Benefits planning has become a highly technical and specialized field. There are many different types of plans and pre-approved documents available to choose from when adopting a qualified retirement plan. Pensions, profit sharing and employee benefit programs can have profound implications on taxes and financial planning, as well as long-term personal implications for a company and its personnel. Although tax laws have increased the complexity of retirement planning, qualified retirement plans continue to be the best available tax shelters for owners and employees.

After carefully considering goals and objectives, Benefits Administrators can illustrate various plans, using actual census data. We can then assist in the selection of the plan that is best suited for a company’s needs and objectives.

We realize it is becoming more and more difficult, if not impossible, for plan sponsors, financial consultants and agents to keep track of the constant changes in the area of employee benefit laws and regulations. Employee benefit plans require ongoing review in order to remain qualified and valuable for eligible employees. We provide consulting services regarding compliance issues and tax benefits. As demographics, goals and compliance issues change, we continue to advise our clients for the benefit of the company and eligible employees.

Employee benefit plans require a team of professionals, including a trustee, investment advisor, administrator, attorney and others. Benefits Administrators functions as the third-party administrator and consultant for our clients.

Utilizing constantly updated software to increase efficiency, Benefits Administrators, assists in administering plans with competence and concern. Our staff of professionals is committed to providing timely and accurate reports that give our client a clear, up-to-date profile of all activities.

Contract Administration Services

Benefits Administrators can assist you with record keeping and compliance for employee benefit plans. Our services include:

• Maintaining and updating employee census data for each client
• Applying the rules of each plan to determine eligibility for participation, benefits, contributions and forfeitures
• Preparing employee account statements, customized to each employee benefit plan
• Calculating contributions, forfeitures, investment earnings and allocations to participants’ accounts
• Conducting compliance tests, including: top-heavy testing, IRC section 401(a)(4) for nondiscrimination, IRC section 410 coverage test, ADP and ACP tests and IRC section 415 limits
• Compiling data and preparing all necessary IRS and Department of Labor reports, including Forms 5500 and 1099R, as well as the Summary Annual Report
• Monitoring required minimum distributions for 5% owner participants

An employee’s benefit under a defined benefit plan is not dependent upon an account balance maintained for the individual but is determined by applying relating a plan formula to the employee’s compensation. The employer assumes the investment risk by agreeing to pay a specified benefit. Investment gains or losses on plan assets decrease or increase employer contributions to a defined benefit plan but do not affect the benefits payable to participants.

The Pension Benefit Guaranty Corporation (“PBGC”) guarantees, within specific limits, benefits under defined benefit plans. Floor offset plans and cash balance plans are defined benefit plans which incorporate certain features of defined contribution plans.

Employer contributions are generally allocated on the basis of each participant’s proportionate compensation. Such plans typically provide for a contribution formula that is totally discretionary for the employer.

It is not necessary for the employer to have either current or accumulated profits to permit employer contributions. In-service distributions may be offered in profit sharing plans.

Although it is typical for employer contributions to be allocated on the basis of the current year’s compensation, there are other optional formulas. These include permitted disparity which provides additional contributions for employees making more than the Social Security taxable wage base.

Profit sharing contributions may also be made on the basis of cross-testing. Such plans are also called age-weighted or new comparability plans. Contributions are usually increased for older employees and owners in such plans. As a rule of thumb, they work very well if the owner is at least ten years older than any other eligible employee.

The employer has a fixed obligation to contribute to a money purchase plan. There is also a fixed formula for allocating the contributions to the account of each participant in the plan.

Benefits may be paid only upon death, disability, separation from service or retirement. No in-service distributions are permitted prior to the attainment of normal retirement age under the terms of the plan.

This is a form of a profit sharing plan that permits a participant to reduce current salary and to have the employer contribute the amount of the salary reduction to the plan on behalf of the participant. The various types of profit sharing allocations described in the profit sharing plan slide may be made in a 401(k) plan.

Annual salary deferrals are limited per IRS annual limitations.

Catch-up contributions are permitted for participants age 50 or older. Such contributions are not subject to the limitations cited above, ADP testing or the annual additions limitation of IRS Code 415.

