401(k) requirements for employers

Not legal or tax advice; consult a retirement-plan advisor or ERISA counsel. This page is general information for a mid-market employer. Each statement is attributed to an IRS, eCFR or statute page we read on 14 October 2026, and dollar limits change every year.

What this page adds

Related pages cover plan documents and annual reporting for health and welfare plans in the ERISA and Form 5500 guide, pre-tax cafeteria, HSA and FSA plumbing in the Section 125 guide, withholding and deposit schedules in the payroll tax deposit guide and enrollment paperwork in the new hire compliance checklist. This page covers only the 401(k) retirement plan itself.

What a 401(k) plan is, and the plan document

The IRS 401(k) plan overview (retrieved 14 Oct 2026) describes a 401(k) plan as a qualified plan with a feature allowing an employee to elect to have the employer contribute a portion of wages to an individual account. It states that to qualify for the tax benefits “a plan must both contain language that meets certain requirements (qualification rules) of the tax law and be operated in accordance with the plan’s provisions.” The same page names three types: traditional, safe harbor and SIMPLE 401(k) plans, and says different rules apply to each. IRS Operating a 401(k) plan (retrieved 14 Oct 2026) lists the elements an employer must handle: participation, contributions, vesting, nondiscrimination, investing, fiduciary responsibilities, disclosure to participants, reporting to government agencies, distributions and compliance.

The summary plan description is the basic participant disclosure. IRS Operating a 401(k) plan says it is a plain-language explanation that must cover when employees become eligible, the contributions, how long vesting takes, when benefits can be received, how to file a claim and ERISA rights. The IRS plan-document fix-it item (retrieved 14 Oct 2026) and the Employee Plans news page show that required plan amendments follow published lists with deadlines; the news page states the 2025 required-amendments list carries a general deadline of 31 December 2027 and that final regulations on automatic enrollment and long-term part-time rules are expected to be listed later. Which amendments apply to a given plan is a question for the plan’s document provider.

Fiduciary duties at a high level

IRS Retirement plan fiduciary responsibilities (retrieved 14 Oct 2026) states that “fiduciary status is based on the functions performed for the plan, not a title,” and that controlling plan assets or using discretion in managing the plan makes a person or entity a fiduciary to the extent of that discretion or control. It lists basic responsibilities: acting solely in the interest of participants and beneficiaries, for the exclusive purpose of providing benefits and defraying reasonable plan expenses, with the care, skill, prudence and diligence of a prudent person, following the plan documents, and diversifying plan investments.

The same page distinguishes business decisions (to establish, amend or terminate a plan, or to include certain features) from fiduciary decisions (implementing them). It says that hiring a service provider is itself a fiduciary act, that the employer keeps responsibility for selecting and monitoring that provider, and that fiduciary responsibility concerns the process used rather than the result, so the decision-making process should be documented. We did not read the underlying ERISA fiduciary statute for this page.

Eligibility and coverage (410(b))

26 U.S.C. 401(k)(2)(D) (retrieved 14 Oct 2026) provides that a 401(k) arrangement cannot require, as a condition of participation, a period of service beyond the earlier of the period permitted under section 410(a)(1) or, subject to paragraph (15), the first period of 2 consecutive 12-month periods in each of which the employee has at least 500 hours of service. Section 410(a)(1) sets the general age and service limit at the later of age 21 or one year of service, with a “year of service” defined in 410(a)(3) as a 12-month period with not less than 1,000 hours of service. IRS Operating a 401(k) plan adds that employees cannot be excluded merely because they are older workers, and that a plan may exclude employees under 21, employees without a year of service, or employees covered by a collective bargaining agreement that does not provide for participation.

