ADP Retirement Services Guide to your Year End Compliance Test Package Refer to page 4 for important deadlines. 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. 04-2742-0118 Copyright 2009-2018 ADP, LLC. ALL RIGHTS RESERVED.
Table of Contents Why is Reviewing this Test Package Important?... Page 2 What s New and Improved... Page 3 Important Deadlines... Page 4 Important Deadlines If Your Plan Year End Is Not 12/31... Page 6 Checklist for Year End Compliance Test Package... Page 8 What You Need to Review... Page 9 If You Need to Make Corrections/Revisions... Page 15 Corrective Actions Required for Failed Tests... Page 18 Top Heavy Remedial and Top Heavy Test 402(g) Limitation 415 Testing Annual Additions Testing Plan Limitation Actual Deferral Percentage (ADP) & Actual Contribution Percentage (ACP) Tests Minimum Coverage Testing Special Notices... Page 28 Plan Contributions Stopped On or Before the End of the Plan Year Plans Terminated Plans Transferred to Another Recordkeeper Forms... Page 29 Changes to Year End Compliance Test Special Request for Refund GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 1
Why Is Reviewing This Test Package Important? Your company s plan must satisfy the Internal Revenue Code (IRC) required compliance tests. Failure to satisfy these tests by the IRS deadline may result in penalties and/or plan disqualification. You should review the test data thoroughly. If you make a contribution after the end of the plan year, the data from the test package is used in the allocation of the contributions. These compliance tests are based on your company s payroll records as of your last scheduled payroll before the end of the test s plan year and other information that you have provided to us. Learn about Compliance Testing on the Plan Sponsor Website: See Resources Education Center Plan Sponsor Education for Program Events including registration and Learning Insight Videos, your resource on demand. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 2
What s New and Improved Do you have people on your payroll who are not employees but rather garnishment pays? You no longer need to move their eligibility date forward every year. On the View Pending Enrollments or Review Eligibility tab under Employees on the left hand side of the home page, you can input a reason for the person to be bypassed. If you have someone who is bypassed, you can put in an eligibility date and they will be removed from the bypass. All plans now use eligibility dates for determining who is eligible. This allows you to immediately identify someone as excluded instead of waiting until they meet the age and service requirement of the plan. The eligibility date is the date they would enter if they were not in an excluded class of employee. Using the same eligibility dates for compliance purposes as for enrolling employees into your plan means you don t need to enter eligibility codes anymore UNLESS you have a per payroll Non-elective Contribution or per payroll Safe Harbor Non-elective Contribution. In these two instances, you still need to provide the eligibility code if you did in the past. If someone s eligibility date is incorrect, see the Section If You Need to Make Corrections/Revisions to change the date. If you have a new owner and need to identify the individual as an owner, simply update the HCE code to be a 1 (5% owner) and ADP will automatically update the employee as a Key Employee for you. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 3
Important Deadlines These deadlines dates are based on a 12/31 plan year end. If your plan year does not end on 12/31, see page 6. Corrections/Revisions Due Date For refunds to be processed by March 15 March 1 For test to be revised for the year No later than December 15 415 Contribution Contributions For end of year contributions (including QNEC or QMAT) to be included on the 415 Annual Additions Test the contribution must be made within 30 days after the corporate tax filing date. Request Due Date September 30 (plans that use a fiscal year end) Corrective Contribution for a Failed ADP and/or ACP Test Corrective Action Request Received Processed A tax deductible* QNEC or QMAT to satisfy your ADP and/or ACP Test March 1 On or before March 15 March 2 - November 30 By the 15th day following the month the request was received. Refunds To avoid the 10% excise tax for ADP and/or ACP refunds they must be processed no later March 15. Corrective Action Request Received Processed Refund Processing Automatic unless other options below are selected. On or before March 15 Early Refund Request February 14 On or before February 28 Delayed Refund Requests March 1 After March 15 402(g) Refund Request (if participating in more than one 401(k) plan) No later than April 1 By April 15 *Please consult with your plan s tax advisor regarding tax deductibility. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 4
Important Deadlines, continued Top Heavy Contribution must be made no later than the last day of the following year. To be processed timely, the contribution must be authorized by November 30 of the following year. Request Received Impounded By March 1 March 15 March 2 - November 30 The 15th day following the month the request was received. Minimum Coverage Contribution Contribution must be made no later than October 15. To be processed timely, the contribution must be authorized by September 30. Request Received March 1 March 15 Impounded By March 2 - September 30 The 15th day following the month the request was received. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 5
