Learn about the nondiscrimination testing requirements including Actual Deferral Percentage (ADP) test and the Actual Contribution Percentage (ACP) test and the testing compliance deadline which is March 15, 2014 - O'Connor Davies - New York CPA Firm.

1. f
Employee
Benefit
Plan
Newsletter
March
15,
2014
Deadline
for
Non-­‐Discrimination
Testing
Louis
F.
LiBrandi,
Principal
Sponsors
of
certain
defined
contribution
plans,
namely,
401(k)
and
403(b)
plans,
need
to
be
aware
that
these
plans
are
subject
to
non-­‐discrimination
tests
known
as
the
Actual
Deferral
Percentage
(ADP)
test
and
the
Actual
Contribution
Percentage
(ACP)
test.
[Section
403(b)
plans
are
only
required
to
perform
the
ACP
test
since
these
plans
are
subject
to
the
Universal
Availability
rule,
whereby
the
employer
generally
must
make
the
plan
available
to
all
employees.]
Further,
safe
harbor
plans
are
not
required
to
perform
these
tests,
provided
they
meet
certain
criteria
in
terms
of
employer
contribution
formulas
and
vesting.
Under
ERISA,
non-­‐safe
harbor
plans
must
perform
the
ADP
and/or
ACP
test
annually
in
order
to
compare
the
average
deferral
rate
and
average
contribution
rate
of
Highly
Compensated
Employees
(HCEs)
versus
Non-­‐Highly
Compensated
Employees
(NHCEs).
HCEs
are
described
as
those
employees
with
greater
than
5%
ownership
in
the
entity
sponsoring
the
plan
or
earning
compensation
at
or
above
a
stated
amount.
For
purposes
of
testing
the
2013
plan
year,
the
compensation
amount
is
$115,000.
These
tests
are
required
in
order
to
ensure
that
a
plan
does
not
unduly
benefit
HCEs
at
the
expense
of
other
employees.
Testing
should
be
completed
by
2-­‐½
months
after
the
close
of
the
plan
year.
For
2013
calendar
year
plans,
this
means
the
testing
deadline
is
March
15,
2014.
Failure
to
timely
test
and
make
any
necessary
corrections
for
the
plan
creates
qualification
issues
and
a
potential
10%
excise
tax
which
is
reported
and
paid
to
the
IRS.
Typically,
corrections
to
the
ADP
test
require
making
refunds
of
deferral
amounts
to
the
HCEs,
or
the
HCEs
forfeiting
portions
of
the
employer
matching
contribution.
Recently,
O’Connor
Davies
was
asked
to
review
a
non-­‐discrimination
test
performed
by
an
outside
party
for
a
client’s
401(k)
plan.
Our
review
identified
misclassified
employees.
This
affected
the
refunds
which
needed
to
be
made
to
the
HCEs
and
lowered
those
refunds
by
over
$20,000.
The
Employee
Benefit
Services
Group
at
O’Connor
Davies,
LLP
has
extensive
experience
in
the
preparation
and
review
of
these
and
other
non-­‐discrimination
tests
(e.g.,
coverage
and
top-­‐
heavy
testing).
Plan
sponsors
in
need
of
this
service
should
contact
Louis
LiBrandi
at
llibrandi@odpkf.com
or
212-­‐286-­‐2600.
About
O’Connor
Davies
O'Connor
Davies,
LLP
is
a
full
service
Certified
Public
Accounting
and
consulting
firm
that
has
a
long
history
of
serving
clients
both
domestically
and
internationally
and
providing
specialized
professional
services
of
the
highest
quality.
With
roots
tracing
to
1891,
seven
offices
located
in
New
York,
New
Louis
F.
LiBrandi
Principal
llibrandi@odpkf.com
212.286.2600

2. Jersey
and
Connecticut,
and
approximately
500
professionals
including
84
partners,
the
Firm
provides
a
complete
range
of
accounting,
auditing,
tax
and
management
advisory
services.
O’Connor
Davies
is
ranked
as
number
36
in
Accounting
Today's
2013
"Top
100
Firms"
in
the
United
States.
The
Firm
is
also
within
the
20
largest
accounting
firms
in
the
New
York
Metropolitan
area
according
to
Crain's
New
York
Business
and
the
Westchester
and
Fairfield
County
Business
Journals.
O’Connor
Davies,
LLP
is
a
member
firm
of
the
PKF
International
Limited
network
of
legally
independent
firms
and
does
not
accept
any
responsibility
or
liability
for
the
actions
or
inactions
on
the
part
of
any
other
individual
member
firm
or
firms.
Our
firm
provides
the
information
in
this
e-­‐newsletter
for
general
guidance
only,
and
it
does
not
constitute
the
provision
of
legal
advice,
tax
advice,
accounting
services,
investment
advice,
or
professional
consulting
of
any
kind.
IRS
CIRCULAR
230
DISCLOSURE:
To
comply
with
IRS
regulations,
we
are
required
to
inform
you
that
unless
expressly
stated
otherwise,
any
discussion
of
U.S.
federal
tax
issues
in
this
correspondence
(including
any
attachments)
is
not
intended
or
written
to
be
used,
and
cannot
be
used,
(i)
to
avoid
any
penalties
imposed
under
the
Internal
Revenue
Code,
or
(ii)
to
promote,
market,
or
recommend
to
another
party
any
transaction
or
matter
addressed
herein.