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.

ACI makes the Los Angeles Business Journal’s Top 20 List

By Yariel Chiong

We’ve made the Los Angeles Business Journal’s list again of the Top 20 largest firms in L.A. County handling employee benefits. In this complex economy ACI continues to stand its ground never stepping down from a fight. We couldn’t have done it without putting the client first. Our deep understanding of the retirement industry helps us provide simplified administration and a comprehensive approach to managing your company’s retirement plan. We help bring efficiency to the process by providing vertical case management, consolidating all your plans administrative needs under one case manager. Navigating through new legislative updates and requirements can be daunting but it doesn’t have to be. We do this so you can focus on what’s most important: helping your employees retire.

Contact ACI for more information 310.212.2600 information@acibenefits.com

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!