Important Deadlines If Your Plan Year End Is Not 12/31 Corrections/Revisions For refunds to be processed timely For test to be revised for the year Due Date No later than the 1st day of the 3rd month following the end of the plan year. No later than 11½ months following the end of the plan year. 415 Contribution Contributions Request Due Date For end of year contributions (including QNEC or QMAT) to be included on the 415 Annual Additions Test the contribution must be made within 30 days after the corporate tax filing date. The contribution request must be made by the end of the previous month before the contribution is due. Corrective Contribution for a Failed ADP and/or ACP Test Corrective Action Request Received Processed QNEC or QMAT to satisfy your ADP and/or ACP Test. No later than the 1st day of the 3rd month following the end of the plan year. The final date to request for the year is the last day of the 11th month following the end of the plan year. Within 5 days preceding 2½ months after the end of the plan year. If provided later than the 1st day of 3rd month, it will be processed by the 15th day following the month the form was received. Refunds To avoid the 10% excise tax for ADP and/or ACP refunds they must be processed no later than 2½ months after the end of the plan year Corrective Action Request Received Processed Refund Processing Automatic unless other options below No later than 2½ months following the are selected. end of the plan year. Early Refund Request Delayed Refund Requests 402(g) Refund Request (if participating in more than one 401(k) plan) No later than 1½ months following the end of the plan year. No later than the 1st day of the 3rd month following the end of the plan year. No later than April 1 By April 15 The last day of the 2nd month following the end of the plan year. Later than 2½ months following the end of the plan year. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 6
Important Deadlines If Your Plan Year End Is Not 12/31, continued Top Heavy Contribution must be made no later than last day of following year. To be processed timely, the contribution must be authorized by last day of 11th month of following year. Request Received No later than the 1st day of the 3rd month following the end of the plan year After the 1st day of 3rd month following the end of the plan year. Final day to request for the year is the last day of the 11th month following the end of the plan year. Impounded By 2½ months following the end of the plan year. The 15th day following the month the request was received. The 15th day following the month the form was received. Minimum Coverage Contribution Request Received No later than the 1st day of the 3rd month following the end of the plan year. Impounded By 2½ months following the end of the plan year. After the 1st day of the 3rd month following the end of the plan year. No later than the end of 9th month following the end of the plan year. The 15th day following the month the request was received. No later than 9½ months after the end of the plan year. Employer Contribution attributable to the plan year Non-elective Contribution, Discretionary Match, Qualified Match, Qualified Non- elective Contribution Funded 30 days after the corporate tax year filing date (including extensions) or 9½ months after the end of the Plan Year. Your Plan s Year End Test Will be revised after the contributions are deposited. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 7
Checklist for Year End Compliance Test Package Resources Learn About Compliance Testing see Plan Sponsor Training located on Plan Sponsor Website under Resources - Education Center Review Test Package Check: Summary of Compliance Plan Provisions Comparison/Trend Summary Compliance Test Assumptions page Data Integrity Reports Census Reports (A, B, C, (D if applicable)) Review the section entitled What You Need to Review for details Is All The Data Correct? If data is correct: Check test results on Compliance Test Summary Review compliance test package with your company s tax advisor If data is not correct: Submit data revisions to have test rerun Review the section entitled If You Need to Make Corrections/Revisions for details Steps for Corrective Action Do you want: QNEC or QMAT for failed ADP and/or ACP Tests Early Refunds Delayed Refunds To fund a Minimum Coverage contribution To fund a Top Heavy contribution Review section entitled Corrective Actions Required for Failed Tests for details Prepare for 2018 Testing Check coding for new plan year Check the IRS limits for 2018 located on the Plan Sponsor Website Complete the HCE Determination Worksheet in the back of the testing package and update 2018 coding in payroll. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 8
What You Need to Review Important: If the compensation, contributions, compliance codes, or any other information you provided to us is inaccurate, your test results, contribution allocations and IRS Form 5500 will be incorrect. Please check the enclosed reports very carefully! If corrections are needed, see page 15 titled, If You Need to Make Corrections. 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 during the plan year, and/or 2. had any payroll adjustments and/or extra payrolls that corrected contributions for the plan year, updated compliance codes and/or compensation after the last scheduled payroll of the plan year, and/or 3. did not provide compensation for all participants, and/or 4. had executives who did not get paid through ADP Payroll, and/or 5. had any employees receiving differential wage payments to employees in active military service (this pay is to be included in compensation), and/or 6. had any permanently and total disabled participants receiving salary continuation payments (this pay is not to be included in compensation). Summary of Compliance Plan Provisions Details your plan s provisions according to our records. 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 YEAR-END COMPLIANCE TEST PACKAGE 9
