End of year checklist that will keep Plan Sponsors off the naughty list

By Yariel Chiong & Alison Murray

With the end of the year right around the corner there is more that you need to worry about than what you are doing on New Year’s Eve. Plan Sponsors should review if any legislative actions or disclosures are required for their Qualified Retirement Plan(s).

Proactive TPA’s will let their clients know if any actions are required for their plan before the clock strikes midnight on December 31, 2011. The following are a few housekeeping items that you should be aware of for 2012:

Safe Harbor 401(k) Plan Annual Notice
Plan Sponsors must provide participants and eligible employees with information about features of their 401(k) Safer Harbor Plan including the safe harbor nonelective contribution or matching contribution under the plan. You’ve already provided this notice by December 1, 2011 for existing participants if you declared your plan safe harbor for 2012. What you need to remember is don’t forget about your newly eligible participants during 2012. This notice needs to be provided to them as well, a reasonable period of time before they become eligible.

401(k) Automatic Enrollment Notice
Plan Sponsors must provide participants and eligible employees with information about automatic enrollment, including deferrals that will be made for a participant if no election has been made by them. You’ve already provided this notice by December 1, 2011 for existing participants if you declared your plan safe harbor for 2012. What you need to remember is don’t forget about your newly eligible participants during 2012. This notice needs to be provided to them as well, a reasonable period of time before they become eligible.

Qualified Default Investment Alternative Notice (QDIA)
Plan Sponsors must provide participants and eligible employees with information about how their funds will be invested absent their investment election. You’ve already provided this notice by December 1, 2011 for existing participants if you have a QDIA. What you need to remember is don’t forget about your newly eligible participants during 2012. This notice needs to be provided to them as well, a reasonable period of time before they become eligible.

Summary Plan Descriptions and Summary of Material Modifications
Don’t forget to hand out your Summary Plan Descriptions and Summary of Material Modifications to newly eligible participants or beneficiaries throughout the year.

Partnership Elections

Partnership Elections must be completed by December 31st. Even if a partner deferred out of their draw and has already deferred the maximum allowable for 2011, a partnership election must be completed.

Enrollment forms

Enrollment forms must be completed before a participant becomes eligible. You need to give the employee enough time to make an election before their entry date. If you do not do this, you may have caused a lost deferral opportunity which would result in an unanticipated employer contribution.

Minimum Required Distributions

You have an employee who terminated employment in 2011 whose already attained the age of 70 ½ and has a first minimum distribution due by April 1, 2012. Don’t forget to mention this to your TPA if you do not provide them with the 2011 census information early enough to make this determination.

The above is just a short list of what to look out for during this time of the year. Contact ACI if you have any questions regarding your plan.

310 212-2600

October 20, 2011

Retirement Plan Limits for 2012 Announced

On October 20, the Internal Revenue Service announced the cost-of-living adjustments that will be applied to the dollar limits in all tax-qualified retirement plans in 2012. The limits apply to calendar year plans, if you have an off-calendar plan year end, contact your plan administrator to see if there are any changes to your plan.

Defined Benefit Plan Limits
The limitation on the annual benefit under a defined benefit plan is increased from $195,000 to $200,000.

Defined Contribution Plan
Individual Contributions
The limitation on contributions made on behalf of an individual to a defined contribution plan is increased from $49,000 to $50,000. Individuals will still be limited to contributions of 100% of compensation or $50,000, whichever is less.

401(k) Deferrals
This dollar limitation on employee deferrals into 401(k) plan is increased from $16,500 to $17,000. This is a calendar year limit regardless of plan year end.

Catch-Up Contributions
For individuals age 50 and over, the catch-up contribution remains unchanged at $5,500. This is a calendar year limit regardless of plan year end.

Annual Compensation Limits
The maximum annual compensation that may be recognized by a plan is increased from $245,000 to $250,000.

Key Employees
The dollar limitation for determining whether an employee is “Key” for officers in a top-heavy plan will increase from $160,000 to $165,000.

Highly Compensated Employees
The dollar limitation on compensation used to determine which employees are considered highly compensated is increased from $110,000 to $115,000. Thus, employees who earn in excess of $110,000 in the plan year beginning in 2011 will be considered highly compensated for the plan year beginning in 2012 and employees who earn in excess of $115,000 in 2012 will be considered highly compensated employees in 2013.

