Group Plan FAQ

Employees must meet the following requirements to become plan participants:

• Age 21
• 1 year of service (1,000 hours worked)
• Entry occurs on specific dates during the year (January 1 or July 1)

 Certain groups (like some highly compensated employees) may be excluded based on plan design.

 These are standard IRS-approved eligibility thresholds that:

• Help control plan costs
• Ensure employees have meaningful employment before receiving benefits
• Keep the plan compliant with minimum participation rules

These thresholds may be adjusted with a plan amendment if your goals change.

The following eligibility requirements are considered the most restrictive eligibility requirements.

• Age 21
• 1 year of service (1,000 hours worked)
• Entry occurs on specific dates during the year (January 1 or July 1)

There is an option to require 2 years of service, however, it requires immediate vesting upon entry. So, it may not be the best option for all business. Here is an article.

Yes, and amendment can update eligibility requirements.  

Yes

An individual is not an employee if they were workings as a 1099 independent contractor. If that individual is hired as a W2 employee, their hire date is the effective date that they became an employee on your payroll.

Yes. Employees can:

• Stop withholdings at any time
• Opt out of deferrals entirely
• Increase or decrease contributions

Changes to increase or decrease withholdings are typically processed on a monthly basis. 

They can opt out, but:

• If safe harbor contributions apply, they may still receive employer contributions even if they opt out
• You still must include them for eligibility and testing purposes

Your employees receive a guaranteed pay credit annually. This follows the plan’s design.

Your annual contribution as the plan sponsor goes towards maintaining the investment account.

No matter the amount that you fund within the provided annual funding range, you and your participants will receive the credit outlined.

If you fund over the recommended amount, any excess will apply to future benefit credits.

The 401(k) plan is designed to combine with the cash balance plan which focuses on:

• Allocate higher contributions to owners
• Provide minimum required contributions to staff

 Under the 401(k) plan, we have implemented the opposite to promote the most cost-effective plan design.

• Minimize owners/key employees
• Allocate higher contributions to staff

We run annual testing to ensure compliance is maintained between both plans.  

With the combined cash balance and 401(k) with profit-sharing, the profit-sharing contributions do the heavy lifting for compliance testing.
The annual amount remains discretionary, you aren’t locked into a specific dollar amount. But, unless certain conditions are met, the profit-sharing contribution is required to ensure both plans pass all compliance testing compliance. 

We understand that in most cases, when income is high, your goal as a business owner is to maximize your tax deduction, and in leaner year, your cash flow may be down, and your funding goals may be limited.

The key thing to remember is that with the cash balance plan, benefit formula is guaranteed. So if you or participants meet the 1,000 hour service requirement a benefit for that year is earned. Which means likely funding to both the cash balance plan and a profit-sharing contribution will be required.

Elective Deferrals: Employee contributions (pre-tax or Roth)

Voluntary Contributions: After-tax contributions (less common, more advanced strategies)

Profit-sharing: Employer contributions that are discretionary and flexible

Each serves a different purpose in maximizing retirement savings.

A Pay credit also referred to as a Principal Credit. A specified amount will be credited to a participant at the end of each plan year. These amounts are determined by the formula written in the adoption agreement for the cash balance plan. The formula is typically a fixed percentage of compensation or a fixed dollar amount. This formula is outlined in the adoption agreement.

Participants earn this Credit according to the expected interest rate outlined by the adoption agreement for the cash balance plan. The amount can also be found in your adoption agreement, section C. We generally structure plans with a 5% interest credit rate.

Please note that changes in the cash balance plan’s account value will not directly affect the benefit amounts promised to each participant. Their pay credits and interest credits are guaranteed. This is important when it comes to the annual funding range.

Cash balance plans do not have individual participant accounts for each participant; the assets are pooled. Due to this, participants have a hypothetical account, which is only the value of their total benefit.

We provide this annually as part of the actuarial valuation.  On a day-to-day basis, the participant would not have an account balance they could check or view. Each participant’s balance increases by the pay credit and the fixed interest credit.

This plan permits participants to change deferrals monthly.

Allocated using a flexible formula (not necessarily equal across employees)

We use new comparability allocation methods, which typically permits most cost-effective breakdown to still pass testing.

Each participant can effectively be treated as their own group for allocation purposes.

This allows:

• Strategic contribution planning each year
• Custom allocation amounts per individual

This plan uses a new comparability structure (one group per participant).

This allows:

• Significant flexibility in how employer contributions are allocated
• The ability to favor owners or key employees
• Annual adjustments based on goals

All allocations must still pass IRS nondiscrimination testing. You can adjust allocations annually. However, all allocations must pass required testing.

Safe harbor means:

• The plan avoids ADP/ACP testing for employee deferrals.
• You must make a minimum employer contribution (typically 3%).

This simplifies compliance and reduces administrative risk. It protects the owner’s ability to maximize their deferral each year, even if other participants do not use the deferral.

The plan must still:

• Follow IRS contribution limits
• Pass coverage testing
• Satisfy nondiscrimination rules for profit-sharing

If a test fails, corrections may include:

• Adjusting contributions
• Providing additional contributions to employees
• Issuing refunds (in some cases)

We monitor this proactively to avoid issues.

Vesting determines when participants fully “own” their benefit.

Encourages employees to stay longer

Reduces cost if employees leave early (unvested amounts are forfeited)

This plan uses a 3-year cliff vesting schedule. This means:

• 100% vested after 3 years
• 0% vested until 3 years of service

If an employee leaves before completing the vesting schedule, they forfeit the unvested portion.