What You Need to Review, continued 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 for accuracy. 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. Compliance Test Assumptions Explains certain situations where a plan sponsor may not fully rely on the test results. Data Integrity Report Used to ensure accuracy. Split into 3 sections: Indicative Data Summary Contribution & Compensation Data Summary When reviewing this summary, if the participation and deferral rates significantly change from one year to the next, it is critical that you review and validate the census data details within the test package. If the rates are trending lower, contact your ADP Retirement Services Client Service Team to discuss options that ADP may offer to assist in increasing participation. Employees with the same name but different SSN Utilizes a letter code(s) for those participants with data warnings. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 10
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 end of the plan year. 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 The termination date is from our recordkeeping system. Used to determine if an individual is eligible for catch-up (age 50 by the end of the plan year.) Used to determine if an individual has met the plan s age & service requirements For age & service disaggregation in the ADP and/or ACP Test (if applicable). Status (STAT) Permanently Excluded Employees (EXCL) Used to determine eligibility if your plan has a last day rule. Impacts the Minimum Coverage Test 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. Part time employees are not allowed to be permanently excluded from your company s plan. Key HCE Eligible (ELIG) 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. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 11
What You Need to Review, continued Invalid or Missing Compliance Codes/Dates ADPRS will make a best choice determination of Key, HCE and Eligibility based on compensation, deferrals, birth date and/or hire date you have provided in your payroll file. These best choice codes will be shown on the Compliance Census Report A in plain English and are identified as such by an asterisk, or an ampersand. Based upon information in our records, ADPRS will make the following assumptions regarding employees with missing or invalid codes for compliance test purposes: Category If... Then Employee is assumed to be... As if code: Exclusion Code Blank Not excluded X Key Code Identified as a more than 5% owner HCE Key 2 Not identified as a more than 5% owner Non-Key 5 HCE HCE Code Individual identified as owner for prior HCE-OWNER 1 year test. Not identified as a more than 5% owner HCE-PAY 2 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% Non-HCE 0 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 Non-HCE 0 date of hire is in current year No compensation in the prior year, HCE-PAY 2 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, Non-HCE 0 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 Employee is identified as Excluded Non-Eligible X Date of birth and date of hire are populated Eligible or Non-Eligible based on plan s provisions K or 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 YEAR-END COMPLIANCE TEST PACKAGE 12
What You Need to Review, continued Census B Displays hours & contributions. Hours YTD Contributions Total plan year-to-date hours as supplied with the last pay date file on or before the end of the plan year. This column appears if: Your plan has a one year of service eligibility requirement. An hours requirement for eligibility or allocation purposes. Review the salary deferrals amounts and matching contribution amounts (if applicable). Amounts used for testing may be adjusted due to excess or catch up contributions. These amounts reflect all contributions during the plan year. The Safe Harbor Payroll Formula If you have a Safe Harbor plan that has a per payroll match formula, you must ensure that the match formula has been accurately calculated each payroll, for each participant who contributed during the year. Please seek assistance from your accountant or tax advisor to determine if any additional match contribution is needed to fulfill this requirement. If it is needed, please contact ADP Retirement Services Client Services for instructions on how to make the additional contribution. 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-to-date values or amounts paid while a participant in the plan. Compensation Used for Exceptions Gross Compensation Total compensation for the plan year as defined in the Adoption Agreement None ADP Test Compensation ADP Test Not listed if Gross Compensation is used for ADP Test or if the same compensation is used for ADP and ACP Test. ACP Test Compensation ACP Test Not listed if compensation for ADP Test is also used for the ACP Test. Test Compensation ADP and ACP Test Not listed if Gross Compensation is used for ADP and ACP Tests. Match Allocation Compensation Match allocation based on plan Not listed if Gross Compensation is used or if the provisions same compensation is used for match and NEC allocations. NEC Allocation Compensation NEC allocation based on plan provisions Not listed if Gross Compensation is used or if the same compensation is used for match and NEC allocations. Allocation Compensation Allocation of employer contributions based on plan provisions Used if the compensation for match and NEC allocations is the same but is not Gross Compensation. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 13
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 (if applicable) used in the ADP/ACP tests. HCE Determination Preceding the Index at the End of the Report Package To assist you in identifying Highly Compensated Employees (HCEs) for the next plan year. Verify that the information on the worksheet is accurate. HCEs should be identified in the payroll system or data submission to ADP. As with all tax and plan qualification issues, please review all of the enclosures with your company s tax advisor. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 14
