Demystifying Compliance Testing

 In Compliance

LT Trust works with thousands of growing businesses in all 50 states to guide them through compliance testing for their retirement plans. You are engineers, innovators, healers, entrepreneurs – not experts on IRS regulations. That’s why we take pride in our professional expertise in guiding plan sponsors through the annual compliance testing process.

How it works

The IRS provides regulations for retirement plans to ensure their fairness for employees. Much like you provide data to your accountant in order to prepare taxes, plan sponsor provide certain information to LT Trust so we can perform compliance testing and work through any follow up steps, when needed.

LT Trust provides our clients with easy-to-follow instructions in early January about information we need to complete your annual compliance testing. This information includes a brief questionnaire about your company, as well as a request to verify your employees’ census data (employees, compensation, hours of service, etc.). We provide all of this information on a secure website for your review.

For our new clients, we take an extra proactive step of reviewing all data supplied over the year and notifying clients in December of anything that may be missing to simplify the compliance testing process.

Key Compliance Tests

Once LT Trust receives all of the information required for compliance testing, we provide all of the tests required by the IRS for ERISA retirement plans.

Every year, all 401(k) plans without a Safe Harbor provision are subject to certain discrimination tests to ensure that the plan is not unfairly benefitting Highly Compensated Employees (HCEs) over Non-Highly Compensated Employees (NHCEs). There are two main tests that are used to determine this – the Actual Deferral Percentage (ADP) and the Actual Contribution Percentage (ACP). If a plan fails either of these tests, then corrective action (usually in the form of refunded contributions to the HCEs or a Qualified Non-Elective Contribution (QNEC) to all NHCEs) must be completed within 2 ½ months after the end of the plan year. For plans with a December 31 plan year end, this means corrective distributions arising from ADP and ACP testing failures must be completed by March 15 to avoid a 10% tax on the distributions assessed to the Plan Sponsor.

Depending on the specifics of your plan, LT Trust is able to provide the following compliance testing services:

  • ADP/ACP Non-Discrimination Testing
  • 402(g) Check and Plan Limit Check
  • Contribution Analysis
  • Section 410(b) Coverage Testing
  • 401(a)(4) Non-Discrimination Testing
  • 415 Annual Additions Report
  • 416 Top Heavy Testing

Important Dates


LT Trust reviews the data that our new clients have supplied to us this year. If your plan is missing any data, including hours and compensation for all employees, we will notify you so you will have adequate time to gather any missing information prior to our formal data request in January.

Early January 

LT Trust will send your 2018 Compliance Package with instructions. We make it easy – it’s simple, secure, and can be completed online.

January 31

Deadline to provide information in good order to LT Trust in order to receive LT Trust’s service guarantee: completion of ACP/ACP testing and complete corrective action, if necessary, by March 15.

March 15

IRS deadline to issue checks for ADP/ACP non-discrimination testing to avoid 10% excise tax on the distribution.

Also, some plans may need to file S-corporation and partnership tax returns.

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