What Does a TPA Do?

When business owners talk about their retirement plan, they often mention their advisor or the investment lineup. What rarely gets discussed is the role that quietly determines whether the plan actually works, stays compliant, and delivers the outcome the owner expects.

That role belongs to the Third Party Administrator, or TPA.

For businesses offering a 401(k), Safe Harbor plan, defined benefit plan, cash balance plan, or a combination of these, the TPA is responsible for the technical foundation of the plan. This is the work that happens behind the scenes, but it is also the work that keeps the plan from becoming a liability.

A strong retirement plan does not start with investments. It starts with sound design, careful administration, and ongoing compliance. That is where the TPA comes in.

The Role of a TPA in a Retirement Plan

A TPA is responsible for translating complex IRS and Department of Labor rules into a plan that actually functions inside your business.

This includes how the plan is structured, how contributions are calculated, how employees are treated under the rules, and how the plan adapts as the business grows or changes. In simpler plans, that work may feel invisible. In more complex plans, especially defined benefit or cash balance plans, it is essential.

Without experienced administration, even well-funded plans can fail required tests, trigger corrective contributions, or expose the owner to penalties they never expected.

Plan Design: Where Everything Starts

One of the most important things a TPA does happens before the plan is ever implemented.

Plan design determines whether a retirement plan supports the owner’s goals or works against them. This is where decisions are made about the type of plan, how contributions flow, and how benefits are allocated between owners and employees.

For highly compensated owners, design matters even more. Traditional 401(k) limits are often not enough, and defined benefit or cash balance plans can dramatically increase tax-deferred savings when structured properly. At the same time, those plans must meet coverage and non-discrimination rules, which is where experience becomes critical.

Good plan design anticipates growth, hiring, compensation changes, and even ownership transitions. Poor design reacts after the fact.

Ongoing Administration: Keeping the Plan Running Smoothly

Once a plan is established, the TPA manages the day-to-day and year-to-year administration that keeps everything on track.

For 401(k) and Safe Harbor plans, this includes monitoring eligibility, tracking contributions, confirming employer matches are correct, and ensuring Safe Harbor requirements are met each year. When laws change or the business evolves, the TPA manages plan amendments so nothing falls out of compliance.

Defined benefit and cash balance plans add another layer. Annual contribution calculations, coordination with actuaries, funding requirements, and ongoing monitoring all fall under the TPA’s oversight. When income fluctuates or staffing changes, the plan must be adjusted thoughtfully, not reactively.

In combination DB and DC plans, the TPA ensures the plans work together as a coordinated strategy rather than two disconnected benefits.

Compliance Testing and Why It Matters

Compliance testing is one of the areas business owners rarely see, but it is one of the most important.

Retirement plans are required to pass a series of annual tests designed to ensure fairness and compliance with federal regulations. These tests determine whether the plan disproportionately favors owners or highly compensated employees and whether enough employees are benefiting under the rules.

When a plan fails a test, it does not mean the plan is broken. It means corrections must be made, and those corrections can be costly if they are not identified early. A TPA’s role is to run these tests, interpret the results, and guide corrective action before small issues become expensive ones.

Filings, Forms, and Government Reporting

Every qualified retirement plan comes with reporting obligations. These filings are not optional, and errors can result in penalties or audits.

TPAs prepare and manage these filings on behalf of the plan sponsor. This includes Form 5500, actuarial schedules for defined benefit and cash balance plans, participant disclosures, and required plan updates. If a question arises from the IRS or Department of Labor, the TPA provides documentation and support.

For business owners, this removes a significant administrative burden and reduces the risk that something is missed or filed incorrectly.

Fiduciary Responsibility: What the Owner Still Owns

Hiring a TPA does not eliminate fiduciary responsibility. Business owners remain responsible for selecting and monitoring service providers and ensuring the plan operates in the best interest of participants.

What a strong TPA does is reduce fiduciary risk. By keeping the plan compliant, flagging issues early, and ensuring the plan is administered correctly, the TPA acts as a safeguard. Problems are identified before they escalate, and decisions are made with full visibility into the regulatory impact.

What a TPA Takes Off Your Plate

For most business owners, especially those running lean operations, the value of a TPA is not just technical expertise. It is peace of mind.

A good TPA removes the need to interpret regulations, track testing deadlines, prepare filings, or coordinate between multiple service providers. Instead of reacting to compliance issues, the owner gains a plan that runs smoothly and predictably.

That clarity allows owners to focus on running their business while knowing their retirement plan is doing what it was designed to do.

Why the Right TPA Matters

Not all TPAs operate the same way. Experience matters, especially for closely held businesses and highly compensated owners.

The right TPA understands how to balance owner objectives with employee benefits, without overcomplicating the plan or creating unnecessary risk. They think long-term, not just about passing this year’s tests, but about how the plan will function five or ten years down the road.

