2007 Retirement Plan Year-end Compliance Worksheet

Every year, defined contribution plan sponsors must make sure that their plans meet certain compliance requirements. This worksheet briefly summarizes these compliance requirements for documentation for the 2007 plan year.

Compensation Limit:
IRS limits compensation to $225,000 when determining contributions, allocating plan forfeitures, and performing most of the 2007 plan year discrimination testing (ADP and ACP tests)

Annual Contribution Limitation – Employer:
Profit Sharing / 401(k) Plans – The deduction limit is 25% of eligible participant’s gross compensation.

Money Purchase Pension Plan – The deduction limit is 25% of eligible compensation.

Elective deferrals are no longer taken into account for purposes of calculating this limit.

Annual Additions Limit - Employee:
Employer contributions, employee contributions and reallocated plan forfeitures (annual additions) are limited to $45,000

Top Heavy:
Your plan is top heavy if more than 60% of the plan’s benefits belong to Key Employees. A Key Employee is a more than 5% owner, or a 1% owner who received more than $150,000, or an officer of the company who received more than $140,000 in compensation (in 2006).

If you maintain a top-heavy plan, you may be required to make a minimum contribution to the plan and the plan’s vesting schedule cannot exceed a 6-year graded or 3-year cliff schedule.

Coverage Testing:
Plans must pass the Ratio Percentage Test as of the last day of the plan year. Generally the percentage of Non-Highly Compensated Employees benefiting the plan must be at least 70% of the percentage of Highly Compensated Employees who benefit under the plan in order to pass this test. If the plan fails this test, it must pass the more complex Average Benefits Test.

If your plan is on a Standardized Prototype Adoption Agreement, you automatically pass.

If your plan is on a Nonstandardized Prototype Adoption Agreement or is individually designed (Age-weighted, New Comparability, ESOP), you must run this test at the end of the plan year.

If you maintain a 401(k) Plan:

Elective Deferral Limit:
For the 2007 calendar year, a participant’s pre-tax contributions cannot exceed $15,500.

Note: an employee age 50 or older may be eligible for an additional contribution of $5,000 if your plan adopts the “catch-up” rules introduced by “EGTRRA”.

Discrimination Testing (401(k) Plans):
An Actual Deferral Percentage (ADP) Test must be performed on the plan as of the last day of the plan year, to prove that Highly Compensated Employees (HCEs) do not contribute disproportionately more to the plan than the Non-Highly Compensated Employees (NHCEs).

If the company contributes a match, or if the plan allows for employee after-tax contributions, an Actual Contribution Percentage (ACP) Test must be performed as of the last day of the plan year.

Note: If your plan uses a “safe harbor” plan design, you may not have to perform the ADP and/or ACP tests. If your plan is a “safe harbor” plan, specific participant notice requirements must be met.

Highly Compensated Employee (HCE):
An employee is considered a Highly Compensated Employee if either of the following two conditions is met:

1. The employee owned more than 5% of company stock, either directly or indirectly through family attribution, at any time during the testing year or the prior plan year.

2. The employee received compensation in excess of $100,000 during 2006.

Annual Government Filing:
Each year the plan must file Form 5500 with the Department of Labor. This report is due by the last day of the seventh month after the end of the plan year. You may request an extension of two and ½ months beyond your filing deadline. Extensions are automatically approved.

Plan Documents:
You must maintain and update the plan for law changes.

Plan Year-end:
At plan year-end, you will receive a census data request for the plan year. The data requested is generally employee dates of birth, dates of hire, hours worked in the plan year, wages during the plan year, and new hires and termination dates. The census request is used for annual compliance testing and contribution calculations. You are also provided with a “supplemental information sheet” to complete for Form 5500 compliance issues.

Fidelity Bond Coverage:
A fidelity bond must cover all fiduciaries and any other individuals who handle plan assets. The minimum bond amount required must be for at least 10% of plan assets as of the beginning of the plan year. The maximum bond required under ERISA is for $500,000. You should evaluate the plan’s bond coverage at the beginning of each plan year.