Deferrals can be made on a pre-tax basis or Roth contributions. If Roth contributions are held within the 401(k) plan for at least five years, the earnings are distributed tax-free when the participant has a distributable event. Unlike Roth IRA’s, there is no compensation limit for Roth contributions to a 401(k) plan, so highly compensated employees can use this option.

401(k) plans are rapidly becoming the retirement plans of choice for companies of all sizes. Benefits Administrators specializes in administering all the details, including:

• Consulting on plan design
• Document drafting
• Monitoring ERISA Section 404(c) compliance
• Discrimination testing
• Electronically accepting payroll information
• Preparing required forms for loans, taxes and withholding requirements
• Employee benefit statements for participants
• Employer reports and required governmental forms

The Small Business Job Protection Act of 1996 (SBJPA) contained design-based safe harbor methods for satisfying the discrimination rules for elective deferrals and matching contributions. These methods permit highly compensated employees to defer up to the annual 402(g) limit without any limitations resulting from discrimination testing based on the deferrals of the non-highly compensated employees.

401(k) plans utilizing the safe harbor rules must provide for a prescribed level of either matching contributions or nonelective (profit sharing) contributions for all eligible non-highly compensated employees. Plans can satisfy this by one of the following methods:

Matching contributions for all non-highly compensated employees in an amount equal to (i) one hundred percent (100%) of the amount of each participant’s elective deferrals that do not exceed three percent (3%) of compensation plus (ii) fifty percent (50%) of the participant’s elective contributions that exceed three percent (3%) but that do not exceed five percent (5%) of the participant’s compensation; or, nonelective contributions on behalf of each eligible non-highly compensated employee of at least three percent (3%) of the participant’s compensation.

The safe harbor matching contributions or nonelective contributions must be 100% vested nonforfeitable when paid to the trust fund. Withdrawal of any safe harbor contributions would be subject to the distribution rules applicable to all 401(k) plans.

An ESOP may be either a profit-sharing plan or a money purchase pension plan, but it must be invested primarily (more than 50%) in the stock of the employer. The employer makes a contribution to the plan that is used to purchase stock of the employer or the employer contributes its stock to the ESOP.

A new comparability plan is also a defined contribution plan. It can provide much larger contributions for highly compensated employees if such employees are older and have longer periods of service with the Plan Sponsor than other employees. This is accomplished through cross-testing which measures discrimination on the basis of benefits instead of contributions as in most defined contribution plans.

Nonqualified retirement plans permit deferral of compensation for executives and key employees without regard for participation and discrimination rules imposed by ERISA so long as the plan is maintained “primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.” The trade-off is that the tax advantages afforded qualified retirement plans are not available. An employer is not entitled to tax deductions for deferred compensation until the nonqualified plan benefits are includible in the employee’s income. The type of taxable entity of the business is of primary importance.

• Distribution services – We would determine eligibility for distributions on termination of employment, death, disability or retirement; review plan terms to determine whether and to what extent participants are entitled to distributions from the plan; approve or deny the requested distribution; and direct the vendor to process the requested distribution if approved.
• QDRO Administration Services – We would process Qualified Domestic Relations Orders (QDRO) in accordance with terms of the plan and the plan’s QDRO procedures and determine whether the form of the proposed QDRO meets the requirements of the plan and give direction to the record keeper to carry out the terms of the court approved QDRO.
• Submission of Payroll Data – We would not process payrolls for the employer, but we would submit data to the investment platform for the employer.

Terminating a pension plan has several required steps and an option to seek approval for the termination from the IRS. The required actions are the following:

• Section 204(h) of ERISA mandates that participants and beneficiaries must be given written notice of the termination at least 45 days prior to the effective date of the Plan’s termination. (This time frame is only 15 days for small plans).
• The Plan Sponsor must adopt corporate resolutions terminating the Plan.
• An amendment to the Plan is also required.

If these steps are not taken, the Plan may be deemed to still be active. This could result in additional employer contributions to the Plan not anticipated by the Plan Sponsor. The Plan Sponsor can also be charged an excise tax of $100 per individual per day for failure to give the Section 204(h) notice.