The IRS has announced that they will soon release approved documents that include Tax Code changes enacted in tax years after 2000. These documents will replace the existing plan documents now being used by employers, and will require adoption within a two year period. We will begin contacting employers regarding their restatements beginning next month. This is a major project for us with some 900 plans requiring full restatement.

Because these new documents include new benefit features (e.g., Roth contributions, automatic enrollments, mandatory rollovers of lost participants, adding a defined benefit pension plan, etc.) we will begin contacting employers who we feel will be in a position to improve their plan. Because the entire document must be replaced under IRS guidance, adopting a restructured plan or merely duplicating the current structure requires the same effort.

Our current plans are to meet with each client reviewing the benefit of their plan and to discuss the new options that are available. We will also discuss the benefits of adopting a cafeteria plan to help address health care costs.

If you have any question on the new documents or want to take advantage of a $250 discount on the first 50 adopters please contact Greg Matthews.

The DOL may not have released the PPA guidance that Congress mandated on a quarterly statement due by last August, but it did release updated guidance on how it can impose penalties for violation of this requirement. The Pension Protection Act included new requirements for participant disclosure, with failures subject to a penalty of $1,000 per violation. The new disclosure requirements apply to the following events:

• Plans with an automatic contributions arrangement must provide each participant covered under the arrangement with a notice of participant rights and obligations under the arrangement.
• Single-employer defined benefit plans must provide written notice of limitations on benefits and benefit accruals to participants and beneficiaries.
• Multi-employer pension plans must furnish certain documents, upon written requires, to a plan participant, beneficiary, employee representative,, or any employer obligated to contribute to the plan.
• Multi-employer employee benefit plans must, upon written request, furnish notice of potential withdrawal liability to any employer with an obligation to contribute to the plan.

The proposed regulations establish procedures for imposing these penalties, such as how the maximum penalty amounts may be computed, the circumstances under which a penalty may be assessed, procedural rules for service and filing, and a means for a plan administrator to contest these penalties in an administrative hearing.

Under the proposed guidance, the DOL must provide the plan administrator with written notice of its intent to assess a penalty and the reasons for the penalty. This notice must identify the number of individuals on which the proposed penalty is based and the period to which the penalty applies. The DOL can also decide not to assess a penalty, or waive a portion of a penalty, if the plan administrator demonstrates either prior compliance with the relevant requirement or that there were “mitigating circumstances for noncompliance.”

A surprising provision of the new guidance provides that where more than one person is responsible “as administrator” for the plan’s failure to provide the required disclosure, then those persons shall be jointly and severely liable with the plan administrator with the plan administrator for such failure. The regulations cite the employer sponsoring the plan as being one such party subject to the penalty. This means that the DOL can collect the entire penalty from one of the responsible persons or can collect a portion from any of the responsible persons. Not surprisingly, the guidance states that “responsible” persons are personally liable for these penalties and that these penalties are not a liability of the plan.

We are all aware that saving for retirement is not always first and foremost on the minds of most individuals. For low and moderate-income workers, there is usually even less of a desire to save for retirement as more pressing daily needs arise. As many plan sponsors are aware, adding automatic enrollment features to a 401(k) plan greatly increases participation and helps the employee save for retirement through the sheer power of financial inertia. Now, thanks to some favorable tax legislation made permanent by the Pension Protection Act, low and moderate earners will be able to gain greater immediate favorable tax treatment by taking advantage of what is commonly known as the “Saver’s Tax Credit.”

The Saver’s Credit is a non-refundable tax credit of between 10 to 50 percent of an eligible participant’s contributions to a 401(k), 403(b), SIMPLE, SEP, 547, IRA or even a Roth IRA contribution. To be eligible for the credit, the taxpayer must be 18 years of age, not claimed as a dependant on another return, and not be a full-time student. IN addition, for tax year 2007, married couples filing jointly with incomes up to $52,000, heads of household with incomes up to $39,000, and both married individuals filing separately and singles with incomes up to $26,000 can claim the Saver’s Credit. For tax year 2008, the limits are $53,000 for married filing jointly, $39,750 for heads of households, and $26,500 for individuals.

For the most recent year in which information is available, 2005, Saver’s Credits amounted to more than $900 million spread across 5.3 million individual tax filers. Richard J. Morgante, commissions of the Wage and Investment Division of the IRS, fully expects individuals claiming this credit to grow, stating; “Not that a growing number of employers are automatically enrolling their employees in 401(k) plans, the Saver’s Credit offers many workers who save for retirement an added bonus.”

Even if your plan does not have the automatic enrollment feature, you may wish to bring these Saver’s Credits to the attention of your employees by providing them with a notice concerning the benefits of plan participation. The IRS has a sample notice at http://www.irs.gov/pub/irs-drop/a-01-106.pdf. Who knows, with a few more participants, you might get yourself out of ADP struggles, as well as help the lower wage earners save a bit more money.

The IRS actively promotes better understanding of plan compliance through plan specific web sites (http://www.irs.gov/ep) and periodic e-mail newsletters, such as Retirement News for Employers (subscriptions for this newsletter are available at the EP web site). The most recent issue of Retirement News for Employers is the winter 2008 issue. The opening article of the winter issue provides guidance to employers on contribution and deduction limits for various types of retirement plans. We noted an error in the contribution limits that just might help demonstrate how complex plan administration can be for both employers and the IRS.

The IRS newsletter states, “Maximum contribution [for profit-sharing and money purchase pension plans] is the smaller of 25 percent [italics added] of an employee’s compensation that does not exceed $225,000, or $45,000. Maximum deduction is 25 percent of all participants’ compensation that does not exceed $225,000.”

As practitioners know, this 25 percent contribution limit now only applies to Simplified Employee Pensions (SEPs), not qualified plans. For qualified plans, the individual contribution limit –the total annual additions that may be allocated- is the lesser of 100 percent of pay or $45,000.

We will be that the IRS has caught what was probably a typographical error by the time you read this, but for those of you in the middle of plan administration season and wrestling with the complexity of the Code, we thought you would appreciate reading this.

In its continuing efforts to provide education materials to the retirement plan community, the Employee Plans area of the IRS Web site now includes several videos discussing topics relevant to qualified retirement plans and IRAs. Of the nine videos available, seven directly relate to qualified plan issues. Titles include The Navigator – Navigating Employer Information on Retirement Plans, Maintaining Your Plan, Increasing Your Retirement Savings, and IRS Enforcement Priorities. Other available videos address self-correction of plan mistakes, fixing mistakes discovered during an IRS audit, and stopping retirement plan abuses. The following link will take you to a list of all nine videos: http://www.stayexempt.org/ep/stopping_abuses.html.