As the last quarter of the calendar year is upon us, most employers are accustomed to performing end-of-year processes to ensure their companies are optimally performing and ready for the next year. No doubt budgets for the new year are being evaluated and restated, health and welfare insurance plans are being reviewed and shopped to ensure employee benefits are maximized while minimizing premium increases, and payroll data are being scrubbed to ensure all W-2’s and 1099’s are accurate and ready to process by deadline dates.
But what about your company-sponsored 401(k) retirement plan? Is it ready to close out the year 2024 successfully while preparing for changes in the year 2025? Due to the complexities of 401(k) plans, many employers often assume such duties will be handled by their Third Party Administer or CPA. While such trusted advisors can be a great source of help, the ultimate responsibility for execution and compliance lies on the employer as the plan sponsor of the 401(k). But be not dismayed or overwhelmed, with a little prep work and education, any employer with a 401k plan can easily ensure his/her payroll and benefits departments are prepared to end the year compliantly while preparing for the new year.
While the IRS offers an excellent checklist and remedy tool (https://www.irs.gov/pub/irs-pdf/p4284.pdf} to methodically ensure compliance tasks are not overlooked, below are a few items not included on the IRS checklist that may be helpful as you navigate your end-of-year/new year 401(k) administration duties.
Year 2024 Close-Out Duties
- Make sure all 2024 limits of $23,000 max employee deferral, and $7,500 catch-up for employees 50+ in age have not been exceeded in the plan year (often also calendar year)
- Review all company match and deferral files to ensure none were missed or calculated incorrectly throughout the year.
- Ensure forfeitures are properly being systematically used when/if applicable.
- Certify and process any required minimum distributions compliantly and timely.
- Restate/make changes to the plan as needed and disperse annual notices/compliance documents to all participants with balances timely and compliantly
- Scrub employee data for preparation of nondiscrimination annual testing to ensure accurate ADP and ACP results.
Year 2025 Prep Duties
- Ensure expected* 2025 limits of $23,500 employee deferral, $7,500 catch-up for employees 50+ in age, and $11,250 catch-up for ages 60-63 have been programmed in payroll for the new year. NOTE: the 60-63 age increase is new in 2025 as part of Secure Act 2.0 provisions. *IRS has not released final limits as of the time of publication
- Reset other payroll limits related to 401(k) including 402(g) limits and identify highly compensated employees and annual limits to prevent end-of-year testing issues.
- Review all provisions of the Secure Act 2.0 of 2022 as many components of the Act start to apply to 401(k) plans via voluntary or mandatory adoption. Such components include Auto-enrollment requirements & plan inclusion of long-term part-time employees (defined as employees that work at least 500 hours in the plan year via lookback methodology).
Chad Matthews PHR, Chief Operations Officer)) Chad is a USC Aiken alumnus with dual degrees in Finance and Communications, a foundation that has propelled him to success in the HR and payroll industry. Armed with a PHR certification, Chad’s expertise is highly regarded in the field.
As the founder of his own HR and payroll business, Chad brings a unique blend of financial acumen and communication skills to the table. His commitment to excellence and innovation has established his company as a trusted partner for businesses seeking tailored HR solutions.
Beyond his professional endeavors, Chad remains deeply engaged in his community, offering mentorship to aspiring HR professionals and contributing his time to local initiatives. His passion for empowering organizations through effective HR management is evident in both his business leadership and his commitment to giving back.
