Are you guilty of having a 401(k) plan but can’t remember plan design or investment menu? If you answered yes, you are not alone. Many plan sponsors let their plan run on autopilot once it’s up and running, but it may be time to rethink your position.

Here are five reasons why you need to revisit your 401(k) plan design today:

If you are getting money back every year from an ADP/ACP failure, there is a solution so you never have to fail your ADP/ACP test again.

By adding a safe harbor component, it will waive you out of the required ADP/ACP test. With a non-safe harbor plan, Highly Compensated Employees have to stay within a deferral average of no more than two percentage points of Non-Highly Compensated Employees’ average. If results show a greater disparity, the test fails and money is returned to HCEs to bring the test within normal range.

Your plan could add either of the following:

• A safe harbor basic match (100 percent of deferrals up to 3 percent of compensation and 50 percent of deferrals between 3 percent and 5 percent of compensation)
•  A safe harbor nonelective (3 percent of your annual compensation whether you defer or not).

Now you and other HCEs can defer up to the maximum limit regardless of what NHCEs defer into the plan. A safe harbor provision must be added to your existing plan at least 30 days prior to the first day of a new plan year.

2. Your company objectives have changed.

You implemented a 401(k) plan years ago as a vehicle to reduce taxes. However, your primary objective today is to use the plan as a tool to attract talent for your organization. Check with your TPA today to discuss provisions that may be attractive to new employees such as immediate entry and immediate vesting on particular money types.

3. You can no longer afford safe harbor.

You may have a safe harbor match component but are struggling to fund the match or nonelective. Typically, you are committed to a safe harbor contribution but may be able to stop it with a 30-day notice to participants. Note your plan will be subject to ADP/ACP test using current year testing.

You can also opt to have a 3 percent safe harbor nonelective “maybe notice.” By electing a maybe notice, you are essentially postponing a decision to fund a 3 percent nonelective until December 1^st of the following year. If you decide yes, a participant notice will be distributed notifying participants a nonelective contribution will be funded. If you decide no, your plan will be subject to the ADP/ACP test using current year testing. You can elect a maybe notice every year and decide on a year-by-year basis if you want to fund the 3 percent or not.

This retirement plan design may be ideal if you are unsure about profitability of the company and do not want to make a commitment a year in advance.

4. Your plan is an administrative headache.

It may have sounded like a good idea when you implemented your plan years ago to bypass any type of eligibility requirement and allow immediate entry. Your plan may also allow hardships and multiple loans. This could be challenging for any plan sponsor. Your TPA can offer guidance to simplify your plan provisions. One year of service with dual entry remains very common as eligibility requirements. If you do not want to remove the loan provision entirely, an option is to limit outstanding loans to only one.

5. You are looking for additional tax savings.

It is very possible you’ve had the same plan design for many years and you have simply outgrown your plan. If you are funding a company match but are looking for additional tax-deductible contributions, you can likely change your plan design to attain much greater tax savings. In many cases, you can receive tens of thousands of additional dollars by allocating a profit sharing contribution. ACG specializes in cross-tested plan design and cash balance plans where owners can receive much higher allocations than staff.

Want to see if a new plan design is right for you? Contact us today to get in touch with a 401(k) plan design expert.