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

DOL Extends 408(b)(2) Regulation

By Yariel Chiong

The Department of Labor (DOL) has once again delayed the deadline for 408(b)(2) in order to provide covered service providers more time to adhere to the new rules. Although the delay is beneficial to service providers it is not helping plan sponsors find out what fees they are being charged for their plan. The 408(b)(2) rule originally had an effective date of July 16, 2011 was later moved to January 1, 2012. The new extended deadline for the regulation is April 1, 2012.

Plan sponsors should know what they are paying for services now. It is in their best interest to start having conversations with their service providers and find out exactly what fees they are being charged and what services are being provided. Clients of ACI have the advantage of already knowing what we are charging them. ACI has been a front runner in disclosing all fees to our clients; they will not be shocked by hidden fees that other firms will be disclosing to their clients come April 1, 2012. Don’t wait until the deadline to find out from your covered service providers what you are being charged.

If you are an advisor, have these conversations with your clients now. Be part of their solution.

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.

ASOP #41 - Fact, Not Fable

By Pat Byrnes, MSPA, EA, MAAA

The actuarial profession has a common Code of Conduct, an Actuarial Board for Counseling and Discipline (ABCD) and an Actuarial Standards Board (ASB). One of the ASB’s Actuarial Standards of Practice (ASOP # 41) is entitled “Actuarial Communications.” It went into effect in May 1, 2011 and covers all forms of actuarial communication (including emails and verbal conversations). The goal of ASOP #41 is to provide guidelines for clear communication and to acknowledge that “communication is an ongoing and interactive process.”

ASOP #41 may change the process that actuaries follow, the amount, or format, of materials we communicate to your clients. The goal is to have our Plan Sponsors be better informed throughout the year of the status of their Defined Benefit or Cash Balance plans. We are committed to do this at the least possible cost.

ACI is a pro-active firm, dedicated to protecting your clients while positioning them for a great retirement. ASOP #41 compliance is a perfect example of this. Please call us should you have any questions.

New 408(b)(2) Compliant Engagement Contracts Will Expose the Industry’s Hidden Fees

By Yariel Chiong 
With the Department of Labor’s (DOL) regulation coming into effect this January 1, 2012 ACI has revisited its engagement contract to go above and beyond the requirements set by the DOL 
 

With the passing of 408(b)(2), plan sponsors will for the first time know what their third party administrator (TPA) and other vendors to their retirement plan have been keeping from them in revenue sharing or hidden fees. ACI has been an industry leader disclosing all fees and distributing revenue sharing to clients for some time now. ACI discloses indirect and direct compensation to its clients, returning 80% of revenue sharing to clients, keeping 20% only to offset the cost of the accounting required to distribute the monies.
 
As a “responsible plan fiduciary” you must ensure that you review and understand all vendors’ contracts raising any questions you may have to them. Vendors are required to send you a 408(b)(2) compliant agreement contract which among various other things must:


1. Clearly describe the services provided to you


2. State all fees charged to the plan sponsor


3. Disclose any direct and indirect fees received


Click here for a link to the Spring Issue of The ASPPA Journal for more information on what you should find in your service agreement from your Third Party Administrator.

ACI has been certified with CEFEX for the last 3 years and currently holds the Service Provider Seal mentioned in the article. As a responsible fiduciary, working with a certified TPA makes sense. You can rest assured that your agreement goes above and beyond the DOL’s requirements and that your plan will not become disqualified. Contact us to find out more information or to have an in-depth review of your plan.

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

It's Bond...Fidelity Bond

By Yariel Chiong

Qualified Retirement Plans generally have two types of bonds that are required: (1) the Employee Retirement Income Security Act (ERISA) bond commonly known as a fidelity bond and (2) the small plan filer bond. The bonding requirements may be satisfied with one bond. Two separate bonds may have to be purchased if the surety company will not issue one bond that exceeds the $500,000 bonding limit of the ERISA bond.

ERISA requires employee benefit plans to be bonded. The amount of the bond may not be less than 10% of the amount of funds being handled and need not be greater than $500,000. However, the maximum liability increases to $1,000,000 if the plan’s assets are invested in securities of any sponsor or contributing employer. If a plan sponsor files a Form 5500-EZ you are not subject to any bond.

