Any amount over $17,500, as indexed (or $23,000, if catch-up eligible), is considered an Excess Deferral and requires Corrective Action. Steps to perform the 402(g) test: 1. Identify the participants 2. Identify each participants total contributions (pre-tax and Roth) 3. Determine if any participant is over the dollar limit (including the additional catch up limit) What Data is Tested? The limit applies to all Elective Deferral (Pre-tax and Roth) Contributions made to all 401(k) Plans and 403(b) Plans that the participant contributes. How do you correct a failing 402(g) Test? Corrective Action requires distribution of the Excess Deferral and earnings to the participant by April 15 th following the calendar year in which the excess deferral was made. Any matching employer contributions attributable to excess deferrals, plus any income and minus any loss shall be forfeited. If the employee participated in multiple plans sponsored by unrelated employers during the calendar year, the employee must notify one of the Plan Administrators and make arrangements to receive the Excess Deferral from one or more plans. Deadline for correcting the failure Corrective Action must be taken by the Plan Administrator on or before April 15 (or applicable IRS taxation deadline), following the end of the calendar year in which the Excess Deferral occurred. NOTE: Do not adjust any IRS Form W-2s for affected participants. How to initiate the correction with Fidelity Step 1. Step 2. Step 3. Step 4. Step 5. Perform the following steps to correct the Excess Deferral: Access the 402(g) Limitation Report and save the 402(g) Limit Report to your desktop. Open a Plan Sponsor Webstation (PSW) Return of Excess service request Attach the 402(g) Limit Report to the Return of Excess service request and submit. If your plan converted to Fidelity during the affected Return of Excess plan year, an investment earnings statement may be required in some instances. Fidelity will mail the Corrective Distribution check to the participant unless 12

13 noted otherwise. In addition, Fidelity will generate the IRS Form 1099-R and mail it to the participant. Implications to Participants: Generally, timely made Corrective Distributions resulting from Excess Deferrals will be taxable to the recipient in the tax year in which the Excess Deferral Contribution was withheld from pay. Earnings attributed to Excess Deferrals are included in the Corrective Distribution and will be taxable to the recipient in the tax year in which the Corrective Distribution was made. If the same participant in the plan has both ADP and 402(g) corrective distribution, the ADP required distribution amount will be reduced by the 402(g) excess deferral distribution. How can you reduce your chances of failing in the future? The Plan Administrator should instruct its payroll vendor or internal payroll department to limit Employee Deferral Contributions for a calendar year to the specified limitation amount. 13

14 IRC Section 415(c) Annual Additions Limit Test The 415(c) test calculates the dollar amount of annual retirement benefits an individual can receive from all defined contribution plans during each limitation year. The 415 annual additions test is performed for each participant that gets some allocation under the plan during the year. 415(c) Overview Section 415(c) of the Internal Revenue Code limits the participant's Annual Additions for a Limitation Year ending in 2014 to the lesser of 100% of the participant's compensation, or $52,000, as indexed. Annual additions above this limit are considered Excess Annual Additions and require Corrective Action. Catch-up contributions are not included in this limit. The IRC 415 Dollar Limit must be prorated for a limitation year that is less than 12 months due to a plan termination or an amendment adopted to change the plan year. When determining an employee s annual additions, the contributions to all plan maintained by the employer and related employers must be aggregated. Multiple employer (unrelated) plans are required to be aggregated together and tested on a planwide basis. What Data is Tested? 415 Compensation: The amount actually paid and amounts earned but not paid; it includes all elective deferrals for the entire limitation year. Elective 401(k) pre-tax contributions Elective Roth contributions Employee After tax contributions Matching and/or Employer Non-Elective (profit sharing) Contributions Employer Contributions to other defined contribution plans Forfeitures allocated to participants for the plan year Not included: Investment earnings, loan payments, and rollovers / Elective contributions that may be treated as catch-up contributions do not count against the 415 limit The Excess Annual Additions attributable to an employee s elective deferral or after-tax contributions must be distributed to the participant. How do you correct a failing 415(c) Test? Excess Annual Additions attributable to employer matching or employer non-elective contributions are forfeited to the plan suspense accounts. Earnings attributed to the Excess Annual Additions are included in the corrective distribution or amount forfeited. If an employee participates in more than one plan of the Employer, the Plan Administrator must review all plan documents to identify the appropriate Corrective Action pursuant to the terms of the plans affected. Deadline for correcting the failure How to initiate the correction with Fidelity Generally, the Plan Administrator would need to take Corrective Action within twelve months after the close of the Plan Year. Perform the following steps to correct the Excess Annual Addition: 14