If You Need to Make Corrections ADP Plan Sponsor Website: The Fastest and Safest Way to Get Your Test Package Rerun! Changes can be made between 6am & 8pm Eastern Time. All changes can be made with the exception of: Contribution changes Add/delete employees to add and/or delete employees, see the Email methods in this section. A revised test will be available within 1-3 business days. Submit changes as follows: 1. Click the Compliance link on the left hand margin. 2. Click on PLAN TESTING AND REFUNDS 3. Click on # 4 SUBMIT REVISIONS TO YEAR-END TEST PACKAGE. 4. Select continue. 5. Mark revised 2017 Year End Test data and select Next. 6. Search for an individual by their Social Security Number or last name. Alternatively, you can list all employees of the company or of a specific company code. 7. Once you select the individual, you can change the indicative data (including compensation) as well as the compliance codes or identifiers. Simply click in the box next to the data you want to change or on the drop down arrow to select the proper code. 8. Once the data is changed, click on the SAVE button and you will be brought back to the list of employees. 9. You may then search for the next individual with incorrect data and repeat the process. 10. Once all of your changes are made, click on the VIEW REVISIONS button. 11. After you review the revisions, PRINT the list of revisions for your records. 12. Lastly, click the SUBMIT button. 13. A confirmation e-mail will be sent. Again, you will be able to see the revised test as early as the next day but in any event no later than 3 business days from the date submitted. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 15
If You Need to Make Corrections, continued Email Changes to Compliance@adp.com Emailing an Excel spreadsheet: Send an Excel spreadsheet with your 6-digit plan number to Compliance@adp.com. The column headings should reflect the categories of the required changes. Include the participant s full social security number and name. Participants should only be listed once. Include only the changes that are required. A revised test will be available on the Plan Sponsor Website within 5 business days. Example: Plan #: SS# Name DOB Comp Exclusion HCE Key Date Full 9 digit SSN Blake, Mary 10-10-1970 Union No No Full 9 digit SSN Jones, Paul Pay 01-01-2017 Full 9 digit SSN Smith, Jane 01-01-1961 $100,000.00 Class No Full 9 digit SSN Davis, John $50,000.00 No Owner Yes Emailing changes directly indicated on the Census Report A, B, C and/or D: Do not highlight changes as they are not visible on the report page(s). Include the Changes to Year End Compliance Test Form on page 29 of this guide. A revised test will be available within 10 business days. Deadlines All changes should be submitted as soon as possible but no later than March 1*. Corrections not received by this date will prevent ADP from processing the corrective action (i.e. issuing refund checks to HCEs) before the deadline of March 15* and may result in a 10% penalty tax that your company will be responsible for paying and reporting to the IRS. ADP will not be liable for any penalties due to late refund checks resulting from corrections received later than March 1*. ADP Retirement Services will be unable to process any changes that ADP Retirement Services receives after December 15, 2018*. *This deadline date is based on a 12/31 plan year end. If your plan year does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 16
If You Need to Make Corrections, continued Changes That Are Also Applicable For Your Next Plan Year: Payroll Clients: Ensure that you also make the compliance code corrections as well as any date of birth and date of hire changes in the payroll system. If you are adding or changing any dates of termination and the individual has an account balance, the revised termination dates should be submitted via the Plan Sponsor Website so they are reflected in ADP s recordkeeping system. These changes will be indicated on the Periodic Tests also. Guidance on the compliance codes is in Chapter 2 of the Plan Administration Manual located on the Plan Sponsor Website. You will find several Learning Insight Videos related to Payroll from the Managing Your Plan Information landing page as well as Compliance Learning Insight Videos on the Managing Your Plan Compliance landing page. Landing pages are accessed from the Plan Sponsor Website, Resource tab, Education Center and Plan Sponsor Training. SDL, UFL, or Web Direct Clients: Ensure that you make the compliance code/identifier corrections as well as any date of birth, date of hire and termination date changes effective for the next year on the next Standard Data Layout (SDL), Universal File Layout (UFL) or Web Direct file transmitted to ADP. These dates will then be reflected in our recordkeeping system and be properly reflected for next year. These changes will be indicated on the Periodic Tests as well. Guidance on the compliance codes is in Chapter 2 of the Plan Administration Manual located on the Plan Sponsor Website under Resources, Plan Information, Plan Documents, Adiministration Manual. You will find several Learning Insight Videos related to Non-ADP Payroll from the Managing Your Plan Information landing page as well as Compliance Learning Insight Videos on the Managing Your Plan Compliance landing page. Landing pages are accessed from the Plan Sponsor Website, Resource tab, Education Center and Plan Sponsor Training. IMPORTANT: Entering a termination date for a Participant does NOT authorize ADP to provide a payout. A termination request must be completed via the Participant Website, Plan Sponsor Website or by a signed Termination form. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 17
