Frequently Asked Questions | Qualified Retirement Plans

Frequently Asked Questions

Learn the specifics of Qualified Retirement Plans.

Please select the document link below that matches your plan type. If you have questions or need additional assistance please contact your Polycomp Administrator.

What is EFTPS, who does it effect, and what do I need to do, if anything?

All Federal tax payments from qualified retirement plan distributions are required to be submitted electronically using the Electronic Federal Tax Payment System (EFTPS). EFTPS requires businesses and individuals to submit Federal tax deposits via the website or by phone.

Does EFTPS cost me anything?
No! EFTPS is a free service provided by the IRS.

Who should I contact with questions?
For questions regarding your EFTPS account or enrollment, contact EFTPS customer service at 800.555.4477. All other questions should be directed to our Distributions Department at 800.952.8800 or

How do I enroll with EFTPS?

You may have already received a notice from EFTPS regarding the enrollment of your plan.

If you HAVE received a notice regarding enrollment:
  • Call 800.555.3453 to activate your enrollment:
    o Enter your retirement plans' trust EIN and the PIN you received in the mail from EFTPS
    o Enter your financial institution information (including account number, bank routing number and account type)
    o Enter the phone number of the person to contact in case of questions. This could be you or a member of your staff
    o Record the enrollment number you receive and keep for future reference
  • Email once your enrollment is complete
  • Begin submitting Federal income tax withholding online ( or by phone

If you HAVE NOT received a notice regarding enrollment:
  • Before you get started, make sure you have the following:
    o Retirement plans' trust EIN (not the company's employer identification number)
    o Financial institution information (account number, bank routing number and account type)
    o Phone number of the person to contact in case of questions, and address and name as they appear on your IRS tax documents
  • Log onto
    o Select “Enrollment” from the menu bar
    o Accept the “Privacy Act” disclosure
    o Elect to enroll as a “Business”
    o Follow the prompts and supply the requested information
  • Within 10-15 business days after completing the online enrollment you will receive a confirmation package in the mail from EFTPS which will include your PIN
  • Upon receipt of this package, call 800.555.3453 and follow the steps outlined above to active your enrollment

What are the limits on benefits and compensation?

The IRS and DOL require certain annual reporting and filings in order to keep your retirement plan qualified. Additionally, the contributions to retirement plans are limited based on those published annually by the IRS and DOL.

Qualified Plan Limitations 2018 2017 2016
Annual Compensation (Plan Years Beginning) $275,000 $270,000 $265,000
Elective Deferrals $18,500 $18,000 $18,000
Catch-up Contributions $6,000 $6,000 $6,000
Highly Compensated Employee Threshold  $120,000  $120,000  $120,000
Defined Contribution Plan Annual 
Addition (Limitation years ending)
 $55,000  $54,000  $53,000
Key Employee (Officer threshold)  $175,000  $175,000  $170,000
Social Security (Taxable) Wage Base  $128,400  $127,200  $118,500
Defined Benefit Maximum Annual Benefit  $220,000  $215,000  $210,000

Qualified Plan Limitations

What is a PEO and how do they apply to leased employees?

A PEO is a firm that leases employees to various employers. Typically, they will be the outsourced employee resource for payroll, employee benefits, and human resource matters.

If I lease my employees, must I include them in my SEP, SIMPLE, or Qualified Plan?
According to IRC 414(n) if you lease more than 20% of your employees, they must be eligible to participate in your program after completing certain age and service requirements.

Is there any way to nevertheless exclude the leased employees from participating in my qualified plan?
Generally no. However, there are instances in qualified plans whereby you can exclude a class of employees over and above the normal age and service requirements. Please note, though, that if too many employees are excluded by class (compared to the number that are not excluded), this exclusion might negatively affect the plan’s ability to pass the coverage requirements under IRC 410(b). Such a failure not only adds to the expense of administering the plan, but also may require you to cover and contribute on behalf of certain leased employees to avoid a disqualification of the plan, in operation. Please contact your local Polycomp office for a further explanation of how these exclusions work.

