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Types of Contributions to the Retirement Plan

Date: May 1, 2018
The IRS defines employER contributions and employEE contributions to a Retirement Plan and expects reporting to reflect them appropriately.

There are two main categories of contributions sent to FCMM by an employer: (1) Employer Contributions and (2) Employee Contributions.

EmployER contributions are a benefit of employment provided to an employee. They are not withheld from the employee’s salary. The amount of the employer contribution is determined by the Employer and should be accurately stated in the Employer Adoption Agreement (Form 20). Employer contributions can be a base contribution rate or amount, or can be the employer’s corresponding contribution to a matching employee contribution, or both.

Employer contributions can be remitted on a per pay period, monthly, quarterly, or annual basis as determined by the employer. In the case of a matching contribution, the employer match should be sent at the same time as the employee’s deferral is remitted.

At year end, the amount of the employer contribution is not reported on a W-2, but the “Retirement Plan” box in Box 13 should be checked.

EmployEE contributions, also called salary deferral contributions, are withheld from an employee’s salary each pay period on either a pre-tax or Roth (after-tax) basis. Salary deferral contributions are voluntary and are initiated by the participant by completing the salary deferral section of the Investment Selection and Salary Deferral form (Form 03).

Unless the employer has set a different threshold, all employees regularly working 20 hours a week or more should be given the opportunity to make salary deferral contributions.

At year end, the amount withheld from pay for employee contribution is reported in Box 12 on the employee’s W-2, and the “Retirement Plan” box in Box 13 should also be checked. Employee contributions must be remitted to FCMM as soon as reasonable for the proper administration of the plan. An example of a reasonable time is 15 business days following the month in which contributions are withheld from an employee’s salary.

The IRS has set dollar limits on Retirement Plan contributions, which are updated on an annual basis. See information on FCMM’s website regarding the current overall limit and the salary deferral limit, which are subject to the IRS definiton of "includible compensation" (i.e. salary less housing allowance).

Important Note: It is essential that an employer correctly specifies the contribution type(s) on the Contribution Remittance Form every time a payment is sent to FCMM. It is also essential that they be properly repoted on the W-2 as noted above.