15 Step 1. Step 2. Step 3. Step 4. Step 5. Access the 415 Limitation Report and save the 415 Test Failure Report to your desktop. Open a PSW Return of Excess service request. The information in the Return of Excess Overview provides pertinent information about this correction. Attach the 415 Test Failure Report to the Return of Excess service request and submit. If your plan converted to Fidelity during the affected Return of Excess plan year, an investment earnings statement may be required in some instances. Fidelity will mail the Corrective Distribution check to the participant unless noted otherwise. In addition, Fidelity will generate the IRS Form 1099-R and mail it to the participant. NOTE: Do not adjust any IRS Form W-2s for affected participants. Implications to Participants: Generally, Corrective Distributions resulting from Excess Annual Additions will be taxable to the recipient in the year of distribution. The distribution is not subject to 10% premature withdrawal penalty and is not eligible for rollover. How can you reduce your chances of failing in the future? The Plan Administrator should review the plan provisions for all plans of the Employer to ensure that, in combination, they do not allow for Annual Additions in excess of the lesser of 100% of compensation or $52,000, as indexed. 15

16 IRC Section 410(B) Minimum Coverage Ratio Percentage Test The IRS generally requires plans to benefit a minimum number of employees. The Minimum Coverage Test, also known as the ratio percentage test, demonstrates that the plan benefits a percentage of Non-Highly Compensated Employees (NHCEs) which is at least 70% of the percentage of the Highly Compensated Employees (HCEs) who are Benefiting Employees under the plan. Each source of the plan (i.e., Elective Deferrals and Employer Contributions) must be tested separately to determine if the plan passes coverage. Certain types of employees are not allowed to participate in the plan, as defined by the plan document. The minimum coverage test can be impacted when groups of employees are excluded from participation. 410(b) Overview NHCE Benefiting Ratio: # of NHCEs Benefiting / Total # of NHCEs HCE Benefiting Ratio: # of HCEs Benefiting / Total # of HCEs Coverage Ratio: NHCE Benefiting Ratio / HCE Benefiting Ratio To test for compliance with the IRC 410(b) rules, Fidelity performs the ratio percentage test. Minimum Coverage Testing is not required for the following situations: There are no HCEs benefiting under the plan / There are no NHCEs in the coverage testing group / There are no contributions or forfeitures made during the plan year / There are only collectively bargained employees / There is a merger or acquisition if certain requirements are met using the transition rule What Data is Tested? 401(k): A benefiting (eligible) employee is an employee who is permitted to make elective deferrals at any time during the plan year, regardless of whether he actually makes such contributions and regardless of whether he terminates employment during the plan year. 401 (m): An employee is benefiting (eligible) if he is permitted to make after-tax employee contributions or is eligible to receive an allocation of matching contributions. Other Employer Contributions: An employee is considered benefiting only if an allocation is received. How do you correct a failing 410(b) Test? Below are corrective options for correcting failed ratio percentage tests. 1. Amending the plan retroactively to benefit additional Non-Highly Compensated Employees (NHCEs). 2. Aggregating this plan with other plans of the Employer, if applicable 3. Utilizing an alternative test as allowed in IRC 410(b) called the Average Benefit Test. Any additional options to perform the Minimum Coverage Test should be discussed with a Fidelity Testing & Reporting Services representative. TIP: It is strongly recommended that you consult the plan s ERISA advisor to determine which option would work best for the plan. Deadline for correcting the failure If a plan fails the Minimum Coverage Test, the Employer must generally take corrective action within 9 1/2 months after the end of the Plan Year. 16

