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A fresh look at compliance testing
Company news 401(k)

A fresh look at compliance testing

Cassie Zandona

For the past several months, we’ve been hard at work updating our compliance dashboard and are really excited to share it. But before we jump into all the new stuff, we should take a quick detour into the world of compliance and nondiscrimination testing.

Nondiscrimination tests are designed to ensure that a 401(k) plan benefits all employees at the company—not just business owners and other highly compensated employees.

There are three main tests a plan needs to pass in order to remain compliant: Actual Deferral Percentage (ADP) test, Actual Contribution Percentage (ACP) test, and Top Heavy test. Each test is required by the IRS every year, so they are a big component of 401(k) plan administration. (For a detailed overview of nondiscrimination tests, check out the analysis from our amazing Retirement Consulting team.)

For small business owners in particular, navigating these nondiscrimination tests can be difficult. With fewer employees, one change in personnel or an individuals’ contributions can have a bigger impact on test results. Failing a test can be pretty costly, even resulting in refunds to their employees, which isn't a great look for anyone. It’s one reason we’re big proponents of Safe Harbor plans because they automatically satisfy most nondiscrimination tests. And also why we’ve devoted a lot of resources to testing—regularly performing tests to help identify potential issues and help plan sponsors manage any required corrections.

With the launch of our compliance dashboard 2.0, we’ll simplify the process even more, empower plan sponsors and help more businesses avoid test failure altogether. Here’s what you can expect with a Guideline 401(k).

  1. More accurate projections. We can calculate months in advance whether your plan is in good shape to pass a test or at risk of failure.
  2. Full visibility of all tests. Our intuitive design makes it easy to track all of this year’s active tests and resolved tests from previous years—an important detail for tests like Top Heavy that can span multiple years.
  3. Step-by-step suggestions. If a plan is at risk, we’ll lay out the options in straightforward terms. And we can educate you on next steps to change a plan’s trajectory before a test is failed.

Replacing complexity and doubt with ​​knowledge and clarity

With numerous tests, formulas and thresholds, nondiscrimination testing is inherently complex. Our dashboard makes the process digestible. With Guideline, you’ll know where your plan stands and what to do next. No cryptic, tax code explanations and fewer end of year surprises. With this update, we want to provide plan sponsors with more clarity and actionable steps they can take throughout the year, while providing even more peace of mind throughout the life of their plan.

For current clients, we started phasing in this new and improved dashboard for all plans in August. If you haven’t seen it on your account yet, it should be up by the end of September.