Service Q & A

How do I benefit by allowing TSC to administer my plan?

At TSC, the administration of your plan will be in the hands of highly qualified professionals who have extensive retirement plan experience. Our first and only business is the establishment and administration of employee benefit plans. We are compensated directly by our clients for the valued services they receive. The integrity of our service is not compromised by considerations of investment brokerage or sales commissions.
How do I benefit from having a retirement plan for my business?

A qualified retirement plan is a means to attract and retain quality employees. It can also provide significant tax deferred benefits for owners and other key employees.
Do you handle or sell investments?

No.
Will TSC help screen the investment advisors?

We will work with many investment advisors, but because our services are not investment related, we do not "screen" or recommend advisors.
What do I need to provide to a new participant?
1. A copy of the summary plan description
2. Enrollment forms, so participant can defer how much they want (for 401(k)) and invest it where they want to
3. Beneficiary forms
  
  These forms should be provided to the employee before they become eligible for the plan. If you cannot locate any of these forms, call TSC.
What do I do when a participant terminates?

Typically, provide them with a distribution package so they can withdraw their funds from your plan. If you cannot locate your distribution package, call TSC.
What kind of plan should I have?

The answer to this question depends on many factors. This can be determined after consultation with a plan professional at TSC.
Will you meet with our employees to explain our plan?

We are happy to conduct employee meetings. Our fees for such meetings depend on the time involved and travel expenses.
What information am I required to provide to you and why?

We will give you a specific list of items that we will require. At the minimum, a complete census of employees will be necessary. There are many legal requirements for qualified plans. To ensure satisfaction of these requirements and to protect the tax-exempt status of the trust, detailed employer and employee data is essential.
Can I buy a document only and not Administrative Services?

We generally provide our documents only for plans for which we provide administrative services. We are not a law firm.
What’s the turnaround time in getting our:

a.) Year-end employer calculations?
Employer contribution figures will be provided as soon as possible. We will do all we can to accommodate you and your CPA. We are sensitive to your tax return filing requirements.

b.) Employee benefit statements?
Within 30 - 45 days after receipt of the last piece of information from you, depending upon the valuation frequency.

c.) Valuation reports?
Within 30 - 45 days after receipt of the last piece of information from you, depending upon the valuation frequency. Since many plans use a calendar year for reporting, December 31 processing typically takes longer.
Do you offer daily valuation?

We provide compliance and administrative support services using mutual fund and insurance companies’ "daily" retirement plan recordkeeping systems. Our firm does not do "daily valuation" recordkeeping. Click here for more information
Do you handle investment education?

We do not handle investment education. This is largely the responsibility of the plan’s investment advisor.
Do you help with 404(c) compliance?

404(c) compliance is a function of how the plan is designed and how the investments are structured. TSC assists you with plan design and will incorporate required 404(c) provisions into the plan documents. Your investment advisor assists you with the investment structure, and should work with you to ensure 404(c) compliance with regard to the plan investments.
Can I invest in real estate, partnerships, collectibles and other non-traded assets?

Qualified Plans must provide for at least annual valuation of investments held by the trust in accordance with a method consistently followed and uniformly applied. Fair Market Value (FMV) must be used for this purpose.

The kinds of assets typically affected by these rules are limited partnerships, interests in closely-held, non-publicly-traded corporations, real estate, and collectibles. Carrying such an asset at cost or, in the case of a partnership, using the capital account shown on the Schedule K-1 is not FMV.

The determination of FMV must be in accordance with Revenue Ruling 59-60 standards. These are the same standards as are used for estate valuations. Valuation must be performed by an independent appraiser who uses the appropriate research and analysis and prepares an appraisal report which meets these standards.

Assets which are improperly valued can give rise not only to a violation of the regulations, but also to trustee liability for undervaluation or overvaluation of the trust assets. It is in the best interest of the Plan, the Participants, and the Trustees to have a proper FMV of the trust assets.

The cost of the appraisal may be paid by the trust. If the cost is prohibitive relative to the value of the asset, the trustee might consider removing the asset from the plan. Sale to an unrelated third party in an arm's-length transaction is necessary in order to avoid violation of the prohibited transactions rules.
Can I rollover my IRA funds, or funds from a previous retirement plan, into my qualified plan?

Click here for a quick reference chart
(Reprinted with permission from Travelers Life & Annuity. Neither Travelers Life & Annuity nor its representatives are qualified to give tax, legal, financial or plan design advice; clients should seek the advice of a tax attorney or qualified advisor.")

Contributions

When must an employer contribution be deposited?

By the due date, including extensions, of the business tax return.
If an employer deducts 401(k) salary deferrals out of its employees' paychecks on a weekly basis, is the employer obligated to put the deferrals into the 401(k) plan immediately or can the employer hold the deferrals for some period of time before depositing them into the 401(k) plan?
What happens to the non-vested portions of terminated participants benefits?

The non-vested portion becomes a forfeiture either at the end of the plan year or at the end of the plan year in which 5 consecutive breaks-in-service occur, depending upon the terms of the plan document. Forfeitures can be reallocated to existing participants, used to offset the employer's contribution obligation, or used to pay administrative expenses depending on the plan document.
How much can I contribute into our plan?