17 How to initiate the correction with Fidelity Step 1. Step 2. Step 3. Contact a Fidelity Testing & Reporting Services representative to review the Minimum Coverage Test results and the accuracy of the employee data used in the test. Discuss plan design features that affect the Minimum Coverage Test, and explore Corrective Action alternatives. Contact your ERISA advisor as soon as possible to determine the proper correction alternative that is best for the plan. Consider the legal deadlines that exist, such as when a plan amendment must be adopted. If an amendment to your plan is determined to be the preferred Corrective Action, it is advisable to contact your Fidelity Relationship Manager as soon as possible to begin the amendment process and ensure deadlines are met. How can you reduce your chances of failing in the future? Consider designing the plan so that it does not exclude certain groups of employees, Controlled Group members, or Affiliated Service Group members. A plan that excludes a group of employees, preventing them from being Benefiting Employees, is more likely to fail the Minimum Coverage Test (the ratio percentage test ), than a plan with no exclusions. Consider designing the plan so an employee does not have to meet Continuing Eligibility Requirements (employed on last day of the plan year or hours worked) in order to receive a benefit. Example: A plan may require that an employee who has met the plan's age and service requirements must also work a minimum number of hours during the Plan Year and/or be employed on the last day of the Plan Year to be eligible to receive an allocation of any employer contribution made for the Plan Year. A plan that imposes this type of Continuing Eligibility Requirement is more likely to fail the Minimum Coverage Test ( ratio percentage test ), than a plan with no such requirement. 17

18 IRC Section 416 Top Heavy Test A qualified plan is a Top-Heavy Plan if the Top-Heavy ratio exceeds 60%. A plan's Top-Heavy ratio is generally the value of the key employees' accrued benefits divided by the value of all employees' accrued benefits, determined as of the determination date. 416(b) Overview What Data is Tested? The top-heavy test is the only nondiscrimination test performed on a prospective basis: The determination date for a particular plan is the last day of the preceding plan year. For example, a 2015 Top-Heavy test will have a determination date of December 31, For the first year of a plan, the determination date is the last day of the first plan year. The determination date for the second plan year is the same date. For a defined contribution plan, the account balances are used to determine the value. All plans of the Employer in the Required Aggregation Group are considered for Top- Heavy testing. A list of all key employees is also needed for testing. How do you correct a failing 416(b) Test? Deadline for correcting the failure How to initiate the correction with Fidelity Step 1. The rules regarding minimum contributions and the options available are extensive and complex. Contact your Fidelity Testing & Reporting Services representative to review the Top Heavy Test results for accuracy and to discuss the minimum contribution requirements. Step 2. Review the Top Heavy provisions of your plan document for additional information regarding the requirements associated with a Top Heavy Plan. Step 3. If applicable, consult the plan s ERISA advisor when calculating the minimum contribution for all eligible, Non-Key Employees. Allocate the minimum contribution per the instruction of the plan s ERISA advisor. Step 4. Fund the minimum contribution. Contact your Fidelity Recordkeeping Representative to determine the most appropriate way to complete this transaction. To qualify for an employer tax deduction, the contribution must be deposited in the trust by the due date (including extension) for the employer s tax filing for the year of deduction. For plan qualification to remain intact, the contribution must be deposited by the last day of the following plan year (for example: if the plan is over 60% as of December 31, 2013, it is top-heavy for December 31, 2014, and the contribution must be deposited by December 31, 2015.) The correction method the plan elected to resolve the Top Heavy situation will prescribe how the correction needs to made with Fidelity. After consultation with your ERISA attorney, discuss your correction methodology with Fidelity representative and they will help you though the correction process. How can you reduce your chances of failing in the future? Encourage increased participation of NHCEs who are eligible to participate in the plan. Consider amending the plan in order to operate the plan as a Safe Harbor Plan, which may deem the plan to pass the ACP Test and may satisfy the minimum contribution requirement for a Top Heavy Plan. Re-evaluate your contributions to all non-key employees Evaluate the vesting schedule to determine if it could be accelerated 18