If the leasing organization (PEO) has its own plan and makes contributions on the employees’ behalf, must I still contribute for them under my program?
Yes. In fact, under IRS News Release 200252, your employees are considered both your employees and employees of the leasing organization. Therefore, the employees would be covered under both plans and you and the PEO would contribute under what is called a multiple employer plan arrangement that is quite complicated and quite expensive to administer over and above the contributions you are required to make.

My leasing organization has told me that I can offset any contributions to my plan by any contributions accrued under their plan, is this true?
Please refer them to IRS Notice 200252. While this has been a gray area in the past, this Notice seems to clear up the confusion.

Is there any alternative?
Yes, depending on the demographics of your group, Polycomp may be able to design a Plan that can benefit the principals and minimize contributions to your staff.

Must there be a formal leasing organization involved to come under these rules?
No. For example, a Physician who has his own Practice but utilizes the services of another Physician’s employees may be considered to “lease” these employees. Certain “Shared Office” employees may also be structured in such a way as to invoke the leased employee rules. Please contact our office for more information.

What is a 412(i) plan?

A 412(i) plan is a qualified defined benefit plan that must be funded exclusively with insurance contracts, either annuities or life insurance or a combination of both.

What’s the difference between traditional defined benefit plans and 412(i) plans?
The only difference is in determining the funding requirements of IRC 411, otherwise known as “the contribution amount”. Though funded differently, they are governed by the same qualification rules, including limits on retirement and death benefits.

What features make a 412(i) more attractive than a traditional defined benefit plan?
  • Administrative fees are usually lower because no enrolled actuary needs to be involved since a Schedule B is not required
  • There can be no “over funding” or “under funding” (by definition)
  • The contribution each year is not influenced by market fluctuations
  • The benefits are guaranteed by the insurance contract
  • Because 412(i) plans are not subject to the basic funding requirements of IRC 411, there is flexibility for a plan sponsor to fund more rapidly, thereby getting a larger current deduction by purchasing a larger face amount of life insurance than might otherwise be needed
What features of a 412(i) might cause an employer to hesitate?
  • No policy loan may be outstanding at any time during the plan year
  • No flexibility in investments. An insurance company must hold the assets
  • Premiums must be paid as they come due. There is no flexibility in costs
  • It is common to pay a 4% to 5% frontend load on the insurance product
  • The IRS has expressed concern over what it perceives to be an abuse of 412(i) plans by some plan sponsors and has indicated that guidance for these “abusive plans” have a high priority. It has been suggested that the guidance may apply retroactively and that criminal penalties in egregious situations could result. AALU Washington Report No. 03 – 13 (2/7/03)

Who would want a 412(i) plan?
Someone who needs more life insurance than can be purchased with available after-tax dollars. For more information, please contact our office.

What are Related Employers, Controlled Groups, and Affiliated Service Groups?

Does a business owner need to be concerned if he or she owns all or part of two different businesses and only wants to cover the employees of one of the businesses with a 401(k) plan or pension plan?
Yes. For example, Ed Jones owns 100% of a real estate sales office and 90% of a coffee shop. If Ed wants to establish a 401(k) plan for his real estate office, he will probably need to offer the plan to the employees of the coffee shop. The real estate office and the coffee shop are “related employers.”

How much ownership can a business owner have and not have to be concerned about being a related employer?
It is not a simple question to answer. It depends on the relationship of the employers and whether or not it is a controlled group or an affiliated service group.

What is a controlled group?
A controlled group of businesses is a group of related employers. A controlled group of businesses may be comprised of corporations, unincorporated businesses, partnerships, limited liability companies, sole proprietorships, tax-exempt organizations, or any other form of organization doing business.

How are the employers related?
A controlled group relationship exists if the businesses have a “parent-subsidiary” relationship or a “brother-sister” relationship.

What is a Parent-subsidiary relationship?
A parent-subsidiary relationship exists when one business owns at least 80% of one or more other businesses. For example, Corporation X owns 95% of Corporation Y. X and Y constitute a controlled group.

