One of the reasons that a business offers a retirement plan is to provide a convenient means for employees to save for their future. Both new and current employees rate 401(k) plans and other similar programs as a very important benefit.
Plans are required to test for a balanced fairness as to who is deriving benefits. In some situations, certain highly compensated employees are not able to save as much as they would like. This is due to an imbalance between average deferrals by non-highly (NHCEs) and highly compensated employees (HCEs). The result is a corrective distribution (refund) to the HCEs shortly after the end of the plan year. The IRS defines a HCE as an individual who…
A plan sponsor can employ three effective strategies to reduce or eliminate future corrective distributions to their HCEs.
Each of these strategies has their place. Keep in mind that improving an employee’s retirement readiness helps the business and employees. Thoughtful consideration can lead to more appreciative employees.
Last reviewed 6/1/2022
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