Corrective Actions Required for Failed Tests If your company s plan fails to satisfy any of the Year-End Compliance Test(s) and you do not have any changes to any of the data, the plan is NOT IN COMPLIANCE and corrective action must be taken. The corrective actions your company may select are illustrated in your plan s Year End Compliance Tests package available on the Plan Sponsor Website. Please review the following explanations of the corrective actions. We suggest you review the entire package with your company s tax advisor! 402(g) Limitation Excess deferrals: Elective deferrals that exceed the $18,000 limit ($24,000 if catchup eligible) during calendar year 2017. Must be returned to the participant. Are reflected on the 402(g) Test. Are taxable as indicated in the test package. If your company s plan has a match, the match associated with the excess amount (if any) is reflected on the Associative Match and Plan Match Limit Excess Report in the column titled 402(g) Associative Match Excess. The match, including gains or losses, will be forfeited and placed in the plan s forfeiture account. If any individual participated in more than one 401(k) plan during any year, the individual should carefully monitor that they did not contribute more than the limit on a combined basis: $18,000 ($24,000 if catch-up eligible) for 2017. If they did: A refund must be processed no later than April 15th of the year after the year of the excess. ADP Retirement Services must receive a written notification of this excess no later than April 1 of the year after the excess to ensure that the refund is processed on a timely basis. If not refunded by April 15, the excess cannot be removed unless the participant receives a distribution. At that time, the excess will be taxed on the principal amount for both the contribution and the distribution year. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 18
Corrective Actions Required for Failed Tests, continued 415 Testing Annual Additions Testing Excess Annual Additions: Contributions that exceed the lesser of 100% of compensation or $54,000 (an additional $6,000 may be available for catch-up eligible employees if they did not exceed $18,000 for the 402(g) limitation). If the plan year is less than 12 months as a result of an amendment changing the plan year, the $54,000 is prorated by the number of months in the test year. For example, if the calendar year plan terminated May 31, the dollar limit is 5/12 of $54,000 or $22,500 (an additional $6,000 may be available for catch-up eligible employees). Reflected on the 415 Annual Additions Test. Must be returned to the participant if due to an employee contribution including any gain or loss. Must be forfeited (including any gain or loss) if due to an employer contribution. Any returned to the participant are taxable in the calendar year distributed. Do NOT adjust W-2 Form. Ten percent federal income tax and any required state income tax will be withheld since it is taxable for the year of distribution and it is not eligible for rollover. In accordance with the guidelines provided in the IRS Employee Plan Compliance Resolution System (EPCRS), the gain or loss (if any) can not be determined or reflected in the test package since it must include the gain or loss to the date of distribution. If any of the individuals who are scheduled to receive refunds have their account distributed prior to the processing of the refunds: You must notify them that they have a refund including attributable earnings, as indicated on the report, that is not eligible for rollover treatment. The Form 1099-R will be adjusted to reflect the recharacterization of the refund amount as a refund. Excess Annual Additions that should have been forfeited must be returned to the plan. To notify the former participant(s) of this requirement, you may use the Sample Letters available on the Plan Sponsor Website. If your company makes an Employer Contribution attributable to the plan year such as a Non-elective Contribution, Discretionary Match Contribution, Qualified Matching Contribution, or Qualified Non-elective Contribution before the earlier of 30 days after the corporate tax year filing date (including extensions) or October 15*, this test will be revised after the contributions are deposited. *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 19
Corrective Actions Required for Failed Tests, continued Plan Limitation Excess Plan Deferral Limit: Contributions that exceed the maximum plan percentage reflected in the Plan s Adoption Agreement. Reflected on the Excess Plan Deferral Limit Refund Report. Percentage is determined by dividing the employee s deferral by the individual s compensation (capped at $270,000). If a catch-up eligible employee would otherwise be required to receive a refund of excess plan deferrals, those contributions may be recharacterized as catchup contributions for the plan year (provided that the participant has not already used up the maximum catch-up contribution for the year ($6,000 in 2017) with 402(g) Excess Deferrals or 415 Excess Annual Additions. Must be returned to the participant (including any gain or loss). Taxable in the calendar year distributed. Do NOT adjust W-2 Form. Tax reporting on Form 1099-R during January of the year following the distribution. Ten percent federal income tax and any required state income tax will be withheld since it is taxable for the year of distribution and it is not eligible for rollover. In accordance with the guidelines provided in the IRS Employee Plan Compliance Resolution System (EPCRS), the gain or loss can not be determined or reflected in the test package since it must include the gain to the date of distribution. When refunds need to be processed from a deferral and the individual has both Roth and Non-Roth deferrals for the year, the refunds will first be done from the Non-Roth deferrals. Excess Plan Match Limit: Matching contribution that exceed the maximum matching percentage based on participant s compensation and deferrals. If your company s plan has a match, any match contribution in excess of the maximum matching percentage reflected in the Plan s Adoption Agreement will be reflected on the Associative Match and Plan Match Limit Excess Report in the column titled Plan Match Limit Excess. The maximum match is determined based on individual s compensation (capped at $270,000). In accordance with the guidelines provided in the IRS Employee Plan Compliance Resolution System (EPCRS), the gain or loss can not be determined or reflected in the test package since it must include the gain to the date of distribution. Plan Match Limit excesses and any income or losses earned on these amounts will be forfeited regardless of vesting. If you want Plan Deferral Limit or Plan Match Limit excesses to be processed for employees who are not eligible please contact client services. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 20
