Are you Eligible for a Retirement Plan?

It can be difficult to know when a newly hired employee is eligible to participate in your company’s retirement plan, but it is very important as it can help you avoid administrative hassles and mistakes that will need to be corrected at the end of your plan year. That is why we have a couple simple steps to help you determine not only when your employee is eligible, but when they may actually enter the plan.

  1. Open up your Adoption Agreement:

    This document can be found in your Fiduciary Audit File Binder and is also available 24/7 on your plan sponsor website under Forms/Documents/Reports, the Forms sub tab.

  2. Go to Section B: 11a.

    This section will tell you how long an employee must work for your company before being eligible to withhold money from their paycheck and defer it into the retirement plan.
    1. Your plan will either note a number of hours needed to be completed, or an amount of time to be completed.

  3. Go to Section B: 11b.

    This section will tell you whether your plan utilizes “Hours of Service” or “Elapsed Time”.
    1. Hours of Service means that once the employee has worked the hours necessary to participate, they are eligible to defer money into their retirement plan.
    2. Elapsed Time means that service is measured strictly by the time that has passed. If the employee has completed 12 months of service, the employee is credited with a year of service, regardless of the number of hours worked.

Now that you have determined whether your employee is eligible to defer (Have they worked the necessary hours? Have they been with the company the appropriate length of time?), you are ready to determine when they are able to enter the plan.

  1. Go to Section B: 13a.

    This section will tell you whether your employee can enter the plan immediately when they become eligible, or if they must wait until the first day of the calendar month, plan quarter, semi-annual dates, or plan year.

Record Retention – The “Paper” Trail

As plan sponsors are well aware, the pension law (ERISA) includes specific reporting and disclosure obligations with respect to qualified retirement plans. A lesser known fact is that ERISA also has specific requirements regarding the retention of plan records. Below we answer questions you and other plan sponsors may have about retaining records and the importance of a record retention policy.

Why would we need a record retention policy?

 A retirement plan, by its very nature, generates a large amount of documentation. Some records should be retained indefinitely. Others may be disposed of in time. Having an established document retention system that allows plan records to be reviewed, updated, and preserved or disposed of in an organized fashion fosters good administration and helps the plan comply with pension law. Such a system can also make required documents readily accessible for IRS review, if requested.

Who is responsible for retaining plan records?

 Under ERISA, the plan administrator — which is often the plan sponsor — is ultimately responsible for maintaining the plan’s records.

What records do we need to keep?

 The list is long. First, you need to keep all records that support the information included in your plan’s Form 5500 filings and other reports and disclosures. These supporting documents essentially include whatever records a government auditor might need to verify the accuracy of the original report or disclosure. You also need to keep records used to determine eligibility for plan participation and any plan benefits to which employees and beneficiaries may be entitled.

Records include:

  • The original signed and dated plan document, plus all original signed and dated plan amendments
  • Employee communications including Summary Plan Descriptions, Summaries of Material Modifications, and anything else describing the plan that you provide to plan participants
  • The determination, advisory, or opinion letter for the plan
  • All financial reports
  • Copies of Form 5500
  • Payroll records used to determine eligibility and contributions, including details supporting any exclusions from participation
  • Evidence of the plan’s fidelity bond
  • Documentation supporting the trust’s ownership of the plan’s assets
  • Documents relating to plan loans, withdrawals, and distributions
  • Nondiscrimination and coverage test results
  • Employee personal information, such as name, Social Security number, date of birth, and marital/family status
  • Employment history, including hire, termination, and rehire dates (as applicable) and termination details
  • Officer and ownership history and familial relationships
  • Election forms for deferral amount, investment direction, beneficiary designation, and distribution request
  • Transactional history of contributions and distributions

How long do we need to keep the records? 

Generally, you should keep records used for IRS and DOL filings for at least six years after the filing date. Retain records relevant to the determination of benefit entitlement indefinitely (basically, permanently).

Small Business Retirement Plans

Thank you for tuning into Retirement Plan Consultants YouTube channel. This recording is specifically on small business retirement plan considerations.

So your business may be relatively small in size, but you no doubt realized just like the big guys do, that having a retirement plan for your employees can be an attractive benefit.

This presentation is a brief overview of the advantages of an employer-sponsored retirement plan and some options to think about.

So, why sponsor a retirement plan?