For the 3 year cliff vesting schedule, there are not partially vested assets. So the entire benefit is either 0% vested or 100% vested.

Since the cash balance plan’s assets are in a pooled account, the assets continue to remain in the account and the yearend reports note which participant terminated without vested assets. Since the assets are not kept in separate participant accounts no movement or direct reallocation is necessary.  

Employer contributions (like profit-sharing) typically follow a vesting schedule (outlined in your plan document), such as:

• Gradual vesting over time
• Or a cliff vesting schedule

Safe Harbor Contributions are typically immediately vested.

If not fully vested:

• Those forfeitures can often be used to offset future employer contributions or plan fees.
• They forfeit the unvested portion

Participants can generally take distributions:

• Upon the plan’s termination
• At normal retirement age
• Employee’s separation of service with company

There are limited options for participants to take money out while still in service.

For participants who have met normal retirement age but are still working, they can begin taking distributions.

If you have participants who are younger than normal retirement age, and need access to their funds they can consider a loan from the plan.

We partner with a company called Penchecks, which handles coordinating the distribution process with vested participants who no longer work for you. Here is a brief overview of the steps to distributed plan assets: 

1. We need to collect the participants’ contact information from you. Please use the attached spreadsheet, and include eparticipant’s name, SS#, and contact information.
2. Determine vested balances. For the cash balance plan, the actuary team will prepare distribution paperwork and benefit calculations.
3. Emparion will submit a distribution order with Penchecks, and provide instructions to submit funds to Penchecks.
4. The plan sponsor will request asset transfer from the custodian to remit funds to Penchecks.
5. Once Penchecks receives the funds, they will send confirmation to Emparion and a certified letter and email to the participant(s) to inform them of the available balance. 
6. The participant has 90 days to respond, if the participant is nonresponsive. Their total plan benefit amount will determine next steps.
   1. If the amount is more than $7,000 the assets will be returned to the plan. For the plan to maintain the assets.
   1. If the amount is less than $7,000, an IRA can be established by Penchecks on behalf of the participant.

Penchecks’ involvement helps to streamline the distribution process by: 

• Lowering administrative costs and manual tasks.
• Reduce the Employer’s fiduciary risk.
• Reunite plan participants with their retirement money.

Pre-tax contributions: taxed as ordinary income

Roth contributions: tax-free if qualified

Early withdrawals may be subject to penalties

Hardship withdrawals are not currently permitted in your plan. If you wanted to consider adding here are some key considerations:

Benefit for participants:

This option would help your participants access retirement funds in extreme need circumstances and not be limited to standard distribution triggers. Since this is not a loan, they will not be required to pay back the funds.

Tax considerations for the participant

The withdrawal is generally subject to ordinary income tax

If the participant is under age 59½, it may also be subject to a 10% early withdrawal penalty, unless an exception applies

A 20% federal tax withholding may apply at the time of distribution

Because the funds are withdrawn, they will no longer grow tax-deferred in the retirement account

In-service withdrawals are only permitted for participants who have met normal retirement age but have continued to work. They would be eligible for rollovers (non-taxable event) or actual distributions (taxable).

We recommend introducing the plan with:

• A simple announcement explaining that the company is offering a retirement benefit
• A high-level overview of eligibility and how benefits work

Our team can provide a custom employee notice or summary to make this easy and consistent.

You are generally required to provide:

• Summary Plan Description (SPD) – explains how the plan works in plain language
• Any required annual notices (if applicable)
• Participant statements (provided annually through our process)

We prepare these documents as part of plan administration.

New hires must be informed:

• Within a reasonable period after becoming eligible
• Typically before or at the time they are eligible to enter the plan

Best practice is to introduce the plan during onboarding of the new hire so there are no surprises later.

This is typically a shared responsibility:

Our team (TPA): Provides business owner the formal documentation and ensures all required notices and materials are available.

Employer: Provides initial awareness (onboarding, HR communication) to participants directly.

Participants can contact:

• Your internal team (for basic HR questions)

For technical or plan specific questions, the plan sponsor can contact our support team at support@emparion.com

We strongly encourage reaching out with any detailed or technical questions to us so we can help you communicate to your employees accurate guidance.

You are responsible for:

• Providing accurate payroll and census data
• Funding contributions
• Communicating plan basics to employees

We handle calculations, testing, and compliance support.

Employer: payroll coordination, basic communication, participant notices

Recordkeeper/Custodian: eligibility tracking, investment account set up initiation, participant support on investment accounts, distribution requests, and deferral changes, participant notices

TPA (us): compliance, testing, annual filings and calculations, guidance to the business owner

Annually:

• Providing annual data
• Approving contributions

Day to Day

• Coordinating payroll and planning operations properly
• Reviewing recommendations

This is normal, as most plans are either slightly over or underfunded on an annual basis. Funding range calculations look at many factors how you have funded in the past, the interest earned during the year, census changes, and even IRS indexing. The actuary team is comparing the benefits earned in the plan verses actual plan assets as well as making assumptions about future benefits and interest rates.

With these many factors the actuary team provides the minimum, recommended and maximum permissible funding amounts for a given year, the minimum amount will ensure the investment account has a minimum amount available to ensure benefits of participants are available. The recommended amount keeps the investment on target with actuarial assumptions. The maximum permissible amount allows funding beyond the benefits earned in a current year, and results higher deduction limits, but at the cost of reducing future funding ability.

We highlight an individual who is receiving a higher profit-sharing contribution compared to other employees. They were selected to receive a higher amount to keep total cost of profit-sharing down.

The employee may not have met eligibility requirements for all contribution types. Highly compensated employees are typically excluded in our plan design.