The small plan filer bond is required if less than 95% of the plan's assets are invested in "qualifying plan assets" and the plan sponsor does not want a written opinion from an independent qualified public accountant. The amount of this bond may not be less than the value of the plan assets which are not qualifying plan assets, without regard to the bonding limit described above.

Qualifying plan assets are any of the following types of investments: (1) qualifying employer securities, (2) participant loans, (3) assets held by a regulated financial institution, (4) registered mutual funds, (5) investments and annuity contracts issued by an insurance company, and (6) assets in participant-directed accounts.

It is important to point out that fiduciary liability insurance is not the same as an ERISA bond. An ERISA bond is required and protects the plan against fraudulent or dishonest acts on the part of fiduciaries or persons who handle plan funds. Fiduciary liability insurance is not required and does not protect the plan from fraudulent or dishonest acts. Fiduciary liability insurance does protect the fiduciaries from liability occurring by reason of other than fraudulent or dishonest acts. However, fiduciary liability insurance must permit recourse by the insurer against the fiduciaries.

It is important for fiduciaries to verify they have the proper amount of coverage. It may take a single or multiple bonds to comply with current Department of Labor (DOL) guidance. Ask your ACI administrator or consultant to review if you are ERISA compliant. The U.S. Treasury Department published an updated list of approved surety bond providers. You can access the approved list by visiting: http://www.fms.treas.gov/c570/c570_a-z.html. If your annual return indicates that you do not have a fidelity bond from a provider on the approved list, you may be contacted by the DOL requesting an explanation.

If your bond was issued by a company who does not appear on the approved list, contact your insurance agent regarding obtaining a bond from an approved company.

Is It Real, Or Is It Memorex

By Tobi Cogswell

Have you ever noticed how Bundled Providers speak to clients as if they’re reading from a gospel? In their world, everything seems so rigid and matter-of-fact. They’ve been known to adopt document provisions on behalf of your clients -- and not even inform your client of the elections that were chosen. Bundled Providers seem to do it their way.

But, what about your clients’ preferences? What’s best for them? Who should decide?

Here’s an example that helps make the point:

You have a client whose plan has an Automatic Contribution Arrangement. The plan document has the provision that participants can opt out within 90 days of their first deferral.

The notice prepared by the bundled provider states: “If you process any fund exchanges, loans or withdrawals within your account, you are no longer eligible for this withdrawal”

And, here is the critical point. Did they talk to your client about this? My guess is no. Was this approach in the plan document? Not likely. Is this provision in the law? No. It isn’t.

Protect your clients.
This is exactly why you and your clients need to partner with a consultant who will keep their interests at the forefront, and who will design and administer a plan that meets their needs. We may ask them some tough questions, like “why did you want this plan in the first place?” and “what do you want to accomplish with it now?” That will enable us to design, or re-design a plan that’s strong, flexible, attractive to their employees and something we all can be proud of. Something that will meet the needs of your clients now and as their businesses evolve.

We’re advisors. Your client is the boss. They should get what they need!

Now is the perfect time to talk to your clients about unbundling their administration and moving the compliance to ACI. They deserve to work with a firm that’s pro-active and always focused toward them. Our goal is to save them money and let them concentrate on doing what they do best – running their own businesses.

Call us before they pay for another year of average work.

Tobi Cogswell

Director, Consulting Practice

(310) 212-2623

The Year In Review – New Year’s Wishes from ACI

It’s that time of the year again, when we make some wishes and resolutions for next year. 2010 is coming to an end in what seems to have been too quick and 2011 is peaking from around the corner. Excitement and hopefulness abound. This year we saw the groundbreaking enactment of healthcare reform and the regulations on 408(b)(2) come one step closer to final, Republicans took over the House, the Bush Tax cuts were extended and the stock market bounced up and down unsure of which way it wanted to go. A volcano which most of us can’t even attempt to pronounce “Eyjafjallajökull” erupted in Iceland keeping our Director, Consulting Practice, Tobi Cogswell, out of the country longer than expected (we did get her back) and finally ending in other good news: 33 miners were rescued in Chile.

