As Year-End approaches, which for most, means presents and parties, however, if your plan's Year-End isn't December 31st, the below timeline could be different. No matter what your plan's Year-End date is when it comes to your tax-qualified retirement plan, year-end also means year-end compliance testing, which shows that your company-sponsored retirement plan complies with the tax code. Luckily, Vestwell will take care of these tests on your behalf, but there are still a number of things we’ll need from you. By better understanding what goes on behind the scenes and how you can prepare, you’ll find the entire process.
Why we're doing this
As a service to you, Vestwell prepares your Form 5500, a retirement plan tax form you are required to submit to the IRS annually. In order to file this, we need to gather payroll, employee, and company information from you. This allows us to validate plan information, complete testing, and provide you with a compliance package, a process we refer to as “Year-End Testing.” As part of this, Vestwell also provides a comprehensive review of all employee information and plan transactions during the year.
NOTE: Plans with a safe harbor provision in effect for the tested year are generally deemed to pass the majority of tests. However, this does not mean that you are exempt from completing the checklist, and you may still be required to pass Coverage Testing, Deferral Limit Tests, and properly identify all HCEs and their relatives in the plan.
How you can prepare
In order to make the Annual Testing process go smoothly, there are a few things that you as a sponsor can do to prepare:
- Review payrolls – login to your sponsor portal and check the Contributions or Payrolls tab and submit outstanding payrolls that may have been missed
- Review deferrals – login to your sponsor portal and compare the reports from your Reports tab to the deferral reports from your payroll system to ensure the deferral records match
- Consult your tax advisor/financial advisor about additional contributions – determine whether it’s advantageous for your business to make additional contributions...and further reward your employees!
What you can expect next
Vestwell will send you email prompts to start each action item. Here is a complete checklist and timeline for your records:
Shortly after the Plan's year-end - Vestwell releases the 3-part Annual Testing Checklist on the sponsor portal
- Complete the Compliance Questionnaire
- Submit the Annual Census
- Answer the Principal Employee questions
After receiving the above - Vestwell reviews your information and communicates any discrepancies or missing information back to you.
- Review the email from Vestwell that explains the remaining info needed
- Visit the Annual Testing Checklist in your portal and review the documents in the review section for any discrepancies
- For missing information, upload the relevant documents to the upload section
- Non-Safe Harbor plans only – Vestwell will complete the required Average Deferral Percentage (ADP), Average Contribution Percentage (ACP), and Top Heavy and Coverage test for you and communicate the results to you via email
- Review the results posted on the Annual Testing Checklist – if the tests are failed, you have the option of processing refunds or making additional contributions
- Provide Vestwell with email confirmation of which correction method you wish to proceed with
After answering the above - Vestwell will provide you with contribution reports if you have additional contributions.
- For discretionary contributions (match & profit sharing), review the contribution report and proceed with the deposit instructions
- For mandatory contributions (Safe Harbor True-Up contributions), review the contribution reports and proceed with the deposit instructions
Later in the year - Vestwell will file Form 5500 on your behalf and upload a copy to your portal.
- Login to your sponsor portal and review your Form 5500 and Summary Annual Report. The initial 5500 filing deadline for plans can vary based on the plan’s year-end. If your plan year-end is December 31st, the initial deadline is July 31st.
- In the event of an extension to the Form 5500 filing, please keep in mind that Vestwell will still file on your behalf before the extended deadline. Extended filing deadlines will vary based on the plan’s year-end. If your plan year-end is December 31st, the extended deadline is October 15th.
- You can find more information about the Form 5500 in our article - "What Is the Form 5500?"
The year-end process typically begins in January for a calendar year-end plan and could extend up to the first or second 5500 filing deadline. If you have any questions about the process, you can reach us any time at firstname.lastname@example.org.
To learn more about Year End Testing, please click here.
To learn more about our Year End Task Trackers Guides, click here.