Safe Harbor Deadline Is October 1, 2011

By Yariel Chiong and Tobi Cogswell

One of the most popular plans for small business owners with employees is the Safe Harbor 401(k) Plan. Would Safe Harbor help you?

■ Does your Plan fail discrimination tests?
■ Is your Plan top-heavy?
■ Are you seeking to maximize deferrals and profit sharing allocations for highly compensated employees?
■ Is your company making significant matching contributions to a 401(k) plan to accommodate deferrals made by highly compensated employees?

If you answered “yes” to any of these questions, you might want to consider a safe harbor plan design. An existing 401(k) plan cannot become safe harbor until the first day of the next plan year (usually that will be January 1, 2012) but profit sharing plans that have never had 401(k) provisions can add safe harbor provisions for 2011. There is some urgency here because this must be inplemented by October 1st.. .

What is Safe Harbor?
401(k) plans that take advantage of “Safe Harbor” contributions avoid ADP and ACP testing. In practical terms, this means that highly compensated employees may defer the maximum allowable amount of compensation into the plan ($16,500 in 2011 plus a $5,500 catch up for anyone 50 or older) without worrying about deferral refunds due to failed ADP tests.

Plan sponsors have two contribution options: First, sponsors may make a 3% profit sharing contribution to every nonhighly compensated employee; or they may provide a minimum matching contribution of 100% of the first 3% of compensation deferred, plus 50% of the next 2% of compensation deferred to all deferring employees. ACI can help you decide which is right for you.

Disadvantages of Safe Harbor
The drawbacks for some employers are the size of the safe harbor contribution, the immediate vesting and no last-day requirements associated with the plan contribution. There is also a notice requirement to the participants.

The Reward of a Safe Harbor 401(k) Plan
This contribution makes non-discrimination testing a thing of the past. As long as the employer faithfully makes the promised contribution, the plan is deemed non-discriminatory. A safe harbor profit sharing contribution also satisfies top heavy, and the first 3% “gateway” if you have a cross-tested profit sharing allocation. It’s a beautiful thing.

Contact ACI to learn more about starting a Safe Harbor Plan.

Tobi Cogswell
Tobi.Cogswell@acibenefits.com
310 212-2623

Don’t leave any extra money on the table for Uncle Sam

By Yariel Chiong & Tobi Cogswell

The Internal Revenue Service (IRS) requires qualified retirement plans to undergo different compliance tests depending on the type of plan. For 401(k) plans one of those tests is the ADP/ACP test, which stands for actual deferral percentage/average contribution percentage. The purpose of the test is to determine if there is discrimination against non highly compensated employees (NHCE’s) in favor of highly compensated employess (HCE’s). The HCE’s are normally any greater than 5% owners and anyone who earned more than $110,000 in the prior year (this amount is indexed each year).

ADP/ACP tests are run annually, but you may wish to run an “interim”, or snapshot test that will tell you if you need to reduce the HCE deferrals for the rest of the year. It may also tell you if the HCE’s can increase their deferrals. Why leave a single dollar undeferred and subject to tax by Uncle Sam.

For example: A 401(k) plan that has 12 NHCE’s and 5 HCE’s.

As of 6/30, the actual deferral percentage for the 12 NHCE’s is 2.4% (participation has been poor).

The actual deferral percentage for the 5 HCE’s is 3%. They’ve had test failures in past years so they are deferring very small percentages.

Based on this example, the HCE’s could actually be putting in up to an average of 4.4%, yet they are at 3%.

There are ways to increase percentages closer to the end of the year with change dates, amendments to allow special deferrals during the month of December and so forth. But as we end June, now is the perfect time to do an interim test for calendar year plans.

Most TPA’s and bundled recordkeepers do charge for an interim test. The plan sponsor needs to weigh the cost of the interim test against the planning opportunities of allowing their HCE’s to put more money away in their retirement plan. Contact your consultant or administrator for more information on performing an interim ADP test.

ACI "Boot Camp" keeps your retirement skills sharp

By Yariel Chiong

Just in time to get your retirement skills fit for summer ACI is holding its May seminar “Boot camps.” Our next seminars will be on Wednesday, May 18th at our Torrance office. Don’t miss out on these very popular seminars, seating is limited. To sign up contact Yariel Chiong @ Yariel.Chiong@acibenefits.com to register. CPE credit is available.