ACI would like to wish you all a Happy New Year and a prosperous 2011. Here are some wishes from our staff:

May 2011 bring prosperity to your business and a new awareness to your plan participants as to the importance of saving for their own retirement.
May your 2011 be successful and may you leave your work at the office when you go home.
-Alison Murray, QKA, QPA, ERPA
Lead Administrator, Manager
To good health and may you also realize your goals both personally and professionally in 2011.
-Yariel Chiong
Marketing Manager
May you prosper in 2011!
May you have enough prosperity to make a substantial contribution to your plan!
May your employees learn the art of saving for their retirement!
May you have peace, love and joy!
-Gerri Wheeler
Consulting Administrator
My wish for you: curiosity, excitement, wonder and success, both personally and professionally. Call and tell me, I’ll be so happy for you.
-Tobi Cogswell
Director, Consulting Practice
May you balance the benefit of savings versus consumption to allow you to have greener balance sheets both personally and professionally.
-Cortney White
Business Development Manager
Cheers to a new year and another chance for us to get it right. Let ACI become a part of your team and you will have your chance to get it right this year.
Happy New Years!
-Sabrina. Fendley
Assistant to the President
May we all retire in 2011!
But if we don’t, may we fit into one of two categories:
* Those of us heading to a dreamy retirement with a plan at ACI, and
* Those of us at ACI helping plan your retirement dreams.
-Jeff Esmond, ERPA, CPC, QPA, QKA
Consulting Administrator
As we begin a new decade my wish for our clients and their advisors for 2011 is to get America retired, starting with the Baby Boomers. In my view it takes a proactive team to accomplish this result.

We would love to be on your team.

Happy New Year!
-Pat Byrnes, COPA MSPA, EA, MAAA
President

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.

BONDS COVERING NONQUALIFYING PLAN ASSETS

By Gerri Wheeler

If you have nonqualifying assets in your plan, you now know that the insurance companies are charging higher premiums to cover those assets. Recently, a client of mine received a quote for $3,000 for a one-year bond that covered $1.75 million of assets. In contrast, if he did not have non-qualifying assets, his bond would have been about $600 for a three-year bond, which is an $8,400 difference.

Creative Workaround

Consider obtaining two or more general ERISA bonds from separate approved bonding companies. The IRS issued Field Assistance Bulletin No. 2008-04 that provides guidance to agents who review plans under audit. In that bulletin, guidance states that a plan can obtain multiple bonds from multiple surety companies as long as the company is on the Department of Treasury’s list of certified surety companies.

Let’s take the client referenced in the first paragraph; he could obtain an ERISA fidelity bond for $1,000,000 from his current certified surety company. Then obtain an additional ERISA fidelity bond for $750,000 from another certified surety company.

Alternatively, the plan fiduciary could cover the qualifying assets and specifically designated non-qualifying assets under one ERISA fidelity bond and obtain an additional ERISA bond for the remaining non-qualifying assets from another certified surety company.

Save some money, do some shopping and get the results you want! If you need the Department of Treasury listing, please contact your Consulting Administrator at ACI and they will be glad to provide you with the listing.

References: 29 C.F.R. § 2580.412-21, 29 C.F.R. § 2580.412-20

Some Funding Relief for Defined Benefit Plan Sponsors

By Yariel Chiong & Alison Murray

On Friday June 25, 2010, President Obama signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act of 2010 (H.R. 3692). This Act gives plan sponsors of defined benefit plans new options for required annual contributions, giving some much needed relief to cash strapped employers hit by the economic downturn.

Under the Pension Protection Act of 2006 (PPA) the difference between the value of benefits earned by participants and the assets in the plan is called the shortfall amortization base. Contributions must be made to the plan to make up this shortfall over a 7 year period.

Single-employer plans are given 2 new amortization options under H.R. 3692 for the shortfall amortization base amount recognized under the ERISA and IRS Code. The “2 Year Plus 7 Year” option gives plans sponsors 2 years of interest-only payments plus an additional 7 years for the remaining balance. The “15 Year” option gives employers 15 years vs. 7 years for payment of the shortfall amortization amount.

This relief is available for any plan year for which the minimum funding deadline has not yet been met (8 ½ months following the end of the plan year). So this relief would apply for plan years ending on or after October 31, 2009 and is available through plan years ending in 2011. If employers choose to apply for 2 plan years they must elect the same type of extension for both years.

Multiemployer plans are given minimum funding requirements determined on a ledger. Under the Act the amortization level may be increased from 15 years to 30 years.

