Chapter 4...

Maintaining Employee Records


Investment Account Numbers

Monthly and Variable Tasks
-- Entering New Employees (Basic Database Information)

-- Entering Newly-Eligible Employees and New Participants

-- Changes to Existing Participants' Accounts

-- Processing Monthly Contributions

Information Needed

Entering Data

Entering Catch-up Provision Contributions

Adding Newly-Eligibles
Reconciling the Month
Reprocessing the Current (Active) Month
-- Editing the Posting Period
-- Updating Monthly Salaries
-- Updating Year-to-Date Salaries
-- Batch Processing
-- Running Practice Compliance Tests (Optional)

-- Generating and Distributing Employee Account Statements
-- Generating and Remitting Checks and Instructions to Investment Account Company(ies)

-- Fulfilling Employee Requests for Information

-- Continuing Enrollment Meetings and Educational Campaign

-- Distributing Summary Plan Descriptions as Needed

-- Distributing Benefit Statement to Terminated Participants as Needed

-- Processing Rollovers into the Plan from Other Companies

-- Processing Rollovers Out of the Plan

-- Processing New Loans

-- Processing Hardship Withdrawals

-- Processing Participation Terminations (due to Employment Termination, Retirement, Qualifying Disability or Death)

-- Processing Withdrawals for Employees Aged 59 1/2 or Older

-- Collecting Allowable Charges

-- Liaising with Investment Account Company(ies)

Quarterly Tasks

Annual Tasks
-- Transferring Forfeited Nonvested Balances Back to Trust
-- Processing Mandatory Minimum Distributions at 70 1/2 Years
-- Running Yearly 5500 Summary Worksheet
-- Running Official Year-End Compliance Tests
-- Preparing and Distributing Summary Annual Report
-- Compiling Year-End Auditor's Worksheet
-- Filing U.S. Government Forms


As Table 4-1 shows, the administrative tasks involved in maintaining and updating employee records for the 401k plan fall into four categories: Monthly Tasks, Variable Tasks (meaning they can happen any time), Quarterly Tasks, and Annual Tasks. Monthly and variable tasks clearly comprise the bulk of an administrator's duties.

You will mainly be using the “Employee Information” and “Processing” windows and printing reports from the “Reports” window in fulfilling these tasks, each of which is explained in this chapter with an emphasis on how to use your plan administration software to process the information. If a task is part of a larger subject covered in a separate chapter (for instance, 401k loans), you're directed to the applicable chapter.

Before starting in on each task it's important to first discuss investment account numbers.

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Investment Account Numbers

An account number is issued for each employee's 401k investment choice. The account number is assigned by the investment company once it receives your plan administration software-generated monthly allocation roster (specifying the amount of money going to each person's investment choice(s)) and a signed investment account application (see Chapter 2, Ordering Account Applications).

Once account numbers are issued, they need to be entered into your plan administration software. The investment account company can provide you with these numbers in several ways (you may receive duplicate employee investment statements, or you can call the investment account company and ask them to fax or send you the numbers).

TIP…Print a second set of generic investment account applications as the first ones are printed and keep the second set on file. As you receive the account numbers, you can write them directly on the applications and enter them into the system from the applications. You can also identify missing account numbers, call the investment account company, and again write the numbers on the applications.

To enter the numbers into your plan administration software, click on Employee Information in the main menu, then select the employee's name and click on Alloc; type in the correct numbers in the account number field.

Account numbers should be entered before the next month's processing. Once an account number is in the system, a generic investment account application will no longer be generated for that account.

If you have already processed the month and you receive additional account numbers which need to be included for the month, you can add the account numbers in the same way as above. But you will then have to go back to the monthly grid and choose to Reprocess. By reprocessing the month, you will be including the account numbers into the monthly investments purchase order that will be sent to the investment account company. Most importantly, no generic investment account application will be generated. If a new application is generated for an employee already assigned an account number, it may result in the investment account company's issuing a second number for the same fund. This requires that you call the investment account company and consolidate the two accounts into one.

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Monthly and Variable Tasks

Entering New Employees (Basic Database Information)

See Chapter 3.