Just as I stated before, it is an attractive employee benefit. Depending on your industry or where you’re located, you may need to have some sort of employee benefit plan. Somewhere that these employees can defer money into or maybe reach a match or something along those lines. Other things a company sponsored plan can improve both their employee job satisfaction as well as their productivity.

In addition, a tax qualified retirement plan offers tax advantages both to the employer and to the employees. For example, employer contributions to these plans are deductible. This is something you may want to talk to  your tax advisor or your CPA to see if there is this would make sense in your return. And then finally, there is a tax credit available for small employers who start a qualified plan. There is a tax credit in the form that you can file with our return for the newly eligible plan, which definitely something think about as well.

What are your next steps?

Say you see that these benefits are here and put them into play. “Yes it’s something I’m interested in.” There are a number of choices when it comes to choosing a retirement plan. Some types of plans carry a heavier administrative burden than others because they take a little bit more time. And some are super simple to manage.

Two types of Retirement Plans for Small Business Owners

Qualified Plans

First one up on there is the profit sharing plans. These profit-sharing plans offer a great deal of flexibility. The sponsoring business can include a formula in the plan to determine an annual plan contribution or contributions can be made at the discretion of the employers governing bodies. Let’s say they have a board of directors for example. There are quite a few different formulas you can put into play.

One is pro rata.

So, you can say to anybody that’s eligible, we’re going to give them a four percent profit sharing. Again, remember that this is a discretionary contribution. So, if the business is luggage in any given year, you don’t necessarily have to make any contribution for that year. Again, pro rata is just one option.

There are a couple other options that may benefit your organization. One, for example, they have this thing called new comparability. What this does is it maximizes the owner’s contribution.

So, there’s a lot of neat things that you can do with the profit sharing plans. Again, it is a discretionary contribution. So, if you’re sluggish, you don’t necessarily have to contribute. However, some employers do choose to use this profit-sharing to tie to a positive incentive for employees to work harder and smarter. So, if you are open with your employees about the profitability of the company, you could say “if we make X profit, we will give you X percentage profit-sharing” to everybody in their qualified plan. That really does encourage employees to work harder, smarter, and more efficiently.

401K Salary Deferral Plan

The next option here on this slide is a 401k salary deferral plan. Again, I’m just talking about 401k’s here, but if you qualify for as a non-profit or maybe a church or school or something like that, there are also have 403b plans, so just contact us on those sorts of questions.

But salary deferral plans are a very effective way for employees to save for retirement. Basically, employees differ a portion of their paycheck to their retirement plan before taxes and those would be their pre-tax contributions. Then, you as an employer can choose to either match some of it or all of it.

So, for example, you could choose to match a hundred percent, down to four percent. So, what you’ll most likely see is your employees deferring four percent to get that four percent match.
If you want to incentivize them to differ more, you could say “I will match fifty percent, up to eight percent”, which means they would have to give eight percent from their paycheck in order to get half of that in order to get a four percent match. So there’s this and other really neat things you can do with salary deferral and adding that match contribution on to it.

Roth Plans

Another option is to also add a roth feature into the plan. So, employees who make those roth contributions, they will defer their contributions after tax as a designated roth, then those contributions and any related earnings after they have met tax law requirements.

There’s a couple of requirements, but they would be able to distribute those funds tax-free. So, not only because they already paid the taxes in the front, they would get those earnings tax-free as well.

So, there’s a couple different options with the deferral. Those are a couple of the qualified plan scenarios. If you don’t necessarily want to dive into the qualified plan scenarios, maybe again you don’t want to have to deal with a plan document, you could move down to the IRA route.

Many employers, especially your small employers, they may start off with a step or simple plan start things off. Then, as they grow, they move into a 401k. Everybody’s situation is very different.

Simplified Employee Pension Plan

So, the simplified employee pension plan, which is a step up, has this is option for small businesses to, in essence, to set up an individual retirement account or an IRA for each participating employee. Then the employer can make deductible contributions if the total contributions don’t exceed the IRS limits each year. The IRS pushes out certain limits. It’s very similar to a profit-sharing plan like the pro rata situation that I had gone over. Annual contributions to the SEP are not mandatory.

It is a simple approach, but don’t confused it as the next option, called a simple plan. It offers it typically offers low startup costs, minimal reporting, and record-keeping requirements and there’s some flexibility adding those annual contributions. That might be a good option for you and it does not allow for employees to defer or put away their own money into the plans, its solely just employer driven. So, if you are interested in the IRA option where the employees can defer, there is a simple plan.

