401(k) Contributions
Overview
The Northwest Carpenters Individual Account Pension Plan is a defined contribution 401(k) plan. An employee can elect to have the employer contribute a portion of his or her cash wages to the plan on a pretax basis. Generally, these deferred wages (commonly referred to as elective contributions) are not subject to income tax withholding at the time of deferral, and they are not reflected on Form 1040 since they were not included in the taxable wages on Form W-2. However, they are included as wages subject to withholding for Social Security and Medicare taxes. In addition, employers must report the elective contributions as wages subject to federal and/or state unemployment taxes. Contributions that are deposited after the 15th business day are delinquent under the plan’s collection policy.
Remember, elective contributions are optional, made at the sole discretion of the employee. They do not replace, reduce, or otherwise affect pension contributions called for in the collective bargaining agreement.
Eligibility
Employees may elect to have contributions made to the 401(k) plan on their behalf, subject to the following rules:
- The employee must work under a Collective Bargaining Agreement or written Associate Agreement calling for employer contributions to our pension plans.
- 401(k) contributions cannot be made on behalf of carpenters working under Reciprocal Agreement (Money Follows the Carpenter).
Enrollment
- The employee may enroll and begin elective contributions at any time. There is no annual election period.
- The employee must complete the Application For 401(k) Contributions and submit it to the employer so payroll information can be updated. This form authorizes the employer to reduce the carpenter's hourly wage and make contributions on his or her behalf. Do not send completed forms to Northwest Carpenters Trusts.
- The employee chooses his or her hourly contribution amount, in increments of $0.25 per hour. The maximum contribution amount is determined by the Internal Revenue Service. In 2023, employees under the age of 50 may contribute a maximum of $22,500. Employees aged 50 or older may contribute a maximum of $30,000.
- $13/hour equals $22,100 based on 1,700 work hours anually.
- $16/hour equals $28,900 based on 1,700 work hours anually.
- The employee may change the contribution amount monthly. A new Application for 401(k) Contributions must be submitted to the employer each time the contribution amount is changed.
- An employee can elect to discontinue 401(k) contributions at any time by completing an Application to Rescind 401(k) Elective Contributions and submitting it to the employer. To resume elective contributions, the employee must submit a new Application for 401(k) Contributions to the employer.
Calculating Contributions
- It is the employee's responsibility to notify the employer of his/her 401(k) contribution amount, either with a copy of the Application For 401(k) Contributions or through some other signed form that satisfies your payroll requirements.
- After receiving an employee’s Application For 401(k) Contributions, you have 30 days to make the necessary payroll changes for these contributions. Please begin processing contributions earlier, if possible.
- 401(k) contributions are subject to payroll taxes (FICA and state unemployment).
Example
- Wage: $57.00/hour.
- Work Period: 40 hours
- 401(k) Contribution: $5.00/hour.
- Federal Income Tax (FIT): 25%
Steps Calculations Results 1. Compute taxable wages 40 hours x $57.00 per hour $2,280.00 2. Compute FICA withholding $2,280.00 x 7.65% $174.42 3. Compute vacation deduction 40 hours x $1.00 per hour $40.00 4. Compute union dues deduction $57.00 per hour x 40 hours x 5.0% $114.00 5. Compute 401(k) deferral 40 hours x $5.00 per hour $200.00 6. Compute FIT withholding $2,080.00 x 25% $520.00 7. Compute net pay 1 – 2 – 3 – 4 – 5 – 6 = 7 $1,231.58
Reporting and Transferring Contributions
401(k) contributions must be reported and transferred to Northwest Carpenters Trusts. Use the same Employer Remittance Form used for reporting other fringe benefit contributions. Contributions can be submitted more frequently than monthly but must be received no later than the 15th day of the calendar month following the month in which the amounts would otherwise have been included in the employee’s paycheck. Contributions that are received after the due date are delinquent under the plan’s collection policy.
Annual Non-discrimination Testing
Northwest Carpenters Trusts must test 401(k) contributions annually under Internal Revenue Service (IRS) rules that consider the level of contributions made by carpenters eligible to participate in this plan. The test compares the relative rates of 401(k) contributions made by those individuals the IRS considers to be “highly compensated employees” with those who are not. To perform this test, Northwest Carpenters Trusts will need to collect compensation data from employers. If the test is not passed, some of the contributions made by highly compensated employees may be returned to them.
Employer Checklist
Do you understand our expectations for employers? The links on the left can direct you to the details, but our requirements boil down to 4 simple things:
1. Fill out the form.
2. Write the check.
3. Deposit funds by due date.
4. Keep good records.
We know it can be frustrating when you don’t have the right information. Be sure to contact us with your questions and suggestions.