Offering a 401(k) plan can be a powerful tool for restaurants to attract and retain employees, and staying compliant is more important than ever. Below is a concise summary of what employers need to know heading into the year-end plan audit season.
Audit Requirements For 2024 Plan Year
As a reminder, beginning with plan years starting Jan. 1, 2023, the Department of Labor (DOL) requires audits based on the number of participants with account balances, not just those eligible to participate. Plans that have 100 or more participants with balances as of the beginning of the year must obtain a plan audit.
The “80/120 Rule” remains available: if your plan filed as a “small plan” in the prior year and has between 80 and 120 participants with balances this year, you may continue to avoid an audit.
Key deadlines for plans with a Dec. 31, 2024, year-end that meet the audit threshold:
- Form 5500 and audit are due July 31, 2025
- Deadline can be extended to Oct. 15, 2025, by filing IRS Form 5558
Read Also: Navigating The SECURE 2.0 Act: Implications For The Restaurant Industry
Common 401(k) Errors In Restaurant Plans
Restaurant employers face unique challenges in plan administration. Here are three of the most common areas where compliance issues arise:
1. Compensation Definitions & Tip Handling
Misinterpretation of the definition of compensation for eligibility for plan deferrals is a common compliance error. For restaurants, this is especially tricky due to tipped income.
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- If tips are included in plan-eligible compensation, you must track and remit deferrals properly. Since many tipped employees have little or no remaining pay after taxes, this can lead to complications.
- In most cases, it’s simpler to exclude tips from compensation in the plan document to avoid remittance gaps or payroll errors.
- Be sure to align your payroll system with how compensation is defined in your plan to prevent over- or under-contributions.
2. Timely Remittance Of Employee Contributions
The DOL requires contributions to be deposited as soon as administratively feasible, often within a few days of payroll. Plans with fewer than 100 participants may use the 7-day safe harbor for remitting contributions. Late remittances are still one of the most common audit flags.
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- Contributions should be deposited immediately after withholding, not left to accumulate or delayed for operational convenience.
- Late deposits, even by a few days, can result in the need to repay lost earnings and possibly file under the Voluntary Fiduciary Correction Program (VFCP) to avoid penalties. The Plan Sponsor needs to be consistent and remit as soon as administratively possible to avoid potential errors.
3. Eligibility & Enrollment Errors
Another frequent issue involves mistakes in applying eligibility rules:
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- Employees must be enrolled on their eligibility date in accordance with the plan documents.
- Only eligible employees may contribute. If a non-eligible employee is mistakenly enrolled, the employer must refund contributions and correct tax withholdings.
- Tipped employees cannot be excluded from plan communications or enrollment based on assumptions about their interest or income level. All eligible employees must receive the required plan disclosures within 90 days of eligibility.
SECURE Act 2.0: What’s In Effect For 2024
Several provisions of the SECURE Act 2.0 are already impacting 401(k) plans:
- The Required Minimum Distribution (RMD) age increased to 73 beginning in 2023.
- The penalty for missed RMDs dropped from 50% to 25%, and further to 10% if corrected promptly.
- Employees may now self-certify hardship withdrawals and take penalty-free distributions for certain emergencies and domestic abuse starting in 2024.
- Roth employer match and Roth catch-up contributions are now allowed, although most recordkeepers are awaiting implementation guidance.
These changes are designed to expand access and flexibility, but employers should coordinate with their third-party administrator (TPA) and payroll provider to implement them correctly and ensure proper amendments are in place.
Final Reminder
As you prepare for 2024 year-end filings and possible audits, now is the time to review plan documents, track participant counts, and confirm your administrative procedures. If you’re uncertain about your audit status or need help correcting past mistakes, reach out to your plan advisor, auditor, or TPA before the July 31 deadline. Click here to learn more about GBQ’s benefit plan and 401(k) and audit solutions.
By Kristin Romaker, CPA, Director, Assurance & Business Advisory Services
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