At Mirador, retirement plans are treated as long-term strategies, not off-the-shelf solutions. Each plan is designed intentionally, administered carefully, and supported with the level of attention business owners expect when the stakes are high.

A well-designed plan does more than satisfy compliance requirements. It becomes a meaningful tool for tax efficiency, employee retention, and long-term financial security, for both owners and the people who help build the business.

Controlled Group vs. Affiliated Service Group: What’s the Difference?

When it comes to retirement plan compliance, few topics create more confusion or risk than Controlled Groups and Affiliated Service Groups (ASGs). They sound like formal structures, but they’re simply IRS-defined groupings of companies that must be treated as a single employer for the purpose of retirement plan testing and compliance.

In our latest video, Mirador Partners, Rachel Rosner and Alison Quesada dig into the details. Here, we expand on that discussion to define these terms clearly and walk through common examples of how they apply.

Why These Rules Matter

Every year, compliance teams revisit this topic for a reason: misunderstanding these group structures can lead to failed nondiscrimination tests, disqualified plans, and significant financial penalties.

If you own multiple businesses, or are affiliated with other entities through service relationships, you must know whether you’re part of a Controlled Group or an Affiliated Service Group. Your retirement plan’s compliance depends on it.

What Is a Controlled Group?

A Controlled Group exists when one or more businesses are under common ownership or control. The IRS defines two main types:

Parent-Subsidiary Controlled Group

Occurs when a parent company owns 80% or more of another company.
Example: You own 100% of Business A and 85% of Business B. These two are in a controlled group.

Brother-Sister Controlled Group

Occurs when five or fewer individuals, estates, or trusts own at least 80% of two or more businesses, and the same group owns more than 50% of the voting power or value of each.
Example: You and your spouse own 100% of Business A and 90% of Business B. These companies likely form a controlled group.

Why It Matters

If a controlled group exists, all companies in the group must be aggregated for retirement plan purposes. That includes:

  • Nondiscrimination testing
  • Coverage testing
  • Top-heavy testing

If one company offers a retirement plan and another doesn’t, the unbenefited employees must still be included in testing, and that can lead to compliance failure.

What Is an Affiliated Service Group?

An Affiliated Service Group (ASG) exists when businesses are linked through service relationships, even if common ownership is less than 80%.

There are two common ASG types:

A-Organization ASG

Occurs when a service organization (A) has an ownership interest in a second organization (B), and the second organization regularly performs services for A or is associated in performing services.

Example: A law firm owns 40% of an administrative support company that exclusively serves the law firm’s clients.

B-Organization ASG

Occurs when a company is economically dependent on providing services to a related business or group, even with no ownership.

Example: You don’t own the marketing firm that exclusively supports your accounting practice, but the same partners operate both companies and refer services back and forth. That may be a B-Organization ASG.

B-Organization ASG


Occurs when one company performs management functions for another business, and there is some degree of common ownership or control, which is not explicitly defined by the IRS.

Example: A management company owned by the same partners who own an architecture firm handles all day-to-day operations (payroll, HR, etc.) for the firm. This may lead to Management ASG consideration.

Common Compliance Pitfalls

Rachel and Alison describe a scenario we see all too often:

“A business owner acquires another company with 10 employees, but doesn’t bring them into the retirement plan. Now that owner controls both companies, and we have a controlled group.”

In this case, all employees across both companies must be included in nondiscrimination testing. If one company’s employees don’t receive benefits, your plan could fail.

It’s Murky and That’s the Point

There’s no single checklist to determine whether you’re in a controlled or affiliated group. The rules are complex, and IRS guidance continues to evolve.

“Technically, we don’t have final guidance on controlled groups. This has been a gray area for years,” says Alison Quesada.

Because of that, most businesses navigating these issues need support from:

  • A retirement plan consultant
  • An ERISA attorney
  • An experienced third-party administrator (TPA)

Know Before You Grow

Whether you’re acquiring another company, launching a side venture, or working with closely related service providers, the structure of your business relationships affects your plan.

Before making a move, work with your advisors to determine:

  • Does this create a Controlled Group or ASG?
  • Are we required to test employees together?
  • How will this impact compliance and contributions?
Reach out to our team to learn more

2026 Retirement Plan Compliance Deadlines and Important Dates

Retirement plan compliance in 2026 brings a full calendar of critical deadlines that employers cannot afford to miss. From new SECURE 2.0 requirements to annual filings, contribution cutoffs, and participant notice timelines, each date plays a role in keeping your plan aligned with IRS rules and supporting a smooth year of administration.

To make planning easier, we have organized the major deadlines that affect 401(k), 403(b), and Defined Benefit plans, along with the changes arriving on January 1, including Roth catch-ups for high earners and eligibility for long-term part-time employees. Use this guide to map out your year, stay ahead of filings, and maintain a compliant and efficient retirement plan.

Click the image below to download an excel spreadsheet of these dates.