Contributions to qualified plans vary depending on plan type. We can determine the maximum contribution allowed within limits of the law.
How much of the contribution is allocated to me, as the owner, and my family members?

In most cases, plans can be designed to provide higher benefits for the owners and family members. We can make the determination with a company census.

Terminations and Distributions

If a terminated participant requests a distribution, when can he/she expect to receive the distribution?

It depends upon how the plan is written. In general, if the plan is valued on a quarterly basis, the distribution will be processed after completion of the valuation following the distribution request. If the plan is valued annually, the distribution, if requested, will usually be processed after completion of the annual valuation following the participant's termination date. However, depending upon the provisions in the plan document, the distribution may occur sooner (as is the case with a plan that is valued on a daily basis).

TSC will process a distribution request within a day or two of receipt. TSC does not handle any plan investments and does not write the checks. Therefore, when a participant will receive the funds depends upon the time it takes the investment company to process the request for the withdrawal and issue the check.
May plan participants call TSC to request distributions, loans, account balance information, etc.?

Generally, no. TSC's relationship is with the Plan Sponsor - the company that maintains the plan for its employees. Participants should contact the trustee of the plan, or an authorized employee of the company, with questions about the plan.
Can the trustee force a distribution to a terminated participant with a balance in the plan?

Yes, if the vested balance is less than $5,000, provided the plan is written with this requirement.
When should a terminated participant receive and complete Distribution forms?

The participant should complete the forms at least 30 days, but not longer than 90 days prior to the distribution of benefits. If the distribution does not occur within 90 days from the time the participant signs the forms, new forms must be signed.
When is federal tax withholding on a distribution required?

When the participant receives a cash distribution that would otherwise have been available to rollover to an IRA or another qualified plan, mandatory 20% income tax withholding applies.
When must federal tax withholding on a distribution be deposited and how is it deposited?

The timing depends upon whether you're a monthly depositor or a semiweekly depositor and how much is to be deposited. It must be deposited by the 15th of the month following the distribution. It is filed with a Form 8109 tax deposit coupon and must be deposited in a federal depository bank. It is very similar to filing payroll taxes. Note: not all banks are depository banks for this purpose. See Tax Deposit Info for complete explanation
How is federal tax withholding reported to the IRS?

In February following the calendar year of the tax withholding, a Form 945 is filed with the IRS. The IRS matches the deposits with Form 945.
How are distributions reported to the participant for tax preparation purposes?

In January following the calendar year of the distribution, a Form 1099-R must be sent to the participant detailing the total distribution, the taxable amount and the amount of any withholding.

Following the Rules

What is nondiscrimination testing and why do we have to worry about it?

The most basic rule that enables a retirement plan to be a "qualified" retirement plan and thus "shelter" its funds from taxation and give the employer that maintains the plan a tax deduction for contributions to it is that the plan be for the primary benefit of the participants and that it not be a discriminatory plan. Whether it is discriminatory is defined by the Internal Revenue Code and regulations and other rulings issued by the IRS. A number of specific tests are applied to plans to see to it that they are not discriminatory. There are also so-called "safe-harbors" that, if utilized, enable a plan to pass some or all tests automatically.
What is the "ADP" test and how does it work?

The ADP test is the Actual Deferral Percentage test. It is a specific nondiscrimination test that applies to salary deferral contributions to 401(k) plans. This test compares the average of the deferral rates for Highly-Compensated participants to the average of the deferral rates of the Nonhighly-Compensated participants. There is another similar test called the "ACP" test or Actual Contribution Percentage test that is applied to Matching contributions and employee after-tax contributions to plans. The ADP and ACP for the Highly-Compensated participants cannot exceed 1.25 times the ADP and ACP for the Nonhighly-Compensated participants. In the alternative, the ADP and ACP for the Highly-Compensated participants cannot exceed the ADP and ACP for the Nonhighly-Compensated participants by more than two times or two percentage points.
What happens if a 401(k) plan fails its ADP and/or ACP test?

The most common corrections are: (i) a return of excess contributions plus interest to certain "Highly Compensated Employees"; or (ii) a "Qualified Non Elective Contribution" is allocated to Non-Highly Compensated Employees. The return of excess amounts must be done within 2½ months of the close of the plan year to avoid an IRS excise tax of 10%. If the return is made within 2½ months following the end of the plan year, it is taxable to the participant in the calendar year in which the first day of the plan year begins. If the return is made after 2½ months following the close of the plan year, it is taxable to the participant in the calendar year in which the distribution is received.
What is a Top-Heavy Plan?

A Top-Heavy plan is one in which more than 60% of the plan assets are in accounts of participants who are owners and certain officers - so-called "Key Employees." The determination date as to whether a plan is top-heavy is the last day of the previous plan year.
What happens if the plan is Top-Heavy?

