Yes. The annual compensation limit is $220,000 for plan years beginning in 2006 (the amount for future years is adjusted for cost-of-living increases). A plan may not base allocations (defined contribution plans) or benefit accruals (defined benefit plans) on compensation in excess of the annual limit. Top
A “year of service” means a Plan Year during which the participant must work at least 1,000 hours to receive a year of credit for vesting or for benefits. Top
For a defined benefit plan, several criteria are used to determine whether an employee is eligible to participate in the Plan:
An employee (e.g. spouse) does not become a participant in the plan until such time all eligibility requirements above have been met. Top
It is very important to accurately determine the eligibility of every employee who is working or has worked for the employer during the plan year. To properly determine the eligibility for each employee for any given plan year, the plan record keeper must have all the pertinent facts (date of birth, date of hire, compensation, hours worked, etc.) for each employee who worked at any time during the plan year. Top
A "leased employee" is an individual who performs services for another person (the recipient) under an arrangement between the recipient and a third person (the leasing organization) who is otherwise treated as the individual's employer. The leased employee is treated as the recipient's employee if the leased employee has performed services for the recipient pursuant to an agreement with the leasing organization on a substantially full-time basis for a period of at least one year, and the services are performed under the primary direction or control of the recipient. Top
Yes. Leased employees are considered on the same basis as any other employee of the employer. Top
Simply stated: It's the law!! ERISA (Section 412) sets forth the legal requirement that every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be bonded. A plan that covers only owners of the employer and their spouses are exempted from bonding. Top
The primary responsibilities of a Plan Trustee are as follows:
Terminating a plan is generally a 4-step process:
A defined benefit pension plan is an IRS qualified retirement plan that provides plan participants with a specific benefit at retirement. The benefit is a monthly benefit payable for life. Optional forms of payment are also available, such as a lump sum. Top
The annual retirement benefit that may be paid to a participant for Plan years
ending after 2003 has limitations based on the participant's age and is subject
to an employee's years of service and years of participation. For ages 62 to
65, the year 2004 limit is the lesser of $165,000 (10 years of participation),
or 100% of the participant's average compensation (10 years of service).
Annual cost-of-living adjustments to the $165,000 limit are calculated in a
manner similar to the annual cost-of-living increases for Social Security
benefits. The cost-of-living adjustment is in $5,000 increments. For ages
younger than 62, the dollar limit is reduced according to IRS guidelines, and
for ages above 65 the dollar limit is increased according to IRS guidelines. Top
For purposes of the limitation on a participant's annual retirement benefit under a defined benefit plan, average compensation means the average compensation for the "high three years" of employment. A participant's high three years is the period of consecutive years during which the participant had the greatest aggregate compensation from the employer. Top
If a participant has less than ten years of participation in the Plan at retirement, the dollar limitation is reduced by 10% for each year of participation less than ten. There is no similar requirement for years of service. Top
An accrued benefit is the amount of benefit earned as of a date based on credited service in the Plan. The accrued benefit is generally subject to a vesting schedule. Top
This is the Lump Sum value of the participant's benefit as of a specified date. Top
Contributions to a Plan must be made prior to the tax-filing deadline of the business in order to be deductible for the tax year just ended. For sole proprietorships and calendar year businesses taxed as partnerships, the deadline is April 15. For corporations operating under a calendar year tax basis, the contribution deadline is March 15.
If an employer files for an extension, a contribution can be made up to the earlier of: (a) the extension deadline, or (b) the date that is 8 ˝ months after the Plan year-end. This means that for a calendar year Plan, the latest date a contribution can be made is September 15, whether or not a further extension is granted.
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If an employer fails to make the required contribution within 81/2 months after the end of the Plan Year, the plan is considered deficient and the employer is subject to a 10% excise tax on the late contributions. Top
Any plan amendment to modify the plan provisions must be executed by the employer no later than 2˝ months after the end of the Plan Year. Top
In the year of Plan Termination the Plan may have a contribution obligation. The contribution obligation is generally the annual contribution reduced for the period from the beginning of the Plan Year to the date of plan Termination. Top
The necessary forms for requesting a distribution is included in the employer's Operations Plan Retirement Manual. After a participant terminates employment, the participant usually requests payment of benefits from the Plan. This request is made either to the employer or Plan trustee. The payout distribution form is completed by the employer. The completed forms are forwarded by fax or mail to the Plan's record keeper (Benetech). Top
The defined benefit plan usually has a contribution requirement greater than 25% of compensation considered for deductions. 401(k) deferrals and catch-up contributions are not considered in the 25% limit on deductions. Therefore there are no restrictions on deductions. If a profit sharing contribution had been made in addition to the defined benefit contribution, the profit sharing contribution would not be deductible and a 10% excise tax would be imposed by the IRS. Top
Participant salary deferrals withheld by an employer for contribution to the plan are participant contributions that become plan assets as of the earliest date on which such contributions can reasonably be segregated from the employer's general assets. An employer who holds these assets for an unreasonable amount of time will have engaged in a prohibited use of plan assets. If such transaction occurs with respect to a "disqualified person" (employer), the employer may be subject to an excise tax penalty on the transaction, be required to make an interest payment on the transaction and be subject to a Department of Labor penalty. Top
Not as such. Benetech will not provide administrative services for 401(k) plans that cover leased employees. There are several complex issues that arise when a plan attempts to include leased employees in the plan. One basic issue is how does a participant who is leased complete the salary deferral agreement considering the fact that a leased employee is performing services for one company but is paid by another company. Secondly, since the leasing organization (not the plan sponsor) would have to deduct the salary deferrals for the leased employee, what would be the mechanics for transferring the money from the leasing organization to the plan? Under recent IRS regulations, the IRS considers the recipient client as the employer, not the leasing organization. If the leasing organization considers itself a Professional Employer Organization (PEO), then such employees may participate if all requirements as a PEO are met. Top
A catch-up contribution is a special elective deferral available only to participants who are age 50 and over during the plan year. The catch-up deferral amount is determined at the end of the plan year and is not considered a catch-up unless it exceeds the annual 402(g) limit (e.g., $13,000), or the maximum deferral percentage allowed under the terms of the plan (e.g., 15%) or the maximum amount permitted under the ADP non-discrimination testing. The catch-up deferral is not used in the ADP testing and is not counted toward the individual participant limits or plan limits. The maximum catch-up is $3,000 for 2004, $4000 in 2005 and $5000 in 2006. Top
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