Sharing census information at the close of each plan year allows TPAs to proactively administer a retirement plan, find potential issues and maintain a plan’s tax-qualified status.

The Internal Revenue Service (IRS) and the Department of Labor (DOL) require workplace retirement plans to pass annual compliance testing. The accuracy and completeness of a plan’s “census data” — the employees’ compensation and contribution information as well as certain plan sponsor-focused data — is required for compliance testing, making census data the most important aspect of a retirement plan. (Some would argue plan design should be at the top of the list, so let’s call it a tie.)

While accurate census data can keep the IRS and DOL happy, it also meets the needs of a plan’s service providers — the third-party administrator (TPA) and recordkeeper of the plan. Without accurate and timely employee data, the plan providers can’t do their administrative and recordkeeping services effectively. Incorrect or missing census data makes critical tasks impossible — for example, knowing when employees are eligible for the plan and which ones are highly compensated.

Types of Census Data

The census information a plan sponsor prepares falls into these four categories:

• Employee data, such as first and last name, date of birth, Social Security number, hire date, termination date, rehire date (plus a complete employment history if there are multiple rehire dates) and hours of service.
• Compensation data, including gross compensation, compensation earned before the employee became a participant and any excluded compensation. (The plan document should outline the exclusions.)
• Contribution data, such as the deferral amount the employee contributed to the plan and whether they are pre-tax or Roth deferrals, as well as any employer contributions deposited during the year.
• Plan sponsor-specific data, including company ownership percentages and any officers and family members working for the company.

Timing of Census Data

Preparing your plan’s census data is an annual occurrence, and we ask clients to give us their data within 30 days after the close of the plan year. (For calendar-year plans, this deadline is January 31.) Sometimes, this deadline can be hard to meet, depending on the availability of employee W-2s. However, your year-end payroll report also contains the information being requested and should be used to assist in the data collection process.

Receiving census data information promptly allows for ample time to review plans that require actual deferral percentage (ADP), actual contribution percentage (ACP) and other annual testing. Failed testing often requires corrective distribution information to be provided to the plan sponsor for processing in a timely manner. Additionally, census data is used for reviewing, calculating and providing employer contributions to you and your accountant for your required tax filings.

Census Best Practices

Here are a few tips that make the annual census data-gathering process easier:

• When you get ready to prepare your census data, have these three pieces of information nearby:
  o Year-end payroll report
  o Employees’ W-2s
  o Retirement plan document
• If you have questions about certain data — for example, employee compensation that needs to be verified — call us before finalizing the census.
• While an annual review of your census data is generally sufficient, you can do your own quarterly review — or even monthly if your employee population has a high turnover rate. Keeping a focus on census data throughout the year can reveal clues about important participant demographic and compensation changes that may suggest changes to your plan.

We’re Here to Help

When we receive complete and accurate census data from you at the close of each plan year, we can assist you with retirement plan administration, find potential issues before they become problematic and help your plan stay compliant.

If you’d like to continue the conversation about plan census data, call Definiti at 1-888-912-3653 or email sales@definiti-llc.com.

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This material has been prepared for informational purposes only, and is not intended to provide legal, tax or investment advice. Any tax-related discussion contained in this material is not intended or written to be used, and cannot be used, for (i) avoiding any tax penalties, or (ii) promoting, marketing or recommending to any other party any transaction or matter addressed herein. This material does not provide fiduciary recommendations concerning investments or investment management; it is not individualized to the needs of any specific benefit plan or retirement investor, nor is it directed to any recipient in connection with a specific investment or investment management decision. Please consult your independent legal counsel and/or professional tax advisor regarding any legal or tax issues raised in this material.

This information is intended to provide general information on matters of interest in the area of qualified retirement plans and is distributed with the understanding that the publisher and distributor are not rendering legal, tax or other professional advice. Readers should not act or rely on any information in this article without first seeking the advice of an independent tax advisor such as an attorney or CPA.