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.

Not properly reviewing your Form 5500 can lead to big penalties

By Yariel Chiong

Have you ever read the statement above the signature line on your Form 5500? It says:
“Under penalties of perjury and other penalties set forth in the instructions, I declare that I have examined this return/report, including accompanying schedules, statements and attachments, as well as the electronic version of this return/report, and to the best of my knowledge and belief, it is true, correct, and complete.”

If you are signing the form it is ultimately your responsibility that it is correct. That is why it’s important that your third party administrator (TPA) or whoever is preparing the form, sends it to you for signature with plenty of time for your review You must do your part by providing them with complete and accurate census when requested.

Poor preparation on behalf of your preparer is not an excuse that the government will accept. Ensure that you have properly reviewed the 5500 and accompanying schedules and are confident in it. Ask questions. If you are currently not an ACI client you can contact us for a limited review of your Form 5500 by one of our highly experienced staff.

Some background on the Form 5500:
The Form 5500, Annual Return/Report of Employee Benefit Plan, including all required schedules and attachments must be filed by the 7th calendar month after the end of the plan year unless a Form 5558 is filed and received by the Internal Revenue Service (IRS) before the due date. This will give you an additional 2 ½ months to file the form without penalties. So for example, if your plan is a calendar year end plan your Form 5500 will be due August 1, 2011 since July 31, 2011 lands on a Sunday this year. And if a Form 5558 is filed for extension, your Form 5500 will be due October 17, 2011.

All plans filing on or after 01/01/2010 are now required to be filed electronically through the Department of Labor’s Employee Benefits Security Administration (EBSA) website www.dol.gov/ebsa.

Penalties:
If your form is late, IRS penalties are $25 per day up to a maximum of $15,000. Department of Labor (DOL) penalties can be up to $1,100 per day with no maximum. In addition, for willful violations on your Form 5500, individuals can face up to $100,000 fine and/or imprisonment up to 10 years.

What to do?:
Ask questions! Do not sign and submit the forms until you are satisfied with the answers. If you have any questions for which you cannot get answers, call us!

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