Taking Care of Your Retirement
Plan
It’s important to stay up
to speed on changes in the laws governing retirement plans since some of
these changes could offer additional saving opportunities for you and your
employees. The Pension Protection Act of 2006 (PPA) is a case in point. In
addition, don’t ignore routine issues of plan compliance if you want to
avoid regulatory problems down the road. The Routine Compliance Checklist
below identifies some
compliance issues that deserve your attention.
Higher Deferrals
The PPA makes permanent earlier law changes regarding increases in maximum
annual salary deferrals to 401(k) plans and catch-up contributions for
individuals aged 50 or older. Also made permanent are increased maximum
contribution limits for individual retirement accounts (IRAs) and the option
to treat elective deferrals to 401(k) plans as after-tax Roth contributions.
Plan Statements
The PPA requires 401(k), profit sharing and other individual account
retirement plans that allow employees to direct their account investments to
issue account statements at least quarterly. A notice is also required
regarding default investment options in cases when employees do not direct
their investments. Statements must include an explanation of any limitations
or restrictions on the right of the participant to direct an investment. The
statements must also include information outlining the importance of having
a well-balanced and diversified portfolio and explaining the risk of holding
more than 20% of account investments in the security of one entity (such as
employer securities).
Automatic Enrollment
The PPA includes a provision that makes 401(k) plans with a “qualified
automatic contribution arrangement” eligible for safe harbor treatment under
the tax law’s nondiscrimination tests. Moreover, the statute removes
conflicts with state laws in regard to wage withholding without employee
consent. These changes are generally effective for plan years beginning on
or after January 1, 2008.
Greater Fiduciary Protection
Plan sponsors are also relieved from fiduciary liability with respect to
default investments once the sponsors meet the law’s requirements. The U.S.
Department of Labor recently issued a final regulation that identifies
lifecycle and targeted retirement date funds, balanced funds and
professionally managed accounts as examples of investments that meet the
criteria for default investments. In addition, a capital preservation
product may be used for the first 120 days of participation. The PPA also
extends fiduciary protection to sponsors when plan assets are “mapped” from
one investment platform to another during a period when the sponsor switches
investment service providers, provided the pension law’s requirements in
connection with authorizing and implementing a blackout period have been
met.
Routine Compliance Checklist
Update and Distribute SPDs: Your Summary Plan Description (SPD) generally
must be updated at least once every five years. If you make what are known
as “material modifications” to your plan, you must give participants a
summary of those modifications within 210 days after the end of the plan
year in which they were made. Also, new participants must be provided with
an SPD within 90 days of becoming a participant.
Distribute SARs to Participants: Plan participants must generally receive a
Summary Annual Report (SAR) from the plan within nine months of the end of
the plan year.
Review Plan’s Bonding Level: Plan fiduciaries must be bonded. Regularly
review your plan’s bonding status since the minimum bonding amount increases
as the assets in your plan increase.
Review Plan Forms: Regularly review your plan’s forms, such as beneficiary
designation forms and benefit election forms, to ensure they are current.
File Form 5500: File Form 5500, Annual Return/Report of Employee Benefit
Plan, along with required schedules (or Form 5500-EZ) in a timely manner.
Taking a proactive approach can help ensure that your plan operates at
maximum efficiency and will continue to operate in full compliance with all
relevant tax and pension laws. Somerset's
Employee Benefits Team
can provide advice and guidance on simple benefit matters—such as
understanding the basic operation of your plan, to more complex matters—such
as dealing with transitioning benefits in a corporate merger or acquisition.
We are also a member of the American Institute of Certified Public
Accountants’ (AICPA) Employee Benefit Plan Audit Quality Center for CPA
firms. Federal law requires employee benefit plans with 100 or more
participants to file Form 5500 and have a financial statement audit
performed as part of their fiduciary obligation. Please
contact us if
we can be of assistance.
Work-In-Process is provided by
Somerset for our clients and other interested persons upon request.
Since technical information is presented in generalized fashion, no
final conclusion on these topics should be made without further review.
For additional information on the issues discussed,
please contact
Ken
Hedlund,
Jay Feller,
Steve George,
Chris
Mayfield or
Rebecca Ogle
of our
Construction & A/E Team.
This document is not intended or written to be used, and cannot be used,
for the purpose of avoiding tax penalties that may be imposed on the
taxpayer.
Somerset CPAs,
P.C.
3925 River Crossing Parkway, Third Floor
Indianapolis, Indiana 46240
317.472.2200 • 800.469.7206 • FAX 317.208.1200
www.somersetcpas.com