19 Calendar for Annual Nondiscrimination Testing Cycle Key Date Key Date Action Item Responsibility (non 12/31 year end) (12/31 year end) At Plan Year end Mid December February 90 days after Plan Year end 90 days after Plan Year end Begin collecting testing data; Complete Annual Questionnaire #1 and/or #2 on PSW. Form 5558 Extension for Form 5500 and Form 8955-SSA will be filed by Fidelity. Plan Sponsor Fidelity 2 weeks prior to the IRS deadline March 1 Fidelity deadline for receipt of authorization to distribute ADP/ACP refunds Plan Sponsor 2 ½ months after Plan Year end March 15 IRS deadline for Return of Excess (ROE) for ADP/ACP refunds to avoid a 10% excise tax 90 days after Plan Year end March 31 Plan Year End Summary reports are available on PSW. The Fidelity Auditor s Guide and SSAE16 (formerly SAS70) are included. Fidelity 4-10 months after Plan Year end Testing must be completed prior to the preparation of the Form April October Testing must be completed prior to the preparation of the Form Form 5500 Preparation begins when Nondiscrimination Testing is completed. Fidelity will prepare the Form 5500 and contact you if there are questions. Fidelity April 1 April 1 Fidelity deadline for receipt of authorization to distribute 402(g) refunds Plan Sponsor April 15 April 15 IRS deadline for ROE for 402(g) refunds 2 weeks prior to the IRS deadline June 15 Fidelity deadline for receipt of authorization to distribute ADP/ACP refunds EACA plans Plan Sponsor 6 months after Plan Year end June 30 IRS deadline for receipt of authorization to distribute ADP/ACP refunds EACA plans 7 months after Plan Year end July 31 Deadline to file Form 5500 and Form 8955-SSA unless a two and one-half month extension of time to file was filed with the IRS 9 months after Plan Year end September 30 IRS deadline for Plan Sponsor to distribute Summary Annual Report (SAR) to all participants and beneficiaries unless a two and one-half month extension of time to file was filed with the IRS 9 ½ months after Plan Year end October 15 Final IRS deadline to file Form 5500 and Form 8955-SSA to keep from incurring IRS & DOL penalties 11 months after Plan Year end December 1 Final Fidelity deadline for receipt of authorization to distribute 415, ADP/ACP refunds Plan Sponsor 11 ½ months after Plan Year end December 15 Final IRS deadline for Plan Sponsor to distribute SAR to all participants and beneficiaries 12 months after Plan Year end December 31 Final IRS deadline for ROE for 415, ADP/ACP refunds Plan Sponsor REMEMBER: Please keep in mind that the key dates provided in this calendar are general in nature. Actual timeframes may vary depending on the complexities and characteristics of your plan. 19

20 Completing Questionnaires For plans that do not utilize Fidelity s payroll services, there are four Steps to complete the Nondiscrimination Testing Process in Plan Sponsor Webstation (PSW): Step 1. Step 2. Step 3. Step 4. Provide Plan Information (Annual Questionnaires) Enable NDT Data Submission Submit Your Employee Data and Check for Errors View Results This section covers Step 1. REMEMBER: Steps 2 and 3 do not apply if employee data will not be submitted via PSW. Step 1: Provide Plan Information Annual Questionnaire #1 Update Fidelity with employer and plan-level information for the Plan Year being tested. Once all of the questions on the questionnaire are completed, click Accept Answers at the bottom of the page. This submits the completed questionnaire to Fidelity. If Fidelity performs your Top Heavy Test, and if you have Qualified Plans not record kept at Fidelity, you may provide the required Top Heavy Test information during this step if the information is available. Otherwise, you may provide the information separately under the Top Heavy Update, when it becomes available. REMEMBER: When performing a Projection Test, Annual Questionnaire #1 is not required. Annual Questionnaire #2 Update Fidelity with information about the employee data you will be submitting. Once all of the questions on the questionnaire are completed, click Accept Answers at the bottom of the page. This submits the completed questionnaire to Fidelity. Top Heavy Update Only for plans indicating that information from other Qualified Plans was not available at the time the Annual Questionnaire #1 was completed Update Fidelity with Account Balance (or Present Value of Accrued Benefit) and Distribution and In-Service Withdrawal information. REMEMBER: The Top Heavy Update does not have to be completed before advancing to Step 2. 20

