Business New Year's Wishes from ACI

by Tobi Cogswell

We at ACI come to work every day wanting to make a difference. I am proud to work with everyone and I hope that next year you have the opportunity to get to know them even more than you do now. Below are some New Year’s Wishes for you:

*May your T’s always be crossed and your I’s always be dotted!
*To a successful 2010 filled with profitability and market growth.
-Yariel Chiong,
Marketing Manager

*Best wishes for a prosperous 2010!
-Stacy Bass,
Accounting Manager

*For 2010 I would like to encourage plan sponsors to increase participant awareness about participant loans and encourage participants only to take a loan from the plan as a last resort as the participant will never recoup the lost earnings on the funds that were distributed.
-Alison Murray,
Lead Administrator, Manager

*May all of your gains show up in your portfolio and all of your losses show up on your bathroom scale!
-Pam Binder-Escobosa,
Director, Client Services

*May you always have a post-it within arms reach!
*May you prosper and know all good things including the responsibilities of being a fiduciary!
*May you be able to defer more than you ever have!
*May you have joy in the first year of contributing your catch-up contribution!
*May your employees understand the benefit that you are providing them and be grateful!
*May you have the income to put in a cash balance plan so you can aggressively save for retirement!
*May you become paperless and green!
*May your census information be perfect without any changes!
*May you look 20 years younger even if you are at normal retirement age as prescribed by the Pension Protection Act of 2006!
-Gerri Wheeler,
Consulting Administrator

*My 2010 wish for our clients and their advisors is to think beyond survival and build strategies to thrive in this chaotic economy; and in that fresh thinking develop the strategy for the retirement plan and incentive plan you have or need to have to make your company stronger for the sake of you and your employees. Oh, and have fun in the process!
-Pat Byrnes,
President

Compensation - do it right or it will cost you

- By Tobi Cogswell

Compensation is one of the biggest corrective issues we come across on takeover plans. It is so important that the compensation used for testing and allocations is the compensation as defined in the plan document. You may not think this is a big deal, W-2 is W-2, right?

We have seen companies where that is correct, there is nothing extra than wages paid. We have seen companies with 50 elements of compensation, everything from bonuses and commission, to special spot bonuses, to childcare to moving expense. There can be multiple stock options as part of compensation, some may have to be included in compensation used for testing and some may not.

Some plans exclude compensation earned before an employee becomes a participant. Some plans have two entry dates per year and some have four or more entry dates per year.

It is immensely important that you understand compensation as it pertains to your plan. The consequences for using incorrect compensation can be mighty.

$$$$ - to the TPA to go back a particular number of years to check everyone,
$$$$ - to the ERISA attorney to consult and to file a correction with the IRS
$$$$ - to the participants to make up any contributions/deferrals/match missed
$$$$ - to the participants for earnings on those missed contributions
$$$$ - to the IRS potentially if the error was discovered under audit

It is so easy to avoid and so not worth the expense. Take a moment to review your plan document, and before you complete your census package for the year, make sure you are reporting the correct compensation. You will be glad you did.

Cross Testing - will it Survive?

- By Pat Byrnes

I believe so. However, on November 19th House bill HR 4126 was introduced. If passed into law it would:

- repeal cross-testing
- allow only vested benefits of non highly compensated employees (NHCEs) to be used for discrimination testing, and
- modify the Coverage Rules under IRC 410(b) requiring that a NHCE be considered a fractional employee if he/she works less than 2080 hours in a year.

In essence, this would set retirement plan design back 20 years. At a time when we need to incentivize employers to put in plans this proposed legislation would cause thousands upon thousands of employers to terminate their plans thus leaving millions without employer funded retirement plans.
As you know, cross-testing, also known as tiered allocation, is a way in which profit sharing allocations can be skewed toward particular groups of plan participants by demonstrating that when today’s allocations are brought up to retirement age with interest, they are not discriminatory. For example, and in a very broad explanation, a 20-year-old participant receiving an allocation of $500 today will have more money at age 65 than a 60-year-old participant receiving an allocation of $5,000 today.

Cross testing is also used in combination defined benefit/defined contribution plans including cash balance plans.

In 2001 the U.S. Treasury finalized the cross testing regulations and required a “gateway” contribution ranging up to 7.5% that would be contributed to NHCEs to assure that they were getting meaningful benefits.

The American Society of Pension Professionals and Actuaries (ASPPA) is launching a targeted grass roots campaign to defeat this proposal.

The Bill has 16 co-sponsors. All are members of House Ways & Means, four of which are in California. I have written each of them a letter expressing my opposition. I would suggest you do the same.
Here is there contact information:

Rep. Stark
https://forms.house.gov/stark/webforms/contact.htm
202-225-5065

Rep. Sanchez
http://lindasanchez.house.gov/index.cfm?section=contact
202-225-6676

Rep. Becerra
http://becerra.house.gov/HoR/CA31/Hidden+Content/Email+Signup+Form.htm
202-225-6235

Rep. Thompson
http://mikethompson.house.gov/contact/email.shtml
202-225-3311

Timing of Deferral and Loan Payments

-By Tobi Cogswell

As we are nearing the end of the year some people are going to go on vacation. Maybe more so even than during the summer. Or maybe yours is a business that closes between Christmas and New Years.

