401(k) Plan Nondiscrimination Testing: Guidance for Employee Benefits Counsel

Meeting IRS Requirements, Avoiding Corrective Distributions, Evaluating Safe Harbor Plans, Navigating Multiemployer Plan Complexities

Recording of a 90-minute CLE webinar with Q&A


Conducted on Wednesday, January 13, 2016

Recorded event now available

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Program Materials

This CLE webinar will provide employee benefits attorneys and plan sponsors with detailed guidance on performing nondiscrimination testing on 401(k) plans. The panel will review the minimum coverage, ADP and ACP tests for ensuring compliance with IRS nondiscrimination requirements, explain the benefits and costs of adopting a safe harbor plan design, and outline the complex legal issues involved in multiemployer plans.

Description

The IRS prohibits 401(k) plans from discriminating in favor of highly compensated employees and requires plan sponsors to conduct yearly nondiscrimination testing to ensure that contributions made by non-highly compensated employees or NHCEs are proportional to contributions made by the company’s owners and executives (highly compensated employees or HCEs).

Plans that fail nondiscrimination testing may be required to make corrective, taxable distributions to HCEs. A recent report estimated that more than 54,000 company plans failed the nondiscrimination tests, resulting in the return of $820 million in contributions to HCEs. And according to the IRS, 10% of plans that fail nondiscrimination testing also fail to properly make their corrective distributions.

Companies can avoid 401(k) nondiscrimination testing with safe harbor plans, but they require companies to make certain minimum contributions to employee accounts, contributions that are immediately vested 100%. Plan sponsors must carefully weigh the benefits and costs before electing a safe harbor plan design.

Listen as our panel of employee benefits attorneys offers detailed guidance on performing nondiscrimination testing on 401(k) plans. The panel will discuss the minimum coverage, ADP and ACP tests for ensuring compliance with IRS nondiscrimination requirements, explain the benefits and costs of adopting a safe harbor plan design, and discuss the complex legal issues that multiemployer plans present.

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Outline

  1. Nondiscrimination rules under Section 401
    1. Overview
    2. Understanding controlled group rules
    3. Understanding aggregation and disaggregation rules
  2. Nondiscrimination testing
    1. Minimum coverage test
      1. Ratio percentage test
      2. Average benefits test
    2. Actual deferral percentage (ADP) test for HCEs
    3. Actual contribution percentage (ACP) test for HCEs
    4. Cross testing
    5. Benefits, rights and features
  3. Safe harbor plan designs: risks and opportunities
  4. Multiemployer plan issues
  5. Corrective action for noncompliant plans

Benefits

The panel will review these and other key issues:

  • How can plan sponsors maximize benefits for HCEs without violating the nondiscrimination rules?
  • What advantages does a cross-tested safe harbor plan offer?
  • What special rules and considerations apply to multiemployer plans?

Faculty

Godofsky, David
David R. Godofsky

Partner
Alston & Bird

Mr. Godofsky is the leader of the firm's Employee Benefits & Executive Compensation Group. He has a...  |  Read More

Wagner, Marcia
Marcia S. Wagner

Managing Director
Wagner Law Group

Ms. Wagner is recognized as an expert in a variety of employee benefits issues and executive compensation matters,...  |  Read More

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