Compliance testing: what plan sponsors need to know

As a 401(k) plan sponsor, one of your crucial tasks each year is compliance testing. This process involves a series of tests required by the Internal Revenue Service (IRS) to be conducted after the end of the plan year.

Here's what you need to know:

• Compliance testing ensures that your company's 401(k) plan operates fairly and within the limits set by the IRS.
• The purpose of these tests is to prevent the plan from favouring owners and highly compensated employees, ensuring equal opportunities for all participants.
• Compliance testing helps maintain the plan's eligibility for favourable tax treatment and keeps it in line with IRS regulations.

By conducting compliance testing, you demonstrate your commitment to fairness and adherence to IRS requirements. It helps ensure that your 401(k) plan is operating as intended, providing valuable benefits to all employees.