PBTK Employee Benefit Plan Audits

The folks at The Employee Benefits Report detailed out the Saver’s Tax Credit that may encourage people to contribute to their retirement plans. Individuals can take a tax credit up to $1,000 ($2,000 if filing jointly) for quailfied retirement plan contributions.

Click here to see who is eligible for the credit, and which contributions qualify.

Employee Benefit News says, “For once, it’s the whippersnappers who are behaving more wisely. At least when it comes to saving, Generation X and Generation Y workers are more diligent than their peers.”

Click here for the full article.

Several administrative deadlines are fast approaching for defined contribution retirement plans. December 31, 2011 marks the deadline for the following items:

• Corrective distributions and QNECs
• Safe harbor, QACA, or EACA elections
• Required minimum distribution
• Participant notices
• Self-employed partner elections
• Plan amendment
• Discretionary plan amendments
• Remove safe harbor feature

If you have questions about these deadlines, please contact us at 702-384-1120.

USA Weekend recently included an article about why you should think twice before borrowing from your 401(k):

If you have a 401(k) — particularly a substantial one — it can be tempting to borrow from it. In most cases, however, it’s a dicey move. Here’s why:

• You may compromise your retirement
• Repayment may be tight
• If you can’t pay, taxes and penalties kick in
• Look to other sources first

For the full article, click here.

With reference to the post on December 3, 2011 regarding Housekeeping for Retirement Plans, it is more important than ever to make sure that your tax-qualified retirement plan is in compliance with all relevant rules and regulations.  The Department of Labor (DOL) and Internal Revenue Service (IRS) have not only stepped up their recent enforcement procedures, but they are openly speaking about their efforts.

Within a recent Fact Sheet the Employee Benefits Security Administration (EBSA) agency of the DOL touts that through its enforcement efforts and oversight authority over 708,000 retirement plans, it has achieved $1.05 billion in total monetary results in fiscal year 2010.

In a December 2011 phone forum on its correction programs, representatives from the IRS Employee Plans Examination Program discussed common retirement plan problems and the available correction programs that can be used to restore a plan to the position it would have been in had the error not occurred.

To help plan sponsors ensure they are in compliance, Piercy Bowler Taylor & Kern offers a pre-audit compliance review.  The purpose of this review is to determine the plan’s level of compliance before it is audited by the government and, if any errors or deficiencies are detected, to help correct them as it is less expensive to do so on your own before an official DOL or IRS audit.

Contact us at 702-384-1120 or kparker@pbtk.com for additional information.

“Since the financial crisis and Great Recession, 401(k) plans have undergone dramatic shifts. To foster diversification and greater participation, 51% of participants in Fidelity Investments’ 401(k) plans are in automatically enrolled plans, up from 16% five years ago, and 73% of the plans use target-date funds as the default, up from 11% in 2006.”

Click for full article from EB News.

As with nearly everything else, retirement plans require  periodic maintenance to keep running smoothly. Here are some suggestions to  ensure your plan complies with all laws and regulations and meets the goals of  your benefits program.

• Keep  your plan up-to-date with the law. On a regular basis, ask your benefits  professional “when and what” to change in your plan. Those who specialize in  retirement programs may provide auditing and plan review services.
• Click here for full article from the Employee Benefits Report

Section 45E of the tax code permits an eligible small employer to claim a tax credit versus a deduction for qualified startup costs and plan administration fees.  The credit is 50 percent of the relevant expenses and is limited to $500 per year for the first credit year and each of the following 2 tax years.  The credit is currently set to expire at the end of 2012; however, it has previously been extended.

For example, if such an employer paid $1,200 in fees to establish a new plan in 2011, and then paid $800 in plan administration fees in 2012, the allowable tax credit would be $500 in 2011 and $400 in 2012.  Thus, the real cost to establish the plan is reduced from $1,200 to $700 because of the $500 tax credit.

An eligible small employer is one who had no more than 100 employees during the tax year preceding the first credit year and only employees who were paid more than $5,000 during that tax year are counted.  Further, as the credit is intended to spur the adoption of new plans, if an otherwise eligible employer established or maintained a plan during the 3 tax years preceding the first credit year, they are not eligible to claim the credit.

Qualified startup costs are not only the expenses incurred to establish or administer an eligible employer plan; they include the retirement-related education of employees about the plan.  Also, the first credit year can be the year before the plan becomes effective as long as the expenses were paid or incurred in that year.  Therefore, fees paid in 2011 to set up a new plan effective in 2012 count.

Lastly, an eligible employer plan includes a profit sharing plan, a Section 401(k) plan, a defined benefit plan, and certain SEPs and SIMPLEs.  And they must include at least one employee eligible to participate who is not considered to be a highly-compensated employee (defined as a 5 percent owner in the current or preceding year or who received at least $110,000 in pay during the most recent prior year).

Jay H. Beltz is PBTK’s Pension Plan Services Practice Leader. Jay is a pension consultant with more than 25 years designing, administering and consulting on tax-qualified retirement programs like defined benefit plans and Section 401(k) plans. He has been involved in establishing and terminating more than 5,000 plans and continues to advise all sizes of employers about the tax and savings benefit of such programs for their employee’s financial well-being. He can be reached at jbeltz@pbtk.com.

According to a recent Employee Benefit News article by Lisa Gillsespie, “Two recent proposals to change the existing tax treatment of 401(k) retirement plans, if enacted, are likely to result in lower account balances for many 401(k) participants, according to a new analysis by the Employee Benefit Research Institute.”

Click here for the full article.

PBTK’s new Pension Plan Consultant Jay Beltz comments on the October issue of Employee Plans News where the IRS posted an article titled, “Two Plans, Two Employers”:

The article addressed the maximum annual amounts that could be contributed to specific retirement plans under a scenario where an individual is employed by a company (and not an owner) and who also had self-employment income.  The IRS pointed out that certain limitations, like those for salary deferrals, apply to the individual, while other limitations, like those for employer funded contributions, apply on an employer by employer basis.

We have reversed the article title above to emphasize the fact that plan contributions made for an employee by separate employers are not aggregated.
An individual could, in fact, receive maximum benefits from funding made by two or more employers.  Therefore, an individual who participates in his employer-funded pension plan is free to choose the plan type for his separate self-employment income; this plan could be a Section 401(k) plan or it could be a defined benefit plan, for example.

The beauty of a defined benefit plan is that, depending upon age and income level, a self-employed individual could contribute and deduct required contributions in excess of $100,000 per year.  After 10 years of such funding, this person should have a retirement plan nest egg from the defined benefit plan in excess of $1 million!

 - Jay Beltz