Corrective Actions Required for Failed Tests, continued Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) Tests One of the following corrective actions must be taken: 1. A Tax Deductible* Qualified Contribution your company makes a contribution (QNEC or QMAT) to the NHCEs. - OR - 2. Refunds issued to HCEs (as detailed on the Refund Report in your company s test package). Qualified Contribution Method: QNEC Used to correct either a failed ADP Test or ACP Test. Made for active and terminated eligible Non-Highly Compensated Employees (NHCEs), regardless of whether or not they had contributed to the plan. 100% immediately vested, regardless of the vesting schedule in the plan. Can only be distributed to the extent elective deferrals can be distributed. Total of the QNEC is the amount necessary to sufficiently increase the ADP or ACP of the NHCE group so that the ADP and/or ACP Test is satisfied. Reported either on the Refund Reports or detailed on the QNEC Allocation Reports in the Year End Compliance Test Package. If your plan is NOT Top Heavy, we provided a Targeted QNEC Allocation Report. If your plan is Top Heavy for 2017, we provided a report with the QNEC being allocated to all eligible NHCEs. Generally, this contribution may also be used to help satisfy the minimum contribution requirement. Please refer to the Contribution Reports in the Top Heavy Remedial Section near the front of the Year End Compliance Test Package. If your company elects to satisfy the tests with a QNEC, ADP Retirement Services must receive a copy of the Actual Deferral Percentage QNEC Allocation Report and/or the Actual Contribution Percentage QNEC Allocation Report with your signature, by March 1**. This will authorize ADP Retirement Services to directly debit this additional contribution from your company s bank account based on the participants company code. The account will be impounded during the five business days preceding March 15, 2018 or 2½ months after the end of the plan year. Please email your request to: Compliance@adp.com *Please consult with your plan s tax advisor regarding tax deductibility. **This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 21
Corrective Actions Required for Failed Tests, continued Qualified Contribution Method: QMAT Used to correct failed ADP Test. Made for all active and terminated NHCEs who contributed to the plan for the testing year. 100% immediately vested, regardless of the vesting schedule in the plan. Can only be distributed to the extent elective deferrals can be distributed. Total of the QMAT is the amount necessary to sufficiently increase the ADP of the NHCE group so that the ADP Test is satisfied. Reported either on the Refund Reports or detailed on the QMAT Allocation Report in the Year End Compliance Test Package. If your plan is Top Heavy for 2017, generally, this contribution may also be used to help satisfy the Top Heavy minimum contribution requirement. Refer to the Contribution Reports in the Top Heavy Remedial Section near the front of the Year End Compliance Test Package. If your company elects to satisfy the tests with a QMAT, ADP Retirement Services must receive a copy of the Actual Deferral Percentage QMAT Allocation Report with your signature, by March 1*. This will authorize ADP Retirement Services to directly debit this additional contribution from your company s bank account based on the participants company code. The account will be impounded during the five business days preceding March 15, 2018*. Email to: Refund Method Compliance@adp.com Excess Contributions: For a failed ADP Test, the return of excess contributions is made to Highly Compensated Employees (HCEs). Reflected on the Actual Deferral Percentage Refund Report. Total dollar amount for the plan to be refunded is determined by reducing salary deferral (employee contribution) of the HCE with the highest deferral percentage to equal the deferral percentage of the HCE with the next highest deferral percentage. This continues until the deferral percentages are reduced enough to have a passing test. Once the total amount is identified, the salary deferral (employee contribution) of the HCE with the highest deferral dollar amount is reduced to equal the deferral amount of the HCE with the next highest deferral amount. This leveling method continues until all excess contribution amounts are refunded in accordance with the rules imposed by the IRC. If a catch-up eligible HCE would otherwise be required to receive a refund *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 22
Corrective Actions Required for Failed Tests, continued of excess contributions, those contributions will be recharacterized as catch-up contributions for the plan year (provided that the participant has not already used up the maximum catch-up contribution for the year ($6,000 for 2017). For example, if after the ADP Test is run, $7,000 in excess contributions is allocated to a catch-up eligible HCE, $6,000 of that $7,000 will be recharacterized as catch-up contribution and remain in the plan, assuming the HCE had no other catch-up contributions determined for that year. If applicable, this is illustrated on the enclosed Actual Deferral Percentage Refund Report. Must be returned to the participant (including any gain or loss). Taxable in the calendar year distributed. Do NOT adjust W-2 Form. Tax reporting on Form 1099-R during January of the year following the distribution. Ten percent federal income tax and any required state income tax will be withheld since it is taxable for the year of distribution and it is not eligible for rollover. If your company s plan has a match, the match associated with the excess contribution (if any) is reflected on the Associative Match and the Plan Match Limit Excess Report in the column titled ADP