401k Compliance is Key During Payroll Processing

By Lori Mead

As a payroll administrator for your company it is very important you are aware of what 401k eligible compensation includes in order to ensure plan compliance. In many cases, plans define eligible compensation as W-2 income or W-2 wages. For most employers this means supplemental income such as bonuses, commissions, incentives and other pay outside of an employee’s base wages are also eligible and should be included in 401k calculations. Both the IRS and DOL view this as an important issue and can become a time consuming and expensive issue for your organization if not managed properly. When discrepancies are identified, it is the employer’s responsibility to catch up the missed employee and employer contributions including gains and losses on those amounts as well as potential penalties and fees for late reporting.  

Two Tips to maintain 401k Compliance during Payroll Processing cycles

1) Learn what your plan’s eligible compensation rules are – make sure you know if bonuses, commissions and other supplemental wages are “included” in your plan’s rules. Many employees may not want to have 401k withheld on bonus or supplemental payrolls, but that is not an employee or manager’s decision to make. It is based on the plan’s rules and those must be followed for all employees enrolled in the plan.  

2) Never override 401k calculations if you are participating in Plansource’s MEP (Multiple Employer Plan). The system rules are set up based on the plan rules and you must not disable, un schedule, zero out or override calculations. This is particularly important if you are running a special, supplemental or bonus payroll in the system.   

For more information on maintaining 401k compliance during payroll processing, contact your 401k Plan Administrator to ensure your company is following the rules of your plan. If you are an adopter of the Plansource 401k MEP, contact 401k@plansource.com for more information.