The Treasury Department published final regulations on February 24, 2009 concerning automatic contribution arrangements commonly referred to as EACA and QACA. An Eligible Automatic Contribution Arrangement (EACA) is a feature in some 401(k) plans that provides for the automatic enrollment at a default percentage for all eligible employees who have not returned a completed enrollment form to their employer. The purpose of such a provision is to encourage participation in a 401(k) plan. A Qualified Automatic Contribution Arrangement (QACA) is a new type of safe-harbor 401(k) plan that combines the automatic enrollment feature of the EACA with an automatic increase to the default percentage each year. In a QACA arrangement, the employer is required to make a minimum contribution in the form of a match or profit sharing contribution.

The recently released regulations clarify some of the rules concerning these arrangements. For example, they grant the flexibility to allow the employer to specify in its plan document the employees that will and will not be covered by the EACA. An employer, for example may decide to apply the EACA default percentage only to new hires and not existing participants. The regulations also clarify the time period for permissible withdrawals within the first 90 days after the first 401(k) withholding and the taxation and affect on testing as a result of such permissible withdrawals.

The final regulations clarify that notices must be provided to the employees between 30 and 90 days prior to the start of a plan year. For a participant that becomes eligible during the year, the notice with limited exceptions must be provided no earlier than 90 days prior to his or her eligibility date and no later than the eligibility date.

These are only some of the items in these regulations. If you have any questions concerning these provisions or want to know how these regulations may affect your plan, please contact TSC.

Proposed Regs Issued: Suspension or Reduction of Safe Harbor Nonelective Contributions

The IRS has released REG-115699-09, Suspension or Reduction of Safe Harbor Nonelective Contributions.

The proposed regulations would permit an employer sponsoring a safe harbor 3% nonelective plan that incurs a substantial business hardship to reduce or suspend safe harbor nonelective contributions during the plan year. These proposed regulations would provide an employer an alternative to the option of terminating the employer's safe harbor plan in such a situation.

Complete text of REG-115699-09 can be found at:
http://edocket.access.gpo.gov/2009/pdf/E9-11481.pdf

This “Notes” entry is written by Mark Foster.  As I am the Senior Attorney at TSC we thought it would be appropriate for me to highlight the EGTRRA restatement process, which is well under way. We have to finish by April 30, 2010.  The focus here is on Defined Contribution plans.  These include Profit Sharing and 401(k) plans not Defined Benefit plans.  Many of our clients’ plans have already been restated for EGTRRA.  If your plan has not been restated yet, you may have received an email from us alerting you that your plan is scheduled for restatement in the near future.  We are sending these email alerts about a month or so in advance to give you the opportunity to advise us of any changes you may be considering. If you have forgotten what the EGTRRA Restatement is all about, I encourage you to read our article about this on our website at www.tsc401k.com.

We at TSC are always on the lookout for plan design problems or possible improvements in the design of our clients’ plans as we work on them from year to year, but we can’t anticipate every feature that might appeal to you and your Participants.  Here are a few items for your consideration:

Roth Deferrals.  If you do not have Roth deferral features in your 401(k) plan, this is a good time to add them.  You have to amend your plan to add Roth provisions by the end of the year in which you implement it.  Doing it this year with the EGTRRA restatement is a good way to get started.  You should talk with your investment advisor about this.

Participant Loans.  A popular feature is the Participant Loan.  This is a more beneficial option for Participants than hardship or in-service withdrawals; it is not a taxable distribution and enables Participants to repay themselves.  Once a hardship distribution has been made that money is gone from the retirement picture for that Participant.  With a loan, the money is returned to the Participant’s account in the plan through repayment by payroll deduction.  The Participant gets the use of the money and replenishes his or her account, with interest.

Cross-tested profit sharing allocation features.  Many of our clients’ plans include “cross-tested” allocation of the discretionary company contribution.  This enables you to allocate different contribution rates or amounts to each participant, or to groups of participants.  Subject to nondiscrimination testing, this is a very flexible way to provide varying levels of benefit to your participants based upon your own objectives.

If something about your plan is not meeting your objectives for your company and your Participants it should be changed, if possible.  If there is anything about your plan which you find confusing or a problem please call us – we are here to help you make your plan successful, and we want it to be easy for you to work with.  If your plan has not yet been restated, take a little time to look it over, then talk to your investment advisor or call TSC about anything that you think merits review or reconsideration.

This depends on the provisions in your Plan document.  If a Plan allows for in-service distributions, the participant must be at least age 59 ½ in order to withdraw funds from their pre-tax deferral account or safe harbor account.  Generally, in-service distributions are not permitted from Roth accounts.  If the Plan allows for in-service distributions from other accounts (non-safe harbor), the participant must usually be 100% vested in the respective accounts.  Participants are typically allowed to withdraw funds in their rollover account at any time without restriction.

If your Plan allows hardship withdrawals, a participant may request a distribution of pre-tax deferral amounts prior to attaining age 59 ½ in the event of financial hardship, which is defined as an immediate and heavy financial need.  There are specific circumstances that substantiate whether an immediate and heavy financial need exists; these are stated in your Plan’s Summary Plan Description, and proper documentation, “proof” of hardship, is strongly encouraged.  It is important to note that the allowable withdrawal amount from deferral accounts is limited to the actual amounts contributed (not to include earnings on the account).  Generally, Roth deferrals are not allowed for in-service or hardship withdrawals.

For more information on in-service and/or hardship distributions, contact your TSC Retirement Plan Administrator or review your Plan document.

A fiduciary is someone obligated to administer the plan for the exclusive benefit of plan participants and beneficiaries.  Fiduciaries exercise authority over the plan’s management, the disposition of plan assets, and the administration of the plan. A plan sponsor is always a fiduciary and a trustee would have some fiduciary responsibility.  An investment manager, bank or insurance company, if they acknowledge in writing, could also be a fiduciary with respect to a plan. This does not remove fiduciary liability from the plan sponsor, since the plan sponsor is responsible for monitoring their performance. Attorneys, accountants, actuaries and third party administrators (TSC, Inc.) are usually not fiduciaries unless they exercise authority over plan assets.