Associative Match Excess. The match including any gain or loss, will be forfeited regardless of vesting. For a failed ACP Test, the return and/or forfeiture of excess aggregate contributions is made to HCEs. The calculation of the excess aggregate contributions and the reduction in the company match (employer contribution) is made by the same leveling method used for the ADP Test. The refunds called excess contributions (for failed ADP Test) or excess aggregate contributions (for failed ACP Test), represent the difference between the total original contribution and the reduced (revised) contribution. Gains or losses on the excess contributions or excess aggregate contributions must also be refunded. Excess aggregate contributions and applicable earnings are subject to the vesting schedule as of the end of the plan year. If the test is correct and you want refunds to be issued early, please email the Special Request for Refund Form (click here to view) to Compliance@adp.com by February 14, 2018*. We will process the refunds and forward them to you on or about the end of February. Accelerated refund processing is available only if: There are no changes required for this test. You will not be making a discretionary match (non-payroll) end of the year contribution for the testing year. *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 23
Corrective Actions Required for Failed Tests, continued Refunds should be processed by March 15, 2018 unless: By February 14* you submit the Special Request for Refund Form (click here to view) authorizing the refunds to be processed early, or By March 1* you submit a request to fund a QNEC or QMAT or By March 1* you submit the Special Request for Refund Form (click here to view) authorizing the refunds to be processed after the deadline of March 15* with the understanding that your company will be responsible for the 10% excise tax on the refunds. If your plan switched from Safe Harbor to Non-Safe Harbor during the plan year, and a refund is needed from matching contributions, then the Non-Safe Harbor Matching Contributions will be refunded prior to the Safe Harbor Matching Contributions. Any additional amounts necessary will be refunded from the Safe Harbor Contributions. If any of the individuals who are scheduled to receive refunds have been paid out or will be paid out prior to the processing of the refunds, they will be required to withdraw the refund amount from any rollover they have done. In addition, if the amount was to have been forfeited, this should be returned to the plan. The Form 1099-R will be adjusted to reflect the recharacterization of the refund amount as a refund. To notify the former participant(s) of this requirement, you may use the Sample Letters available on the Plan Sponsor Website. PLEASE NOTE: You will be responsible for any investment gains or losses as well as any penalties due to late refund checks if refunds are issued and later you submit changes to the information which modify the test results and refund amounts. In addition, individuals who initially received refunds may be required to return the money to the trust if the changes indicated that the initial refund was too much. *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 24
Corrective Actions Required for Failed Tests, continued Minimum Coverage Testing Generally, if a plan fails the Minimum Coverage Tests, an additional Qualified Non-elective Contribution must be made no later than October 15*, on behalf of the minimum number of NHCEs required to enable the plan to pass this test. If the plan failed this test, we have included the Minimum Coverage Test Report (corrective action for failed provision) that indicates the additional contribution that is required. If there are no corrective contributions listed, please contact Client Services to discuss the required corrective action. If more than one provision failed, there will be a separate report for each failed provision. In some instances, based on plan provisions, instead of a Qualified Nonelective Contribution, more employees must receive the match or Non-elective Contribution to pass the Minimum Coverage Test. This will be reported on the report for the failed provision. To authorize ADP to debit your company s bank account for the additional contribution, sign and date the Minimum Coverage Test Report(s) (corrective action for failed provision) in the Year End Compliance Test Package, and email the form(s) by March 1*. This will authorize ADP Retirement Services to directly debit this additional contribution from your company s bank account based on the participants company code. The account will be impounded during the five business days preceding March 15, 2018*. If we receive the form after March 1, 2018*, we will impound the account within one month of receipt. Any forms received after September 30, 2018* will not be processed by October 15, 2018*. Email to: Compliance@adp.com If your company makes a Non-elective Contribution or a Discretionary Match Contribution, the Minimum Coverage Test for that provision will be done after the contribution is made. If the Minimum Coverage Test fails at that time, a Minimum Coverage Report (corrective action for failed provision) will be included in your new package. If your plan fails the Minimum Coverage Test for any of your plan s provisions, you may want to reconsider the current plan design as it relates to covered groups, contributions, and eligibility. ADP performs only the Ratio Percentage Test under the minimum coverage rules. There may be other ways you may test to satisfy the minimum coverage requirements. You are encouraged to explore these other methods of satisfying these requirements with your company s tax advisor. *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 25
