For plan administrators and fiduciaries overseeing ERISA-covered retirement plans, compliance with the Employee Retirement Income Security Act (ERISA) is paramount. A critical deadline looms—March 17th—the final date to correct excess contributions for highly compensated employees (HCEs) and failed Actual Deferral Percentage (ADP) or Actual Contribution Percentage (ACP) tests from the prior plan year.

Understanding ADP/ACP Testing and ERISA Compliance

The IRS requires 401(k) plans to undergo nondiscrimination testing, specifically ADP and ACP tests, to ensure fairness in contribution levels between highly compensated employees and non-highly compensated employees (NHCEs). When a plan fails these tests, excess contributions must be refunded to HCEs or reallocated to NHCEs by the March 15th deadline (March 17th in a leap year) to avoid IRS penalties and excise taxes.

Consequences of Missing the March 17th Deadline

If a plan sponsor does not correct excess contributions by the deadline:

  • A 10% excise tax is imposed on the excess amount.
  • The plan may risk compliance failures that could lead to potential disqualification.
  • Fiduciaries may be exposed to claims of mismanagement under ERISA, emphasizing the need for robust ERISA fidelity bond protection.

ERISA Fidelity Bonds and Fiduciary Responsibility

Ensuring compliance with ERISA extends beyond annual testing. The Department of Labor (DOL) mandates that all individuals handling plan assets be covered by an ERISA fidelity bond to protect against fraud and dishonesty. ERISA bond coverage must be at least 10% of plan assets, with a minimum of $1,000 and a maximum of $500,000 per plan ($1 million for plans with employer securities).

Best Practices for Plan Sponsors

  1. Conduct Preemptive Testing – Review plan contributions periodically to ensure compliance before the year-end.
  2. Act Before the Deadline – Refund or reallocate excess contributions before March 17th to prevent excise tax liabilities.
  3. Maintain Proper Bonding – Ensure that the ERISA fidelity bond requirements are met to protect against fiduciary breaches.
  4. Consult ERISA Experts – Work with compliance professionals, third-party administrators (TPAs), and surety bond providers like Surety One, Inc. to maintain adherence to regulations.

Secure Your ERISA Bond with Surety One, Inc.

As an industry leader in ERISA fidelity bonds, Surety One, Inc. ensures your plan remains compliant with ERISA bonding requirements. Whether you need a new bond or an increase in coverage, we provide rapid approvals and competitive rates to keep your plan protected.

Don’t wait until the last minute! Ensure your compliance and protect your plan with an ERISA bond from Surety One, Inc. before the March 17th deadline. Contact us today for immediate assistance!