401(k) Plan Sequence Number

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on February 15, 2024

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What Is a 401(k) Plan Sequence Number?

A 401(k) plan sequence number is simply the number that the employer assigns to the plan. It is often referred to as a participant ID or account number, is a unique identifier assigned to each participant in a 401(k) plan.

For example, if the 401(k) plan is the second type of qualified plan that is or has been sponsored by the employer, then its number will be 002.

This number is then combined with the employer's tax ID number to make up the whole sequence number.

It's a specific number that helps plan administrators, employers, and service providers identify and track individual participants within a retirement plan.

Retirement plans such as SEP or SIMPLE IRAs should not be included in this numbering sequence, nor should non-qualified plans such as deferred compensation plans , split dollar plans, executive bonus plans or group carve-out plans.

Only qualified plans that fall under ERISA guidelines should be included in this sequence.

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Role of Sequence Numbers in 401(k) Plans

Identifying and Tracking Individual Plan Participants

Sequence numbers act as unique identifiers that help in identifying and tracking individual plan participants. They play a pivotal role in managing the diverse array of transactions and activities related to a participant’s 401(k) account.

Facilitating Recordkeeping and Account Management

Sequence numbers are integral to efficient recordkeeping and account management. They help in maintaining accurate records of participant contributions, distributions, loans, and other account activities.

Enabling Contribution Tracking and Allocation

Sequence numbers also play a crucial role in tracking and allocating contributions. They ensure that participant contributions, employer matches, and investment returns are accurately allocated to the correct accounts.

Role of Sequence Numbers in 401(k) Plans

Methods for Generating 401(k) Sequence Numbers

Different strategies can be employed to generate sequence numbers for 401(k) plans.

Sequential Numbering Based on Participant Enrollment

In many plans, sequence numbers are generated sequentially, based on the order in which participants enroll in the plan. This is a simple and straightforward method, ensuring each participant receives a unique identifier.

Algorithmic Generation Using Unique Identifiers

Some plans might use more complex methods for generating sequence numbers, such as algorithms that incorporate unique identifiers like social security numbers or employee IDs.

This approach adds an extra layer of security and uniqueness to each number.

Combination of Participant and Plan-Specific Identifiers

In other instances, sequence numbers may be generated using a combination of participant-specific and plan-specific identifiers.

This method helps to distinguish participants across multiple plans within the same organization.

Methods for Generating 401(k) Sequence Numbers

Factors Influencing Sequence Number Assignment

Several factors might influence the assignment of sequence numbers within a 401(k) plan.

Participant Enrollment Order

Sequence numbers can be assigned based on the order in which participants enroll in the plan, with the earliest enrollees typically receiving the lowest numbers.

Plan Entry Date or Eligibility Criteria

Plan entry date or specific eligibility criteria could also influence the assignment of sequence numbers. For instance, participants who become eligible for the plan at the same time might receive sequential numbers.

Employment Status or Tenure

In some plans, employment status or tenure might affect sequence number assignment. For example, full-time employees might receive lower numbers, or long-tenured employees might receive sequence numbers before newer hires.

Contribution Level or Allocation Preferences

In certain cases, contribution levels or allocation preferences could influence sequence number assignment.

This can aid in distinguishing between different categories of participants, such as high contributors or those with specific investment preferences.

Factors Influencing Sequence Number Assignment

Best Practices for Sequence Number Management

Implementing best practices for sequence number management can ensure efficient and secure plan administration.

Establishing Proper Documentation and Record-Keeping

Effective sequence number management begins with proper documentation and record-keeping.

This includes maintaining a comprehensive and up-to-date list of all sequence numbers assigned and ensuring all plan transactions and activities are accurately recorded.

Implementing Internal Controls and Safeguards

To protect sensitive participant data and prevent unauthorized access, internal controls and safeguards should be implemented.

This can include measures like secure storage of sequence number records and regular audits of sequence number use.

Regular Audits and Reviews of Sequence Number Processes

Conducting regular audits and reviews can help identify potential issues or discrepancies in sequence number processes. This ongoing oversight can enhance accuracy, security, and efficiency.

Conclusion

A 401(k) plan sequence number is a unique identifier assigned to participants in a retirement plan.

It plays a vital role in identifying and tracking individual participants, facilitating recordkeeping, managing accounts, and ensuring proper contribution tracking and allocation.

Sequence numbers streamline the administration of 401(k) plans, enabling efficient management of transactions and activities.

Various methods, such as sequential numbering, algorithmic generation, and participant-specific identifiers, can be used to generate sequence numbers.

Factors like participant enrollment order, plan entry date, employment status, and contribution level may influence sequence number assignment.

To effectively manage sequence numbers, best practices include proper documentation, internal controls, safeguards, and regular audits.

Understanding the importance of sequence numbers can contribute to the smooth operation of 401(k) plans and support participants' retirement savings goals

401(k) Plan Sequence Number FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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