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Entering Newly-Eligible Employees and New Participants

Depending on whether your company policy is to allow eligible employees to enter the plan at any time, or monthly, or quarterly, or annually, you should contact new employees well in advance of their eligibility date — as far in advance as possible. You might make your 401k presentation part of their orientation meeting when first hired. Make sure they have all the data and material they need to understand the plan and make their investment decisions, including the Enrollment Pac. Follow up to answer any questions.

If you have entered all new employees into the database, you do not have to do anything with respect to identifying newly-eligible employees. Your plan administration software automatically determines when an employee has satisfied the eligibility criteria and adds him or her to the Current Eligibles list; this list is one of the monthly reports printed out by your plan administration software (from the "Reports" window). Keep a hard copy of each month's list so that you can compare last month's with this month's and identify newly-eligible employees.

You should contact all newly-eligible employees and give them information about joining. They should fill out the enrollment form, stating that they do or do not want to be a participant. An eligible employee who initially declines but then decides to join should complete a new Enrollment Pac, listing his or her investment choices, etc. You enter this information into your plan administration software as described in Chapter 3.

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Changes to Existing Participants' Accounts

WARNING!!! Do not delete any employee who has left the company (for whatever reason) or quit the 401k plan. Terminated employees must be kept in the files throughout the plan year in which they were employed by your company. If they quit the 401k plan and are still eligible, they must remain in the data base. And of course if they continue to maintain their 401k account with you, even if they are no longer with the company, they must remain. The delete button is used when you make a mistake.

Open the “Employee Information” window. If the change is to information in the window (such as an address change), highlight the employee's name and enter the change(s) on the appropriate line.

To make changes to a participant's investment portfolio (for example, to update portfolio allocations), highlight the employee's name and click on Alloc.

“Employee Allocations” lists a participant's current investment portfolio choices and the percentage of the participant's monthly contribution earmarked to each investment. Portfolio choices and/or allocation percentages can be quickly modified per the participant's instructions (on a revised enrollment form). The grid also has a place for the investment's account number for quick identification and verification of account information.

To add an investment, click on the left-hand box of the first blank line under “Portfolio”, then click on the desired investment in the pull-down menu (at the right-hand side of the line). The investment will appear on the blank line. Press Enter. Enter the desired percentage in decimal form (10% is .1, etc.). Press Enter and the decimal turns to percentage.

An investment account application will be generated the first time a contribution is made to a new investment choice or if there is no account number in the system.

To delete an investment, click on the box to the left of the investment's name. Press Delete. Deleting the investment also deletes the allocation percentage and the account number. (Don't forget to reallocate the percentages among the remaining investments — although the program won't let you exit the window if the percentages don't equal 100 percent.)

If you get an Error message “Please delete any blank rows,” highlight the left box (with the arrow) on each of the empty rows and press delete. The star in the left box indicates the end of the investment list.

LOANS: To change loan information, including entering a new loan, see Chapter 5, Loans.

ACTIVITY: Activity allows you to make various types of adjustments or changes to the participant’s investment portfolio. It allows for the editing of numerical information required to correct errors or omissions. It also lists rollovers into the plan, and distributions or loans out of the plan, and prints generic investment account applications for your use in allocating the rollovers into the plan. The various uses of Activity are described in the appropriate topics throughout this Help Guide.

Changes made through Activity are reflected in the participant’s reports.

PROFILE: Profile brings up two reports which you can print or simply read:

1. The Employee Contribution History gives an inception-to-date (“inception” being the date the employee joined the plan) record of the employee’s 401k contributions, whether from normal salary deferrals, rollovers, or other. Each entry lists the date the contribution was posted, to which investment it was posted, the account number, the amount, and the type of contribution (employee contribution, employer contribution, rollover, loan repayment, etc.).

2. The Employee Profile report lists all the personal and 401k information entered into the employee’s records screen as well as the investment mix and allocation formula the employee has directed in his or her original or revised enrollment application (X% to investment A, Y% to investment B . . .). An employee fills out a new enrollment form to change or adjust his or her investment mix or percentage allocations.