What is a Brother-Sister relationship?
A brother-sister relationship exists if 5 or fewer common owners satisfy an 80% common ownership test and a 50% identical ownership test.

What is an affiliated service group?
An affiliated service group is another type of group of related employers. This type of group includes two or more organizations that have a service relationship and in some cases, an ownership relationship.

What is an example of an affiliated service group?
A classic example of an affiliated service group is a law firm that is structured as a partnership. There are four partners. Each partner is incorporated as a professional corporation. Each corporation has a 1/4th partnership interest in the law firm. In this case, the partnership and the four professional corporations constitute an affiliated service group.

What is the effect of being a controlled group or an affiliated service group?
If two or more organizations are part of a controlled group of businesses, or an affiliated service group, the organizations are treated as a single employer when applying qualified plan requirements.

How can I find out if I have a controlled group or an affiliated service group?
Contact Polycomp first. For many situations it is clear whether or not a related employer situation exists. Other business relationships may be quite complicated and you may need the advice of an ERISA Attorney. Please see our web link to several ERISA law firms. Please contact our office for more information.

What are some possible administrative issues I may run into while working with Polycomp?

How much does Polycomp charge to provide administrative services for my plan and how will I be billed?
Most of your fees will be based on an annual base fee and a per participant fee. Before we begin your annual administration, you will receive an invoice for the first installment, which represents approximately one half of the annual administration charges. When all of the yearend work is completed, you will receive a second invoice for your total annual administration fees less the amount of the first installment.

Ongoing work, such as participant distributions, loans, qualified domestic relation orders, and amendments will be billed as the work is completed on a monthly basis.

How and when can I distribute a former participant’s vested interest?
In the event of a participant’s separation from service, retirement, death or disability, you may complete and send a Request for Distribution to Polycomp. We then send the participant the required distribution forms. Once the participant returns the forms to Polycomp, we will send the necessary materials with a letter of instruction to you for processing.

Please keep in mind that the actual timing of distributions depends on the investment vehicle and distribution policy as stated in your plan document. The timing of your payouts should be uniform and consistent.

My plan is Top Heavy. What does that mean?
Under the IRS Code, a plan is Top Heavy if more than 60% of the benefits are attributed to certain executive employees called “Key Employees”. If your plan is Top Heavy, you may be required to use a vesting schedule that causes participants to become vested more quickly than your plan otherwise provides. You may also be required to increase the level of benefits to the Non-Key Employees.

Do I have to obtain a bond for my plan? If so, what is the required coverage?
If your plan covers only the owner (shareholder, partner, or proprietor) or the owner and spouse, your plan is not subject to the bonding requirements. If your plan covers employees, the IRS requires that your plan be covered by a fidelity bond in the amount of 10% of the plan assets, with a minimum amount of $10,000.

For some small plan filers (less than 100 participants), additional bonding may be required in order to avoid an annual audit by an independent CPA. If at least 95% of the assets of your plan are invested in “qualifying plan assets” as of the beginning of the plan year, you are exempt from this additional requirement.

Qualifying plan assets include:
  • Employer securities
  • Participant loans
  • Assets held by banks, insurance companies, broker-dealers, or another organization authorized to hold IRA assets
  • Mutual funds
  • Investment and annuity contracts issued by an insurance company
  • Certain participant directed accounts

If at least 95% of your plan assets are not invested in the qualifying assets listed, you may be required to obtain additional bonding for 100% of the non-qualifying assets.

What is the deadline to deposit the employees’ 401(k) deferrals into the trust account?
The participants’ contributions are required to be deposited to the trust as soon as they can be reasonably segregated from the general assets of the employer. Depending on the size of the employer and whether the employer has a single or multiple locations, the requirement could be as short as two business days from the date the employees’ wages are paid.

How can I be sure that my plan is the best design for my company?
Polycomp continually monitors legislative changes that affect our client’s retirement plans. If your situation changes, we will review with you the possibilities for modifications to the plan to better suit your new circumstances. Of course, you may call your Consultant at any time to discuss a possible redesign of your plan.