2026 Retirement Plan Compliance Task Definitions

Roth Catch-Up Rule Effective (January 1)
The SECURE 2.0 requirement for high earners takes effect at the start of 2026. Participants with prior-year wages above $145,000 must make all catch-up contributions on a Roth basis. Employers should confirm payroll and recordkeeping systems can distinguish between traditional and Roth catch-up elections to prevent reporting issues.

Long-Term Part-Time Employee Eligibility (January 1)
Employees who worked at least 500 hours in both 2024 and 2025 must be allowed to make elective deferrals beginning in 2026. This applies to 401(k) and 403(b) plans and may require updates to your eligibility tracking. Employers should ensure their payroll and HR systems correctly flag LTPT employees.

Form 1099-R Distribution Reporting (January 31)
Form 1099-R must be issued to anyone who received a retirement plan distribution in the prior year. This includes rollovers, refunds, RMDs, and other taxable events. Timely reporting helps participants file accurate tax returns and avoids IRS penalties for late or incorrect forms.

Form 1099-R Paper Filing Deadline (February 28)
If you choose to file 1099-R forms on paper, they must be submitted to the IRS by February 28. Paper filing is less common due to the IRS preference for electronic submission, but the deadline still applies for those who use it. Keep in mind that electronic filings allow more processing flexibility.

Electronic Filing Deadline for 1099-R (March 31)
Plans filing electronically must submit all 1099-R forms by March 31. Electronic filing is now the standard for most organizations and reduces the risk of processing delays. Confirm your file format and submission system are aligned well before the due date.

Employer Contribution Deadline for Pass-Through Entities (March 15)
S-Corporations and partnerships must deposit prior-year employer contributions by March 15 unless they filed for a tax extension. These contributions may include matching, profit-sharing, or defined benefit funding. Meeting this deadline helps maintain deductibility for the prior tax year.

RMD Deadline for 2024 Retirees (April 1)
Individuals who reached their required beginning date in 2024 must take their first RMD by April 1, 2026. After this first distribution, all subsequent RMDs follow the normal year-end schedule. Employers should assist participants with reminders to avoid IRS penalties.

Employer Contribution Deadline for C-Corps and Sole Proprietors (April 15)
C-Corporations and sole proprietors must deposit prior-year employer contributions by April 15 unless they have an approved tax extension. Meeting this deadline allows the business to deduct the contribution for the prior tax year. Contribution types vary by plan design and funding requirements.

ACA and Payroll Alignment Review (June 30)
Midyear is an ideal time to review ACA compliance, payroll coding, and eligibility alignment. This includes verifying measurement periods, plan eligibility for part-time workers, and any changes affecting hours tracking. Conducting this review midyear prevents surprises at year-end.

Form 5500 Due (July 31)
For calendar-year plans, Form 5500 and Form 8955-SSA must be filed by July 31 unless an extension is requested. These filings provide the Department of Labor and IRS with a detailed review of plan operations and participation. Timely submission avoids penalties and keeps the plan in good standing.

PBGC Premiums Due for Defined Benefit Plans (July 31)
Defined Benefit plan sponsors must submit their PBGC premium filings by July 31. Premiums include flat-rate and potentially variable-rate amounts based on plan underfunding. Accurate reporting is essential to avoid penalties and ensure the plan remains compliant.

Extended Contribution Deadline for Pass-Through Entities (September 15)
If an S-Corp or partnership filed for an extension, employer contributions for the prior plan year are due September 15. This extended window allows additional time to calculate profit-sharing and other funding. Contributions made by this date remain deductible for the prior year.

Summary Annual Report Due (September 30)
Plans must deliver the Summary Annual Report to participants by September 30, assuming the Form 5500 was filed on time. The SAR provides a readable overview of plan financial activity and compliance. Timely distribution supports transparency and participant communication.

Safe Harbor Notice Distribution Begins (October 1)
Employers offering Safe Harbor 401(k) plans must begin sending participant notices by October 1 for the upcoming plan year. These notices describe employer contributions, rights, and plan features. Providing them on time is essential to maintaining Safe Harbor status.

Extended Form 5500 Filing Deadline (October 15)
For plans that filed Form 5558 for an extension, the final deadline to submit Form 5500 is October 15. This extended timeline supports more complex plans or those awaiting final audit results. Meeting the deadline ensures the plan stays compliant.

Extended Employer Contribution Deadline for C-Corps and Sole Props (October 15)
If an extension was filed, C-Corporations and sole proprietors must deposit their prior-year employer contributions by October 15. These contributions remain deductible for the prior tax year if deposited by this date. Many businesses use the extension window to finalize financials before funding.

Auto Enrollment and QDIA Notices (December 1)
Plans with auto enrollment or a Qualified Default Investment Alternative must distribute annual notices by December 1 for the next plan year. These notices explain default investment options and participant rights. Providing them early ensures participants have time to make informed choices.

