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

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