21 Completing Your NDT Questionnaires Activity Chart To begin the Nondiscrimination Testing process, you will need to complete the questionnaires necessary for your plan. Please note that the information provided by you in this questionnaire will directly impact the accuracy of the tests provided by Fidelity. Steps to Complete the Questionnaire Details Tips and Tricks Helpful Tools STEP 1: Log onto PSW. Nondiscrimination Testing (NDT) is required by the IRS to ensure that retirement plans do not discriminate in favor of Highly Compensated Employees. Please note: If you have a safe harbor plan, NDT will still apply to your plan to address after tax or non-elective contributions. If you are a PSW Authorized User, you can update the access for other users directly in PSW. Click here for a Set Up and Maintain PSW Users Reference Guide. Click here for a comprehensive Glossary. STEP 2: Select the Administer Plans tab; then, select Nondiscrimination Testing (NDT). Testing is required to be completed within 12 months following the plan year end. NDT Testing must be completed prior to the preparation of your plan s Form Click here to view a chart of all NDT activities. STEP 3: Select Begin 20XX Year End Testing link at the bottom of the page for the plan for which you want to begin Nondiscrimination Testing. Begin collecting nondiscrimination testing data as soon as possible following the end of the plan year. Responses for each answer can be changed until they are submitted. Review the Comprehensive Guide to Annual Compliance for in-depth details. STEP 4: Annual Questionnaire #1 Click on the Go to Questionnaire link. Questionnaire #1 is required for all plans in which Fidelity will be performing the Nondiscrimination Testing. The answers to this questionnaire provides information and activity for your plan related to the plan year being tested. When performing a mid-year Projection Test, questionnaire #1 is not required. Note: If you or any related employers sponsor other qualified retirement plans, additional information is generally required to perform certain testing, such as Top Heavy testing and Minimum Coverage testing. Click here to begin completing your questionnaire. STEP 5: Complete the Questionnaire by clicking View or Answer on the first question. Responses may be pre-filled based on information you have previously provided. View will appear if you have already provided this or the information was pulled from a prior year questionnaire. Click View to update responses. Answer will appear if a response is still needed, indicating that you have not previously answered the question or the answer to this particular question did not pull from last year s questionnaire. All answers do not roll over from previous years. You can print the questionnaire by selecting Print Questionnaire in the upper right hand corner of the screen. Each question has a Learn More link that will provide more information on how to complete the question. 21