Plan Amendment Deadline (December 31)
Most SECURE 2.0 and discretionary plan amendments for 2026 must be adopted by December 31. This includes compliance updates and optional enhancements chosen during the year. Plan sponsors should coordinate with their TPA and advisor to ensure all required amendments are documented.

RMDs Due for 2026 (December 31)
All required minimum distributions for 2026 must be completed by December 31. Timely distribution prevents participants from incurring significant IRS penalties. Employers should ensure systems and communication processes support accurate year-end tracking.

Deferral and Match Verification (December 31)
Before year-end closes, employers should confirm that all employee deferrals and matching contributions have been posted correctly. This includes reconciling payroll, plan records, and any corrections for missed or late deposits. Verifying totals now reduces operational issues during annual testing.

Case Study: The Difference Good Retirement Plans Make

In many ways, he was. But years after finalizing his exit, and after wrapping up his retirement plan with Mirador, he reached back out. He wanted to stop by in person. It was the first time we’d ever met face-to-face.

Naturally, we were curious. Was something wrong?

He sat down, shared what he’d been up to in retirement, and then paused.
Then he said something that stuck with us:

“Mike, I just wanted to thank you.”

It wasn’t a generic gesture. He explained that by the time he retired, his defined benefit plan had nearly $2 million in it, almost equal to the amount he received from selling his business.

That amount wasn’t just savings. It was strategy. Without the defined benefit plan, half of that would’ve gone to taxes. The rest? He admitted he probably would’ve spent it. Instead, he had a secure retirement nest egg, and something left over for his kids.

He got choked up when he said it. We did too.

This is why Mirador exists. Not to fill out forms. Not to sell plans. But to create a meaningful, measurable impact in the lives of business owners.

What Is a Defined Benefit Plan?

A defined benefit plan is a qualified retirement plan that promises a fixed, pre-established benefit at retirement. It’s different from a 401(k) where employees contribute their own money. In a DB plan, the employer makes all the contributions, and those contributions are calculated based on the benefit amount targeted at retirement.

These plans allow for large, tax-deductible contributions, especially for older, high-earning business owners nearing retirement.

Is a Cash Balance Plan the Same?

Not exactly. A cash balance plan is a type of defined benefit plan, but with some unique features. Instead of promising a monthly payout, it defines the benefit as a hypothetical account balance. This format makes it feel more like a 401(k), even though it’s still technically a pension plan.

Both plan types offer significant tax advantages, but the cash balance model tends to be more flexible and easier for participants to understand.

How Do Defined Benefit Plans Work with 401(k)s?

Defined benefit and 401(k) plans are not either-or choices. In fact, they often work best together.

We frequently design combo plans, pairing a DB or cash balance plan with a 401(k)/profit sharing plan. This allows business owners to maximize annual contributions and optimize tax deductions, while still providing value to employees.

In Dr. Lee’s case, we used this combination strategy to help him double the total retirement assets he walked away with. Half of that was funded by tax deductions alone.

Who Can Participate in a Defined Benefit or Cash Balance Plan?

These plans are ideal for:

  • Business owners in their 40s, 50s, or 60s with high, stable income
  • Solo entrepreneurs or small partnerships
  • Professional service businesses (doctors, attorneys, consultants)
  • Owners who want to make large contributions quickly, especially if they’re catching up on retirement savings

While employees may also participate, DB plans must pass coverage and nondiscrimination testing to stay compliant. That’s where the role of the TPA is essential.

Learn More

To understand how compliance testing, controlled groups, and affiliated service groups can affect defined benefit plans, click here.

Understanding the Role of the TPA in Retirement Plan Design

When a business owner decides to offer a retirement plan, it’s a meaningful investment in the future, both for their team and for their own financial well-being. But with that decision comes a new set of responsibilities, deadlines, and regulatory requirements. That’s where a Third Party Administrator (TPA) like Mirador comes in.

What Is a TPA and Why Does It Matter?

A TPA, or Third Party Administrator, plays a critical role in the design, implementation, and ongoing management of retirement plans like 401(k)s. We’re the ones making sure the plan works, for your business, your people, and the IRS.

While the financial advisor focuses on investment options and the recordkeeper handles transactions, the TPA is responsible for how the plan is built and whether it complies with Department of Labor and IRS rules.

In the words of one Mirador expert featured in the video on this page:

“401(k) plans have to abide by a lot of IRS rules and regulations as well as DOL. And so there is a lot of compliance that comes into play. You have to file a Form 5500, you have to do nondiscrimination testing… you as a plan sponsor are responsible. Many plan sponsors, because it’s a lot of work, hire outside help, such as a 401(k) administrator or a third party administrator, where we are assisting you in making sure that you are in compliance with all of the regulations.”

The Business Owner’s Role: Plan Sponsor

When you offer a retirement plan, you’re not just doing something good for your team, you’re taking on the role of “plan sponsor.” That comes with fiduciary responsibility. You’re responsible for making sure the plan is fair, compliant, and properly managed.

