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Recommended Resources

 
 

www.401k-recordkeeping.com for information about accounting and recordkeeping for small 401k plans-Topics include: - 401k recordkeeping and record keepers, - Low cost
small business 401k plan recordkeeping and accounting services, - 401k auditors and third party processing

www.401kfreedom.com for information about adopting a 401k prototype plan document-Topics include: - Master Or Prototype Plans, - Sponsors of Prototype Plans, - Tax
Treatment of Distributions, - Tax on Early Distributions

www.lowfeeinvestmentmanagement.com for information about costs of 401k plan administration-Topics include: - Your 401 Plan May Cost You Too Much?, - 401k Tips,
- Addressing the Cost Issues, - Determining What You Pay, - Questions for Your 401k Record-keeper

www.401k-safeharbor.com for information about 401k erisa fiduciary and trustee rules-Topics include: - 401k ERISA rules, - 404c compliance, - 401k fiduciary, - Employee
Retirement Income Security Act, - ERISA fidelity bonds and 404c compliance, - IRS regulations for 401k, - Internal Revenue Code Section 125, - ERISA requires that
fiduciaries of retirement plans manage their for the benefit of participants

www.401k-revenue-sharing.com for information about small 401k plan audit waiver regulations-Topics include: - I currently use EFAST-approved software to prepare
my Form 5500 and then print and mail the annual return/report to EFAST. What will I need to do differently for my plan year 2009 annual return/report?, - I am filing a Form
5500-SF for a plan covered by Title I of ERISA and the plan invested in a direct filing entity. I don't see a way to complete a Schedule D for a Form 5500-SF. Do I have to attach
a Schedule D?, - Will the EFAST2 system still receive my filing if I do not attach the IQPA report with my Form 5500 annual return/report when it is required?, - Do you need
a separate registration for the "Employer/Plan Sponsor" and for the "Plan Administrator" (two separate signature lines) if the employer/plan sponsor and the plan administrator
are the same person?, - I tried submitting a Form 5500 annual return/report and I received an Acknowledgement ID. Does this mean my annual return/report was received?,
- How do I submit an amended annual return/report (Form 5500 or Form 5500-SF) for plan years 2009 and later in EFAST2?, - What is the Small Pension Plan Audit Waiver
Regulation?, - What pension plans are eligible for an audit waiver under the Small Pension Plan Security Amendments?, - How do I calculate the percentage of "qualifying plan
assets" for my plan?, - Summary Annual Report Disclosures, - Is there model language for the enhanced Summary Annual Report (SAR) requirements?, - E FAST2 All-Electronic
Filing System

www.401k-administrator.com for information about 401k administration made easy-Topics include: - We start the book by taking the reader through the most fundamental inquiry: is a 401(k) right for his or her company?, - Chapter 3 considers the options open to an employer in designing its company 401(k), - Chapter 4 deals with the dark cloud that scares off so many would-be plan sponsors, - Chapter 5 is the first in the trilogy of chapters explaining the plan administrator's duties and responsibilities, - Chapter 8 is question and answer chapter, - Chapter 11 deals with the unbundled 401(k), - Outline for reference book proposal, - 401k ADMINISTRATION MADE EASY, - Number of 401k Investments Used By the Average 401k Participant

www.401k-support.com or access to technical support options for web-based 401k plans.

 

Commentary

What is ERSA?

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for pension plans in private industry.

For example, if your employer maintains a pension plan, ERISA specifies when you must be allowed to become a participant, how long you have to work before you have a non-forfeitable interest in your pension, how long you can be away from your job before it might affect your benefits, and whether your spouse has a right to part of your pension in the event of your death. Most of the provisions of ERISA are effective for plan years beginning or after January 1, 1975.

ERISA does not require any employer to establish a pension plan. It only requires that those who establish plans must meet certain minimum standards. The law generally does not specify how much money a participant must be paid as a benefit.

EBSA's compliance assistance information will assist employers and employee benefit plan officials in understanding and complying with the requirements of ERISA as it applies to the administration of employee pension and welfare benefit plans.

US Department of Labor Plan for Strengthening Retirement Security

This Administration believes that promises made to workers and retirees must be kept. The retirement security of the 34 million Americans participating in single employer defined benefit pension plans depends on employers keeping the pension promises they make.

However, the current system does not ensure that pension plans are adequately funded. When underfunded plans terminate, workers' retirement security is threatened. Underfunded plan terminations are placing an increasing strain on the pension insurance system and impose an increasing burden on employers who sponsor healthy pension plans.

