Many qualified plan sponsors are not aware of when they should contact the Plan’s TPA to discuss changes regarding the company. The plan sponsor should contact the TPA if there are changes in the company’s ownership, company structure, or changes in the employee demographics. Contacting the TPA will help the TPA ensure the plan continues to meet the objectives of the plan sponsor and maintain the qualified status of the Plan. A few of the reasons to contact the Plan’s TPA are listed below (this is not an all-inclusive list).
Change in entity type
If the employer changes from a partnership to a corporation, the due date for the salary deferrals for the owners changes from “the due date of the tax return” to “as soon as administratively feasible.” Partners and sole proprietors have until the due date of the tax return to make the salary deferral deposits for the owners (provided they executed a salary deferral election before the end of the plan year). With a change from a partnership or sole proprietor, the owners should have their salary deferrals withheld from their pay checks the same as other participants.
Sale of the Company
If the plan sponsor is planning to sell the business, contact the plan’s TPA for options regarding the plan (terminate the plan, new buyers maintain the current plan, etc.). The plan sponsor will need to let the TPA know the type of sale (stock sale or asset sale).
Purchase of another company
The plan sponsor should contact the TPA before the purchase of another company to discuss eligibility options regarding the employees of the company purchased. The plan sponsor will need to let the TPA know if the purchase is a stock purchase or asset purchase.
Hiring of a family member
Hiring a family member of the company’s owners may help or hurt the plan’s nondiscrimination testing depending on the type of plan. You will want to discuss how the family member affects the plan’s testing before the family member becomes eligible to participate in the plan.
Change in the company ownership
Changes in the ownership within the company may affect the nondiscrimination testing. Employees who were non-highly compensated may become highly compensated or key employees due to a change in their ownership percentage of the company.
Employee Stock Ownership Plans (ESOP) and Cash Balance plans are types of plans that may assist owners in succession planning.
Hiring or termination of a large number of employees
Sudden change in the number of employees can positively or negatively affect the discrimination testing of the Plan. Letting the TPA know as soon as possible will enable the TPA to provide options regarding change in the future number of plan participants. The plan may have a partial plan termination if there is a large decrease in the number of plan participants.
Change in the Human Resources (HR) department
The TPA can help new HR employees understand the requirements of maintaining the qualified status of plan.
Keeping the Plan’s TPA up to date and informed about changes to the company will help the TPA minimize the effect of the changes on the plan. If you are not sure whether you need to contact the plan’s TPA, the best option is to contact the plan’s TPA and discuss the changes.