A minimum contribution to nonkey participants of up to 3% may be required if any key employee receives a contribution of up to 3%. All participants who are employed on the last day of the year must receive this top-heavy minimum regardless of the number of hours they work. In a defined benefit pension plan, a minimum accrual of 2% per year up to a maximum of 20% is the minimum benefit that is required. Any participant who works 1,000 hours in the plan year accrues this top-heavy minimum benefit.

A top-heavy plan must also have a vesting schedule that is at least as fast as 20% per year starting with the second year of service (100% after six years) or in the alternative, 100% after three years of service.
How do the Top-Heavy rules apply to 401(k) plans?

If a key employee makes a deferral - a 401(k) contribution - that counts as a contribution that triggers the top-heavy minimum. However, any 401(k) contributions made by nonkey participants do not satisfy the top-heavy minimum requirement.
Can I exclude part-time or seasonal employees from our plan?

A qualified plan cannot exclude employees by classification based on their work schedule. Classes of employees may be excluded based upon reasonable business-related classifications, such as "Hourly" or "Salaried," "Administrative staff," "Warehouse," "Housekeeping," "Professional," "Clerical," etc. Any exclusions are subject to nondiscrimination testing.
If an employer deducts 401(k) salary deferrals out of its employees' paychecks on a weekly basis, is the employer obligated to put the deferrals into the 401(k) plan immediately or can the employer hold the deferrals for some period of time before depositing them into the 401(k) plan?

Any employee contributions, including 401(k) salary deferrals, to a qualified plan become plan assets at the earliest date on which the employer can reasonably segregate them from its general assets. The employer must pay such plan assets to the plan as soon as possible or there is a prohibited transaction. This issue most commonly arises with 401(k) plans but can arise in any qualified plan that has any kind of employee-deferrals, including participant loan payments made by payroll deduction.

In no event can the segregation and payment of elective contributions occur later than the 15th business day of the month following the month in which the employer would have otherwise paid such amounts to its employees in cash. If the employer can segregate and pay the plan assets to the trust prior to the 15th business day, it must do so. An employer should make every effort to comply with these rules. Noncompliance can be a violation of ERISA's trust requirements, a breach of ERISA's fiduciary duty requirements or a prohibited transaction under ERISA. This can result in criminal penalties. The DOL has stepped up its plan audit activity, particularly on this subject, and has recovered millions of dollars from Plan Sponsors through strict enforcement of these "plan asset" deposit requirements.

A 10-day extension (extending the 15th business day deadline) is available under limited circumstances. To obtain the extension, an employer must comply with the very specific requirements set forth in DOL Regulation Section 2510.3-102(d), which require notice to the participants and the DOL, bonding or a letter of credit, and good and specific reasons for the delay in making the deposit, all of which must be explained in the notice. If the employer uses this extension procedure more than twice a year, it must then begin paying appropriate amounts of interest during the periods of delay.
Do we need a plan document?

Yes. A plan document is required in order to have a qualified plan - where contributions are deductible under the Internal Revenue Code. Your plan document will contain all of the specifications unique to your plan. It contains items such as who is eligible to be in the plan, when an employee can enter the plan, how contributions are allocated, when and how a participant can withdraw their funds, and/or are loans allowed. Generally, there is an adoption agreement where the variable specifications you want in your plan are selected. There is also a main plan document with all the legal language required by the IRS. TSC can prepare your plan document for you or you may have an attorney prepare the document. If you want to change a specification at a later date, your plan has to be amended. Also, laws continually change and from time to time, the IRS will require certain amendments to your document or even a complete restatement of your document.

Reporting

When is my annual Form 5500 due?

It must be postmarked by the last day of the 7th month following the close of the plan year. An extension of 2½ months may be filed if necessary.

Loans an Withdrawals While Still Employed

Can a participant request a "Hardship" distribution from the plan?

Yes, if the plan document provides for hardship distributions. However, if any portion of the withdrawal comes from the participant's 401(k) deferrals, it will only be allowed under certain "Safe-Harbor" reasons. The IRS has determined those reasons to be:
           1. Medical payments.
           2. Certain Tuition Payments.
           3. Purchase of the participant's primary residence.
           4. To prevent eviction.

In addition, the participant must stop deferring for 12 months following the hardship withdrawal from the 401(k) account.The rules governing hardship withdrawals and in-service distributions, in general, are complex and heavily dependent upon the particular plan document. Failure to follow the rules can endanger the qualified status of the plan.
Can a participant request a loan from the plan?

Yes, if the plan document provides for loans to participants. Loan request forms should be available from the trustee of your plan. A generic one may be found on this web site in the Forms section.
How long does it take for a loan or hardship withdrawal to be processed?

TSC will process a loan or hardship withdrawal request within a day or two of receipt. Generally, the plan trustee must sign the forms and they must be sent to the investment company. TSC does not handle any plan investments and we do not write the checks. Therefore, when a participant will receive the funds depends upon the time it takes the investment company to process the request for the withdrawal and issue the check.

Service Q & A

General

Contributions

Terminations and Distributions

Following the Rules

Reporting

Loans and Withdrawals While Still Employed

Contributions

Terminations and Distributions

Following the Rules

Reporting

Loans an Withdrawals While Still Employed