 |
|
|
Pension Protection Act of 2006:
On August 17th, 2006, President Bush signed the Pension Protection Act of 2006 which is being hailed as the most comprehensive pension reform to be passed in decades. Many of the provisions of the law pertain to defined benefit plans but there are also provisions that affect defined contribution plans. The major changes to defined contribution plans are listed below.
EGTRRA Permanency – The provisions of the Economic Growth & Tax Relief Reconciliation Act (EGTRRA) such as increased deferral limits, catch-up contributions for participants over age 50 and the Roth 401(k) feature are made permanent. These provisions were set to expire after 2010 without the passage of this law.
Automatic Enrollment Safe Harbor – Effective for plan years beginning in 2008.
A plan meeting a qualified automatic contribution arrangement would be eligible for safe harbor treatment under the ADP/ACP tests and would be deemed to meet top heavy requirements. The qualified arrangement requires:
Excess Contributions – Effective for plan years beginning in 2008.
The return of contributions that occur in the 2 ½ month correction period would be taxed in the year of distribution.
Direct Rollovers into Roth IRAs – Effective in 2008.
Plan distributions would be eligible for direct rollover to Roth IRAs. The taxable portion of the rollover amount would be taxed at the time of the rollover.
Non-Spouse Rollovers – Effective for distributions made in 2007.
A non-spouse beneficiary would be permitted to roll plan distributions into an IRA.
Accelerated Vesting – Effective for plan years beginning in 2007.
Top heavy vesting schedules would be required on all contribution sources (EGTRRA only required the top heavy vesting schedule on matching contributions).
ERISA/Pension Fidelity Bonds:
Regulations state that all 401K plans require an ERISA/Fidelity bond in order to maintain compliance under ERISA. Use this link to make sure your plans are in compliance with the law!
http://www.colonialsurety.com/
2007
Compliance Reminders:
Click here to read the 2007
Retirement Plan Year-end Compliance Worksheet
Retirement Plan Limits:
The following chart illustrates the cost of living adjustments to dollar limits under Employee Benefit Plans:
| Type
of Limitation |
2008 |
2007 |
2006 |
| Defined
Contribution Annual Additions Limit |
$46,000 |
$45,000 |
$44,000 |
| Defined Benefit Plan Limit | $185,000 |
$180,000 |
$175,000 |
| Annual Compensation Limit | $230,000
|
$225,000 |
$220,000 |
| Elective
Deferrals (401(k), 403(b), etc.) / Catch-Up Contributions |
$15,500
/ $5,000 |
$15,500 / $5,000 |
$15,000 / $5,000 |
| 457 Plan Limits / Catch-Up Contributions | $15,500
/ $5,000 |
$15,500 / $5,000 |
$15,000 / $5,000 |
| SIMPLE Retirement Accounts / Catch-Up Contributions | $10,500
/ $2,500 |
$10,500 / $2,500 |
$10,000 / $2,500 |
| Highly Compensated | $105,000
|
$100,000 |
$100,000 |
| Social
Security Taxable Wage Base |
$102,000
|
$97,500 |
$94,200 |
| IRA Contribution / Catch-Up | $5,000 / $1,000
|
$4,000 / $1,000 |
$4,000 / $1,000 |
Important Dates for 401(k) Plans:
|
Transaction |
Date |
| Remittance of 401(k) deferrals | |
| Corrective distributions for failed ADP/ACP test (to avoid 10% excise tax) | Correction by 2 ½ months after plan year end. |
| Corrective distributions of excess deferrals | April 15th |
| Annual 5500 filing | Last day of 7th month beginning after plan year end |
| Request for extension of 5500 filing | Last day of 7th month beginning after plan year end |
| Extended 550 filing | 2 ½ months after original filing deadline |
| Distribution of Summary Annual Report | Last day of 9th month beginning after plan year end (including extensions) |
| Distribution of Summary Plan Description | Within 90 days after becoming a plan participant |
| Distribution of annual Safe Harbor Notice | 30-90 days prior to the first day of the plan year using the Safe Harbor provision |
| Distribution of 2nd required notice for plan using the “Flexible” Safe Harbor design | 30 days before the end of the plan year |
| Amendment to remove Safe Harbor provision for following plan year | December 31 of current plan year |
Required Minimum Distributions:
If you are
age 70 1/2 or older and maintain money in a qualified retirement plan,
you may be required to take a distribution from the plan. There are certain
plan provisions that may apply to your plan specifically, and government
regulations that apply to everyone. If you are age 70 1/2 and have a question
on a minimum required distribution, please contact us.
Safe-Harbor 401(k) Plans:
Who Should Consider a Safe-Harbor 401(k) Plan?
The Pension Protection Act (PPA) of 2006 contains automatic enrollment rules that are applicable to plan years beginning on or after January 1, 2008. The PPA provides several incentives for employers to adopt automatic enrollment in their 401(k) plans. Automatic enrollment allows an employer to enroll employees in a 401(k) plan without the employees’ affirmative election, as long as the employees have the right to “opt out” of contributing or change the amount of automatic deferral.
What the Safe-Harbor Requires:
What the Safe-Harbor Provides:
OR
Possible “Negatives” of Safe-Harbor Plans:
When can a plan amend to a Safe-Harbor Provision:
Automatic Enrollment Rules for Pension Protection Act of 2006:
Two Exceptions – Automatic enrollment rules apply to all employees eligible to defer with two exceptions. The first exception is for those employees who are already deferring. The second exception is for those who have filed an election not to have deferrals. All other employees, eligible to defer, is eligible to be automatically enrolled. The employer may choose to bring all eligible employees deferring under the minimum amounts under the program.
Employee Notice Requirements Apply – The automatic enrollment procedure requires that the notice be provided to employees at three points in time: upon hire, just before eligibility requirements are satisfied and once per year. The notice must explain the employee’s right to decline automatic enrollment and to make changes to the election amount, including ceasing deferrals.
Automatic Enrollment Safe Harbor Rules – The new rules contain safe-harbor rules relieving a “Qualified Automatic Contribution Arrangement” (QACA) from nondiscrimination testing. A qualified arrangement must contain the following provisions:
Relief from Fiduciary Liability with Respect to Default Investments – PPA amends ERISA §404c, which addresses fiduciary liability with respect to participant-directed plan investments. A participant failing to exercise an investment election will be considered to have exercised control over a “default” investment if the participant receives a notice that explains his or her right under the plan to designate how contributions are invested and, in the absence of an investment election, describes the default investment into which those contributions will be invested. The notice must be provided within a reasonable period before the beginning of each plan year, and the participant must be given a reasonable amount of time to make an investment designation.
The above procedures will enable the plan fiduciaries to assert the protections of ERISA §404c.
The Treasury, IRS and DOL are expected to release regulations clarifying the application of the new automatic enrollment rules.
Beneficiary Forms:
Every plan participant should have an updated Beneficiary Form on file with the employer. It is a good idea to occasionally remind all participants to update their Beneficiary Form for occurrences such as a change in marital status, name change, etc. Should a participant pass away, their account balance will be distributed to the beneficiary listed on the most recent Beneficiary Form on file with the employer.
HOME
•
WHAT'S NEW • SERVICES
• FORMS • FAQ
• CONTACT US The Vargo Company, 4932 Iroquois Avenue, Erie, Pennsylvania 16511, (814) 897-1180 |