Why do I have to complete the Employer Questionnaire each year?
The questions are designed to keep our records up to date with your current situation. In order for Polycomp to thoroughly monitor your plan and keep it in compliance with IRS and DOL rules, the information on the Employer Questionnaire must be completed annually.

Must I include all of my eligible employees?
There are several tests required by the IRS that must be passed for your plan to remain in compliance. While you may be able to exclude certain employees from receiving a benefit from the plan, all eligible employees must be included in the testing. Excluding eligible employees may make it impossible to pass these tests. Therefore, it is extremely important for you to report all employees to us each year.

May a Participant in my plan borrow against his or her account balance?
At the time the plan was created, you made a decision to include participant loans or exclude them, and it is reflected in the plan document. If circumstances have changed regarding this provision, we can amend the document.

To be exempt from the prohibited transaction rules, all loans must meet the following requirements:
  • Loans must be available to all participants on a nondiscriminatory basis
  • A maximum loan cannot exceed the lesser or 50% of the participant’s vested interest or $50,000, less the highest balance in the prior 12 month period
  • The $50,000 maximum applies to the total of all plan loans
  • The term of the loan must not exceed five years unless it is used for the purchase of the principal dwelling of the participant
  • The interest rate must be reasonable
  • Principal and interest must be amortized in substantially level payments that are made at least on a quarterly basis (We recommend payroll withholding for loan payments each pay period)
  • If a participant is married, written notarized spousal consent for the loan may be required
  • The loan must be properly documented

Polycomp can provide you with appropriate documents, calculate the maximum loan amount, and advise you on a reasonable interest rate.

When should I notify Polycomp if in the future I am considering selling my business or purchasing another business?
Please contact Polycomp immediately! Depending on your situation, it may be advantageous to change some of the plan document provisions or terminate the plan before the sale or purchase is final. Please refer to our Frequently Asked Questions on Related Employers. For more information, please contact our office.

What is a blackout period and what are the notice procedures?

A black out period is any period of more than 3 business days during which the ability:
  • To direct or diversify assets
  • To obtain loans, or
  • To obtain distributions – is temporarily suspended, limited, or restricted

When must the notice be provided?
Notice must be provided to affected participants and beneficiaries at least 30 days but not more than 60 days before the last date the participant could exercise the affected right.
Example: If the blackout period begins April 1st, the notice must be given 30 days before March 31st, which is March 1st.

What information should be in the notice?
  • The reason for the blackout
  • Explanation of what will be affected
  • The expected beginning date and ending date of blackout period
  • Who to contact if there are any questions
  • If investments are affected, a statement advising participants to review their investment decisions in light of the forthcoming blackout
How can the notice be delivered to participants?
Notices must be sent by either U.S. mail, private delivery services or by electronic delivery, such as e-mail.

What if the length of the blackout period changes?
If there is a change in the blackout period, a new notice must be provided to all participants and beneficiaries as soon as possible explaining the reasons for the change.

What are the penalties if the participants are not notified timely?
A civil penalty would apply equal to $100 per participant, per day, for violation of the blackout notice rules. The penalty period starts on date notice should have been given and ends on the last day of the blackout period. The penalty cannot be paid from plan assets. The DOL must serve a “Notice of Intent to Assess a Penalty” on the plan administrator. In response, the plan administrator may file a “reasonable cause” statement within 30 days explaining why the penalty should be reduced or not assessed. Criminal penalties may also apply for a willful violation of the notice requirements.

Are there any exceptions to the 30-day rule?
A 30-day notification rule does not apply in the following circumstances:
  • Delaying the blackout period for the 30 days would violate the fiduciary’s duty to act for the exclusive benefit of plan participants, or to act with care, skill, prudence and diligence
  • The blackout period happens due to events that were unforeseeable, or circumstances that were beyond the control of the plan administrator
  • The blackout period applies only to participants who become part of the plan (or cease participation) as a result of a merger, acquisition, divestiture or similar transaction involving the plan or the plan sponsor

However, notice must be provided as soon as reasonably practicable in these circumstances. Please contact our office for more information.

