Plan Sponsor Quick Tips: COLA Increases for 2012

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

On October 20, 2011 the IRS announced the cost of living adjustments for the tax year 2012. The adjustments are comprised of dollar limitations on benefits and contributions under qualified plans. Some limitations for 2012 changed while others remained the same:

•  Annual Compensation – This figure increased from $245000.00 to $250000.00
• Elective Deferrals – These increased from $16500.00 to $17000.00
• Catch-up Contributions – The contribution limit for anyone over the age of 50 remains at $5500.00

These COLA increases will allow participants in a retirement plan to defer more than they have in the past. A complete list of dollar limitations in prior years can be found by clicking here. As always, when in doubt, please reach out to your service providers for further clarification on these matters!

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Plan Sponsor Quick Tips: 5500 Wrap-Up!

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

October 17^th is upon us and many of you have completed filing your 2010 form 5500s. If you have not done so already, get to it ASAP to avoid penalties. The sigh of relief that comes with receipt of the FILING RECEIVED status from the DOL can be quiet a good feeling. Your fiduciary role however does not end there. Below are a few steps that you can take as part of your due diligence:

• 5500 Records – Make sure that your have kept signed copies of your 5500 and the Summary Annual Report.  They are handy in audit situations.
• User IDs and Passwords – Find a secure location to keep these for use with your service provider and EFAST websites.
• Employer Identification Number (EIN) – Keeping a record of this nine digit number in a known location will assist you in accessing your 5500 records on the EFAST website with ease.

These are a few tips that you could start using today and breeze through the 5500 process in future years. Whenever in doubt make sure you reach out to your service provider for more information on the topic!

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Keep The Course: Commonly Asked Questions-Is My 401(k) Plan Allowed To Take Fees?

Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! Your feedback or suggestions on future articles is welcome.

Over the next few weeks, 401kBasics will feature some of the most commonly asked questions.

“My retirement plan deducts fees directly from my account each month, is this allowed?

All 401(k) plans have fees, however not all of them are treated equally. Some plans have the majority of the fees paid by the plan sponsor, whereas others have fees deducted from participant accounts directly, and even other plans have indirect fees taken from the investment earnings. The fee structure is something that your plan sponsor agreed upon when establishing the plan.

In the past, these fees have been difficult to determine, however the DOL is cracking down on this area of retirement plans and is insisting that the fee structure for plans is more transparent. So, sadly, the answer is “yes”, you can have fees taken from your account.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Plan Sponsor Quick Tips: Employer Deductibility

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

As September 15^th approaches, plan sponsors may be approaching a tax-filing deadline. In regards to 401(k) plans, those with minimum funding requirements are expected to make their deposits before the extended tax deadline. Employer deductions for defined contribution plans are limited to 25 percent of participants’ eligible compensation. Contributions required by employers in excess of the deduction limit may still be allocated to the participant’s account, but may not be deducted by the employer on their company tax return in the current year. There are a few factors to consider, including:

• Deferrals are included in compensation when determining 25 percent of compensation amount.
• Only eligible employees’ compensation and contributions are part of the deduction limit.
• Any group of employees excluded from participating on the plan does not have their compensation included in 25 percent calculation

As a plan administrator, it is your duty to make sure that all required employer contributions are deposited into the plan by the due date of the plan sponsors’ tax return. This is the only way a qualified plan can take advantage of a tax deduction. If you are still not sure what to do, make sure you contact your service provider for a thorough explanation!

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Plan Sponsor Quick Tips: Form 5500 Follow Up!

Yesterday was August 1^st, which was the deadline for filing your 5500 without an extension. October 15^th should be the next date to be on the lookout for if you have not filed your form 5500 yet and did file for an extension. Regardless of whether you filed your form 5500, below are the next steps that you can act upon today:

• Form 5500 filed – Make sure you have a signed copy of the form 5500 in your plan records and have a set process to distribute the Summary Annual Report (SAR) to plan participants. This is also a good time to review that all your form 5500 records from prior years are in order.
• Form 5500 not filed – It is important that you file the form and retain a copy of your form 5558 that was sent to the IRS to avoid penalties.

Your service provider may have already provided you with form 5500 filing instructions using their software but if they have not then you can find instructions on how to file the form through the EFAST2 website. Calling the DOL directly using the numbers provided on their site can also prove to be helpful.

Bookmarking the EFAST2 website will also help you locate it with ease in the future. Make sure that your EFAST user ID and passwords are kept in a secure location. If your plan is off calendar then please review your filing dates. Your service provider is a great resource for you to utilize if you are uncertain on what your next steps may be!

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Plan Sponsor Quick Tips: Revisiting Non Discrimination Test Results

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

Have you, as a plan administrator, ever received the non-discrimination testing results for your plan and ignored them? Believe it or not this happens quiet often, especially if the results are in favor of the benefit plan. Even if the results are in favor of the plan, as the administrator, it is your fiduciary responsibility to review the results to ensure their accuracy. Below are some items you should look at:

· Actual Deferral Percentage Test – Beyond the pass/fail indicator that many plan administrators look for, you should ensure that the correct number of HCEs and NHCEs is listed on the results. For any catch-up or recharacterized of funds, make sure that the adoption agreement allows for this provision.

