Recently Failed ADP Show the Need for New Solutions

Most 401(k) plans are run on a Calendar Year basis. Unless the plan is a Safe Harbor plan, the infamous ADP test is performed in the first couple of months following plan year end. So, most plan sponsors have recently been informed as to whether or not the test was passed. If you are not familiar with the annual ADP test, see our 401k) Primer at http://www.401kacademy.com/401kpdf/401kalternativesprimer.pdf

If it was not passed, then they will have to either return salary deferrals to some of their most important employees or make additional contributions for the Non-Highly Compensated Employees. Either way, the Plan Sponsor is not happy. And that creates an opportunity for us to help your clients take a look at new solutions.
The possible solutions (and it may take several) are adding automatic enrollment, considering a small incentive match, re-energizing the employees by having some really effective enrollment meetings, explaining why now is the ideal time to get a lot of money into to the market at the low point (or is it?), working with a good TPA to see exactly why the test failed and what might be done about it. It might be even time to change the entire program to a new, more exciting vendor - reboot the plan by making some major changes.

Of course, the most obvious solution is to convert the plan into a Safe Harbor plan - see the Primer mentioned above to educate yourself on the Safe Harbor options. The Plan Sponsor will not be able to implement a Safe Harbor in the middle of a year, so that might only work for 2010 at this point.

A proactive CPA who finds out that their important client employees are not able to max out their salary deferrals because of a failed ADP test will encourage their clients to seek new help with their plan.