22 Activity Chart (cont d.) Steps to Complete the Questionnaire Details Tips and Tricks Helpful Tools STEP 6: When you are finished, click Accept Answers at the bottom of the screen. Be sure to complete the questionnaire(s) prior to the deadline communicated to you in your launch and reminder communications. You will be unable to go back and change your answers after you hit submit. Scroll to the top of the screen and choose Print Questionnaire to print or save your questionnaire in a PDF format. STEP 7: Complete Questionnaire #2 by following steps 4, 5 and 6. Questionnaire #2 is required for all plans in which Fidelity will be performing the Nondiscrimination Testing unless your payroll plan is administered by Fidelity. The answers to this questionnaire provides information regarding the data you will be submitting for testing. The Top Heavy update, if required, does not have to be completed before submitting your data file. Click here for directions on completing your data file. Common Issues or Questions when Completing the Questionnaires Questionnaire 1 Question 1 Provide names and EINs of your controlled group as defined by the IRS, including those who are not an adopting member of the plan. Question 12 Generally, the matching formula would be: Sample 1 50% of first 6% of comp deferred Sample 2 100% of first 3% of comp deferred AND 50% of next 2% of comp deferred Sample 3 25% of deferrals up to $5000 Question 13 Enter the Employer Discretionary Contribution percentage for the plan year being tested. This is sometimes referred to as profit sharing or employer non-elective and is expressed as a percentage of a participant s compensation. Question 18 Enter the maximum deferral contribution percentage allowed. If you did not have additional restrictions (most common), this would be answered as ALL for the Group Name, ALL for the Type and the plan s deferral percentage limit should be entered in the Max Percentage Box. Questionnaire 2 Question 3 The purpose of this question is to identify how contribution data for the plan year being tested will be provided. Question 6 All employees employed during the plan year being tested must be included in your data file. Question 7 If asked, include the number of HCEs who would otherwise be eligible for the plan. Question 8 If asked, include the number of NHCEs who would otherwise be eligible for the plan. Generally, there are two options available: (1) Supply contribution data on your NDT data file or (2) Use contribution data on Fidelity s Participant Recordkeeping System. Do not use the second option if you are going to provide contributions to Fidelity in your file. Include employees who are not eligible for the plan, as well as employees who are eligible but have chosen not to participate. Questions 7 & 8 only appear if your plan includes special exclusions of employees related to plan eligibility. The excluded classes (temporary, part time or interns, etc.) are excluded from the plan benefit because of their classes, generally are found in your Adoption Agreement (Section (d)(2E)) of Fidelity s Volume Submitter Plan Document. 22

23 This section covers Steps 2 and 3. Preparing & Submitting Your Data File Step 2: Enable NDT Data Submission Only for plans that will be submitting data via PSW Verify that testing data will be supplied via PSW and activate the data file submission process. To activate: 1. Click Continue under Next Step. 2. Select the box for Yes, Enable NDT Data Submission. 3. Click Enable NDT Data Submission. This readies PSW to accept your data file for testing. Step 3: Submit Your Employee Data and Check for Errors GREAT TIP: Before entering or compiling the test data, you should have a copy of your Adoption Agreement/Plan Document available for reference. Gathering Data Data ALL employees who were employed at ANY time during the Plan Year being tested must be included in the employee data. Check the accuracy of employee information. Verify that the Date of Birth, Date of Hire, and Date of Termination (if applicable) is complete and accurate for each employee. Spot check employees to ensure that all contributions for the entire plan year have been included in the test. Accurate Plan eligible and 401(m) Contribution Eligible codes must be supplied for each employee per the Plan s provisions. Click here for additional information on completing the data file. Projection Test (does not apply when providing data for a year end test) When performing a Projection Test, employee data in addition to the data required for Year End testing is needed for prospective purposes such as Compensation per Pay Period, Projected Annual Bonus, Employee Deferral Contribution %, Employee After-Tax Contribution %, Past Pay Periods and Remaining Pay Periods. If you decide to have Fidelity perform a Point-In-Time test after discussing it with your Testing & Reporting Services representative, then the data required will differ from that required for a Projection Test. Please discuss details of Point-In-Time testing with your Service Delivery Manager or open a Service Request utilizing the Help/Service Request link at the top of this page. Submit complete and accurate employee data via Fidelity PSW. Add data by manually inputting data or importing a comma delimited (.csv) file. Click here for a pre-formatted Data File Template. Review the Plan Summary of employee data to ensure all employees were entered. Have PSW check the data and review any error and warning messages. Make all necessary data corrections. Verify that all data is complete and accurate. 23

