All 401k plans are required to operate under the rules of code section 401(a) of the Internal Revenue Code. These rules are put into place since the Code allows for the tax deduction of 401k contributions and tax-deferred growth of the underlying investments. The majority of the concern in section 401(a) is discrimination. The Internal Revenue Service requires the plan to benefit certain employees at established minimums and maximums.
To meet these objectives, plans must be tested to be assured that discrimination, as defined by the Code, does not exist. Some of these tests include the Actual Deferral Percentage (ADP) test, the Actual Contribution Percentage (ACP) test, coverage tests under 410(b), top heavy tests and many others.
As an option, the IRS allows plans that follow safe harbor provisions, to escape many of the required tests. Annually, we will provide an analysis of your plan to determine the best provisions to include in your plan to develop a strategy that works for your company.