401k Rules - Part 1

Updated 5.31.16

Third Party Administrator 401k - The online 401k

If you need a Third Party Administrator 401k - ok, so that's what you are searching for right? Well in order to be found when you search that term, we have to include it in the blog post, even though it's not gramatically correct, make sense? Well if you need one, we are a Third Party Administrator 401k or more accurately a Third Party Administrator of 401ks... 

We are located in Sacramento, California but service clients all over the US. We have a lot of free resources like our guide to Choosing the Right Plan for your Business. We are servicing more and more clients from out of state that are looking for a simple and completely online service - the online 401k. If you know you are ready to set up a plan - skip ahead and request a consultation. For more info and preliminary research, keep reading.

You can read more about some of the 401k rules below.

The 401(k) rules require that plans complete annual compliance testing and certain corrections must be complete within 2 ½ months after the end of the plan year.  Since most plans are run on a calendar year those corrections must be done by March 15 according to the 401(k) rules.

The compliance tests that we must complete by March 15 are just one of dozens of 401(k) rules that must be followed.  It is overwhelming sometimes – particularly to companies adopting a plan for the first time.  Plan Sponsors are required to understand and follow all of these rules, so our services are typically retained to help employers meet their responsibilities in this area.Third Party Administrator 401k, online 401k, 401k rules

This post (and two more that will follow) will summarize most of the 401(k) rules with a brief description of each.  You can bookmark this page as your own personal Wikipedia of 401(k) rules!

  • Plan documents.  A plan isn’t a plan until you have signed a plan document.  The document outlines your choices for how your plan will be run, and establishes the trust into which deposits will be made.  Accounts for the plan cannot be established until the document is in place.
  • Enrollment of employees.  For the most part, all employees will eventually be eligible for the plan.  The 401(k) rules allow you to require that an employee work for you for a time (up to 12-months), or attain a minimum age (21 or less) before they become eligible for the plan.  You may also be able to exclude certain classes of employees like Union employees, or those working overseas.  In some cases other classes of employees may be excluded from the plan, but that excluded class cannot make up more than 30% of the workforce.
  • Participant notices
    • When an employee is eligible for the plan he must be given some information about the plan.  A Summary Plan Description (SPD) must be given to all eligible employees within 90-days of their enrollment into the plan.  This is a “plain-English” version of the plan documents.
    • If the plan has been amended or changed from its original version, a Summary of Material Modifications outlining any change to the original SPD must be provided to the employees. 
    • Notices announcing plan provisions like automatic enrollment, Safe Harbor contributions, Qualified Default Investment Arrangements, Fee Disclosures, or the like must usually be provided 30-days prior to enrollment.
    • Enrollment materials include 401(k) contribution elections, information about the investment choices in the plan (if the participant is allowed to make investment choices for his account), and a beneficiary designation form.
    • Deposits.  401(k) contributions and participant loan payments must be deposited to the trust within at least 7 business days from the payroll date.  Employer contributions, like matching contributions or profit sharing deposits can be made anytime throughout the year up until the due date of the business income tax return or according to provisions outlined in the plan document.  Prevailing Wage contributions, if any, must be deposited at least quarterly.  Most investment custodians will require that you post contributions for each participant on their website, then they will ACH the funds from your bank account.
  • Contribution limits.  There are several different limits to watch under the 401(k) rules:
  • Deferral limit.  This is the maximum amount a person can contribute to his 401(k) plan in a calendar year.  The maximum allowed by law in 2015 is 100% of the employee’s pay up to $18,000.  The plan document may limit the contribution to something less than this maximum.New Call-to-Action
  • Catch up contributions.  If an employee is going to attain age 50 on or before the end of the year, then he can have an additional $6,000 taken from his salary in 2015.
  • Annual limit.  This is the maximum amount of all contributions made to a participant’s account in a plan year.  Any combination of Employee Deferrals, Matching contributions, Profit Sharing contributions, or forfeitures allocated to a single participant’s account in 2015 cannot exceed 100% of the employee’s pay up to $53,000.  Catch up contributions are not included in this limit, so a person over age 50 can have up to $59,000 as his annual limit.
  • Deduction limit.  The company can deduct up to 25% of total eligible payroll as its contribution to the plan in any plan year.


If you want to set up a company 401k, you'll definitely need a Third Party Administrator 401k - or a TPA to help administer your 401k and help make sure you follow the above rules. It's much simpler than it sounds above, because this is our business. We'll help you every step of the way, like sending you reminders to send out your required notices or check your contributions and run calculations for you so that everyone is getting a fair shake. We'll take care of the details so that you can do what you do best, run your business. Give us a call. 916.922.3200

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