Does your plan sponsor year-end checklist include these tasks?

Key year-end compliance tasks

For simplicity, we’ll assume you have a calendar year plan, which means your plan year ends on December 31. The following compliance tasks are still important if you have a non-calendar year plan, but the dates may be different.     

• Distribute participant notices—Do you have a safe harbor 401(k) plan? Do you use automatic enrollment? Depending on your plan design, you may have to provide an annual notice to participants that describes the plan feature, their rights, and important dates. These notices must generally be sent 30 to 90 days before the end of the plan year (October 1–December 1). Consider reaching out to your third-party administrator (TPA) or plan provider for help with determining which notices may apply.
• Execute plan amendments—Did you modify your employer match or make other design changes this year? If so, you’ll need to amend your plan document by December 31. The IRS requires plan documents to be updated by the last day of the plan year for any discretionary changes made during the year. Different rules apply for legislative amendments, which are beyond the scope of this article. 
• Use forfeiture money—When a participant leaves your organization, any nonvested money goes into your plan’s forfeiture account. You generally have to use the money in this account by either the end of the plan year in which the forfeiture occurred or the end of the following year. The applicable deadline will depend on the terms of your plan document. Your document will also dictate what you can do with the money such as pay plan expenses, offset employer contributions, or make an additional contribution.
• Correct nondiscrimination test failures—This task may apply if your 401(k) plan failed the actual deferral percentage (ADP) or actual contribution percentage (ACP) nondiscrimination test for the 2021 plan year. Ideally, you would have wanted to fix the failure by March 15, 2022 (two and a half months after the end of the plan year), to avoid a 10% excise tax, but there’s still time if you missed that deadline. You have until December 31, 2022 (12 months after the end of the plan year), to take action to keep your plan compliant, although the excise tax will apply.
• Track required minimum distributions—When required minimum distributions (RMDs) aren’t taken in a timely manner, it can put your plan at risk, plus, participants face a 50% excise tax on the amount they should have taken but didn’t. Consider contacting your TPA or plan provider to verify that all participants who need to take an RMD in 2022 have done so. 

Key planning tasks

While the following tasks aren’t required to keep your plan compliant, they can help you set goals, prepare for your 2023 compliance testing and reporting, and facilitate the enrollment process.  

• Schedule your annual plan review—If you haven’t already, consider meeting with your TPA, financial professional, and plan provider to discuss your plan’s health. This information can help you understand what’s working and opportunities for improvement.  
• Gather census data and plan documents—Nondiscrimination testing usually starts early in the new year, so your plan service provider or TPA has time to perform the tests and give you the results before the March 15 deadline mentioned earlier. Their ability to conduct these tests in a timely manner depends on how soon they receive the necessary plan and census data in good order. Starting the data collection process before year end can help ensure important deadlines are met. The same is true for your annual Form 5500 and plan audit, if required.   
• Prepare for January 1 enrollments—January 1 is a common eligibility date for many 401(k) plans. If yours is one of them, consider sending out the enrollment materials and holding meetings now. That way, employees will have time to review the information and ask questions. This approach can help them feel more confident about joining the plan when January 1 rolls around. 

Wrapping up one plan year, getting ready for the next

There’s a lot that goes into maintaining and optimizing your retirement program. As always, making a to-do list and working closely with your TPA, financial professional, and plan provider can help you stay organized and keep important tasks from falling through the cracks.