An important component of plan administration is providing current information on regulations issued by the Internal Revenue Service and the Department of Labor. This page provides a basic summary of some of these current legislation changes. Please contact our offices for more detailed information.

To search for a specific word or phrase, you can simply scroll through the page or click on the topic link below. You may also use your browser’s find function. (Internet Explorer users can type CTRL+F.)

DOL Suggests New Deposit Timeline

The Department of Labor has proposed a “safe harbor” timeframe for depositing employee contributions. Employee contributions must be transmitted within 7 business days from when they are withheld from pay in order to be within the new safe harbor guidelines.

For more detailed information, please contact us at info@randall-hurley.com.

Fidelity Bond Requirements Have Changed

If your plan offers company stock as an investment option, the maximum amount of the required bond has increased for years 2008 and beyond. The maximum amount of the ERISA-required bond will increase to $1 million. (The maximum amount generally required is $500,000.)

We encourage you to speak with your plan consultant regarding any fidelity bond coverage questions or issues you may have. However, here's a brief review of the requirements:

• All assets of your retirement plan, including participant and employer contributions, are subject to the bond requirement.
• The bond can be in the form of an individual bond covering a named individual, a name schedule bond covering more than one named individual, a position schedule bond covering individuals who hold specified positions, or a blanket bond covering all of the insured plan's fiduciaries and others who handle funds. The bond must be obtained from an approved corporate surety company.
• The bond must be for at least 10% of the amount of funds handled in the preceding plan year but generally must be for no less than $1,000 and no more than the required maximum (as stated above).
• Every plan fiduciary and every person who "handles funds or other property" of a plan must be bonded. A plan fiduciary or other person is considered to "handle" plan funds if the person has physical contact with cash, checks, or other similar property, is able to secure physical possession of plan funds, or has the potential ability to transfer plan funds to themselves or to third parties.

For more detailed information, please contact us at info@randall-hurley.com.

2008 Plan Limits Announced

The federal government recently updated the limits applicable to qualified retirement plans. You can view these new limits in PDF format here.

For more detailed information, please contact us at info@randall-hurley.com.

New Limits on Saver's Credit

The IRS has recently changed the limits for employee's wishing to use the Tax Saver's Credit. This credit may encourage participation in your retirement program by employee's in lower income tax brackets. The Profit Sharing/401(k) Council of America has posted a great one-page summary of these changes, and how you can and should communicate this information to your employees, on its website, www. psca.org. Click info@randall-hurley.com.

IRS: How to Fix Plan Mistakes

The IRS has recently posted a 43-page "401(k) Plan Potential Mistakes" guide on its website. The guide is intended to help find, fix, and avoid common 401(k) plan compliance errors. It includes a table that lists eleven potential mistakes (e.g., out-of-date plan documents, ADP and ACP nondiscrimination test failures, and delinquent Form 5500 filings) as well as detailed discussions showing how to identify each mistake, how to correct it, and how to avoid making it in the first place. Also included are an overview of 401(k) plans and a summary of the Employee Plans Compliance Resolution System (EPCRS), the IRS program that facilitates the voluntary correction of retirement plan compliance errors.

To view this document and take advantage of the easy-to-use table, go to the IRS website at www.irs.gov or simply click on the link here.

For more detailed information, please contact us at info@randall-hurley.com.

New Safe Harbor Combines Automatic Enrollment Feature

The New Safe Harbor Utilizing Automatic Enrollment is available for plan years beginning after 12/31/07. Congress has enhanced the Automatic Enrollment program to add a new Safe Harbor. Contrary to the current Safe Harbor options, the Automatic Enrollment Safe Harbor can have up to a 2 year vesting schedule. Please contact your plan Call your consultant for more information about this new Safe Harbor provision.

For more detailed information, please contact us at info@randall-hurley.com.

How to Lower Your Company's Expenses on Employee Health Premiums

Are you tired of trying to find ways to improve your employees’ benefits without increasing the cost to your company?

Call Pat Gamache today to learn more about how Section 125 Cafeteria Plans allow employers to offer benefits such as health insurance premiums, dependent care and out-of-pocket medical expenses, and even parking expenses, to their employees on a pre-tax basis. For every dollar an employee runs through a Cafeteria Plan, the employer saves the 7.65% of FICA (Social Security) tax.