This includes:

  • Offering a plan that doesn’t discriminate in favor of highly compensated employees
  • Filing required forms like the 5500
  • Ensuring deadlines are met for contributions, notices, and testing
  • Keeping the plan document up to date

But most business owners aren’t tax code experts. Nor should they be. That’s why TPAs exist.

What a TPA Does

At Mirador, we act as your technical expert and strategic partner in plan design. Here’s what that includes:

1. Plan Design

We don’t sell products, we build plans. That means we customize your 401(k) or defined benefit plan based on your goals: saving more for ownership, rewarding key employees, or staying ACA compliant. We ensure your plan structure maximizes flexibility and tax advantages.

2. Ongoing Compliance

We handle:

  • Annual nondiscrimination testing
  • Coverage and top-heavy testing
  • Form 5500 preparation
  • Required plan notices (Safe Harbor, QDIA, etc.)
  • Contribution limit calculations

We stay on top of IRS and DOL updates so you don’t have to.

3. Consultation and Adjustments

Life changes, and so do businesses. We help you adjust your plan as your headcount, structure, or goals evolve.

Why “Third Party”?

The term “Third Party Administrator” simply reflects the relationship: the business owner (first party) hires an outside expert (third party) to fulfill the responsibilities of plan design and administration. It’s still your plan. You’re still responsible. But with a qualified TPA like Mirador, you’re not doing it alone.

When It Matters Most

Compliance issues often surface long after a plan is in place, during an IRS audit, a failed test, or a missed deadline. That’s why having a proactive TPA is so important. We don’t just check boxes. We anticipate issues, design around your goals, and guide you through the full lifecycle of your plan.Bottom line: You’re responsible for the plan, but you don’t have to manage it alone. At Mirador, we make sure your retirement plan works as hard as you do.

401(k)s: The Overlooked Element in M&A Transactions

When business owners acquire or merge with another company, the headlines focus on valuation, synergies, and closing timelines. But quietly sitting in the background, often unnoticed until it’s too late, are legacy benefit plans, control group structures, and compliance traps that can derail your deal.

Retirement plans are consistently one of the most commonly overlooked elements in M&A transactions specifically, how control group and affiliated service group rules can create unexpected liability, compliance issues, and contribution obligations unless proactively addressed before the transaction closes.

Why Retirement Plans Must Be on the M&A Due Diligence List

“We work with successful business owners who acquire companies to grow, but they rarely think about how that impacts their existing retirement plan design.”

Buying or merging with another company may trigger IRS rules around control groups or affiliated service groups (ASGs). When that happens, your new business structure may require that all employees across both entities be tested together, and possibly receive contributions under your existing retirement plan.

If the acquired business has its own plan, things become even more complicated. There may be testing failures, required plan mergers, and transition rules to follow.

Understanding Control Groups in M&A

A control group exists when:

  • You own 100% of your current business
  • You acquire at least 80% of another business

These businesses are now considered one entity for retirement plan purposes, even if you operate them separately.

What it means:

  • Employees in both companies must be included in nondiscrimination testing
  • You may have to offer benefits to newly acquired employees
  • If your current plan was designed for a lean staff, your contribution structure may need to change

Affiliated Service Groups: Less Ownership, Same Risks

An Affiliated Service Group doesn’t require 80% ownership. These groups are formed when:

  • Two businesses work closely together to provide services
  • Owners have overlapping management or operational control
  • There’s a financial or service-based dependency between the entities

This can create a testing and compliance requirement even when the acquiring company owns less than 80% of the other.

Why Timing Matters

“We designed your plan for the life you had when we started, your structure, your staff, your ownership. If that changes, the plan needs to change too. But once you close the deal, your options become limited.”

Amendments can’t be retroactive. If the new company structure results in a failed nondiscrimination test, you may be required to fund employee contributions you hadn’t budgeted for. That’s why retirement plan review should happen before the transaction closes, not after.

M&A Compliance Checklist for Business Owners

Below is a checklist of what to review during any merger or acquisition:

Corporate and Operational Structure

  • Ownership percentages post-transaction
  • Whether common ownership triggers a Control Group or ASG
  • Number of employees and employee classifications

Retirement Plan Considerations

  • Whether the acquired company has an active plan
  • Plan document availability and filing history (Form 5500)
  • Testing compatibility and transition rules
  • Whether a plan merger is advisable or necessary

Insurance and Risk Transfer

  • Review or add Directors & Officers (D&O) coverage
  • Errors & Omissions (E&O) policy alignment
  • General liability, workers’ compensation, and commercial auto review

Employee Benefits

  • Group health plan compatibility
  • COBRA compliance transition
  • Ancillary benefit obligations

Professionals You Should Notify (and Involve Early)

Too often, business owners loop in advisors after the deal closes. That’s too late for plan design. Here’s who should be at the table before the transaction is finalized:

  • ERISA Attorney – for plan document review, compliance, and amendment timing
  • Third Party Administrator (TPA) – for testing, filings, and plan design updates
  • CPA – for tax implications of employer contributions and deduction strategy
  • Wealth Advisor – to align plan changes with long-term retirement strategy
  • Business Transaction Attorney – for deal structure, reps, and warranties related to benefit plans
  • HR/Benefits Team or Consultant – for post-close onboarding and communication

Download the Compliance Checklist (PDF)
Download the Compliance Checklist (Excel)

Retirement Plans Aren’t a Footnote

If you’re acquiring or merging businesses and haven’t reviewed your retirement plan design, you’re missing a key element of due diligence. The IRS and DOL won’t give you a grace period because you were unaware.