ACI regularly holds both “Annual Plan Basics” and “401(k) Plan Basics” seminars in 1 action packed day. Here attendees will find out about the newest IRS and Federal regulations, hot water issues which can disqualify their plan or lead to costly corrections and a behind the scenes look at what exactly a Third Party Administrator (TPA) does every day for your plan or client.

These seminars are led by 2 of our top “Drill” instructors with a combined 36 years of experience in the industry. You are guaranteed to leave these seminars with a better understanding of how annual plan administration and 401(k) plans work. Previous attendees or “recruits” have had great things to say about the seminars, “The presentations and material were given at a very good pace. The real-life examples used based on the years of experience in 401(k) plans were entertaining and very beneficial in explaining key points.”

Contact Yariel Chiong @ Yariel.Chiong@acibenefits.com to register. Be sure to include the date of the seminar, name, company, title and email address.

For additional information visit our website at http://www.acibenefits.com/sections/library/speeches-and-seminars.html

There's still time to implement a qualified retirement plan for 2010

The clock is ticking. Business owners who wish to implement a qualified retirement plan for 2010 in order to take a corporate deduction and pay less taxes, must sign a plan document by December 31, 2010. Money does not need to be contributed by December 31st but a document must be signed.

Regardless of how old you are, or how many employees you have, we will work with you and your CPA to meet your needs.

One beautiful scenario is to implement a profit sharing plan for 2010, and activate 401(k) provisions effective 1/1/11. This will allow you to make a profit sharing contribution and take a tax deduction for 2010, and allow you and your employees to personally begin to participate preparing for your retirement in 2011. This will also give your financial advisor time to determine the appropriate recordkeeper for you, complete the contracts and enroll your employees before the first 401(k) deferral (generally the first payroll in January).

You have until September 15, 2011 to contribute the profit sharing contribution that you deduct for 2010.

It's a win win WIN but time is running out. Contact us right away to design the best plan for you.

Cortney White Tobi Cogswell Jeff Esmond (Hawaii Office)
(310) 212-2607 (310) 212-2623 (808) 389-5979

401(k) Rollover Bill Passed by Congress- H.R. Bill 5297

By Alison Murray & Yariel Chiong

With the recent passing of H.R. Bill 5297, 401(k) participants of eligible plans can immediately roll over all or part of their account balances into a Roth 401(k) Plan. To allow for this the plan will need to be amended. Consideration should also be made as to the viability of allowing Roth conversions within the Plan as well as allowing for Roth deferrals. If the rollover is made this year, the participant can elect to pay the tax on the money rolled over in equal parts in 2011 and 2012 helping to ease their tax burden. These rolled over funds will earn tax-free investment income and will not be taxed when the participant receives a distribution.

Depending on the participant’s tax bracket and future tax bracket this could reduce their tax liability. Participants considering this should ask themselves:

• Can I afford to pay the taxes over the next 2 years?
• Do I anticipate being in a higher tax bracket when I retire?
• Do I feel confident that the taxes I pay now would be less than the taxes I would pay later if I did not convert funds into a Roth 401(k) resulting in a financial benefit to me?

Contact your ACI Plan Administrator if you would like more information.

Plan for Unforseen Disasters!

by Tobi Cogswell

Take this opportunity now to beef up your retirement plan and avoid unforseen disasters.

Take advantage of cost savings both as an empoyer and as a plan participant.

1) Employer contributions to a qualified plan are tax deductible;

2) Employee deferrals into a 401(k) plan are pre-tax

Don't just plan for a dignified retirement, plan for the ability to roll with the punches no matter what nature or life throws at you. Help your employees plan for this as well.

As you read this I am stranded in Ireland by a volcanic disturbance no one could have predicted. I have thousands of dollars in unplanned expenses for hotels and meals, phone calls, emergency prescription refills and the uncertainty of when I'll be able to come home.

Think of your retirement plan as trip insurance. You don't want to have to be counting your pennies and sleeping in the airport. You don't want to worry. We are living longer now than ever before; make sure you have enough so you can have a great life after retirement, not just an adequate one.

ACI's consultants will help make that happen. We will partner with you and your financial advisor to ensure your plan is designed to help weather the volcanic storm.

Call us today at (310) 212-2600 for an analysis of your plan design. Buy some peace of mind and potentially cost savings at the same time. Ask for Jay Luber - I'm writing this from Ireland.

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.