When an employee leaves your company, you need to update their status on your 401(k) roster. You also need to keep their contact information up to date. Here is how to update their status and why their contact information matters.
When an employee leaves your company — voluntarily or by termination — you need to update your 401(k) roster. The way you update the roster depends on your payroll provider.
If you use Gusto or a Gusto Embedded payroll provider, like HiBob or HR for Health, enter the termination status and date for the dismissed employee in the payroll platform. Learn how to mark an employee as dismissed in Gusto.
Important: Wait until you process the employee's final payroll before entering a termination date. Once you mark an employee as dismissed in your 401(k), their contributions stop processing.
Once you add it, the information transfers to your Gusto 401(k) in real time. You do not need to do anything else.
For self-service plans using a non-Gusto payroll provider, you need to add a termination date to the employee's profile on your roster.
To update the employee's status, follow these steps:
Sign in to your 401(k) administrator dashboard at the Gusto Retirement sign-in page.
Go to the Roster tab.
Select the employee's name and add their termination date.
About one week after you list an employee as dismissed in your 401(k) plan, we send them an email notification and a dashboard task that explains what they can do with their 401(k) after leaving your company. Their options include requesting a distribution, rolling over to an IRA or other retirement plan, or keeping their account with us (if applicable).
Starting the first full month after termination, we no longer bill your plan the monthly participant fee for the dismissed employee.
For example, if you listed an employee as dismissed on Jan. 15, they’ll appear on your January invoice and be billed in February. They will not appear on your February invoice, billed in March, or any month after. Learn more about invoicing and billing practices.
Note: Although we remove terminated employees from your monthly billing, they remain on your 401(k) roster with a “Dismissed” status for record-keeping. To see those employees, select the Status filter and uncheck Active in the Roster section.
As a plan sponsor, you’re contractually required to keep contact information for current and terminated employees on your roster. This applies even if they cannot currently participate in the plan. We use this information for two reasons:
Compliance testing: We need it to perform Internal Revenue Service (IRS)-mandated compliance testing.
Required communications: We use it to send required plan documents, notices, and other communications.
Complete and accurate records also help us respond to requests from the IRS or Department of Labor (DOL) if a dismissed employee files a claim or your plan is audited. You may need to keep records for up to six years.
If a dismissed or inactive employee is missing contact details, add them to your Roster and mark them as “dismissed.” See tips for finding a participant’s contact information if they no longer work for your company.
Note: Dismissed or inactive employees will not get an enrollment invitation or other proactive communications if they are not eligible to enroll.
If a dismissed employee is showing up on your Gusto Retirement roster as “active,” follow the steps in the “Update the status of a dismissed employee” section.