Pat can also discuss how to use a Health Reimbursement Arrangement (HRA) in conjunction with redesigning your medical plan to reduce premium costs.

For more detailed information, please contact Pat at pgamache@randall-hurley.com.

2007 Plan Limits Announced

The federal government recently updated the limits applicable to qualified retirement plans. You can view these new limits in PDF format here.

For more detailed information, please contact us at info@randall-hurley.com.

New Hardship Provisions to Take Effect

Qualified retirement programs are now able to add two additional distribution events to the financial hardship distribution rules: funeral expenses and repair of residence due to casualty loss. This brings the total number of distribution events to six. You may click here to print an explanatory notice to distribute to your employees.

If you maintain a provision in your plan that allows hardship distributions, it is your responsibility to determine if a legitimate hardship distribution exists. To help you with this, we'll discuss the documentation that should be required for all safe harbor distribution events.

First, your plan should require completion of a hardship application and supporting documentation that reasonably demonstrates the occurrence of the hardship event, the financial need, and the dollar amounts involved. Assuming that your plan uses the safe harbor for deeming that the participant lacks other resources to satisfy the financial need, no documentation on this point will be required. (Under the safe harbor, the participant must have obtained all currently available plan distributions--including loans and ESOP dividends--and must be prohibited from making any deferrals or after-tax contributions for at least six months after receiving the hardship distribution.) You should retain all hardship applications and supporting documentation in the plan files so that they are available to support the plan's decision in the event of an audit or dispute.

Here are our suggestions of appropriate supporting documentation for each of the six permitted events.

Medical Expenses for Participant or Dependent. We suggest that you require a copy of the health care provider bill, along with an insurance company benefit statement denying coverage for at least the amount being requested. If the expense has not yet been incurred, you could require a signed letter from a doctor or other health care provider verifying the need for treatment and the approximate cost.

Purchase of Principal Residence. We recommend requiring a copy of the signed purchase agreement.

Twelve Months Tuition and Related Costs. We suggest requiring either a bill or a letter from the educational institution, verifying enrollment of the participant or the participant's dependent. The bill or letter should include actual or estimated costs of tuition, room, board, and related expenses.

Payments to Prevent Eviction or Foreclosure. For this event, we think you should require a copy of the formal legal document giving notice of the eviction or foreclosure that is required under applicable state law. Generally, a legal notice would state that if the overdue rent or mortgage payment were not received by a specified deadline, formal eviction or foreclosure proceedings would be instituted.

Burial or Funeral Expenses. This is one of the new safe harbor events permitted under the final regulations. We recommend requiring copies of the death certificate and the bill from the funeral home showing costs of the burial or funeral.

Repair to Employee's Principal Residence Qualifying as a Casualty Deduction. This is the other new safe harbor event permitted under the final regulations. We suggest requiring evidence of the casualty (a description or photograph), a copy of the repair bill, and proof that insurance proceeds did not cover the amount of the casualty expense claimed as a hardship.

For more detailed information, please contact us at info@randall-hurley.com.

IRS Announces More Plan Audits

The Internal Revenue Service is stepping up its examinations of companies’ retirement plans this year, aiming to catch those that are cheating their workers or the government and to ensure the plans meet federal regulations. The offerings to be examined include traditional pensions, 401(k)s and profit-sharing plans.

While the agency intends to focus on about 9,000 companies of all sizes over the next nine months, experts say that small businesses are most likely to be out of compliance. That’s partly because more plans are sponsored by small businesses and because the owners often outsource the set-up and administration of the offerings.

“A lot of companies won’t be in compliance,” said Sy Goldberg, a Long Island attorney who is a member of the IRS’s Northeast Pension Liaison Group. “They may not have good advisers, who may not file the forms correctly or bring in the employees correctly.

“There’s a lot of abuse in the pension area, and a lot of people are complaining to the IRS in Washington.”

The IRS has long looked at corporate pension plans, but it has now changed its methodology in hopes of uncovering more non-compliant and fraudulent offerings. Instead of looking at all aspects of a company’s plan, the agents will focus on the plan’s documents, its internal controls and a few other key issues, said Bob Henn, the IRS’ Northeast area manager for employee plans. The agency hopes to review about a quarter more plans this year than last.

