It’s that time of year again. A chill is in the air, football is on TV almost every night, and many are planning family holidays. It’s also time—if your plan has a December year end—to start thinking about your annual data request.
You may wonder why we ask for this data at the end of every year. The bottom line is that we need the information to keep your plan in compliance and provide the best possible service.
First, we verify that the company data we have for you is correct. Your address, phone number and company EIN appear on annual filings and plan documents, so it’s important that we have current information. However, this is only the start.
Ownership of businesses may change over time, whether it’s due to a sale or new partners. The change will influence who is considered a highly-compensated employee (HCE), as well as who is a key employee. We use this information to perform the compliance testing for your plan.
Due to family attribution laws, some family members of company owners are treated as owning part of the business, even if they don’t have direct ownership. Family members of owners, including children, spouses, parents or grandparents, who work at the company may be attributed ownership, which will have an effect on the compliance testing.
Ownership (or partial ownership) of other companies can also affect compliance testing on your plan. In certain situations, the other businesses will need to be included in the compliance testing, regardless of whether any employees of the other company participate in your plan. We will also need to know if the other business has its own retirement plan; if so, the two plans may need to be tested together.
Laws governing family attribution and business ownership can be complicated but are in place to protect the plan participants. Although we ask for this information at year end, we highly recommend informing us of any changes and their effective dates as soon as possible so we can review the impact on the plan design and avoid surprises during testing later.
Other events that can occur during the plan year include staffing and advisor changes. Retirement plan communications often involve confidential information and time-sensitive requests, which should only be received by individuals who are authorized to discuss the plan. To guarantee that our communications go to the correct person, please notify us of any changes immediately. With that said, we will still ask for updates at the end of the year to verify that our records are up to date.
In addition to the year-end items we’ve already mentioned, we also ask you a series of questions relating to your company and your plan. You’ll notice that many of these questions are repeated every year. As your business situation changes over time, your answers may be different from one year to the next. Ultimately, your responses help us to identify possible compliance issues and allow us to ensure your plan is meeting your business goals.
Lastly, although certainly not least, an accurate employee census is vital to accurate testing and reporting. Incorrect data for even a single individual can affect the results of multiple compliance tests. It’s important to provide complete information on all employees regardless of how many hours the employee worked or whether the employee participated in the plan. Even if an employee is newly hired and not yet eligible for the plan, they need to be included, as their information helps us determine their eligibility date. As a rule of thumb, the census data you provide should be consistent with the company’s year-end payroll records.
While these represent the types of information we will request from you at the end of the plan year, if there is anything that you think we should know about the business that we didn’t ask about, this is the perfect time to let us know. As you provide this year-end data, we would also request that you be thorough and complete to avoid follow-up questions and potential delays. We appreciate your partnership in providing the data we need. If you ever have any questions or concerns regarding our data request or anything else, please feel free to reach out to us.
This newsletter is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this newsletter without first seeking the advice of an independent tax advisor such as an attorney or CPA.
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