Plan Administration and Operation
Limits and testing are the core
Every administration question resolves to a limit, a test, or a timing rule. Know these by name: the IRC 402(g) elective deferral limit with age-50 catch-up; the 415(c) annual additions limit (generally 100% of compensation or the dollar cap, whichever is less); the 401(a)(17) compensation cap; ADP and ACP nondiscrimination testing; the top-heavy minimum under 416; coverage under 410(b); and the 401(a)(4) general nondiscrimination test.
Operational duties
Timely deposit of participant deferrals (use the DOL safe harbor of seven business days for small plans), loan limits (50% of vested balance up to $50,000, with repayment terms), hardship distributions, vesting and forfeitures, required minimum distributions beginning at age 73, and Form 5500 reporting with an independent audit once the plan has 100 or more participants at the start of the plan year.
ADP worked example
Non-highly compensated employees defer an average of 4% of pay. Since 4% falls between 2% and 8%, the HCE limit is NHCE ADP plus 2%, or 6%. If the HCE group averages 7%, the 1% excess is refunded with earnings. Corrective distributions are taxable in the year of distribution, and the 10% early distribution tax applies unless an exception applies. Ignoring the correction until the plan's own error-correction work is a classic exam trap.
Traps
- Refund deadlines and the related top-heavy and 415 consequences.
- The compensation cap applies to each individual, not to the plan as a whole.
- Catch-up contributions are not counted in ADP testing or in the 415(c) limit.
- The audit threshold counts eligible participants, not just those with balances.
- Missed deferral deposits can be corrected under EPCRS; the lost earnings calculation matters as much as the principal.