Under the new system, the agents will review the pension plan documents of each company being examined to make sure they are up-to-date.

Then, the agents will focus on whether employers are properly handling various duties including: notifying workers of their eligibility to join the plans; matching employee contributions to 401(k) plans; calculating traditional pension benefits; investing retirement plan offerings; vesting workers; and distributing benefits at retirement.

2006 Plan Limits Announced

The federal government recently updated the limits applicable to qualified retirement plans. You can view these new limits in PDF format here.

For more detailed information, please contact us at info@randall-hurley.com.

Roth Employee Contributions Added in 2006

The IRS has issued proposed regulations for implementing Roth 401(k) and 403(b) contributions and intends to finalize the rules in time for plan sponsors to implement the new provision in 2006, as part of EGTRRA.

The Roth feature allows your plan participants to make deferrals from pay, but under a Roth designation, those deferrals are taxed currently. Then, qualified distributions made from these deferrals (including the net earnings) are eligible for tax-free treatment.

So, the Roth alternative offers a choice between paying taxes now or paying them later (with regards to the elective deferrals), and a choice between deferred taxation or no taxation (with regards to the investment earnings on this account).

Many types of Employees may find this arrangement beneficial. Employees with a longer investment horizon or a very low current tax rate may enjoy particular advantages. Catch-up contributions are also still available, and Roth contributions are 100% vested, just like regular pre-tax deferrals.

The Roth provision is not required to be offered under a 401(k) plan. You will need to evaluate whether the Roth option makes sense for your 401(k) plan—weighing the potential benefits for your participants and the additional administrative requirements inherent with the new option. Here are some issues to consider:

Plan Eligibility. All 401(k) and 403(b) plans may add this provision to their plans. The feature is also available to Safe Harbor Plans. Adding this feature would not affect the plan’s ability to qualify for the top heavy exemption.

Employee Appeal. The Roth option offers higher-paid Employees an opportunity to accumulate tax-free earnings on deferrals. Unlike the Roth IRA, there is not an income cap on eligibility for this feature. Many other Employees may also benefit from this feature, including those who are in lower tax brackets, who have a longer investment period, and those who feel income taxes will increase in the near future.

Higher Limit Than Roth IRA Contributions. Roth 401(k)/403(b) contributions are subject to a higher overall limit than Roth IRA contributions. For example, the 2006 limits are $15,000 for deferrals (Roth and pre-tax combined) versus $4,000 for Roth IRA contributions. For participants who are age 50, the catch-up limit in 2006 for combined deferrals is $5,000 in the Roth 401(k) versus the $1,000 catch-up for Roth IRA contributions.

Ease of Making Roth 401(k) Contributions. Using payroll deductions that are deposited into the existing 401(k) plan, is easier for Participants than having to set aside funds and setting up a separate Roth IRA.

Participant Communication. Participant understanding of this feature will greatly reduce confusion and increase participation. Communication will be critical. Your plan’s SPD and election forms will also need to be updated. The SPD must explain the salary deferral choices and the tax consequences of each choice, which will add to the complexity of the SPD document.

Implementation Difficulty. The quality of your plan’s advisors will be critical in making a smooth transition to this change in plan design. We have several documents available to help you decide if you should implement this feature or not. If you choose to do so, Randall & Hurley’s legal department is ready to help guide you through this important step.

Administrative Complexity. The separate accounting and different taxation rules that apply to Roth deferrals will add complexity to the administration provided by Randall & Hurley. This will result in higher plan costs.

Employer Deductibility. The employer will deduct both Roth and pre-tax deferrals pursuant to IRC §404 as before, but the Roth contribution portion will be currently taken into income by the employee. (See your tax advisor for more information on this topic.)

Qualified Distributions. A distribution from a Roth 401(k) plan is a “qualified distribution” and, therefore, not subject to tax or penalty if:

• It is made after the 5 year period that starts with the first year a Roth contribution was made, AND
• The payment or distribution is:
• Made on or after the date you reach age 59½,
• Made because you are disabled, or
• Made to a beneficiary or to your estate after your death.

