Running a 401(k) plan means meeting a set of IRS and DOL compliance requirements every year. Miss a deadline or skip a test, and you’re looking at penalties, corrective contributions, or an IRS audit. This guide walks through what plan sponsors need to know — in plain language, organized by when things are due.

Here’s what to watch for, and when.

Annual Compliance Testing

Most 401(k) plans must pass a series of nondiscrimination tests each year. These tests ensure that the plan doesn’t disproportionately benefit highly compensated employees (HCEs) — generally anyone earning more than $155,000 (2024 threshold) or owning more than 5% of the company.

ADP/ACP Testing

The Actual Deferral Percentage (ADP) test compares the average deferral rates of HCEs to non-HCEs. The Actual Contribution Percentage (ACP) test does the same for employer matching contributions. If HCEs are deferring or receiving too much relative to non-HCEs, the plan fails and corrective action is required — typically refunding excess contributions to HCEs or making additional contributions to non-HCEs.

Safe Harbor plans bypass ADP/ACP testing entirely. That’s the primary reason many small businesses choose a Safe Harbor design — it guarantees that owners and HCEs can defer the full $23,500 (2024) without testing risk. The trade-off is a mandatory employer contribution (3% non-elective or 4% match).

Top-Heavy Testing

A plan is top-heavy if key employees (officers earning $220,000+, 5% owners, or 1% owners earning $150,000+) hold more than 60% of total plan assets. Top-heavy plans must provide a minimum contribution of at least 3% of compensation to all non-key participants. This test is performed as of the last day of the prior plan year.

Coverage Testing (Section 410(b))

This test ensures the plan covers a fair cross-section of employees — not just owners and management. Most plans pass automatically if they’re open to all eligible employees, but plans with complex eligibility rules need to verify coverage annually.

Form 5500 Filing

The Form 5500 is the annual return filed with the IRS and Department of Labor. It’s required for nearly all ERISA-covered retirement plans and includes financial statements, participant counts, and compliance information.

Due date: Last day of the 7th month after the plan year ends. For calendar-year plans, that’s July 31.

Extension: A 2.5-month extension is available by filing Form 5558 before the original due date, pushing the deadline to October 15 for calendar-year plans.

Penalty for late filing: The DOL can assess penalties of up to $250 per day, with no maximum. The IRS can also impose a separate penalty of $25 per day up to $15,000. Late filings should be corrected through the DOL’s Delinquent Filer Voluntary Compliance Program (DFVCP), which significantly reduces penalties.

Audit requirement: Plans with 100 or more balances at the beginning of the plan year generally require an independent auditor’s report — typically $8,000–$20,000.

Participant Notices

Plan sponsors are required to provide several notices to participants throughout the year. Missing a notice can result in penalties and, in some cases, the loss of Safe Harbor status.

Safe Harbor Notice

When: At least 30 days (but no more than 90 days) before the start of each plan year. For calendar-year plans, the window is October 2 through December 1.

What it includes: The Safe Harbor contribution formula, vesting schedule, withdrawal restrictions, and how to make or change deferral elections.

Why it matters: Failure to provide timely Safe Harbor notices can disqualify the plan’s Safe Harbor status for the entire year, triggering ADP/ACP testing retroactively.

QDIA Notice

When: At least 30 days before the start of each plan year (or before an employee’s first eligible contribution for new hires). Describes the default investment option and the right to opt out.

Fee Disclosure (404a-5 Notice)

When: Annually, and at least 30 days before an employee’s first eligible contribution. Includes plan-level fees, investment-level fees and performance, and a comparative chart of all available investment options.

Summary Annual Report (SAR)

When: Within 9 months after the plan year ends (September 30 for calendar-year plans), or 2 months after the Form 5500 due date if extended. A simplified summary of the plan’s financial activity for the year.

Contribution Deadlines

Employee deferrals must be deposited to the trust as soon as they can reasonably be segregated from the employer’s general assets. For most small plans, this means within a few business days of payroll. Late deposits are the #1 operational error found in DOL audits. Even deposits that are one day late are technically violations.

Safe Harbor contributions: Must be deposited each pay period, same timing as employee deferrals.

Profit-sharing contributions: Due by the employer’s tax filing deadline, including extensions. For calendar-year C-corps, that’s typically October 15.

Matching contributions (non-Safe Harbor): Can be deposited per pay period or in a lump sum by the tax filing deadline, depending on the plan document.

Common Compliance Mistakes

These are the errors we see most often as a TPA. Most are correctable, but all are avoidable with proper processes.

Late deferral deposits — Set up automated payroll integration to deposit deferrals within 1–2 business days of each payroll. If you’re doing it manually, calendar it.
Eligibility errors — Failing to enroll an eligible employee on time, or enrolling someone who isn’t yet eligible. Both require correction — the former often requires the employer to make a corrective contribution.
Missing participant notices — Especially Safe Harbor notices. If the notice is late or missing, the plan may lose its Safe Harbor status for the entire year.
Using the wrong compensation definition — The plan document specifies which definition is used. Using the wrong one leads to incorrect contributions and failed testing.
Not updating the plan document — Tax law changes (like SECURE 2.0) require plan amendments by specific deadlines. Running an outdated document is a compliance risk.
Ignoring terminated participants — Participants with small balances who’ve left the company may need to be forced out per the plan’s terms. Uncashed distribution checks also create problems.

Annual Compliance Calendar

For calendar-year plans:

January 31 — Distribute Form 1099-R to participants who received distributions in the prior year.

March 15 — Deadline for corrective distributions if ADP/ACP testing failed (to avoid 10% excise tax on excess amounts).

April 1 — Required beginning date for RMDs for participants who turned 73 in the prior year and have separated from service.

July 31 — Form 5500 due (or file Form 5558 for extension).

September 30 — Summary Annual Report due to participants (if Form 5500 filed on time).

October 1 – December 1 — Window for delivering Safe Harbor, QDIA, and automatic enrollment notices for the upcoming plan year.

October 15 — Extended Form 5500 due date. Also the deadline for employer profit-sharing contributions (calendar-year C-corps with extension).

December 31 — Plan year ends. All required amendments for the current plan year must be adopted.

Need Help With Compliance?

Independent Retirement handles all of this for our clients — testing, filings, notices, amendments, and deadline tracking. If you’re managing compliance yourself or working with a TPA that’s falling behind, schedule a free consultation and we’ll review your plan’s compliance status.