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Processing Monthly Contributions

Investment account companies are geared to accept 401k contributions once a month, regardless of how often your payroll goes out, so much of the 401k processing is accomplished on a monthly basis. It's a good idea to set aside the same block of time each month to do the regular processing -- usually the period immediately following the end of the month.

Tasks that are tied to the open enrollment periods that your company has selected (any time, monthly, quarterly, semiannually, or annually) are, of course, performed according to that schedule.

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Processing Monthly Contributions: Information Needed

Once the last payroll period of the month has been completed, you should receive a printed end-of-the-month report from Payroll. If you are using an outside payroll service, it will provide you with a report.

The printed monthly report from Payroll should contain the following employee information:

• Name (first and last)

• Social security number

• Monthly gross wage

• Monthly 401k deduction

• Monthly loan repayment (if applicable)

The first three items must be entered into your plan administration software for all eligible employees, not just all participants of the plan.

In addition to this information, if your plan includes employer matching, you must calculate the monthly matching contribution for each participant according to the matching formula given in the Adoption Agreement.

NOTE…Calculating and processing matching contributions can be done monthly, quarterly, or annually, but such must be decided at the outset and specified in the plan document; any change of this protocol must be reflected in a change to the plan document and all related relevant explanatory materials unless otherwise specified in the plan document and explanatory materials.

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Processing Monthly Contributions: Entering Data

With the report in hand, you are now ready to process the 401k data for the month. Open the “Processing” window and click on Process Monthly Contributions. The resulting window will remind you of the last period (month) processed and confirm the current month you will be processing. It will also remind you that what is processed will be posted to the investment accounts the month after the month you will be processing (because normally monthly processing is done after the month ends, i.e., at the beginning of the following month; you would want to change the Posted to MF month only if you process earlier).

If the month and year are correct, click on Process. The month's processing grid will appear.

Note that all your eligible employees are listed, not just the participants, in alphabetical order by last name. Their social security numbers are also listed. There are empty columns for employee contributions, employer matching contributions (if applicable), and gross monthly salaries. If there are no loans set up, the column for loan payments will be empty. If there are active loans, you will see loan payments already in the grids for the employees paying back these loans (see also Chapter 5, Loans).

There are two ways to input the monthly information:

1. Using the arrow keys on your keyboard and moving from field to field through the employees, entering employee contributions, employer matching contributions, if any, adjustments to loan payments, if any, and wages.

2. Using the keypad entry system to enter employee contributions, employer matching contributions, if any, and wages. You cannot enter adjustments to the loan payments using the keypad entry system.

TIP…To use the keypad entry system, click on Keypad and a little entry window will pop up. Enter the last five digits of an employee's social security number, hit Enter, and the name of the employee will appear in the window. (You can also see if the employee is a participant and how much he or she has contributed this year.) Just enter the employee contribution, the matching employer contribution, if any, and monthly wage. When you hit Enter it will return to the social security number. It is only when you enter the next five-digit social security number that the previous entry will post to the grid. (Or if you click Exit.) When all entries are posted to the grid, you can exit the keypad entry.

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Processing Monthly Contributions: Entering Catch-up Provision Contributions

As of 2002, employees age 50 and older are allowed to defer an extra $1,000 into their 401(k) account each year. The $1,000 is NOT subject to nondiscrimination testing nor deduction limits. To keep your software from including it in such, you input the contribution via Batch Processing as an "Other Adjustment":

• Go to the "Main Menu," click on Processing, then on Batch Processing.

• Click New.

• Choose "Other Adjustments" from the Type pull-down menu that appears in the resulting "Batch Processing" window.

• Type "Catch-up Provision" or some equally-identifying text in the Description field.

• Edit the Amount across from each relevant employee's name.

• Click Process.

• Click Print from the Batch Processing menu. Send a copy of the output along with the allocation to the appropriate investment company and keep a copy for your records.

You may have to follow this process for more than one month since the Catch-up Provision does not mandate that the $1,000 be contributed all at once. If you do have to make multiple-month entries regarding a single participant's Catch-up Provision contributions, keep track to make sure the sum of the entries for the single participant is not more than $1,000 for the year, and notify the participant when he/she has reached the $1,000 maximum.

