Deferral Contribution Planning

Consider the Impact of COVID-19 on Higher 401(k) Refunds

The economic impact of the COVID-19 pandemic has likely reduced 401(k) contributions this year. And as a result, the ERISA required nondiscrimination testing that occurs at the end of the plan year will result in higher taxable 401(k) refunds for highly compensated employees (HCE). These taxable refunds to HCEs paid in February/March 2021 may also result in a loss of company contributions.

According to Plan Sponsor Council of America, just under 40% of 401(k) plans reported refunding or restricting HCEs contributions in order to pass testing in 2018. 16.7% of 401(k) plans reported returning excess contributions to HCEs. This is up from 12% the year before.

There are solutions available that offset the risk of non-compliance and allow for high-earners to defer more compensation. Consider a Non-Qualified Deferred Compensation Plan (NQDC) for your highly-compensated employees with a deferral option to include excess 401(k) contributions. You can read more on the topic here.

Please contact your Mullin Barens Sanford Financial consultant listed below or schedule a call via this link.

 

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Through a powerful combination of independence and experience, Mullin Barens Sanford Financial and Insurance Services (MBS Financial) is a leading consulting firm that assists companies with 409A and other executive benefit needs.

Disclaimer: The materials are designed to convey accurate and authoritative information concerning the subject matter covered. However, they are provided with the understanding that Mullin Barens Sanford does not engage in the practice of law, or give tax, legal or accounting advice. For advice in these areas please consult your appropriate advisors.

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