The Sunset Rule. Currently, all EGTRRA provisions are set to expire December 31, 2010. Although there will potentially be sufficient political pressure to extend or make permanent these provisions, Congress has not yet done so.

For more detailed information, please contact us at info@randall-hurley.com.

Cafeteria Plan Deadlines Can Be Extended

Employers can now modify their Section 125 Cafeteria Plan documents to allow more time for employees to incur medical and dependent care expenses. In the past, employees had to incur such expenses before the end of year in the “use it or lose it” provision.

The new grace period, if provided, must apply to all participants and can only be extended to a maximum of an additional 2½ months after the end of the plan year. If the participant doesn’t use up the FSA funds at this point, he/she will be required to forfeit any amount still available.

Many plans have a claims run-out period, which is the time within which participants must submit claims for the year after the year had ended. Employers should also consider extending the claims run-out period if the extension for incurring expenses is extended.

For more detailed information, please contact us at info@randall-hurley.com or see IRS Notice 2005-42.

2005 Plan Limits Announced

The federal government recently updated the limits applicable to qualified retirement plans. You can view these new limits in PDF format here.

For more detailed information, please contact us at info@randall-hurley.com.

OTC Drugs & Products Now Reimbursable

The IRS has announced in a Revenue Ruling that over-the-counter drugs can now be reimbursed through a Cafeteria Plan. Click here for an explanation of the benefits and components of a cafeteria plan.

Medical expenses now available for reimbursement include eyeglasses, laser eye surgery, orthodontics, co-pays and deductibles, prescriptions, allergy medicine, cold medicine, aspirin, cough drops, menstrual cycle products for pain relief, nicotine gum and patches, bandages, Pedialyte, Bengay, first aid cream, Bactine, bug bite medication, wart remover, Visine, acne treatment, sleeping aids, motion sickness pills, pregnancy test kits, condoms, spermicidal foam, thermometers, incontinence supplies, nasal strips, and much more!

For more detailed information, please contact us at info@randall-hurley.com or see IRS Notice 03-108.

Safe Harbor Contributions

The IRS has finally reacted to employer criticism of its 401(k) discrimination tests. These restrictions on pre-tax contributions often have the effect of materially limiting salary deferrals made by owners and other highly compensated participants. When staff participation in a 401(k) program fails to reach minimum required levels, then those tax-deductible elective contributions made by the business owners may be markedly below the $11,000 individual employee limit applicable in 2001.

Under new "Safe Harbor" rules that were first promulgated as part of the 1996 Small Business Job Protection Act, employers may act to eliminate these potentially restrictive 401(k) discrimination tests, starting with the 1999 plan year. To insure that the IRS limitations are inapplicable, a yearly notice must be given of the employer's commitment to make one of either of two forms of contributions on behalf of that year's eligible employees: an employer match or a percentage of pay contribution. The employer has the discretion to change, or eliminate, the Safe Harbor contribution each year, but the timing and the content of the notice are critical.

For more detailed information, please contact us at info@randall-hurley.com or see IRS Notice 98-52.

Negative Elections/Automatic Enrollment

If an employer wishes to materially increase staff participation in a 401(k) plan, the IRS has provided a mechanism for doing so. For the first time, procedures are provided which allow a company to automatically enroll its eligible employees in the 401(k) plan. Unless the employee provides written notification that he or she does not want to participate in the plan, the employer may contribute a set, pre-tax amount (for example, 3%) from each paycheck on behalf of the employee.

As with the new Safe Harbor referenced above, the timing and content of the notices to employees describing the new automatic enrollment feature of the company's retirement program are critical in complying with IRS guidelines.

For more detailed information, please contact us at info@randall-hurley.com or see Revenue Ruling 98-30.

Document Restatement

Due to the ever-changing IRS procedural rules affecting plan maintenance, the IRS has imposed a (recently extended) deadline for completing the restatement of governing plan documents to comply with pension plan changes under the 1996 Small Business Job Protection Act, the Taxpayer Relief Act of 1997, "GATT" and other new federal pension laws. The new deadline is September 30, 2003 for calendar year plans. Failure to amend current documents by this date may mean disqualification of the plan.

For more detailed information, please contact us at info@randall-hurley.com or see Revenue Procedures 99-23.