You’ve heard it before…you get out what you put in (garbage in, garbage out). The end of the year has passed, signaling important assignments for plan administrators. A key and important task is the gathering of year-end employee census data, which will be used for plan contribution and testing purposes. It is important to compile complete and accurate census information as it is used for performing the annual testing.
Generally speaking, the census consists of the names, compensation, relevant dates (employment, birth, termination) and number of hours worked for all employees who were employed during the year, not just those who actively participated in the plan. Compensation typically includes gross compensation reported on Form W-2, unless the plan specifically excludes a certain type of compensation.
How to Make the Census Gathering Process Painless
Proper planning along with accurate information are the most effective tools for a smooth process. If you dread this process each year, today we’re going to show you how to make this annual ritual less painful. These steps, if implemented immediately, will make your 2012 annual testing data collection process so much more efficient.
The secret to a painless data collection and submission process is to provide participant data on a per payroll basis instead of waiting until your TPA requests it for testing purposes. This not only allows your TPA to provide better administration and consulting guidance during the plan year but it also allows you to catch errors in data more easily. For example, if your compensation data is incorrect, it’s easier to catch it on an individual payroll file versus trying to identify the error at the end of the year.
Your payroll provider may be able to provide this data to your TPA electronically. This is a best practice and should eliminate data integrity issues since human interaction is eliminated. If you are interested in this option, Monterey Wealth will gladly assist with facilitating the conversations and establishing the process.
Checklist of items to send on a per payroll basis or annually
- Contribution amount(s), separated by contribution type (employee pre-tax, Roth, profit sharing, matching, safe harbor, etc.)
- Date of birth
- Date of hire
- Date of termination
- Employee email address – allows communications to be sent via email
- Employee mailing address – ensures mailings go to the correct address
- Employee marital status – assists with maintaining accurate beneficiary data
- Loan payment(s)
- Pay period plan compensation
- Cumulative plan compensation – important if you would like your TPA to prepare mid-year nondiscrimination
- Deferral percentage/dollar amount (separated by type) – allows Your recordkeeper/TPA to confirm contribution amounts
- Discretionary contribution amounts – allows Your recordkeeper/TPA to confirm appropriate contribution amounts
- Pay period hours – allows Your recordkeeper/TPA to accurately maintain participant vesting information (on employer contributions)
- Cumulative hours – allows Your recordkeeper/TPA to accurately reflect participant vesting
- Information on newly hired employees – these participants will be added to plan records as ineligible employees; having the data on these participants will assist in plan testing and automatic enrollment determinations (if applicable). If your plan has a longer eligibility cycle (e.g., 6 or 12 months), your TPA may have some type of electronic notification system that helps you track eligibility dates to join the plan.
Please note that this is not an all-inclusive list and your TPA may ask for additional data on your participants.
A Note about HCE and Key Employees
In the year-end packet from your TPA will be a questionnaire. Because there are so many different provisions that retirement plans can be adopted, the data your TPA will require to complete your annual testing is different. Regardless of the design of your retirement plan, in order to accurately complete nondiscrimination and top heavy tests, your TPA needs to know who are your key and highly compensated employees (HCEs).
A key employee is an employee who (1) owns more than 5% of the business; or (2) owns more than 1% of the business and received more than $160,000 in pay.
A HCE is an employee who (1) was a 5% owner at any time during the year or the preceding year; or (2) received more than $110,000 in pay for the preceding year. It is also important to indicate which employees are relatives of any owners, since they may be considered owners through stock attribution rules.