The article aims to simplify and systemize the annual process of submitting census data so you can spend more time growing your business. Submitting census data still requires your time and attention though because if it’s late or has errors it will create a bigger headache later.
Census data is demographic data for each and every W2 employee in the controlled or affiliated service group. The TPA then runs coverage, limits, and non-discrimination testing with the provided data.
Why Do We Need Census Data?
Whether you are submitting your census data to your TPA or straight to your record keeper, having correct data is imperative. We need that data to run important testing that measures how the employers and employees are using the 401(k) plan. One of the most important is identifying the highly compensated employees (HCEs) and non-highly compensated employees (NHCEs) so we (the TPA) can run accurate non-discrimination testing.
What is non-discrimination testing? Like the name implies, non-discrimination testing makes sure that your benefits plan is being used fairly throughout your organization and all employees have access to the plan. Not every employee needs to receive the same rate or dollar amount, but they need to be within certain ranges.
To make sure we can run accurate non-discrimination testing, you need to provide us with accurate data. So how do you correctly identify HCEs and NHCEs? According to the IRS, a highly compensated employee is anyone who has at any time owned 5% or more of the company during the current or previous plan year. And, for 2023 it’s someone who has earned more than $135,000 for 2022.
How Do You Complete And Submit Census Data
According to John Hancock there are three categories of census data.
- Personal data
- Employee data
- Contribution data
Here is a list of common census data we ask for at Hunter Benefits and here is our Census Data Template.
- Social Security Number
- Date of Birth
- Date of Hire
- Date of Termination
- Termination Reason
- Date of Rehire
- Hours Worked
- Gross Compensation
- Fringe Benefits
- Other Excluded Compensation
- Eligible Compensation
- Salary Deferrals
- Roth Contributions
- Optional Employer Match
- Safe Harbor Match
- Loan Payments
Why do we need the termination dates and reasons for termination? It has a direct effect on vesting and when certain benefits are payable. If an employee dies or becomes disabled during the plan year, if not yet vested they most likely are now. So it’s very important that we have that data.
You must be thinking, “that looks like a lot of work”. Yes, it is a little bit of work, but we are often able to get most of your census data from your payroll vendor.
What Happens If You Are Late Or Have Errors?
You already know how important this data is for us and your business. So if you are late or have errors you can expect more fees because it takes us more time. Also, you may miss the deductible employer contribution, and if you fail 401(k) non-discrimination testing, you could be required to pay a 10% excise tax.
To wrap it up, make sure you are on time and have peers look over your census data to make sure there are no errors. This will save you money and time which will allow you to focus on your business and your retirement savings.
Common Mistakes To Avoid
To end this article, here are 3 common mistakes to avoid when filling out and submitting census data.
- Track hours
- Give a reason for termination
Compensation can be very complicated and tricky to figure out. It is very plan specific and you need to consider the rules of your individual plan. Luckily we have made many white papers and videos on this topic to help you out. See here.
Tracking your hours is more important if the employee has worked 1,000 hours or less. Also, because of the new long-term part-time law, you need to track part-time employees and if they work over 500 hours for 3 consecutive years they are allowed to defer in the plan starting in 2024.
Last, we already talked about this above but you need to make sure to give a reason for termination. The reason is important for certain payouts and benefits depending on the employee’s situation.
Census data can be a bit of a burden for business owners because they are so busy already. Although, if you have a good TPA like Hunter Benefits you can always give us a call and we will happily help. Just don’t complicate it too much, make sure you have all the correct data and give it to your TPA on time so they can do the required testing. This is the best way to insure you have a healthy retirement plan for you and your employees.
Contact us with any questions!