Simple Plan

Simple stands for Savings, Incentive, Match PLan for Employees. It’s very common for small businesses. This type of plan can be established as an IRA for each employees, similar to the SEP. The set of procedures and administrative requirements are pretty straight forward.

Both employees and employers can make contributions under a simple plan. The employer generally must match each participating employees contribution up to a certain level of compensation. So, you can define what their compensation is, possibly excluding bonuses or something like that, or contribute to a minimal amount called a melon elective to all employees whether they contribute to the plan or not.

So, with the simple, as the employer, you are going to either have to give a match of a certain percentage or, if you don’t want to give a match, you have to give a non-elective.

A non-elective is giving to everyone, even if your employee, ‘John Doe’ would choose not to defer.

So, that’s a simple plan. One thing to note with simple plans is if you’re an employer with more than 100 eligible participants, a simple is not an option. You’re going to have to choose a 401k or 403b depending on is appropriate for your organization.

Final Thoughts on Retirement Plans for Small Businesses

So, I know I gave a quick rundown, but if you’re an owner of a small business and thinking about adopting a retirement plan as we showed here, you have quite a few different options.

Give us a call!

We are experts in this arena and we can help you figure out what makes the most sense for your organization.

Our email address is up on the screen there (Admin@Retirementplanconsultants.Net) and our toll-free phone number (855-858-5189).

We also have fax (402-379-3818) and mail:

Retirement Plan Consultants
PO Box 1264
Norfolk, NE 68702

if you’d prefer a fax or mail communication as well. We look forward to hearing from you and working with you in the future.

Reviewing Loan Options

Participants can watch this demonstration to learn what their loan options are, acquire some helpful tips before requesting a loan, and then guide them through the process to request that loan.

If you would prefer to read this guide instead, you can follow along with the dialog transcribed underneath this video.

During this demonstration, we’ll go over the capabilities to run what your loan options are as a participant on the RPC participant web.

Once you’re signed into the participant web, you’ll be loaded to the participant dashboard. To view what your loan options are, you’ll hover over the ‘manage your account’ tab, and then select the ‘loan options’ tab.

This will load to the loan options page, where you can use a calculator to determine how much your loan payment would be if you would request a loan. Here the screen says that I may borrow up to $25,410 based on the current provisions and any IRS limits.

If you click on the ‘what you should know’ link, a pop-up will appear that shows you what sort of limits at your plan and the IRS has. For example, you may borrow the lesser of fifty percent of your vested balance or fifty thousand dollars. It also lists the minimum loan amount, your maximum loan amount, your minimum duration, or how long or short of loan that you can take, as well as how long a loan that you can take. Again, many of these things are restricted by your plan document loan procedures and the IRS.

If you’re curious how much your loan payment would be if you would take out a loan, you can simply click on the arrow next to ‘quick loan calculator’. The website will automatically generate what your interest rate would be and you can select your loan amount requested. In this case, I will select $10,000. Let’s say I want to take a year, or a loan out for two years, and my pay schedule is monthly, so I would do 24 long payments. I simply click on calculate and the system will calculate an amortization schedule for your review.

Here, it says my monthly loan payment based on these provisions would be $434. Then I can click on ‘view amortization schedule’. A pop-up will load to show what your amortization schedule looks like as you pay off the loan. If the amortization schedule looks good to you and this is the dollar amount that you would like to request for a loan, you can simply visit the ‘forms documents and reports’ tab. click on the ‘forms and documents’ sub tab to obtain a loan request form complete, then send to retirement plan consultants to process the loan.

If you have any questions on requesting a loan, or any other items on the participant dashboard, or the participant website, feel free to call us at 877-800-1114. Thank you, from Retirement Plan Consultants.

Answering Your Fidelity Bonding Requirements Questions

As a retirement plan sponsor, you should be aware that every person who handles the property or funds of the plan must be bonded. A field assistance bulletin (FAB) issued by the U.S. Department of Labor provides guidance on fidelity bonding requirements. Understanding these requirements fully will help protect your plan and your business.

The bulletin includes the following information about applying the fidelity bonding requirements.

What is the purpose of a fidelity bond? 

The purpose of a fidelity bond is to protect your organization’s retirement plan from risk or loss due to acts of fraud or dishonesty by individuals handling the plan’s assets. These acts include theft, embezzlement, and forgery.

Who must be bonded?

