Year-End To-Do List for Plan Sponsors
It’s a brand new year - what should plan sponsors be thinking about as we close out 2021 and begin 2022? Here are 4 items you should have on your end-of-year to-do list. Spoiler alert: math is involved!
Gather together plan documents and records
The first tip is to round up your plan documents and records for the last year; we’ve found that the best way to organize them is by year. Besides for audit reference, when you have an issue in the future, it’s much easier to find it by the date rather than searching the entire history of the plan! Be sure to pull the adoption agreement, any amendments that you signed, your SPD, meeting minutes, records related to issues resolved, etc. Any and all documents that pertain to that year should go in each yearly folder.
Clean up participant records
You’re about to be required to dump all of the employee information - whether or not you’re a Safe Harbor plan - into a spreadsheet, which you’ll send to your recordkeeper or third party administrator for year-end compliance. Make sure all your employees are on that spreadsheet and therefore in the plan’s records - whether or not they’re eligible for the plan - and make sure the information is complete and correct, e.g. you didn’t mix up hire dates with birth dates, no duplicate SSNs, etc.
Review your payroll reports and reconcile them to what’s in the plan
Make sure the recordkeeper received accurate payroll numbers, and that you didn’t miss anybody enrolling or making changes to their plan contributions. Now’s a great time to make sure Roth and pre-tax numbers make sense! Real life example of what you’re looking for: glitches in the system caused duplicate payrolls to be transmitted (and 401k contributions) so participants received too much. Also, check to make sure your employer contribution numbers are accurate - for example, did everybody get their match? Make sure all the numbers match between the payroll reports and the plan, especially if your plan is audited. Your auditor is going to go through the numbers with a fine-toothed comb, so it pays to fix any problems ahead of time!
Examine your calculations
If you do your match, or discretionary contribution, or your non-elective contribution at the end of the year based on everyone’s total compensation, check your calculations to make sure everything’s good. Refer and verify the definition of compensation and make doubly sure your payroll system is set up correctly and calculations were accurate. Many clients had new payroll codes added during the pandemic for new types of compensation or reimbursement.
A lot of our clients offer discretionary profit sharing or a discretionary match; it’s optional, and they can decide from year to year whether to make those contributions. The end of the year is a great time to review last year’s profitability, and whether to channel some of that profit into the retirement plan as a reward for your employees or a tax haven. Your plan document outlines the options for how you share those funds among employees or groups. The end of the year is also the time to consider whether you want to change the profit sharing formula for the coming year.
Something else to consider at the end of 2021 - do you want to declare 2021 as a Safe Harbor year after all? Thanks to the SECURE Act, you’re now allowed to make a retroactive Safe Harbor contribution for the prior year, and rules for when you are permitted to start the Safe Harbor are more flexible. There are different rules around how much you have to give employees, however. A retroactive Safe Harbor contribution may make sense, particularly if you’re going to fantasically fail your non-discrimination testing. Speaking of testing, this is the time to take a look at estimates and proactively inform employees if you think a refund might be coming. You can also review your budget and see if you have the money for corrections.
That’s our short to-do list for closing out the end of the year - and if you happen to be looking for a plan advisor who can help, reach out to us!