Changes in rules for ADP/ACP refunds

Effective for plan years beginning after 2007, refunds made to correct a failed ADP/ACP test will become taxable income to the recipient in the calendar year in which the refund is distributed.  In prior years, refunds distributed within the 2 ½ month period became taxable income to the recipient for the year the 401(k) deferrals were first contributed.  This resulted in participants having to incur the cost to amend their individual tax returns to include the refund as taxable income in instances where their tax filings were completed prior to receiving notification of the refund.

For plan years beginning after 2007, the 10% IRS excise tax and Form 5330 filing requirement for ADP/ACP refunds occurring after 2 ½ months after the end of the plan year remains unchanged unless the plan maintains an Eligible Automatic Contribution Arrangement (EACA).   Plans with EACA features will not incur the 10% excise tax and Form 5330 filing requirement unless the ADP/ACP refunds are distributed after the 6 month period following the end of the plan year.  These refunds will also become taxable income to the recipient in the calendar year in which the distribution occurs.

2009 — Pension Plan Limits Increase

The Internal Revenue Service has announced the cost-of-living adjustments (COLA) for 2009.  Many pension plan limitations will increase in 2009 to meet the statutory COLA thresholds that trigger their adjustments.  Some increases are seen in: deferral limits, the maximum compensation limit, and the highly compensated employee definition limit.

TSC has prepared a quick IRS Limits reference chart. Go to http://www.tsc401k.com/irs_limits.htm and this will direct you to the chart.

The EGTRRA Restatement, the required plan rewrite for the purpose of incorporating retirement plan law changes into the new IRS approved document, is under way here at TSC.  You can find more detail on the EGTRRA Restatement by visiting our website www.tsc401k.com.

The EGTRRA Restatement affects all profit sharing/ 401(k) and similar Defined Contribution plans.  The deadline to complete the restatement of each plan is April 30, 2010.

Our goal is to make the restatement process easy for you to complete.  As a reminder, if you are contemplating any design or operational changes in your plan, a good time to implement the change is with your EGTRRA Restatement.  While your TSC Retirement Plan Consultant regularly consults on ways to improve your plan, there may be other changes you are considering that have not been discussed with TSC.  Please be aware that IRS rules dictate when plan documents must be amended to reflect changes for a plan year.

The deadline has passed to make changes to your plan that are to be effective in 2008 or that have to be adopted by the end of 2008 for implementation on January 1, 2009.  If you request a document change with TSC at this time, the amendment will not be done until 2009.

A note about 403(b) Plans and Defined Benefit Plans

All 403(b) Plans must be amended for the EGTRRA and Final 403(b) regulations by the end of their plan year that begins in 2008.  This is December 31, 2008 for calendar year plans.  Defined Benefit plans are on a different 6-year cycle than Defined Contribution plans, and the restatement of those plans is scheduled to begin in 2010, after the defined contribution plans are all done.

As levels of volatility in the financial markets reach unprecedented levels, our political leaders are working to calm fears in this time of economic uncertainty. What does this mean to you as a sponsor of a qualified retirement plan?

Let's start with the Don'ts...

• Don’t allow distributions from the retirement plan without consulting TSC to verify the types of distributions allowed.
• Don’t immediately cease all employer contributions, especially Safe Harbor contributions without consulting with TSC.
• Don‘t delay in funding employee 401(k) contributions into the plan.  This is a clear DOL violation.
• Don’t give employees financial advice.  Give them resources to help make educated decisions regarding the selection of their investments.
• Don’t be persuaded to start another smaller retirement plan outside of your current plan without consulting TSC.
• Don’t immediately decide to close the retirement plan based on the market as taking distributions at this time when participant account balances may have decreased significantly is not in the best interest of the participants.

Now, the Do's...

• Do contact TSC with any changes you would like to make to your plan, such as the available employer contributions.
• Do seek the help of your Investment Professional so participants have resources to make informed decisions regarding the investment of their retirement assets.
• Do release benefit statements and readily make available the TSC 401(k) Health Check™ individual participant statements to your participants to keep them focused on the goal and encourage them to ask questions.
• Do assure your employees their money is safeguarded, even with the market fluctuating.  Remind them the goal is to keep their money in a tax sheltered environment until and/or through their retirement years.
• Do consider an Interim Valuation if your plan is NOT invested in a daily valuation record-keeping platform and you are anticipating a significant transaction (especially a participant distribution). An interim valuation of the plan’s assets will avoid negatively impacting the account balance of the remaining participants.  Basing transfers and withdrawals on a value determined prior to the recent downturn in the market could seriously impact the remaining participants of the plan.

As a business owner/operator, you have many concerns about various aspects of your business on a day to day basis even without a volatile market.  TSC will help you make correct decisions regarding your Plan to preserve the tax sheltered status of all assets and avoid significant penalties or possible disqualification.  Before you make any decisions regarding changes in your retirement plan, please seek our advice.  Your fiduciary protection is our goal.

Please contact your Retirement Plan Administrator or one of our Client Relations Managers at 952-806-4300.

Unfortunately, the IRS doesn't allow you to take your retirement plan RMD from anywhere but the plan.  In fact, if you participate in more than one plan and you’re required to take an RMD, you must take one from each plan that you participate in.  Note that if you are still employed you may not be required to begin taking your distributions until you are no longer working.  This exception doesn’t apply to anyone who owns more than 5 % of the company, or to anyone who is the parent, grandparent or spouse of a greater than 5% owner.

A leased employee must generally be treated as an eligible employee for retirement plan purposes if he or she does all of the following.

1. Provides services to you under an agreement between you and a leasing organization.
   
2. Has performed services for you (or for you and related persons) on a substantially full time basis for at least 1 year.
   
3. Performs services under your primary direction or control.

Exception.   A leased employee is not treated as your employee if all of the following conditions are met.

1. Leased employees are not more than 20% of your non-highly compensated work force.
   
2. The employee is covered under the leasing organization's qualified pension plan.
   
3. The leasing organization's plan is a money purchase pension plan that has all of the following provisions.
   1. Immediate participation. (This requirement does not apply to any individual whose compensation from the leasing organization in each plan year during the 4-year period ending with the plan year is less than $1,000.)
      
   2. Full and immediate vesting.
      
   3. A non-integrated employer contribution rate of at least 10% of compensation for each participant.

The Plan Document can exclude leased employees as a class if such an exclusion is specifically elected and the plan passes coverage testing.