Active Participant

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on July 11, 2023

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Definition of Active Participant

An active participant in the context of retirement plan compliance refers to an individual who is currently eligible to make contributions or receive employer contributions to their retirement account. These participants play a crucial role in ensuring ongoing compliance with their retirement plans.

Importance of Active Participation

Active participation is essential for maintaining retirement plan compliance because it involves a range of responsibilities that, if executed diligently, can help ensure the plan adheres to applicable regulations and guidelines.

Identifying an Active Participant

Criteria for Active Participation

To be considered an active participant in a retirement plan, an individual must meet certain criteria:

Criteria for Active Participation

1. Contributions: The participant is making, or is eligible to make, contributions to the retirement plan, either through salary deferrals, employer matching, or profit-sharing contributions.

2. Employment status: The participant is currently employed by the plan sponsor or an affiliated employer.

3. Plan eligibility: The participant meets the plan's eligibility requirements, such as minimum age, service duration, or hours worked.

Differentiating Between Active and Inactive Participants

Active participants are distinct from inactive participants, who may have ceased making contributions, terminated employment, or become ineligible due to changes in plan provisions. Understanding the difference is crucial for accurate reporting and maintaining plan compliance.

Role of Active Participants

Ensuring Adherence to Contribution Limits

Active participants must monitor their contributions to ensure they do not exceed the annual limits established by the Internal Revenue Service (IRS). Excess contributions can result in tax penalties and compliance issues for the retirement plan.

Meeting Non-Discrimination Requirements

Retirement plans must meet certain nondiscrimination requirements to maintain tax-qualified status. Active participants play a role in this process by ensuring fair distribution of benefits between Highly Compensated Employees (HCEs) and Non-Highly Compensated Employees (NHCEs).

Maintaining Accurate Records and Timely Reporting

Active participants are responsible for providing accurate and timely information to their plan sponsor, such as changes in personal information or beneficiary designations. This ensures that plan records are up-to-date and facilitates compliance with reporting requirements.

Active Participant Rights and Responsibilities

Understanding Plan Documents and Provisions

Active participants should familiarize themselves with their retirement plan documents and provisions to understand their rights, benefits, and responsibilities. This helps ensure that they are well-informed and can advocate for their interests.

Monitoring Personal Account and Investment Performance

Active participants should regularly review their account statements and investment performance to ensure their retirement savings are on track. They should also make adjustments to their investment allocations as needed based on their risk tolerance and financial goals.

Participating in Plan Governance and Decision-Making

Active participants have the right to participate in plan governance and decision-making processes. They can express their views on plan administration and investment options, and they can exercise their voting rights during annual meetings or other plan events.

Exercising Voting Rights

Active participants may have the right to vote on certain matters related to their retirement plans, such as plan amendments, trustee elections, or other significant decisions. Exercising these rights helps ensure that the plan is managed in the best interests of all participants.

Role and Rights of Active Participants

Retirement Plan Compliance Testing

Annual Testing Requirements

Retirement plans must undergo annual compliance testing to ensure adherence to IRS regulations. Key tests include the Actual Deferral Percentage (ADP) test, Actual Contribution Percentage (ACP) test, and Top-Heavy test. Active participant data is crucial for these tests.

Correcting Compliance Issues

If compliance issues are identified, plan sponsors can use various correction programs to rectify the problems, such as the Voluntary Correction Program (VCP), Self-Correction Program (SCP), and Audit CAP (Correction of Audit Findings).

Active participants may be involved in the correction process by working with plan sponsors to address any discrepancies and ensure accurate records.

Importance of Education and Communication

Plan Sponsor's Role in Educating Employees

Plan sponsors have a responsibility to educate employees about their retirement plan, including the importance of active participation and the impact on plan compliance. Effective education can help participants make informed decisions and contribute to overall plan success.

Effective Communication Methods

Plan sponsors can employ various communication methods to educate and engage active participants:

1. Periodic Newsletters: Regularly distributed newsletters can provide updates on plan provisions, investment options, and other relevant information.

2. Educational Workshops and Webinars: Interactive workshops and webinars can help educate participants about retirement planning, investment strategies, and plan compliance.

3. Online Resources: Plan sponsors can provide access to online resources, such as retirement planning tools, investment information, and plan documents.

Encouraging Active Participation for Long-Term Retirement Success

By promoting active participation, plan sponsors can help ensure that employees are engaged in their retirement planning and preparation for their financial future. This, in turn, contributes to the long-term success of the retirement plan and helps maintain compliance with applicable regulations.


Active participation plays a vital role in retirement plan compliance.

By understanding their rights and responsibilities, actively participating in plan governance, and working with plan sponsors to maintain accurate records, active participants can help ensure that their retirement plan remains compliant and operates in the best interests of all participants.

A compliant retirement plan benefits both employees and employers. Employees benefit from tax-advantaged savings and investment growth, while employers can attract and retain a talented workforce and receive tax deductions for their contributions.

By fostering a culture of active participation, employers and employees can work together to achieve long-term retirement success and maintain plan compliance.

Active Participant 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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