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DOL Finalizes 7 Business Day Safe Harbor Rule for Small Plans

DOL Finalizes 7 Business Day Safe requirements. Benefits are usually linked Harbor Rule for Small Plans to the amount of service and based on March 2010. In This final average salary. Employees can New Department of Labor regulations on Issue reasonably rely on a known and expected the timely deposit of employee benefit level; although protection against contributions Page 1 - DoL post-separation inflation is usually limited Issues New Effective January 14, 2010 the DoL and/or uncertain. The plan sponsor may Small plan Contribution issued final regulations for retirement also provide an alternative lump-sum Regulation Plans with fewer than 100 participants.

800.622.2411 • Page 2 • www.benefitplans.com 401k Plans Cont’d. . . o Employer can restrict individuals with less than 1 year of service, union members, non US citizens, part-time

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Transcription of DOL Finalizes 7 Business Day Safe Harbor Rule for Small Plans

1 DOL Finalizes 7 Business Day Safe requirements. Benefits are usually linked Harbor Rule for Small Plans to the amount of service and based on March 2010. In This final average salary. Employees can New Department of Labor regulations on Issue reasonably rely on a known and expected the timely deposit of employee benefit level; although protection against contributions Page 1 - DoL post-separation inflation is usually limited Issues New Effective January 14, 2010 the DoL and/or uncertain. The plan sponsor may Small plan Contribution issued final regulations for retirement also provide an alternative lump-sum Regulation Plans with fewer than 100 participants.

2 "cash-out" of the benefit entitlement. Page 1 What plan sponsors should review their process Until relatively recent times, the DB was is a 401k plan ? to ensure deferral contributions are the dominant form of employer- Page 2 DoL. segregated from the employer's assets sponsored retirement programs. Audits of 401k timely, but no later than 7 Business days Deposits following receipt, or following the date In DC Plans , the plan defines the the amounts would otherwise have been contributions that an employer can make, Page 3 plan Limits for 2010 paid to the employee as compensation.

3 Not the benefit that will be received at retirement. The terminating employee Page 3 The old regulation was often receives the proceeds in a current or Blackout period notice misinterpreted by plan sponsors. Initially, deferred lump sum or annuity. Since the requirements regulations were issued by the DoL in benefit is not defined, the retirement Nest 1988 defining when employee outcomes are not known in advance. Page 4 About contributions become plan assets for Executive purposes of ERISA. In 1996, the In 1978, section 401k of the Internal Benefit Plans regulations were amended for plan Revenue Code authorized the use of a Page 4 EBP sponsors to deposit employee deferrals new type of defined contribution plan that Contact Info into Plans as of the earliest date on which allows for the employee to make pre-tax such contributions can reasonably be contributions to the plan .

4 Segregated from the employer's assets, How It Works but not later than the 15th Business day of the month following the month in Employee 401k contributions are which the participants' contributions are automatically deducted from their withheld from the employees' paycheck each pay period. This money is compensation (29 CFR 102). taken out before the employee's paycheck is taxed. The contributions are While most plan sponsors currently remit invested at the employee's direction into employee elective deferral dollars on a one or more funds provided in the plan .

5 Payroll' basis, those who do not should Employers often "match" employee consider changing their remittance contributions, but are not required to do process to qualify for this safe Harbor . If so. While the investments grow in the this affects your company, please call our employee's 401k account, they do not office for complete details and guidance. pay any taxes on it. What is a 401k plan ? Advantages and Benefits Employer-sponsored retirement Plans are 401k Plans offer many benefits including generally grouped into two major the following: categories: defined benefit (DB) and o Any Business , whether a C.

6 Defined contribution (DC). In a DB plan , Corporation, S Corporation, the employer promises to pay a defined partnership, sole proprietorship, or amount to retirees who meet certain self-employed can establish plan . eligibility criteria. In other words, the plan defines the benefit to be received. In o The company sets the eligibility its most typical form, a DB plan pays a requirements, within certain lifetime monthly benefit to retirees who guidelines, at the time the plan is fulfill specific age and service established. Page 1 401k Plans Cont'd.. o Participants can start, stop o Employer can restrict individuals with contribution during course of year, as less than 1 year of service, union determined by the company.

7 Members, non US citizens, part-time o The employer can receive certain tax workers, etc., from being eligible for benefits for contributions. the plan . o Plans are subject to top heavy and o Contributions to plan can come from discrimination testing. voluntary employee salary reduction, from employer, or both. o Typically the amount the owners and highly compensated individuals can o Each individual employee can defer in contribute to a 401k is a function of 2010 up to $16,500 or 100% of the contributions of the other compensation, whichever is less. employees.

8 O Participants age 50 and over can o 401k Plans can be subject to IRS. make additional "catch-up". 5500 filings. contributions of $5,500 in 2010. o Generally, the vendor selected by the o Employees are immediately 100%. plan sponsor does all accounting, vested with their own salary participant reporting, testing, and reduction tax deferred contributions. files 5500 reports with the IRS. o Employee withdrawals before age 59. 401k Plans have proven to be popular 1/2 may be subject to 10% penalty. with employees for several reasons. The o Employees, who retire any time tax deferral is obviously high on this list during the calendar year in which of reasons.

9 Others include the increased they turn 55, or later, are not subject portability of this plan , employer to the 10% penalty. matching contributions, and the increased control associated with self-direction of o Employers can establish a vesting investments. Every other type of pension schedule, within certain guidelines, or retirement plan requires the employer for the contribution the company to make the contributions to drive' the makes to the 401k. plan , while 401k Plans are employee o Employers are not required nor driven.'. obligated to make any contribution to the 401k, although employer may DOL Audits of 401k Deposits have some obligation to contribute if Editor's Note: Please review the "safe Harbor ".

10 plan is deemed top heavy. exemption for Small Business located in the first article of this newsletter. o Turnkey and Internet based Plans are Subject to the exception for certain types available. of assets under ERISA 403(b), The o Excellent range of investment options Employee Retirement Income Security available for the plan sponsor to offer Act of 1974 ("ERISA") requires that plan within the plan . assets be held in trust. Once assets constitute plan assets, the failure to o The investment choices in most Plans timely transmit them to trust will violate range from 8 to 20 options.


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