· Top Heavy Test – This test is a good place to start identifying the definition of key employees for your plan, because when a plan is deemed top heavy contributions have to be made to all non-key employees equal to the lesser of 3% of compensation or a percentage equal to the highest contribution rate of any key employee. Also, gauge how close you are to the 60% limit, to help prepare for the upcoming year.

· Minimum Coverage Test – Benefit plans must cover at least 70% of all employees hence it is the plan administrator’s duty to make sure that he/she is providing their service provider with correct employee information. Check your adoption agreement to see which employees groups are not covered.

As you can see, there is more to the test results than just a mere pass/fail. A good plan administrator will have a filing system in place for these results and will always make sure that they read them thoroughly. Anything short of this practice can be costly for the plan down the line.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Keep The Course: Commonly Asked Questions-Why Am I Not Allowed To Take A 401(k) Loan?

Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! Your feedback or suggestions on future articles is welcome.

Over the next few weeks, 401kBasics will feature some of the most commonly asked questions.

“Someone I know took a loan from their 401k, but when I tried to take on, I was told I wasn’t allowed, why is this?”

Some plans don’t allow loans. Plan sponsors (your employer) can decide what provisions they want to allow, and which ones they don’t. Sometimes plan sponsors don’t adopt a loan provision, in an attempt to preserve the original intentions of a 401(k) plan, which is namely, to save for retirement.

If you’re in desperate need of money, you could look into temporarily reducing your 401(k) contributions, or if the plan allows you can look into taking an in-service or a hardship withdrawal. If none of these options are available, then you’ll just have to accept that your retirement plan is reversed for your retirement!

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Plan Sponsor Quick Tips: Understanding the Form 5500

Each Monday 401kBasics posts a new tip as a part of our series “Plan Sponsor Quick Tips”. This series is designed to assist plan sponsors in filling their fiduciary role and running their retirement plan efficiently. Your feedback or suggestions on future articles is welcome.

On an annual basis, employee benefit plans are generally required to file a Form 5500, Annual Return/Report of Employee benefit plans, to report their financial conditions and operations of the plan. Plan sponsors must file the Form 55500 on the last day of the seventh month after their plan year ends. The type of Form 5500 you file depends on the demographic of your plan and the number of participants.

Types of Returns:

• Form 5500-EZ – Annual Return of One-Participant (Owners & their Spouses) Retirement Plan. One participant plans that satisfy requirements of the Form 5500-SF may file that type of form electronically in place of a paper-only Form 5500-EZ.

• Form 5500-SF – Short Form Annual Return/Report of Small Benefit Plan. Plans with less than 100 participants may be eligible to use this form (exceptions may apply). Must be filed electronically through the DOL’s Employee Retirement Income Security Act Filing Acceptance System (EFAST2).

• Form 5500 – Annual Return/Report of Employee Benefit Plan. Must be filed electronically through the DOL’s Employee Retirement Income Security Act Filing Acceptance System (EFAST2). Generally, this form is required for plans with over 100 participants (exceptions may apply).

The Form 5500 is an important research and compliance tool for plans and their participants as it is part of ERISA’s overall framework. Failure to file the form in a timely manner may result in civil penalties. For more information on the 5500 click on this link.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Keep The Course: Commonly Asked Questions-How Much Can I Contribute to Roth and Pre-Tax 401(k) Contributions?

Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! Your feedback or suggestions on future articles is welcome.

Over the next few weeks, 401kBasics will feature some of the most commonly asked questions.

”How much can I contribute to both Roth and Pre-Tax 401k contributions?”

Plan sponsors determine which type of contributions to allow. If your plan allows for Roth and Pre-tax deferrals, then the limit for 2011 is $16,500. This means that your total combined contributions (Roth and Pre-Tax) cannot exceed $16,500. For those over 50 years old, your plan may allow for an additional $5,500 in catch-up contributions, which could be Pre-Tax or Roth. This means the total any single person could contribute in 2011 would be $22,000 assuming, that individual is at least 50 years old. A participant can not defer $16,500 in Pre-Tax and another $16,500 to Roth.

Keep in mind that some plans allow for “regular” or “voluntary” after-tax contributions, which are not considered Roth contributions.

For more information on your plan’s features, it’s recommend that you consult your 401k service provider or your employer.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.

Keep The Course: Commonly Asked Questions-Why Do I Have To Take a Loan First?

Each Wednesday 401kBasics posts a new article in a weekly series called “Keep the Course”. This series is designed to give the average consumer information on how to keep their 401k plan on track! Your feedback or suggestions on future articles is welcome.

Over the next few weeks, 401kBasics will feature some of the most commonly asked questions.

“I recently contacted my 401k plan asking if I can take a hardship withdrawal from my account. I was told that in order to take one, I have to take a loan first. Is that true and why?”

Hardship withdrawals are designed to be your last resort. For that reason, if you have other assets, insider or outside of your retirement plan, you’re supposed to exhaust those first. Therefore, retirement plans often times require you to take a loan out first. The issue with that is that the loan payments may cause further hardship. Seems like a catch 22 right? Some plans will allow you to bypass the loan option if you can certify that it would cause further hardship. I recommend contacting your company or service provider to see if this is an option. If not, find out what the lowest amount is that you can borrow from your plan, and then perhaps after that you can take the hardship. Some plans will allow you to take a minimum loan of $250 or $500. That amount spread over 5 years would not amount to much money coming out of each paycheck.

This site is for entertainment purposes only. 401kBasics and it’s authors are not financial advisors and no information found on this site should be construed as financial advice.