Plan Design - Traditional Assets

It is important that you maintain the qualified status of your retirement plan by following IRS & DOL regulations. We have provided information that will be helpful to you with the goal of keeping your retirement plan in compliance each year.

In order to participate in a 401(k) or 403(b) Plan (hereinafter referred to as Plan ore Retirement Plan), including rolling over existing retirement monies to the Retirement Plan for purposes of engaging in investments you must be an eligible employee who can include a rank-and-file employee, company owner and/or company manager/officer. If an individual wishes to rollover or contribute monies to the Plan they can only do so if they are an eligible employee of the company sponsoring the Plan and meet all other eligibility requirements as detailed in the plan Adoption Agreement. 

Independent Contractors: Independent contractors cannot participate in a company sponsored retirement plan with the rare exception of full-time life insurance salespersons. In fact, offering the retirement plan to an independent contractor could disqualify the retirement plan. The IRS has generally defined an independent contractor as follows: An individual shall only be treated as an employee (rather than an independent contractor) if he/she is reported on the payroll records of an affiliated company as a common law employee. The term does not include a leased employee. Additionally, a worker is treated as an independent contractor if the employer memorializes payment for the worker’s services on a Form 1099 and not on a Form W-2 or if the worker has a signed agreement with the employer stating that with respect to particular services the worker is an independent contractor. As an important note, you should not treat a worker as an independent contract simply for the purpose of excluding such worker from receiving employee benefits, including the opportunity to participate in the plan. The worker should meet the state and federal business/entity requirements related to classifying workers as an independent contractor vs. a common law employee. 

Corporate Directors: Is a corporate director an employee? No, an individual whose only association with a company is that of a corporate director is not an employee for purposes of the retirement plan (see IRS Revenue Ruling 58-505). 

Corporate Officers: Is a corporate officer/manager an employee? In contrast a corporate officer is almost always treated as an employee for retirement plan purposes. 

It is important that you understand; the guidelines above are simply guidelines. The regulations governing company sponsored retirement plans have many exceptions to the bright line rules detailed above. As these types of situations may arise within your organization, seek out assistance from Leading Retirement Solutions so that we can assist you with determining who is qualified to participate in the retirement plan.  

Under retirement plan rules concerning testing for discrimination and coverage, it is critical that employees of any entities you control be accounted for so as to ensure that you are in compliance with these rules. Failure to comply with these rules may result in revocation of the tax qualified status of your retirement plan and taxation of your account. Therefore, any change in plans to activate inactive entities and/or hire employees and/or obtain an ownership interest in other business ventures or entities should be communicated to Leading Retirement Solutions prior to activation. The IRS Controlled Group & Affiliated Service Group regulations may require that you offer the retirement plan. 

Controlled Group: is generally defined as a group of trades or businesses (employers) that are related through ownership. If any owner of the company sponsoring the Retirement Plan contemplates acquiring an ownership interest in another business venture or entity, it is important that you seek assistance to determine if the Retirement Plan would have to be offered to the employees of another business venture or entity. 

Affiliated Service Group: is generally defined as a group of service organizations that are related through employee or service sharing. This definition includes one or more other organizations for which employees, officers, directors, etc. are shared or services are shared or on behalf of and between organizations. If you believe the Company sponsoring the Retirement Plan is part of an Affiliated Service Group it is important that you seek assistance to determine if the Retirement Plan would have to be offered to the employees of another business venture or entity.

A retirement plan needs regular care to keep it operating properly and your business practices should include a regular review of your plan’s basic operations, each year. For example, are contributions being made timely, have enrollment forms been set up with your payroll team, have plan document amendments been executed. These checklists and fix it guides are intended to provide you with an overview of the most common plan mistakes made by companies so that you can avoid them. 

If you make a mistake, call us! We are here to help and can take you through the applicable IRS or DOL correction program, thereby limited penalties, taxes and other fees. 

403(b) Plan Fix-It Guide