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Processing Monthly Contributions: Adding Newly-Eligibles

If, in the course of entering your monthly information into the grid, you realize you have forgotten to add a new eligible employee for whom you need to include monthly wages, you do not have to leave the grid.

Just click on New Emp. A pop-up window will appear. Enter the employee's first name, last name, social security number, birth date and hire date (month, day, year -- all 2 digit), to verify eligibility. The new employee's name will appear in the grid. You may then go to the wage field and enter the correct monthly wage.

You can only enter an eligible employee this way; you cannot enter a new participant. To add a participant, you must go into Employee Information and, using the enrollment application, enter all appropriate information, including investment choices.

Also, if you need to designate a division for the eligible employee, you will need to do so in Employee Information.

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Processing Monthly Contributions: Reconciling the Month

After all the employee contributions, employer matching contributions, if any, loan payments, if any, and wages are entered, you can check the totals on the screen in the total column. You can also print a proof sheet. Just click on Proof and the proof sheet will automatically print to the screen or your printer, depending on which one you have chosen.

The Proof Sheet lists eligible employees alphabetically by name, gives their social security number, employee contribution for the month, employer contribution for the month, and total salary earned that month, as well as any loan payments made.

If any changes are needed, make them. If everything reconciles, you can then save the current month's data by clicking Continue. You will be asked if you want to save the data, simply say “yes,” and you are done. Your plan administration software automatically posts the entries (employee and employer contributions as well as loan payments) to all needed places. You have completed the monthly 401k processing and you are ready to print reports. It's that easy!

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Processing Monthly Contributions: Reprocessing the Current (Active) Month

If you need to change or add to any of the previously entered data in your current month's grid, you can reprocess. You will need to reprocess the current month if you need to:

• Add new participants to the grid (for example, in the unlikely event that you receive an enrollment form late and a contribution has already been deducted for the 401k plan)

• Change contributions, wages, and/or loan payments

• Add eligible employees and their wages to the grid

• Make late changes to an employee's investment choices

• “Hard code” investment account numbers in the current month (account numbers you have added after having originally processed the month). The account numbers will not show up on the allocation roster unless you reprocess, and a new investment account application will be generated if no account number appears on the roster.

To reprocess the current month:

Click on Reprocess Monthly Contributions. The pop-up window informs you which was the last month processed and shows the same month in the Reprocess field. If the information is correct, press Continue.

As a safeguard against absentmindedly entering data into the previous period, your plan administration software will ask you if you wish to review or reprocess data for this period. Click on Yes and voilà, here's the familiar processing grid with all the figures you previously entered.

You will need to click on Reprocess and you will be warned that if the employee's investment choices have been updated, then money will be removed from their old investment choices and posted to their new ones.

TIP…As a general rule, it is not a good idea to reprocess any month other than the current one. If you need to make a change to previous months, you should enter the information through Activity in the “Employee Information” window.

You will be asked if you want to continue with reprocessing. Say yes, and you will be asked if you wish to add new employees and participants to the grid. (If you have added eligible employees and/or participants through the “Employee Information” window since you first processed the month you will want to.) Say yes. The system will automatically add those employees to the grid. Say no, and no employees will be added.

You will see the cursor appear in the contribution “grid cell” for the first employee in the grid when the system is ready for changes/adjustments/additions.

Now you can use the arrow keys of the keypad entry system to change or add data. Once you have finished, you can check your totals on the screen or print a proof. If all your data are correct, click Continue, say yes to Continue Processing, and all your changes will be saved.

You can reprocess as many times as you need to before you print your reports, allocation roster, and investment account applications to be sent to the investment company(ies) for deposit into accounts (see Chapter 9).

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Editing the Posting Period

This feature allows you to change the period in which monthly processing transactions were posted to employees’ investment accounts. The posting period is entered for every transaction that goes into the system, including monthly processing, batch processing, and single transactions entered from the "Employee Information Activity" screen. The posting period defines the month and year that the transaction was posted to the investment account. (See also the Glossary.)