What are Roth Deferrals and how are they applied?

Under a 401(k) plan, an eligible participant may elect to defer a portion of his/her salary into the plan as a “401(k) deferral.” If permitted under the plan, employees have a choice to designate their 401(k) deferrals as Roth deferrals, pre-tax deferrals, or a combination of each. Pre-tax deferrals are not subject to taxation at the time such amounts are contributed to the plan. Rather, a participant generally may defer the recognition of income with respect to his/her pre-tax deferrals until the participant takes a distribution from the plan, at which time the participant is taxed on the entire amount of pre-tax deferrals distributed from the plan (including any earnings). Roth deferrals, on the other hand, are subject to taxation at the time such amounts are contributed to the plan (i.e. Roth deferrals are “after-tax” deferrals). However, if the participant withdraws his/her Roth deferrals in a “qualified distribution,” the participant will not have to include in income any Roth deferral amounts distributed from the plan (including earnings).

How does a participant designate deferrals as Roth deferrals?
In order to have any portion of deferrals treated as Roth deferrals, a participant must make an irrevocable election before the amounts are withheld from his/her paycheck to treat such amounts as Roth deferrals. A participant may change his/her deferral election with respect to future deferrals, but once a participant designates deferrals as Roth deferrals, such election may not be changed with respect to deferrals already made under the Roth election.

How much may a participant contribute as a Roth deferral?
Roth deferrals are subject to the same limits as apply to pre-tax deferrals. For 2015, a participant will be able to contribute up to $18,000 of deferrals under a 401(k) plan. The $18,000 limit applies to all deferrals in the aggregate (both Roth and pre-tax deferrals). A participant does not have a separate deferral limit for Roth and pre-tax deferrals. Thus, if a participant makes $10,000 of pre-tax deferrals in 2015, the participant will only be able to make $8,000 of Roth deferrals for such year.

May a participant make catch-up contributions to a Roth deferral account?
Yes, if a participant is at least age 50 during the calendar year, the participant may make additional “catch-up” deferrals under the plan. For 2015, the maximum catch-up contribution available to a participant is $6,000. A participant may designate any portion of his/her catch-up contributions (to the extent permitted under the plan) as Roth deferrals.

How are Roth deferrals tested for nondiscrimination under a 401(k) plan?
Roth deferrals are treated in the same manner as pre-tax deferrals for purposes of applying the nondiscrimination rules applicable to qualified 401(k) plans. Thus, all deferrals under the plan (both Roth deferrals and pre-tax deferrals) are subject to a special nondiscrimination test (the “ADP test”), unless the plan is designed as a “safe harbor” plan). This is true even though Roth deferrals are after-tax contributions.

What is a “qualified distribution” of Roth deferrals?
A participant may receive a tax-free distribution of Roth deferrals (both the Roth deferral amount and earnings) if the distribution satisfies the conditions for a “qualified distribution.” To be a qualified distribution, the participant must have maintained the Roth deferral account for at least five years prior to the date the participant takes the distribution of Roth deferrals (measured from the first day of the year in which the participant made the first Roth deferral under the plan). For example, if a participant begins making Roth deferrals in 2010, the 5-year rule would be satisfied as of January 1, 2015 for all Roth deferrals under the plan. In addition, to be a qualified distribution, the participant must have a qualifying event. For this purpose, a qualifying event is attainment of age 59½, death or disability. A distribution of Roth deferrals for any other reason (e.g., termination of employment or hardship) is not a qualifying event.

When may a participant receive a distribution of Roth deferrals under the plan?
Roth deferrals generally are subject to the same in-service distribution restrictions as pre-tax deferrals. Thus, unless the plan specifically provides for different distribution provisions for Roth deferrals, a participant will be able to withdraw Roth deferrals at the same time as other pre-tax deferrals. However, because of the different tax treatment that applies to the distribution of Roth deferrals, a plan should designate how distributions are allocated between Roth deferrals and pre-tax deferrals.