The tax deferral of 401k has a huge compounding effect: $150 per month put into a typical taxable savings account paying 8% annual interest will grow to $42,034 by the end of 20 years (assuming a combined federal and state personal income tax rate of 34%). In a 401(k), however, the same deposits earning the same rate of return during the same 20 years will yield $88,353 . Even if that amount is taxed at the 34% rate when the money is withdrawn from the plan, which is unlikely if the participant is retired, the 401(k) participant will walk away with more than $16,000 compared to the equivalent non-401(k) investment return. One small employer that has benefited greatly from a company-wide 401(k) is Target Laboratories (www.targetlab.com). The employees are very happy to be able to save for their retirement in tax-advantaged accounts

The Pension Benefit Guaranty Corporation (PBGC) recently reported a record deficit of more than $23 billion. Although the PBGC will be able to pay benefits for some years to come, large and rising deficits undermine the long run financial solvency of the pension insurance system. Underfunding in the pension system must be corrected to protect worker benefits and to ensure taxpayers don't risk paying for broken promises.

To protect workers and retirees receiving PBGC guaranteed benefits, to improve the financial status of the PBGC, and to encourage continued participation in the voluntary pension system by healthy plans, the Administration's proposal focuses on three areas:

  • Reforming the funding rules to ensure pension promises are kept by improving incentives for funding plans adequately
  • Improving disclosure to workers, investors and regulators about pension plan status
  • Adjusting premiums to better reflect a plan's risk and ensure the pension insurance system's financial solvency

REFORMING FUNDING RULES

Current law provides for a Byzantine and ineffectual system of funding requirements that has allowed the nation's pension plans to become underfunded by an estimated $450 billion. The Administration's plan will bring simplicity, accuracy, stability, and flexibility to the funding rules, encouraging employers to fully fund their plans and ensuring that benefit promises are kept.

  • Simplicity:
    • Replaces multiple measures of pension liabilities with one measure, adjusted to reflect risk of termination
    • Replaces multiple approaches to minimum required and maximum allowable contributions with one basic method
  • Accuracy:
    • Bases plan funding targets on the pension plan sponsor's financial health
    • Measures pension liabilities accurately using a current duration-matched yield curve of corporate bond rates
  • Stability:
    • Requires plans to make up funding shortfalls within a reasonable period of time, e.g., seven years.
    • Requires employers to forego promising additional benefits, or pay for them immediately, if the company is financially weak or the pension plan is significantly underfunded
  • Flexibility:
    • Allows plan sponsors to make additional deductible contributions during good economic times

IMPROVING DISCLOSURE TO WORKERS, INVESTORS, AND REGULATORS

In order to make informed decisions about their retirements and to plan for the future, workers need to know how secure their pensions are. Similarly, investors and regulators need timely information about the status of pension plans to evaluate plan sponsors' financial obligations and to ensure compliance with the law. The Administration's plan will:

  • Improve disclosure of plan funding status and funding trends
  • Make publicly available certain information filed with the PBGC by underfunded plans
  • Provide for more timely reporting and limits on filing extensions of plan annual reports

REFORMING PENSION INSURANCE PREMIUM STRUCTURE

The current premium structure does not reflect the true risk of a plan terminating with insufficient assets to pay benefits and can be manipulated to avoid payment of risk-based premiums. The Administration's plan will reform the premium structure to reflect more accurately the cost of the program and to shift the emphasis to risk-based premium funding.

  • Flat rate premiums
    • Adjusts the rate to reflect the growth in worker wages since 1991, when the current $19 rate was set, resulting in an index-adjusted rate of $30.
    • Indexes the premium to reflect the growth of worker wages since 1991, and into the future.
  • Risk-based Premiums
    • Premium determined based on plan underfunding relative to the appropriate funding target
    • The PBGC's Board will adjust the risk-based premium rate periodically so that premium revenue is sufficient to cover expected losses and to improve the PBGC's financial condition.
    • All underfunded plans will pay risk-based premiums.

The Labor Department is currently auditing 401(k) plans of all sizes because of a trend they think may violate current pension laws. Many companies, especially smaller businesses, are knowingly or unknowingly shifting plan administrative expenses to plan participants. This shift of plan expenses come in the form of excessive "hidden fees" that are deducted directly from participants' savings by certain plan providers and investment providers. Because of lax reporting requirements, no one really knows how much money changes hands behind the scenes, but it is estimated that excessive fees may be as much as $1.5 billion per year, and growing.

Policymakers and plan sponsors seeking to structure well managed 401(k)s for their aging workforces are beginning to acknowledge the negative impact significant hidden fees has on eroding pension accumulations for retirement. What might appear to be a small difference in pension management fees can result in substantial differences in eventual retirement benefits.

Additional non-profit websites that include relevant unbiased information about 401k plans include: www.low-cost-401k.com

The three primary reasons why 80% of America's small businesses do not offer 401(k) plans to their employees are: (a) perceived cost of employer-sponsored retirement plans, (b) perceived complexity of company-sponsored retirement plans, and (c) limited investment options. Mutual fund companies offering 401(k) plans to small businesses do so by pre-packaging administration with their proprietary fund investments; this pre-packaged approach, called "bundled 401(k)" tends to be pricey for small companies, limited features and limited investment options. Employees who participate in bundled 401(k) plans typically do not have access to investments not offered by the mutual fund company, and do not have access to the most popular investment option today-the individual self-directed discount brokerage account.


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