The Act has also extended the Worker, Retiree and Employer Recovery Act of 2008 allowing the funded status determined for 2008 to apply for 2009 and 2010 keeping plans from being frozen if they fall under 60% funded during those years.

Although the new Act does not release employers from their contribution requirements to the plan, it does allow them to free up more cash which may be used for other business expenses.

Contact your ACI Consultant or Administrator for more information and how these changes could be of benefit to your current plan by lowering your minimum required contribution.

IRS Questionnaire Update

By Yariel Chiong

We recently contacted our clients and advisors to let them know that the IRS is conducting a random Compliance Check of 1,200 401(k) Plans. Plan Sponsors who received the questionnaire have 90 days (without) extension to complete and return it. Not completing the questionnaire automatically will result in an IRS audit.

Plan Sponsors should make sure to provide complete and factual answers to the detailed questions regarding their 401(k) plans. Not understanding, or partially answering questions may result in costly enforcement by the IRS. Immediately contact your ACI administrator who can help you answer these questions on a time and charges basis.

The purpose of the IRS questionnaire is to determine the following:

1. Potential compliance issues
2. Any operational Issues
3. Additional education and outreach guidance that may be helpful for the IRS to provide plan sponsors to improve compliance

NOTE: Some multiple question answers provided are unacceptable under the law and will lead to an IRS audit. There are also similar questions repeated throughout the questionnaire, and plan sponsors should be aware of the relationship between the questions. Be careful not to inadvertently answer a question which is legally unacceptable unless it is factually the correct answer.

If you have received a questionnaire contact your plan administrator with the compliance questions. We will answer these questions for you.

Changes to EFAST2 e-signature

By Yariel Chiong

The DOL has announced a new option that allows form preparers, such as ACI, to electronically sign 5500 forms on behalf of the Plan Administrator (client). This new option will be offered to our clients which do not have access to the internet or do not wish to receive signing credentials (User ID and PIN).

EFAST2 which applies to plan years beginning in 2009 states that Forms 5500 and 5500SF must be filed electronically with the Department of Labor (DOL). The Plan Administrator is required to receive signing credentials in order to electronically sign the Form 5500/5500SF posted by ACI to the FT Williams website. The client transmits the signed return to the DOL and also retains a physically signed copy of the return for their records. Instructions on how to electronically file your return were posted on our ACI blog in April and can be viewed at any time.
The EFAST2 I-File system has been updated to include a signing credential for service providers. In order to have ACI electronically sign on behalf of clients the following is needed:

1. Written authorization from the client will be required to allow us to electronically sign on their behalf using our credentials. This is different than the credentials the client receives from the DOL.

2. A paper copy of the Form 5500 must be manually signed by the employer and a pdf copy of the signed copy will be attached to the electronic filing done by ACI. Please note: the image of the first 2 pages of the manual employer signed Form 5500 will be visible on the DOL’s electronic public disclosure website. Having the manual client signature public visible raises the possibility of identity theft.

3. ACI will inform the employer of any inquiries from EFAST2, DOL, IRS or PBGC concerning the filing.

We recommend that plan sponsors still obtain their own signing credentials from the DOL and file their own Form 5500.

We will have more information regarding the new change soon for those clients wishing to have ACI sign the return on their behalf.

IRS Questionnaire

By Tobi Cogswell

The IRS announced last week that it will be sending compliance questionnaires to a number of 401(k) plans. These questionnaires are expected to go out at the end of May. They are 46 pages long. If you get one, you have 90 days (without extension) to complete and return it. Do not ignore it. It was confirmed last week at the NIPA Seminar that if you do not return the questionnaire you will be audited. Contact your plan administrator for help with the compliance questions. We will be happy to help you on a time and charges basis.

Protect Retirement Plans By Contacting Your Member Of Congress Now!

Congress is considering a proposal that will threaten the use of cross-testing used for defined contribution plans as well as combination defined contribution and defined benefit plan design. Specifically the ability to have different allocation formulas for different groups and the interest rates used in the calculation are in BIG JEOPARDY!

This affects the vast majority of small plans and many large plans. We need your help to send a strong message to Congress to stop this misguided proposal. Given this tough economy, now is not the time for Congress to make it more difficult to provide retirement benefits to employees.