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Updating Monthly Salaries

If you have forgotten to enter a salary for a particular employee or if you have not received salaries from a division, you can enter the salaries here without having to reprocess. You can enter salaries for any previous month. Just pick the month in which salaries need to be updated, press Continue. Say “Yes” that you wish to update. The cursor will remain in the Salary column. Enter or change the salaries. When you are finished, you can print a proof. Then, when everything is correct, press Save & Exit. Your updates will be saved with that month.

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Updating Year-to-Date Salaries

If at any time during the year you need to update year-to-date salaries for the current year or previous year, you can. Type in the year you want to update. When the grid appears, enter the new year-to-date salaries, then press Update. The salaries will all be updated.

If you are running a compliance test for the previous year and find that the salaries are not accurate, you can use this feature to correct the salaries.

However, you can update year-to-date salaries only if there has been processing for that year. For example, if you've processed only in 2001 and want to enter wages for 2000, you cannot enter salaries using this feature.

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Batch Processing

Batch processing is used to work on a group of the same type of adjustments, such as trust-to-trust transfers into the plan (typically when one employer absorbs a group of employees and their 401k savings from another company). You can make entries for multiple employees, then process them all together (whereas if you go through the “Employee Information” window you must process each employee separately before moving on to the next). It is also where you process Qualified Non-Elective Contributions and Discretionary Employer Contribution (Profit Sharing).

For example, if you are processing rollovers, press New and the “Batch Processing” grid will appear. Choose Rollover from the pull-down menu at the top right. Enter the amount of rollover into the grid for each affected employee. When you are finished, press Process. Later you can edit, reprocess, and even export the data onto a diskette containing the allocations to forward to the investment account company.

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Running Practice Compliance Tests (Optional)

See Chapter 8, Testing. This “optional” task is highly recommended.

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Generating and Distributing Employee Account Statements

Your 401k administration software gives you the capability to print a monthly account statement (called the 401k Contribution Report) for each of your plan participants with the click of a button. The participants will also receive monthly statements from the investment account company providing the investments for your 401k plan. Those statements show the current value of the participant's account (number of shares owned times the current value of a share), whereas the statements generated from your plan administration software tell the participation how much money he or she has put into and/or removed from the plan that month, year and to-date.

TIP…Because investment prices vary over time, participants will need to look at the statements sent out by the investment account company to determine the current value of the account, or they can check the Internet or the business section of the local paper, using their investments’ ticker symbols to figure out the current value of their account.

The 401k Contribution Report you print out through your plan administration software gives the participant a snapshot of his or her account activity through the current year. The report lists the investments and investment percentages chosen, the total dollar amounts contributed by the employee and employer each month, monthly loan repayments (if applicable), and year-to-date totals, as well as summary information from previous years. Any rollovers or trust-to-trust transfers the participant has made into his/her account will also appear on this statement, as well as disbursements and liquidations.

401k Contribution Reports should not be printed out until all the month's processing has been completed: salary deferrals, matching contributions, loan payments, hardship withdrawals, trust-to-trust transfers, rollovers in and out, lump-sum distributions, and any requisite withholdings — anything that affects the employees' accounts.

To print them out, go to the “Reports” window, enter the year and month, then click on Monthly 401k Activity Reports in the left-hand column and Monthly Employee Statements (All) in the right-hand column.

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Generating and Remitting Checks and Instructions to Investment Account Company(ies)

When you have finished processing (and possibly reprocessing) for the month, you will print out three reports for remitting checks/instructions to the investment account company: Monthly Investments Purchase Order, Monthly Investments Purchase Order Summary, and Monthly Investment Account Applications.

The Monthly Investments Purchase Order Summary tells you the total amount of each check to be sent. Keep it for your records.

The Monthly Investments Purchase Order is a detailed report sent to the investment account company showing the amount of money going into each employee's account. It's a good idea to print out two copies of this report, sending one copy to the investment account company and keeping one copy for your records.

Investment account applications are sent for new accounts (along with a completed investment company application if required).

Your plan administration software also includes the option for supplying the monthly purchases allocation on a diskette, if the investment account company requires such a diskette. Select EXPORT: Monthly Purchases Allocation Diskette and follow the instructions for making the diskette.