Get ahead of it. Confirm whether control group or ASG rules apply. Test before you transact. Adjust your plan before it’s too late.

What Is Nondiscrimination Testing, And Why Does It Matter?

If you’re sponsoring a retirement plan, especially a 401(k), profit-sharing, or defined benefit plan, nondiscrimination testing isn’t optional. It’s a compliance requirement with real financial consequences for plan sponsors and owners who don’t pay attention.

Let’s explore what nondiscrimination testing is, why it exists, who it protects, and how smart plan design can help you pass, while still maximizing owner contributions.

What Is Nondiscrimination Testing?

Nondiscrimination testing (NDT) is a set of IRS-mandated compliance tests designed to ensure that retirement plans do not unfairly benefit highly compensated employees (HCEs) at the expense of rank-and-file employees.

It applies to:

  • 401(k) and Safe Harbor plans
  • Profit-sharing plans
  • Defined benefit and cash balance plans
  • Combination plans (e.g., DB/DC)

In short, if you’re offering retirement benefits, the IRS wants to ensure you’re not only enriching owners and top executives while leaving everyone else behind.

Why Was It Created?

Nondiscrimination testing exists to protect employees.

“It’s to make sure you’re not giving way too much money to your CEO and executives when compared to your staff,” says Alison Quesada, Partner at Mirador.

It ensures fairness and plan qualification. A plan that discriminates in favor of HCEs risks disqualification by the IRS, which can result in:

  • Refunds of employee deferrals
  • Required employer contributions
  • Loss of tax-favored plan status
  • Costly corrections or audits

Who Needs to Pay Attention to Nondiscrimination Testing?

NDT isn’t just the responsibility of your TPA, it affects:

  • Business Owners: Because the structure of your contributions depends on passing these tests
  • HR and Finance Leaders: Who handle compliance documentation and employee communication
  • Advisors and CPAs: Who integrate retirement plan strategy into overall tax and compensation planning

If your plan includes both HCEs and rank-and-file employees (and most do), you’re subject to nondiscrimination testing.

Common Testing Areas

Here are the key tests most plans must pass annually:

ADP (Actual Deferral Percentage) Test

Compares how much HCEs and non-HCEs defer from their own pay into the 401(k).

ACP (Actual Contribution Percentage) Test

Compares employer matching and after-tax contributions between HCEs and non-HCEs.

Top-Heavy Testing

Determines whether key employees (e.g., owners, officers) hold more than 60% of total plan assets.

What Happens if You Fail?

Failing nondiscrimination testing can trigger:

  • Refunds to HCEs, forcing owners and execs to pull money out of their accounts
  • Additional employer contributions, to “rebalance” benefits to rank-and-file employees
  • Penalties and potential loss of plan qualification if not corrected in time

The good news? These failures are often avoidable, with the right plan structure.

Smart Design: Combining Plans to Satisfy Compliance and Maximize Value

As Rachel Rosner explains in the video, one of the most powerful ways to pass NDT and support both owners and employees is by combining plan types:

“We call them DB/DC or CB/DC combination plans. So it’s a defined benefit plan paired with a 401(k) profit-sharing plan.”

How It Works:

  • The defined benefit (DB) plan delivers large contributions for owners, designed around age, compensation, and years to retirement
  • The 401(k) profit-sharing plan offers visible contributions for employees on familiar investment platforms like John Hancock or American Funds

This structure not only passes nondiscrimination testing, it also serves as:

  • A tax strategy for owners
  • A retention tool for employees
  • A balanced benefit plan that satisfies IRS fairness rules

“While we say we set these plans up for the owners, it still is for the owners,” says Rosner. “But the employees get real value too.”

Watch the Video: Nondiscrimination Testing, Explained

Mirador Partners Alison Quesada and Rachel Rosner break down how testing works, who it impacts, and how we structure combination plans to meet compliance and contribution goals.

Dusk at a Mirador representing planning for retirement and 550 reporting's role

Deadline 12/31/25: What California Employers Need to Know About CalSavers

In 2025, California’s state-run retirement program, CalSavers, expands its reach to cover all employers with at least one employee. The final registration deadline is December 31, 2025.