We have made it easy for you. Please go to the link below and in a matter of seconds you can get the word out to your member of Congress that they should NOT pass any proposal negatively affecting retirement plans. Please feel free to get your employees involved since their benefits may be threatened as well.

Thanks for your support!

Pat Byrnes, COPA MSPA, EA, MAAA
President

In the “take action” block of the link please select Small Business Owner or Practitioner as appropriate.

For Small Employers please modify the 1st paragraph and Practitioners the 4th paragraph.

http://www.mmsend57.com/ls.cfm?r=239497387&sid=9445266&m=1003356&u=ASPPA&s=http://www.asppa.org/sp/CapWiz-Pages/Contact-Congress.aspx

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.

EFAST 2

Please view the presentation for more information on how to electronically file your 5500.

EFAST 2

View more presentations from Actuarial Consultants, Inc..

5 Things you should know as a Sponsor of a Defined Benefit Plan

- by Pat Byrnes

Sometimes in life you learn the right things to do by observing when something went terribly wrong. On the front page of the Los Angeles Times business section on March 16, 2010 an article entitled “For CalSTRS, a bet that failed“ by Marc Lifsher is a stunning example of what not do to do with a defined benefit plan. That’s the government sector which is very different from the private sector.

Defined benefit plans are marvelous tools to solve…well, retirement planning problems. They can be very flexible and very rewarding too if you pay attention to a few things.

Here are my thoughts on private sector defined benefit plans:

1. Confront the brutal facts. When your business or profession is going through turbulent times, pay attention to your plan. Ignoring never helps. Surprises are worse if you wait.

2. Deal with a pro-active actuarial firm like ACI. The pro-active piece is very important. We contacted all our defined benefit clients at this time last year and discussed with them the thought of freezing their DB plans before anyone incurred 1,000 hours in the 2009 plan year. This needed to be communicated and executed by about mid May 2009, depending on the number of participants. Most decided to do so. They will be able to fund out their asset losses before they unfreeze those plans.

3. Plan Design matters. Your goals for the plan and the flexibility needed may be significantly different than your current document specifications. The Pension Protection of 2006 changed a lot…and it’s not all bad. Deductions have increased significantly. Baby Boomer entrepreneurs and professional entities have embraced cash balance plans in conjunction with defined contribution plans.

4. Coordinate the plan design and funding rules with the investment of the assets. Pay attention to how the investment of the assets compares to the plans underlying assumptions. Make a conscious choice on the investment decisions. If the underlying plan interest rates are in the 5%-6% level and you shoot for a 9%-10% growth rate, know that you are taking a risk.

5. Be willing to think differently about your plan and the funding of your own retirement.
We are very skilled with these plans. We would be happy to do a quick review for you if you provide us with a signed copy of your plan document and latest actuarial report. Please call me at (310) 212-2612 or email me at: pat.byrnes@acibenefits.com.

Change for Tax form reporting for 2009 Plan Years!

By Alison Murray

Medical Groups and Law Firms often have a retirement plan configuration where individual PC doctors or attorneys are in their own Defined Contribution plans, with the staff in a separate plan. The entire arrangement is considered a Controlled Group. All plans are combined for various compliance tests. Until 2009, the individual PC’s, as plans of a controlled group, could not file a short IRS Form 5500-EZ. The individual PC’s were also required to have a bond.

The definition of a “one-participant plan” has changed for purposes of filing 5500’s for 2009 plan years. Even if you are part of a controlled group, if your personal PC-owned plan contains only you, or you and your spouse, you can file a Form 5500-EZ. In addition you are no longer required to have a bond covering the assets of the trust.

If your plan assets are $250,000 or less you don’t have to file anything! The only requirement is that if you terminate your plan you must file a form in the final year.

What does this mean for you?

5500-EZ’s must still be filed in paper form. They can not be filed electronically. It’s one less thing for you to have to learn this year and you can concentrate on doing what you do best.

The cost of 5500-EZ preparation is less than the cost to prepare a regular Form 5500 so you’ll save some money!

5500-EZ’s are not uploaded to public information. You have more privacy.

Larger plans consisting of partners or partners and spouses only will also enjoy this newly-minted definition of “One Participant Plan”. Take advantage of it.

Remember, you heard it here first!!