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What is compliance                                                             Click Here for More info

A) Compliance refers to keeping the plan within the regulations set by the Plan Document. These regulations include

Eligibility conditions :

The goal of a pension plan is to provide incentive to employees to remain with your company over a period of time. To ensure that participants do not receive contributions and simply leave the company soon after, they must meet general eligibility requirements and vesting requirements to be eligible to participate in the plan and to receive partial or full employer contributions if they terminate employment. There are numerous options for eligibility and vesting but the most common is requiring 1 year of service before an employee can enter the plan as a participant and 6 years of service to become 100% vested in their employer accounts, vesting 0% for the first year and then 20% per year thereafter.

Document Maintenance :

The IRS periodically adds addendums and specific language which must be incorporated into the pension plan document. MGA uses a “Volume Submitter Document” which includes the most recent language requirements. As new amendments are released by the IRS, MGA Consultants, Inc. will contact clients and provide copies of the amendments to be signed and returned. MGA will maintain signed copies of all required documents. Every 8-10 years, the IRS requires that all documents be amended and restated to incorporate any amendments which have been released. By April 2016, all Plan documents must be restated to comply with PPA (Pension Protection Act) regulations.

Tax form filings

The IRS requires that pension plans file tax form 5500 and applicable schedules annually, declaring the amount contributed to the plan, number of participants, investment information and amount in the plan accounts. MGA Consultants will request information in January (for plans operating on a calendar year basis) for the prior year’s information and complete your tax forms in a timely manner.

Annual discrimination testing

The IRS regulates the amount a participant can defer, the amount that HCE (Highly Compensated Employees) can defer into the plan in relation to the amounts deferred by NHCEs (Non-Highly Compensated Employees), as well as the total value of assets belonging to HCE (Highly Compensated Employees) in a pension plan. These tests are called Non Discrimination testing. Each year, MGA Consultants, Inc. will test the plan contributions and determine if refunds need to be made. Types of testing include:


Under the top-heavy test of IRC Sec. 416, a plan is deemed to be top-heavy if more than 60 percent of the plan benefits are in the accounts of key employees.


insures that highly compensated employees (HCE) do not receive benefit coverage which is disproportionately better than that available to non-highly compensated employees. The test insures that qualified plans cover a broad or representative group of employees (not discriminate in favor of highly compensated).


A 401(k) Plan must demonstrate each year that it does not discriminate in favor of the highly compensated employees (HCE’s) by satisfying the ADP test for salary deferrals. The ADP test imposes limits (average deferral ratios for HCE and NHCE) on the percentage of compensation which highly compensated employees may defer into the plan each year in relation to the percentage deferred by non-highly compensated employees (NHCE’s). This test compares the ADP of the highly compensated employees against the ADP of all other eligible employees.


The ACP test under IRC Sec. 401(m) requires the calculation of each individual employee’s actual contribution ratio. The purpose of this test is to compare the amount of matching contributions and/or nondeductible employee contributions contributed on behalf of highly compensated employees with the amount of such contributions made on behalf of non-highly compensated employees.

Cross testing

is the process by which defined contribution (DC) plans are tested for nondiscrimination on the basis of benefits, and defined benefit plans (DB) on the basis of contributions.

New Comparability

New comparability is most commonly used in PS plans, and uses “cross testing” (above) to establish that the plan provides nondiscriminatory benefits.

Permitted Disparity

these rules known as the Social Security integration rules represent an exception the general nondiscrimination requirement, based on the premise that most employers pay SS tax, and thus help to fund a greater portion of the replacement income of lower paid workers. The rules under Section 401(l) permit a plan to take this disparity into consideration, so that when retirement benefits under both the plan and SS are taken into account, a uniform percentage of compensation is provided to all workers. An integrated plan will not be considered discriminatory merely because plan contributions or benefits favor the HCE if certain disparity limits are met.