Because some mutual fund companies (T-Rowe Price, for example) want additional information, you can also print out an Investment Purchase Order Detail report for each employee, which lists the investment, account number, whether the contribution is an employee contribution, employer matching, loan payment, etc., and the amount. You can choose the month and year; one report is printed out per employee. It also includes the employee's social security number.

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Fulfilling Employee Requests for Information

The Plan Administrator must supply employee requests for information required by ERISA within 30 days of the request.

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Continuing Enrollment Meetings and Educational Campaign

See Chapter 3.

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Distributing Summary Plan Descriptions as Needed

Distribute a Summary Plan Description to each eligible employee no later than 120 days after the plan becomes subject to reporting and disclosure.

For new participants, distribute within 90 days of the employee's becoming a participant.

For beneficiaries entitled to death benefits, distribute within 90 days after the benefits begin.

Update (as needed) and distribute to all participants every 5 years if material modifications have taken place or every 10 years if no such modifications have taken place.

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Distributing Benefit Statement to Terminated Participants as Needed

The Plan Administrator must furnish a benefit statement to a terminated participant within 180 days after close of the plan year in which the participant terminates employment. If there are no forfeitable benefits, the Plan Administrator must furnish a statement of the participant's nonvested status.

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Processing Rollovers into the Plan from Other Companies

See Chapter 7, Rollovers.

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Processing Rollovers Out of the Plan

See Chapter 6, Distributions.

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Processing New Loans

See Chapter 5, Loans.

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Processing Hardship Withdrawals

See Chapter 6, Distributions.

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Processing Participation Termination's (whether due to Employment Termination, Retirement, Qualifying Disability or Death)

See Chapter 6, Distributions.

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Processing Withdrawals for Employees Aged 59 1/2 or Older

See Chapter 6, Distributions.

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Collecting Allowable Charges

Because administrating some of the elements of a 401k plan can be time-consuming and therefore costly to the company, there are certain allowable charges that you can pass on to the participant. The major charges include the following:

• A reasonable charge for reproducing requested documents (other than each participant's first copy of the Summary Plan Description and any other documents required to be distributed to all participants)

• Nominal annual loan fee of approximately $25 - $30 to process a loan application and/or maintain a loan for the year.

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Liaising with Investment Account Company(ies)

You will interface with the investment account company or companies often. Insofar as possible, keep records of your instructions, questions answered, etc., that are not automatically recorded in your plan administration software. Again, the Notes field in the “Employee Information” window is a handy place for such records, if you do not have a hard copy.

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Quarterly Tasks

1. Transfer any forfeited, nonvested balances back to employer (unless this is done annually -- see under Annual Tasks).

2. Compare quarter's practice compliance tests for alarming trends. Again, although this task is optional, it is highly recommended. (See Chapter 8, Testing.)

3. Include 401k withholdings on Form 945: Quarterly Federal Tax Return. Enter on line 3 of Quarterly Federal Tax Return (the same one you use for income tax withheld from wages, tips, etc.) the total of 20% backup withholdings required to be taken on any distributions (loan defaults, hardship withdrawals or any distribution paid to the employee/ex-employee) made during the quarter. Include the amount in the check sent to the IRS with the form filing. Due 01/31, 04/30, 07/31 and 10/31. See Chapter 9, Reports.

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Annual Tasks

The following must be done at the close of the year.

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Transferring Forfeited Nonvested Balances Back to Trust

At the end of the year, the Plan Administrator identifies the nonvested amounts and removes them from the investment accounts, returning the monies to the bank trust account. The funds are either (1) distributed to all other participants in a proportionate way relative to their 401k participation or annual compensation, or (2) used to reduce the employer's cost of matching in the new year.

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Processing Mandatory Minimum Distributions at 70 1/2 Years

See Chapter 6, Distributions.

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Running Yearly 5500 Summary Worksheet

See Chapter 9, Reports.

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Running Official Year-End Compliance Tests

See Chapter 8, Testing.

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Preparing and Distributing Summary Annual Report

This report is due to all participants by the last day of the ninth month after the end of the plan year. See Chapter 9, Reports, for a description of this report.

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Compiling Year-End Auditor's Worksheet

See Chapter 9, Reports, for a description of this report.

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Filing U.S. Government Forms

See Chapter 9, Reports.

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