Be sure that you have a written procedure for how deferrals and loan payments are transmitted in case the person with primary responsibility for payroll is one of those going on vacation.

The IRS and DOL have strict guidelines with regard to when payments are “late”. They do not agree. Amounts withheld from an employee’s paycheck must be deposited into the trust as soon as they can be segregated from the employer’s general assets. A deposit is generally late if the deposit occurs later than the normal average elapsed days from the end of the payroll period to the date of deposit. The Department of Labor issued proposed regulations intended to provide small plan sponsors with a clear safe harbor but this applies only to plans with fewer than 100 participants at the beginning of a plan year.

Under the proposed safe harbor regulations, employee contributions will be treated as complying with the regulations if the contributions are deposited no later than the 7th business day following the day on which the amounts would have been payable to the participant in cash.

• Make more than one person responsible for making sure the deposit is made in a timely manner.

• Develop systems and procedures and a timeline for their completion each pay period.

• Document the reason for any deviation.

• Have a wonderful holiday.

A Disney Moment—Without Goofy Talking Retirement Plans at the 2009 ASPPA Annual Conference

--By Pat Byrnes

It’s about a Disney “Moment”. You know what I mean. The deer fall in love, the sun breaks through, the birds tweet and the forest creatures gather in awe. It is hard to believe that this could be happening in late 2009 with a challenged private pension system.

Time and Place
On November 2, 2009 one such moment appeared at the ASPPA Annual Conference in National Harbor, Maryland with 1,500 in attendance.

Characters
On the panel together were

• Phyllis Borzi, Assistant Secretary of Labor for Employee Benefit Security Administration (EBSA) and
  
• Mark Iwry, Senior Advisor to the Secretary of Treasury & Deputy Assistant Secretary (Tax Policy) at the U.S. of Treasury Department.

They were both formerly in government posts, left for private practice and then came back to government in their respective & powerful new positions--and they are on the same page in their collaboration!

Morsels

• Both acknowledge that the employer based retirement system is under stress.
  
• Both are working together to help create new incentives that encourage business owners to establish and enhance retirement plans that will be part of a system that will ultimately allow people to actually retire.
  
• Both believe strongly in plan sponsor education and enforcement.
  
• Both believe in a system that puts personal responsibility on each citizen for their own retirement and on their advisors.
  
• Both are in a position to make a difference—and together—well that’s the “Disney Moment”
  

Take-Aways for Plan Sponsors & their Advisors

• Be part of a mindset that helps promote employer sponsored retirement plans that work
  
• Use that mindset to implement appropriate plan designs
  
• Run to, not from, compliance and enforcement—It is necessary for the system to survive

Please respond to this post to keep Disney alive.☺

December 1st 2009- Big Notice Date

-By Tobi Cogswell

Tuesday December 1st is the date many participant notices need to be distributed for calendar year plans. You think “It’s only November 5th, I have plenty of time”. Not so. Think about it, you may be beginning your close out of 2009, doing your budget for 2010, reviewing your insurance increases, thinking about new plan participants as of 1/1/10, deciding on bonuses, who’s going to make partner, a zillion other things, including thinking about Thanksgiving. And your ACI plan administrator and our document specialists need to have time to do them. Notices include, but are not limited to: Safe Harbor commitment notices for 2009, Safe Harbor notices for 2010, Automatic Contribution Arrangement (ACA, QACA, EACA) notices for 2010 and Qualified Default Invesment Alternative (QDIA) notices for 2010. Contact us now if you have any questions and let’s get one thing off your plate.

HOW LONG DO YOU WANT TO WORK?

If you are a baby boomer entrepreneur, you have no doubt lost money in your retirement plan, in your investments, and quite possibly in the value of your company. This may put you in the position of postponing retirement until your assets can recover.
In the past, many entrepreneurs have used retirement plans as tax devices based on the amount of profit in their business at the end of the year. Many are re-thinking that strategy and are now interested in using retirement plans as, well, a strategy for retiring.
Let’s take Mary, age 60. She owns a PR firm and has 7 employees. She earns $245,000 and employees average $50,000.
Mary has worked with her financial planner to determine now much money she needs to save over the next several years in order to begin thinking about retiring. One of the ways her accountant suggested was to consider putting in a Cash Balance Defined Benefit Plan. The contribution to this plan would be a budget item for her PR firm. The lion share of the monies would go for Mary’s benefit, although there would be a substantial increase in contributions for her staff, i.e., between the Profit Sharing/401(k) Plan and the Cash Balance Plan, Mary would receive $210,000 (87%) and the cost to cover the staff would be approximately $30,000 (13%). Mary was thrilled with how much of her savings could be accomplished with tax deductible contributions and she liked the idea of helping her employees save for their retirements.
Mary’s accountant and financial planner referred us in to develop this program and to help her monitor this on a yearly basis as a team effort among Mary, the accountant, financial planner and ACI. We welcome your thoughts or questions on how this may apply to your client.