Contribution Calculations

Annually, MGA Consultants, Inc. will provide the client with a contribution calculation which maximizes what the employer and HCEs can contribute to the plan while still passing tests and, if the client chooses, providing employer contributions to participants based on different methods of calculations. These are:

i. Matching: Employer Contributions based on a formula which matches a percentage of deferral or compensation by employee

ii. Profit Sharing: a discretionary contribution formula, which allows the employer to determine the amount deposited according to current business conditions.

1. Class Based: A discretionary vested amount to be contributed to participants based on a percentage per class. Classes are determined by the owner based upon the role the participant plays within the company.

iii. Safe Harbor: A 100% contribution which allows the plan to pass all required testing.

What features can a plan includeClick Here for More info


• Employees voluntarily contribute, through payroll deduction, an amount of their salary to the plan. These "elective deferrals" are pre-tax monies contributed to the plan, and are not subject to current taxation as compensation

Employer Contributions

An employer contributes money to their employees through various possible means of calculation

i. Matching

ii. Profit Sharing

iii. Safe Harbor

Safe Harbor

In lieu of applying the ADP/ACP tests, employers can agree to make a safe harbor contribution using one of two (2) alternative approaches. The employer must make either:

i. A Qualified Non-elective Contribution (QNEC) equal to 3% of compensation to all eligible employees (even those who are not making salary deferrals); OR

ii. A Qualified Matching Contribution (QMAC) equal to 100% of deferrals up to 3% of compensation, plus 50% of deferrals between 3% and 5% of compensation;


Feature which allows participants to draw a portion of their vested benefits in a loan, to be repaid to the plan. This feature is not included in all plans and must be written into the plan document. Strict rules govern loans:

Loans processed by MGA Consultants, Inc. must be repaid through payroll deduction

Generally, MGA advises all clients to adopt a loan policy which allows participants one outstanding loan at a time. The IRS regulates loans at a maximum of 3 outstanding loans per participant.

Loans have to be repaid and thus are not considered a taxable distribution.


Feature which allows participants to draw a portion of the money which they have deferred directly into the plan in times of financial hardship. Strict rules and regulations govern this type of distribution. This feature is not included in all plans and must be written into the plan document. Rules and regulations are:

i. salary deferrals must be suspended for 6 months after a participant takes a hardship distribution.

ii. A hardship distribution does not have to be paid back but it is a taxable distribution and there will be an additional 10% tax penalty for any distributions made before a participant reaches age 59 ½.

iii. A hardship can only be issued from the money put in by the participant, not including gains or employer contributions

iv. Before a hardship can be issued, participants must meet one of the following qualifications and have paperwork to that effect in the amount of the hardship being requested:

Definition of Financial Hardship: Financial hardship means an immediate and heavy financial need that the Participant lacks available resources to satisfy. Only the following financial needs will be considered immediate and heavy:

(1) payment of medical expenses within the meaning of Code §213(d) that are incurred by the Participant, his or her Spouse or his or her children;

(2) the purchase (excluding mortgage payments) of a principal residence for the Participant;

(3) payment of tuition and related educational fees for the next 12 months of post-secondary education for the Participant, the Participant's Spouse or the Participant's children;

(4) the need to prevent the eviction of the Participant from his or her principal residence or foreclosure on the mortgage of the Participant's principal residence;

(5) payment of funeral expenses for a member of the Participant’s family; or

(6) any other immediate and heavy financial need of the Participant that the Administrator determines on the basis of all relevant facts and circumstances cannot be satisfied from other resources reasonably available to the Participant.

Rollovers into the Plan

If a participant was formerly employed by another company and participated in a pension plan, the participant can choose to “rollover” or transfer their balance from their former plan into the plan they have with their current employer.

What are the benefits of Safe Harbor contributionsClick Here for More info

Safe harbor contributions ensure that the plan will pass all required discrimination testing and allows an employer to maximize their own contribution into the plan.

Can an employee take a full distribution while still employedClick Here for More info

Because the IRS views a pension account as being for retirement purposes, participants cannot take a distribution of their accounts unless they have a distributable event such as termination, hardship, preretirement or a loan.

Plan Limit Amounts