This article addresses common employer questions about employee bonuses and their impact on retirement plans.
- Are employee contributions withheld from all types of compensation, including bonuses?
- Can W-2 bonus compensation be excluded from contributions?
- Do employees have the option to not contribute funds from their compensation?
- What best practices should be followed to ensure employee savings rates are accurate before processing payroll?
- How should savings rate changes be managed for integrated plans, prior to a bonus payroll?
- My employees changed their savings rate for a bonus payroll. What steps should I take following the bonus payroll?
- For plans integrated with payroll providers, can certain portions of compensation be excluded from contributions?
- Where can I find more information on excluding portions of W-2 earnings from the plan's definition of “compensation”?
- Do off-cycle contributions get processed automatically through my integration?
1. Are employee contributions withheld from all types of compensation, including bonuses?
Employee contributions should be withheld from all compensation, including W-2 bonus compensation, unless employees elect otherwise in their saver portal or your plan design allows for other compensation exclusions. Employees seeking to adjust their savings rate and preferences should navigate to the "Savings Rates" section of their saver portal.
2. Can W-2 bonus compensation be excluded from contributions?
Most plans don't exclude W-2 bonus compensation from contributions. However, if an employer wants to, they may be able to amend their plan to do so. If you’re interested in amending your plan to include a compensation exclusion, please contact us directly or your third-party administrator (TPA), if applicable).
Note: If you remove bonus compensation from your plan, you will no longer be eligible for a “bundled” plan type.
3. Do employees have the option to not contribute funds from their compensation?
Employees can choose not to contribute funds from their compensation to their retirement plan. They have the ability to manage their savings rate at any time directly in their saver portal.
4. What best practices should be followed to ensure employee savings rates are accurate before processing payroll?
A best practice we encourage is checking that your payroll system reflects the employee savings rates that are shown in the employer portal prior to running payroll.
Bonus payroll will automatically come through integrations, except for the following plans that utilize Payroll Concierge services:
- Paychex Flex
If you have one of the payroll providers listed above, please notify us directly to pull in the updated savings rate file.
We recommend connecting with your payroll provider to see when payroll is run.
5. How should savings rate changes be managed for integrated plans, prior to a bonus payroll?
For integrated plans, employee savings rate changes must be managed through the integration. We recommend connecting with your payroll provider to see if they are able to assist with a one-time savings rate exclusion. If they are not able to make these updates on your behalf, please confirm that employees adjust their savings rate from the "Savings Rates" section of their saver portal. At least three business days before payroll is run through your payroll system, your employees must change their savings rate through their portal to the desired rate.
6. My employees changed their savings rate for a bonus payroll. What steps should I take following the bonus payroll?
After the pay date of the bonus has passed, employees should adjust their savings rate back to their desired amount directly in their saver portal. Employees should confirm that payroll has been run before adjusting their rates back to normal.
Plans that have a 360-degree payroll integration will not need to take action as the employee rates will be adjusted automatically once the employee has changed their contribution amount.
If the plan does not have an active payroll integration or if the plan has a 180-degree integration, employers should adjust the employees’ savings rates back to their ideal value in their payroll system.
7. For plans integrated with payroll providers, can certain portions of compensation be excluded from contributions?
For plans where we have an integration with the company’s payroll provider, our ability to support these exclusions depends on your payroll company’s ability to properly and clearly identify the excluded portion of compensation in your payroll files.
8. Where can I find more information on excluding portions of W-2 earnings from the plan's definition of “compensation”?
By default, our standard language in the Plan Adoption Agreement (“PAA”) is to consider compensation to be all W-2 wages. If you feel strongly about excluding certain types of compensation, such as a bonus, from compensation, we may be able to support that, and you should speak with a member of the Compliance Team. To learn more about compensation definitions as they relate to retirement plans, please see our article titled “Compensation.”
9. Do off-cycle contributions get processed automatically through my integration?
If you have an active integration, please locate your payroll provider from the "Payroll Integrations Sorted by Payroll Provider" section of the help center for more information about how your off-cycle contributions will be processed. You can find instructions on how to submit off-cycle contributions in our article titled "Submitting Off-Cycle Contributions."