While the law itself does not change in 2026, California will begin enforcing penalties for non-compliance, making 2025 a critical year for employers to take action.

Employer Requirements for 2025

By December 31, 2025, every California employer with one or more employees must comply with the CalSavers mandate, unless exempt. Employers have three options:

  • Offer a private-market plan. Employers can sponsor their own qualified retirement plan, such as a 401(k), 403(b), or SIMPLE IRA.
  • Register with CalSavers. Employers that do not offer a private plan must register for the state-run CalSavers program.
  • Certify exemption. Even if an employer already offers a qualified retirement plan, they must still register with CalSavers to formally certify their exemption.

Exemptions to the Mandate

Certain employers are not required to register with CalSavers, including:

  • Employers with no employees other than the business owners
  • Government entities
  • Religious organizations
  • Tribal organizations
  • Businesses that have closed or been sold

Penalties for Non-Compliance

Employers who fail to comply face escalating penalties:

  • First penalty: $250 per eligible employee if non-compliance continues 90 days after receiving notice
  • Second penalty: An additional $500 per eligible employee if non-compliance extends beyond 180 days

How the CalSavers Program Works

For employers that register with CalSavers, the program functions as follows:

  • Automatic enrollment: Employees are automatically enrolled in a Roth IRA with an initial contribution rate of 5% of their paycheck
  • Opt-out flexibility: Participation is voluntary for employees, they may opt out at any time
  • Employer role: Employers only facilitate payroll deductions; they do not contribute to employee accounts
  • Contribution limits: In 2025, Roth IRA contribution limits are $7,000 per year, plus an additional $1,000 for employees aged 50 and older

Why Many Employers Choose Private Retirement Plans Instead

While CalSavers offers a compliance pathway, it provides no employer tax benefits, no contributions, and limited employee savings opportunities. For many business owners, a private retirement plan is not only about compliance, it’s a tool for growth, retention, and tax efficiency.

Employee Benefits: Attract and Retain Top Talent

  • Competitive benefits packages, including 401(k) and Cash Balance plans, help employers stand out in a competitive labor market.
  • Retirement plans demonstrate a long-term investment in employees, increasing loyalty and reducing turnover.
  • Plan features such as employer matching, profit-sharing, or higher contribution limits make a meaningful difference to employees.

Employer Benefits: Tax Efficiency and Flexibility

  • Contributions to qualified retirement plans are generally tax-deductible to the business, reducing taxable income.
  • Employers can design plans that maximize their own retirement savings while still providing benefits to their employees.
  • By layering strategies like Cash Balance + 401(k) plans, owners and highly compensated employees can contribute well beyond traditional 401(k) limits while also funding employee accounts in a tax-advantaged way.

At Mirador, we specialize in custom retirement plan design that balances compliance with CalSavers while unlocking far greater advantages for both owners and employees.

Federal SECURE 2.0 Act Updates Affecting California Employers

Beyond CalSavers, employers must also pay attention to federal changes under the SECURE 2.0 Act, which impose new retirement plan requirements:

Effective in 2025

  • Automatic enrollment in new plans: Most new 401(k) and 403(b) plans must include automatic enrollment
  • Part-time employee eligibility: Employees working at least 500 hours per year for two consecutive years must be given access to the company’s retirement plan

Effective in 2026

  • Required Roth catch-up contributions: For employees aged 50 and older earning more than $145,000 in the previous year, all catch-up contributions must be made on a Roth (after-tax) basis

Key Takeaway for Employers

2025 is the year all California employers with at least one employee must make a decision: sponsor a private retirement plan, or register with CalSavers.

While CalSavers satisfies the legal requirement, it stops short of delivering the strategic advantages of a well-designed retirement plan. Employers who want to retain top talent, maximize their own retirement savings, and reduce taxes should consider private-market plan design, including Cash Balance and 401(k) combinations, as a stronger long-term solution.

Mirador helps business owners create retirement plans that do more than check a box, they build value for the business, the owner, and their employees.

Case Study: Affiliated Service Groups with Mike Bourne and Rachel Rosner

When it comes to retirement plan compliance, ownership structures and related business relationships matter more than many business owners realize. A recent client case highlights why asking the right questions, and digging beyond the surface, can make all the difference.

A Real-World Example

When Mirador sat down with a prospective client, the structure looked fairly straightforward. The company had created a separate management and marketing entity where only the CEO, the COO (also the CEO’s spouse), and one additional employee were employed. Meanwhile, the main operating company employed about 50 staff. The defined benefit plan, however, was set up only for the smaller management company.

At first glance, this raised important questions:

  • Were these two companies truly independent?
  • Did ownership overlap in a way that created a controlled group?
  • Or was this an affiliated service group situation, where one company exists primarily to provide services to the other?

“The IRS assumes that if ownership is in the family, you have control. The only exception is between siblings.” – Mike Bourne

Attribution Rules and Controlled Groups

In the initial conversation, ownership was described as partly held by a “private investor.” Upon closer review, that investor turned out to be the business owner’s mother. This revelation mattered because of IRS attribution rules.

