Use Plan Design to Maximize Executive Contributions
Government nondiscrimination rules limit high compensation employee (HCE) contributions and subject them to testing. A failed test requires HR to determine refund amounts and impacted HCEs so the plan can keep operating. Worse yet, refunds can raise HCE tax bills—and untimely refunds can trigger penalties.
The great news is that good, thoughtful plan design can eliminate year-end surprises and increase control. There are many strategies that can help. Here are a few:
Employ auto enroll/auto escalate tools and improve education to boost plan deferrals so that HCEs can contribute more
Adopt a Safe Harbor plan design to eliminate nondiscrimination testing
Cross-test plan design to achieve HCE contributions in excess of $50,000
Add a cash-balance plan to allow key executives to contribute more—sometimes in excess of $100k per year
Review plan designs from time to time and understand the many options available. Smart, informed design can eliminate unnecessary frustration.