Get Your KSOP on by October 1, 2015

The typical Employee Stock Ownership Plan (ESOP) is designed to reward those who stay with the company, providing an annual allocation of contributions.  The typical 401(k) plan is designed to encourage employees to make salary deferral contributions.   When a single plan combines the two – that is a KSOP – and when the KSOP adds a formula permitting the employer to match employee elective deferrals, or better yet, a Safe Harbor contribution – that is called Sweettt!

Items to remember:

Safe Harbor (SH) 401(k) Implementation Deadline:  October 1, 2015

When implementing a new plan: 401(k) plans providing for a safe harbor component must be implemented no later than October 1st, 2015 to be effective for the 2015 plan year.  This deadline would apply to any current profit sharing (only) plan that adds a 401(k) and safe harbor feature, as well as to any newly implemented 401(k) plan that will provide for a 2015 safe harbor provision.

Existing 401(k) plans: Safe Harbor provisions can only be added to an existing plan before the beginning of the plan year, and they must be in effect for the entire year.  In order to get a free pass on the ADP/ACP Test Safe Harbor provisions cannot be changed or eliminated during the year except if the plan is terminated completely.  In the event of plan termination, the Safe Harbor contribution up through the date of termination would still apply.

Expect advance preparation and planning:  Planning is a necessity in order to establish a new tax-qualified plan or redesign an existing one.  The same goes for a safe harbor plan design.  Therefore, now is the time to consider whether a safe harbor feature is right for your company or your client’s plan in order to ensure that it can be fully operational by the deadline.

Technical Issues:  Failing ADP and ACP test?  With the right SH design, this testing is no longer needed.

Tax advantages of ESOP’s:   There are several major tax incentives to the selling stockholders and the corporation.

Totally check out Watkins Ross for your KSOP Third Party Administrator:  Watkins Ross designs and administers all types of retirement plans.  The staff at Watkins Ross not only assists our clients in complying with the regulations in a cost and time efficient manner, we also work with them to ensure their retirement plan meets the needs of the employees, as well as the objectives of the employer.

Comments are closed.