What are the rollover rules pertaining to Roth deferrals?
A participant may roll over the amounts distributed from his/her Roth account into a Roth account under another qualified plan or into a Roth IRA, either by direct rollover or within 60 days following receipt of the distribution. However, if a participant elects to do a 60-day rollover to another qualified plan (rather than a direct rollover), the participant will only be able to roll over the taxable portion of the distribution (e.g., the earnings associated with his/her Roth deferrals) to the new plan. (All amounts associated with the Roth deferrals could be rolled over to another qualified plan, if the employee elects a direct rollover to such plan.) To ensure the recipient plan receives appropriate information regarding a rollover of Roth deferrals (including the date the participant first made Roth deferrals under the plan from which the rollover is being made), new reporting requirements apply where Roth deferrals are directly rolled over to another qualified plan.

Roth deferrals also may be rolled over to a Roth IRA (but not to a traditional IRA). A rollover to a Roth IRA can be accomplished via a direct rollover or a 60-day rollover. A Roth IRA cannot be rolled into a qualified plan.

Are Roth deferrals a good idea?
There is no easy answer to this question. However, some general observations can be made. If a participant anticipates that his/her tax rate will be higher at the time of distribution, Roth deferrals may be a better option since the participant will be paying taxes currently at a lower rate than would apply upon distribution of pre-tax deferrals. However, the participant also loses the ability to invest the amount attributable to the taxes paid to the IRS. A careful analysis should be done of the individual’s saving habits, economic position, and expected tax rates before deciding whether Roth deferrals or pre-tax deferrals will provide a greater after-tax distribution at retirement. Of course, the younger a participant is, the longer the Roth deferrals have to grow completely tax-free. We have developed a Roth 401(k) vs. Traditional 401(k) Calculator to help you determine what is best for you.

Another advantage of Roth deferrals over pre-tax deferrals is the ability to delay the distribution of such amounts until death. While pre-tax deferrals must be distributed from a 401(k) plan (or IRA, if rolled over) beginning at age 70-1/2 (or termination of employment, if later, for non-5% owners of the employer), Roth deferrals may be rolled over to a Roth IRA. Under current rules, a participant may delay the distribution of amounts in a Roth IRA (including amounts rolled over from a Roth 401(k) account) until death (or the death of the participant’s spouse, if such amount is rolled over to the surviving spouse). Upon the death of the participant (or the participant’s spouse, if applicable), the entire distribution may be passed on to the participant’s beneficiaries without being subject to income tax.

What is EFAST2, who does it affect, and what do I need to do, if anything?

EFAST2 is an all-electronic system designed by the Department of Labor, Internal Revenue Service, and Pension Benefit Guaranty Corporation to simplify and expedite the submission, receipt, and processing of the Form 5500 and Form 5500-SF. Beginning with plan year 2009, all Form 5500 Annual Reports must be filed electronically.

Who does this affect?
This affects all plan sponsors (excluding owner and spouse only plans) who will sign and submit Form 5500s.

What do I need to do?
If you will be filing a Form 5500 or Form 5500 SF, the individual who will be signing the Annual Report must obtain EFAST2 electronic credentials to sign and submit the Form. Your credentials will consist of a UserID and PIN. We recommend that you obtain your credentials as soon as possible so you will have them when it comes time to sign and submit your 5500.

How do I obtain my credentials?
  • Designate an e-mail address to use for communication associated with your Form 5500 filing. It should be one that is monitored regularly as this will be used for communication from the Department of Labor regarding your Form 5500. Your regular e-mail address will work.
  • Go to, click “Register” on the Main menu and follow the online instructions. Note: You will register as "Filing Signer."
  • You will receive an email from the DOL that you must respond to in order to complete the registration process. Please be aware that emails may go to your SPAM/Junk email box - be sure to check these boxes for email from the DOL.
  • Inform your Polycomp Administrator that you have completed the EFAST2 registration process from the e-mail address you will be using. We will need this information when preparing your Form 5500.

Where can I locate the Executive Summary to the type of plan I have?