Coverage is a separate test. 26 U.S.C. 410(b)(1) requires that a plan meet one of: benefiting at least 70 percent of employees who are not highly compensated; benefiting a percentage of non-highly-compensated employees that is at least 70 percent of the percentage of highly compensated employees benefiting; or meeting the average benefit percentage test of paragraph (2). 26 CFR 1.410(b)-2(b)-2) (as of 1 Oct 2026, retrieved 14 Oct 2026) restates the first two as a “ratio percentage test” requiring a ratio percentage of at least 70 percent, and gives the average benefit test as the alternative. Its own example: a plan benefiting 40 percent of non-highly-compensated employees and 60 percent of highly compensated employees fails with a ratio percentage of 66.67 percent.

ADP and ACP testing, and the safe harbor concept

The IRS fix-it guide item on ADP and ACP failures (retrieved 14 Oct 2026) states that plan sponsors “must test traditional 401(k) plans each year” so that contributions by and for non-highly-compensated employees are proportional to those for highly compensated employees. The ADP test counts elective deferrals (pre-tax and Roth, not catch-up contributions); the ACP test applies the same method to matching and after-tax contributions. The page states the ADP test is met if the highly compensated group’s ADP does not exceed the greater of 125 percent of the non-highly-compensated group’s ADP, or the lesser of 200 percent of it or that ADP plus 2 percentage points; the ACP test is stated the same way.

The page states a highly compensated employee is generally a more-than-5-percent owner (with family attribution) or, if the employer elects, a top-paid-group employee paid more than a stated amount in the prior year; it gives $155,000 for 2024 and notes the figure is subject to cost-of-living adjustment, so confirm the current-year threshold. It also states the plan has 2 1/2 months after the plan year to correct excess contributions, that failure to correct within the 12-month period puts the plan’s cash or deferred arrangement at risk of losing qualified status, and that a 10 percent excise tax can apply if the employer does not distribute or recharacterize excess contributions in time.

Safe harbor. The IRS overview (retrieved 14 Oct 2026) states that a safe harbor 401(k) plan “must provide for employer contributions that are fully vested when made,” that it is not subject to the annual ADP/ACP tests, and that sponsors must give eligible employees a written notice, deemed timely if given at least 30 days and not more than 90 days before the plan year begins. IRS Operating a 401(k) plan describes the safe harbor formulas as a match of 100 percent up to 3 percent of compensation plus 50 percent on the next 2 percent, or a 3 percent nonelective contribution. The automatic enrollment page describes a qualified automatic contribution arrangement (QACA) as a design exempt from annual ADP/ACP testing, with a default deferral starting at 3 percent and rising to 6 percent, capped at 10 percent. Top-heavy rules are a separate test described on the overview page (generally, key employees holding more than 60 percent of account balances).

Annual limits stated on the IRS page

The table below gives the 2026 figures as stated on the IRS 401(k) contribution limits page (retrieved 14 Oct 2026), which labels each “subject to cost-of-living adjustments.” Publication 560 (What’s New, retrieved 14 Oct 2026) states the same 2026 deferral, annual-additions and compensation limits. Confirm current-year limits on IRS.gov before using any figure; we did not locate a limits page for a later year. Two IRS pages we read (the overview and Operating a 401(k) plan) still show 2024 figures in text, so we did not use those.

SECURE 2.0 provisions that matter to employers

Automatic enrollment for new plans. Publication 560 (What’s New, retrieved 14 Oct 2026) states that under section 101 of the SECURE 2.0 Act, subject to certain exceptions, employers with 401(k) and 403(b) plans established on or after 29 December 2022 “must automatically enroll” eligible employees, effective for plan years beginning after 2024. 26 U.S.C. 414A (retrieved 14 Oct 2026) implements it: an arrangement requires an eligible automatic contribution arrangement allowing permissible withdrawals, with a first-year uniform percentage of at least 3 percent and not more than 10 percent, increasing by 1 percentage point each later plan year to at least 10 percent but not more than 15 percent, unless the participant elects otherwise.

Section 414A(c) lists exceptions, including SIMPLE plans, governmental and church plans, plans established before enactment, an employer in existence for less than 3 years, and small businesses (excepted until one year after the close of the first taxable year in which the employer normally employed more than 10 employees). The statute’s effective-date note states the section applies to plan years beginning after 31 December 2024. IRB 2025-08 summarises proposed regulations (REG-100669-24) that would provide guidance on this requirement and amend notice rules; we did not read the regulation text, and the Employee Plans news page states final regulations are still expected.