24 Release data to Fidelity to begin testing. Release testing data to Fidelity to perform your Nondiscrimination Tests, based on the complete and accurate employee data provided. Data for the Spreadsheet: Employee Data Section Column Header Directions and Format Requirements Data Source First Name *Required Enter Employee s First Name Last Name *Required Enter Employee s Last Name Birth Date *Required Enter Employee s Date of Birth Example: 01/30/1962 (Formatting: mm/dd/yyyy) Hire Date *Required Enter Employee s Date of Hire (Formatting: mm/dd/yyyy) Termination Date *Required Enter Employee s Date of Termination (Formatting: mm/dd/yyyy) Social Security Number (SSN) *Required Enter Employee s Social Security Number; only one line item per SSN (Formatting: ) Employee Data Section Column Header Directions and Format Requirements Data Source Disaggregation Code Create a 5-digit Disaggregation Code to identify groups within your data who should be tested separately. Commonly used Disaggregation Codes: Your Plan allows both Union Employees and non-union Employees to participate: o Example Code: UNION, NONUN Puerto Rican Employees participate in your plan: o Example: PREMP More than one member of two or more Qualified Separate Lines of Business are eligible to participate in your Plan: o Example: QSLB1, QSLB2 Unrelated Employers participate in your Plan o Example: EMP01, EMP02 Multiple Locations o Example: LOC01, LOC02 Note: You should assign a five-digit code to each group. If using numbers, all five fields should be used, and it may be necessary to zero fill unused spaces (ex. "00005"). Highly Compensated Employee (HCE) (Formatting: Five capitalized letters) If Fidelity does not determine your HCEs, you will need to identify these employees in your employee data. Note: If your company is part of a Control Group or Affiliated Service Group and not all members of the group have adopted the plan, this coding is recommended. Identification of Highly Compensated Employees (HCEs) is a critical component of the nondiscrimination testing. Review the employees listed with an HCE and Company Records, Attorney or Accountant 24

25 indicator on the ADP/ACP Test Report to ensure that he/she met the HCE criteria as listed below. An HCE is defined as any employee who: Earned gross compensation in excess of $115,000 (subject to periodic COLA adjustments) during the look back year (generally the 12-month period immediately preceding the plan year). Note: Plans may further refine this criterion by limiting HCEs to the top 20% of all employees of the Employer ranked by total compensation earned during the look back year. This is referred to as the top paid group election and must be provided for in the plan s document. When applying the 20% top paid election, employees of all related employers generally must be considered.; or Was a greater than 5% owner of the Employer at any time during the plan year or the look back year Top Paid Group Excludable (Formatting: HCEs should be identified with the letter H, coding for all other employees should be left blank.) If Fidelity is determining your HCEs and a Top Paid Group election was made in your Adoption Agreement or Plan Document, you should indicate employees who meet any of the following criteria: Employees who have not completed 6 months of service by the end of the year Employees who typically work less than 17½ hours/week during the year Employees who typically work six months or less during any year Employees who are not age 21 by the end of the year Certain Non-Resident Aliens Union employees are excluded only if they constitute 90 percent of the employer's workforce, and the retirement plan covers only non-union employees Note: If your company is part of a Control Group or Affiliated Service Group and not all members of the group have adopted the plan, you cannot use the Top Paid Group Excludable field. (Formatting: Must be a single character of either Y for excludable employees who meet any of the above criteria or an N for non-excludable employees.) Eligibility Information Section Column Header Directions and Format Requirements Data Source Plan Eligible *Required If you are Uploading data, all employees must have this field coded. If an employee was eligible to make Employee Deferral Contributions at any time during the Plan Year being tested, code the employee with a Y. If an employee was not eligible, code the employee with an N. If you are Manually entering data and the employee was eligible to make Employee Deferral Contributions at any time during the Plan Year being tested, this field should be completed. If an employee was not eligible, this field should be left blank. Note: Eligibility is determined on a plan basis, therefore if an employee is eligible at any point during the plan year, the employee will be coded with a Y. Adoption Agreement and / or Plan Document and Records 401(m) Match Eligible (Formatting: Must be a single character of either Y or N.) This is required if: Adoption Agreement 25