Under these rules, ownership is attributed among family members, spouses, parents, children, and grandchildren all count. The effect? Even if ownership is divided on paper, the IRS treats the entities as a single controlled group. The only family relationships excluded from attribution are siblings.

“Through attribution, family ownership is combined. Parents, spouses, children, and even grandchildren all count toward determining a controlled group.” – Mike Bourne

This meant the companies were not separate for retirement plan purposes. They had to be considered together.

Affiliated Service Groups: Closing Loopholes

The case also touched on another important concept: affiliated service groups (ASGs). These rules exist to prevent owners from carving out certain employees, such as administrators, nurses, or staff, into a separate company solely to exclude them from pension benefits.

Classic examples include physician practices that attempted to create separate service entities for non-physician staff, leaving only the doctors in the retirement plan. The IRS closed this loophole by defining ASGs: if one company provides essential services to another, and ownership ties exist, the employees must be treated as part of the same group for retirement plan purposes.

Why This Matters for Business Owners

For high-earning business owners, the stakes are clear:

  • Compliance – Failing to recognize a control group or affiliated service group can invalidate plan design and expose the business to penalties.
  • Fairness – The IRS requires that plans don’t disproportionately benefit owners at the expense of employees.
  • Strategy – With the right plan design, owners can still maximize contributions and tax savings while meeting compliance requirements.

“Affiliated service group rules exist to keep owners from excluding employees while still taking full advantage of retirement plan tax deductions.” – Rachel Rosner

Understanding how ownership and service relationships affect retirement plans is crucial. Without a comprehensive view, even well-intentioned plan designs can fall short, or worse, put businesses at risk.

Getting it Right the First Time

At Mirador, we’ve seen how complex these rules can be, and we know that getting them right is essential. Control groups and affiliated service groups aren’t just technical definitions, they directly shape how retirement plans must be structured, tested, and administered.

The right guidance ensures owners can capture the tax advantages of defined benefit or cash balance plans while keeping their plans compliant and their employees protected.

Ready to see how the right plan design can help you save on taxes, maximize retirement savings, and support your team? Reach out to our team to start the conversation.

The “Phantom Hacker” Scam: What You Need to Know

The FBI is warning Americans about a new, highly coordinated scam that has already stolen more than a billion dollars, mostly from seniors. It’s called the Phantom Hacker scam, and it combines three familiar fraud tactics into one devastating scheme.

How the Scam Works

The Phantom Hacker scam unfolds in three phases, often over days or weeks:

1. Tech Support Impostor
It usually starts with a pop-up on your phone or computer claiming your device has been hacked. Victims are urged to call a “tech support” number. Once on the phone, the fake technician asks the victim to download software that gives them remote access. They’ll run a fake scan and warn that your finances may also be compromised, prompting you to open your bank or investment accounts.

2. Bank Impostor
Next, the victim receives a call from someone claiming to be from their bank’s fraud department. This scammer says foreign hackers have accessed the victim’s accounts and that funds must be moved to a “safe” account. Victims are then pressured to transfer money through wire transfers, cryptocurrency, or even cash shipments, which are difficult to trace or recover.

3. Government Impostor
Finally, another fraudster poses as a government official, sometimes from the Federal Reserve or another U.S. agency. They may send emails or letters on fake letterhead to make the scheme appear legitimate, while continuing to insist that funds must be transferred for protection.

Why It’s So Effective

This scam is especially dangerous because it plays on fear and urgency. Victims believe they’re acting to protect their savings, not realizing they’re being guided step-by-step into handing it over. Criminals even use artificial intelligence to make their messages sound more convincing, tailoring scams to people’s interests or online activity.

Red Flags to Watch For

  • Unsolicited contact: No legitimate tech company will reach out with a random pop-up or call.
  • Pressure to act quickly: Scammers insist on immediate action to prevent you from stopping to think.
  • Requests for remote access: Never allow a stranger access to your device.
  • Unusual payment methods: Wire transfers, crypto, and gift cards are favorite tools of scammers.
  • Secrecy: Being told not to discuss what you’re doing with friends or family is a major red flag.

Who Is Being Targeted?

While anyone can fall victim, seniors are most at risk. Many have significant retirement savings and may be less familiar with the latest scams. The FBI warns that in many cases, once money is gone, it’s nearly impossible to recover.

How to Protect Yourself and Loved Ones

  • Talk openly with family, especially older relatives, about scams like this.
  • Be cautious of any unsolicited call, email, or pop-up.
  • Verify directly with your bank or institution using a known phone number before making any transfers.
  • Never move money to “safe” accounts at someone else’s direction.

Bottom line: If you get a pop-up, call, or email saying your money is at risk—stop. Take a breath, hang up, and verify through official channels. Awareness is the best defense against the Phantom Hacker scam.