Long-term part-time employees. The IRS Employee Plans news page (retrieved 14 Oct 2026, item dated 26 January 2024) states that employees who have not completed a year of service but have three consecutive 12-month periods with at least 500 hours of service are “commonly called ‘long-term part-time employees,’” that the three-year condition “is reduced to 2-consecutive years beginning in 2025,” and that the requirement generally applies to all 401(k) plans other than certain collectively bargained employees. It says sponsors should review census data and that excluding “part-time” or “seasonal” employees is generally an impermissible service-based exclusion. Section 401(k)(15) adds that such employees may be excluded from nondiscrimination, coverage and top-heavy vesting and benefit rules, and that the employer need not make matching or nonelective contributions for them.

Depositing participant contributions on time

29 CFR 2510.3-102 (as of 1 Oct 2026, retrieved 14 Oct 2026) provides that plan assets include amounts a participant has withheld from wages “as of the earliest date on which such contributions or repayments can reasonably be segregated from the employer’s general assets.” For a pension benefit plan, paragraph (b) provides that the date “in no event” occurs later than “the 15th business day of the month following the month” the amounts would otherwise have been payable in cash. Paragraph (a)(2) provides an optional safe harbor for plans with fewer than 100 participants at the start of the plan year: deposit not later than the 7th business day. Paragraph (d) allows a conditioned extension of 10 business days, with notice, a bond or letter of credit, and a filing with the Secretary.

The IRS fix-it item on late deposits (retrieved 14 Oct 2026) states that the 15th-business-day rule “isn’t a safe harbor,” that it is the maximum deadline, that late deposits can create a prohibited transaction (initial tax stated at 15 percent of the amount involved per year), and that DOL’s Voluntary Fiduciary Correction Program is the usual route. The IRS fiduciary page states that if deposits can reasonably be made sooner, they must be. Payroll-side deposit timing of withholding taxes is a separate duty; see the payroll tax deposit guide.

Form 5500 and annual reporting

The IRS fix-it item on Form 5500 (retrieved 14 Oct 2026) states that most 401(k) plan sponsors must file an annual Form 5500, that a final return is required for the year a plan terminates, that late-filing penalties come from both IRS and DOL, and that correction of a late return is not available under EPCRS, so the delinquent return should be filed promptly. It states that DOL maintains a Delinquent Filer Voluntary Correction Program. Mechanics, deadlines and the welfare-plan side are in the ERISA and Form 5500 guide. Per the IRS overview, elective deferrals are reported on Form W-2 and remain subject to FICA, Medicare and FUTA.

PEOs and multiple-employer plans

The primary pages we read do not describe how a PEO-sponsored multiple-employer plan works, who is the plan sponsor or fiduciary in such an arrangement, or how a participating employer’s duties differ. The only related text we read is in 26 U.S.C. 414A(c)(2)(B) and (c)(4)(C), which treat an employer that adopts a multiple-employer plan after enactment as if the plan were a single plan for the automatic-enrollment rule, and apply the new-business and small-business exceptions separately to each employer. How a given arrangement allocates fiduciary and filing duties should be confirmed with ERISA counsel and the plan documents.

What we could not confirm

Every IRS retirement-topics coverage-requirements and SECURE 2.0 landing page URL we tried returned 404, so for those topics we relied on the statute, the eCFR, Publication 560 and the Employee Plans news page. We did not read Notice 2024-2, the text of the proposed automatic-enrollment regulations, the IRS or Treasury long-term part-time guidance in full, 26 CFR 1.401(k)-1 or -3, the ERISA fiduciary statute, DOL pages, or any rule on PEO or multiple-employer plans. We located no limits page for years after 2026, and the highly compensated threshold we saw is the 2024 figure. We have not assessed any specific plan, state law or industry exception.