--- title: "401(k)/Profit Sharing Plan Document Restatement" date: 2014-08-27 author: "Robbie Petrillo" --- # 401(k)/Profit Sharing Plan Document Restatement #### Pension Protection Act of 2006 The IRS requires all 401(k) / profit sharing plan documents to be updated by April 30, 2016 to reflect recent legislative changes. With this required amendment and restatement of your firm’s retirement plan, you may wish to explore additional opportunities to enhance the offerings in the plan. Conversely, you may wish to eliminate or reduce certain offerings. While there are many variables in plan design, the following attempts to highlight some of the more significant among them. These changes may be time sensitive, and may require that you amend sooner than you might expect. Therefore, please [contact us](http://pinnacle-plan.com/contact-us/ "Contact Us") or contact your Plan Administrator immediately if you wish to discuss any of these options. ##### Roth Benefits may include current taxation of income, presumably at tax rates lower than anticipated in the future, potential exclusion of taxation on associated earnings, and other potentially beneficial estate planning opportunities. 401(k) Elective DeferralLike the pre-tax 401(k) elective deferral, a Roth elective deferral represents an election to defer current income. Different from the pre-tax 401(k) elective deferral, which postpones current taxation on the income, Roth 401(k) elective deferrals are currently taxable. Additionally, if the ultimate distribution of the dollars occurs after attainment of age 59 ½ and at least 5 years after the initial Roth 401(k) elective deferral, any income tax on the earnings on the Roth contributions is eliminated.In-Plan Roth RolloverAdding this feature would allow participants to convert all or a portion of their current pre-tax balance to Roth. Such an election by a participant would generate current taxation on the amount converted, yet no dollars would leave the plan.##### Safe Harbor Benefits include automatic passage of certain non-discrimination testing and potential waiver of minimum contribution requirements. Non-Elective Contributions (SHNE)Adding these required annual contributions to the plan affords the plan automatic passage of the non-discrimination testing otherwise required on the utilization of the 401(k) component of the plan. This annual testing is referred to as ADP Testing, or Average Deferral Percentage Testing. A failure of such a test may be corrected by refunding 401(k) contributions to one or more highly compensated employees, or by making 100% vested company contributions to non-highly compensated employees. This mandatory contribution also has the added benefit of satisfying any minimum contribution requirements applicable to top-heavy plans (plans in which a significant portion of the assets belong to key employees). Additionally, these safe harbor contributions are combined with profit sharing contributions, giving the plan a better chance of passing the non-discrimination test that applies to profit sharing contributions.Matching Contributions (SHM)As an alternative to the Safe Harbor Non-Elective Contribution, these contributions match any participant 401(k) elective deferrals made (within certain limitations). These contributions grant automatic passage of the ADP Testing, as well as the non-discrimination testing otherwise required on the matching contributions (ACP Testing). If the plan consists solely of 401(k) elective deferrals and the safe harbor matching contribution (i.e. no profit sharing), the plan is deemed not top-heavy, and is, therefore, not subject to any additional minimum contribution requirements.##### 401(k) Automatic Deferral Benefits include a potential increase in participant deferral rates, which may lead to better ADP Testing results and increased retirement preparedness. Automatic Contribution Arrangement (ACA)401(k) plans require that a participant affirmatively elect to defer a portion of their salary. However, if the “automatic” contribution arrangement feature is included in the plan, the participant will automatically have a portion of their salary deferred (based on a stated percentage) unless they opt out of that automatic feature.“Eligible” Automatic Contribution Arrangement (EACA)If the plan includes a feature to allow the participant to take distribution (within the first 90 days of the participant’s auto enrollment) of 401(k) contributions automatically deferred on behalf of the participant, the plan is afforded extra time to issue refunds to highly compensated employees. Such refunds would be made, if needed, to correct a failed ADP Test. Refunds issued more than 2½ months after plan year-end are subject to an excise tax on the employer, but the 2½ month timeframe is extended to 6-months if the plan has an EACA.“Qualified” Automatic Contribution Arrangement (QACA)By adding a safe harbor matching contribution feature to the plan, the otherwise applicable ADP and ACP Testing is satisfied, making the ACA a QACA.--- ### Contact Us Regarding Plan Document Restatements Pinnacle Plan Design is a third-party administrator (TPA) for employer-sponsored qualified retirement plans. We specialize in retirement plan design, administration and actuarial consulting for 401(k)/profit-sharing plans, defined benefit plans, cash balance plans, and 403(b) plans. Pinnacle Plan Design proudly serves businesses nationwide. "\*" indicates required fields Name This field is for validation purposes and should be left unchanged. Name\* First Last Email\* Phone\* Company Message\* Submit