 Generally, plan fiduciaries and any other person who handles plan funds or other property (a “plan official”) must be bonded. For example, officers and employees of the plan or the retirement solutions plan sponsor who handle the receipt, safekeeping, and disbursement of plan funds are subject to bonding. Service providers and fiduciaries don’t need to be bonded if they don’t handle plan funds or property. Several specific exemptions also are included in the pension law.

What is meant by “handling” plan funds?

 Generally, “handling” plan funds refers to activities that pose a risk that the funds or property could be lost in the event of fraud or dishonesty, such as:

  • Physical contact with cash or checks
  • Power to transfer funds or property from the plan to oneself or a third party
  • Authority to direct disbursement
  • Authority to sign checks or other negotiable instruments
  • Supervisory or decision-making responsibility over activities that require bonding

How much coverage must the bond provide? 

Each plan official must be bonded in an amount equal to at least 10% of the amount of funds he or she handled in the previous year, with a minimum bond requirement of $1,000. Generally, the maximum bond amount that can be required for any one plan official is $500,000 per plan. However, the maximum required bond amount is $1,000,000 for plan officials of plans that hold employer securities.

Is a fidelity bond the same as fiduciary liability insurance?

 A fidelity bond is not the same as fiduciary liability insurance. Fiduciary liability insurance is additional coverage that generally protects the plan against claims for losses sustained because of a plan fiduciary’s breach of duty.

Can any bonding or insurance company issue an ERISA fidelity bond? 

No, fidelity bonds must be placed with a surety or reinsurer that is named on the Department of the Treasury’s Listing of Approved Sureties, Department Circular 570 (

Are any plans exempt from the bonding requirements? 

Plans that are completely unfunded or not subject to Title I of ERISA are exempt from the bonding requirements. An unfunded plan is one that pays benefits only from the general assets of the organization.

Can a bond insure more than one plan?

 If your organization sponsors more than one retirement plan, you can purchase one bond to cover all of your plans. However, the bond’s amount must be sufficient to allow for a recovery by each plan in an amount at least equal to the amount that would have been required for each plan under separate bonds.

Can the bond have a deductible? 

No. The bond must provide coverage from the first dollar of loss up to the maximum amount required.

If the amount of funds handled by the plan increases after the bond is purchased, must the bond be updated during the plan year?

No. The bond amount must be fixed annually (or estimated at the beginning of the plan’s year pending receipt of necessary information) for each covered person based on the highest amount of funds handled by that person in the preceding plan year. So the bonding amount can change from year to year, but not during the year. If the plan doesn’t have a complete preceding reporting year, the amounts covered must be estimated.

Correcting Excess 401(k) Contributions

SITUATION: When we conducted our annual nondiscrimination testing, we found that several of our highly compensated employees had contributed disproportionately more to our 401(k) plan than lower paid employees. Our plan failed the “actual deferral percentage” (ADP) test for the first time.

QUESTION: What do we need to do?

ANSWER: To avoid possible plan disqualification, you need to correct the excess contributions.

DISCUSSION: The ADP test compares the average rate at which highly compensated employees defer salary with the average deferral rate for nonhighly compensated employees. The difference between highly paid and lower paid employees must be within certain limits. If it isn’t, you need to correct the excess contributions. You basically have three options.

Distribution option. The plan can return the excess contributions and any plan income attributable to those contributions to the appropriate highly compensated employees within 12 months of the close of the plan year. However, if the distributions are returned more than 2½ months following the close of the plan year, the employer is subject to a 10% excise tax. For plans that are “eligible automatic contribution arrangements,” corrective distributions can be made up to six months following the end of the plan year without incurring the excise tax. The distributions are taxable to the employees.

Recharacterization option. Alternatively, the plan can recharacterize the excess contributions as after-tax contributions. To do so, your plan must have a provision allowing such contributions, and the recharacterization must occur no later than 2½ months after plan year-end. Amounts recharacterized as after-tax contributions are includable in the highly compensated employees’ income for federal income-tax purposes.
Or instead, if the plan allows, an excess contribution made by an employee who is age 50 or older may be treated as a catch-up contribution to the extent the employee hasn’t already made the maximum allowable catch-up contribution for the year.

Additional contributions option. Another alternative is to make qualified nonelective contributions
(QNECs) or qualified matching contributions (QMACs) for nonhighly compensated employees. Such contributions will be treated as elective contributions for ADP testing purposes.