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