Corrective Actions Required for Failed Tests, continued Top Heavy Remedial and Top Heavy Test A plan does not fail a Top Heavy Test. A plan is either Top Heavy or not Top Heavy. If the plan is determined to be top heavy, there are requirements under the law involving additional contributions and vesting. If your plan is Top Heavy for the plan year: A required contribution must be made to the plan. Your top heavy contribution may be substantially reduced or eliminated if your company makes an Employer Contribution for the plan year such as a: Non-Elective Contribution Discretionary Match Contribution Qualified Non-elective Contribution Qualified Matching Contribution You will find the Top Heavy Allocation Contribution Report(s) near the front of the Year End Compliance Test Package. We have presented the corrective action required per your Adoption Agreement. If your plan failed the ADP and/or ACP Tests, you may want to consider making the QNEC and/or QMAT instead of processing the refunds since these contributions will serve double duty and be applied toward the minimum contribution requirements to remedy the Top Heavy Test. Safe Harbor Plan Information Your plan is deemed to be NOT Top Heavy and no contribution will be required if all of the following conditions are met: 1. Your company does not make any other employer contribution except Match and Safe Harbor Contribution (i.e. QNEC, QMAT, Non-Safe Harbor NEC). 2. Matching contributions are not made for any Salary Deferrals greater than 6% of compensation. 3. Discretionary Matching Contributions are not greater than 4% of compensation. 4. Eligibility Requirements for Safe Harbor Contributions are the same as for Salary Deferrals. To authorize the contribution: If any of these conditions are not met, you are REQUIRED to make the Top Heavy Contribution. However, the Top Heavy Contribution will be substantially reduced or eliminated by the Safe Harbor Contribution. Therefore, do not authorize the Top Heavy Contribution until after the test is rerun (after the Safe Harbor Contribution has been made). GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 26
Corrective Actions Required for Failed Tests, continued Email the Top Heavy Allocation Contribution Report (near the front of the Year End Compliance Test Package) to Compliance@adp.com. The contribution will be impounded from the bank account for each company code. If we receive the form by March 1*, we will impound by March 15. If we receive the form after March 1*, we will impound by the 15th of the month following the month the form is received. In order for the Top Heavy Contribution to be reflected on the 415 Annual Additions test for this year, ADP must receive the signed and dated page of the Top Heavy Minimum Contribution Report no later than 15 days after corporate Tax filing date (with extension). In order for the Top Heavy Contribution to be processed during 2018, ADP must receive the signed and dated page of the Top Heavy Minimum Contribution report NO later than November 30. If your company s plan is a new plan, your top heavy test should include any contribution for the plan year even if made AFTER the end of the plan year (for example an end of year discretionary match or an end of year Non-elective Contribution). After the contributions are made, a new test package will be available on the Plan Sponsor Website. The test package includes a proactive Top Heavy Test for the year after the Plan Test Year (near the back of the Year End Compliance Test package). If your plan is Top Heavy for 2018, a required contribution will need to be made during 2019. This contribution will be based on participants compensation for 2018. The allocation will be provided to you as part of next year s Year End Compliance Test package. Any required contribution may be substantially reduced or eliminated if: your company makes an employer contribution for the 2018 plan year, or All the Key Employees cut back their contributions for 2018 plan year and the top heavy required contribution only is made to Non-Key Employees, or Your plan is a Safe Harbor Plan for 2018. *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 27
Special Notices Plan Contributions Stopped On Or Before The End Of The Plan Year If contributions have not been made to your Company s plan for some time, it is likely that the enclosed test report package may not include the proper compensation, contributions, or other information. In this case, the test results should not be relied on for determining compliance with the IRC and IRS regulations. As the Plan Administrator and Fiduciary to this plan, you are responsible for ensuring the plan is operating under all applicable laws governing qualified plans. Terminated Plans If a plan terminates and the plan failed any of the enclosed tests, then corrective action may be required. Although ADP will put forth every effort to automatically process refunds due to failures prior to the distribution of the account balances, there may be instances where the assets have already been distributed to the participants. In either case, you must notify participants that they have a refund including attributable earnings indicated on the report and that these monies are not eligible for rollover treatment. To notify the former participant(s) of this requirement, you may use the Sample Letters available on the Plan Sponsor Website. Plans That Transferred To Another Recordkeeper If your company s plan failed any of the enclosed tests, and your company s Plan is being processed for a transfer to another service provider, your company s new service provider must be notified of these test results in order to process the corrective action to bring the plan into compliance. If your company s new service provider issues refund checks for the ADP excess contributions and/or the ACP excess aggregate contributions after March 15*, an IRS penalty is required to be paid by your company. Make sure you notify your new service provider of any additional contributions or corrective action that may be needed to satisfy Compliance Test failures. *This deadline date is based on a 12/31 plan year end. If your plan does not end on 12/31, see page 6. Return to Contents GUIDE TO YOUR YEAR-END COMPLIANCE TEST PACKAGE 28