Administration Matters


Participant Fee Disclosure Regulations Passed by DOL

The Department of Labor has issued final participant fee disclosure rules under ERISA §404(a).  These rules are applicable to participant-directed plans for plan years beginning on or after November 1, 2011.  Under the final regulations, plan fiduciaries are required to provide annual and quarterly notices to participants that will enable them to compare the costs associated with available investments under the plan.

  • Quarterly statements of the actual plan fees and expenses deducted from their accounts
  • Annually provide information about the costs associated with the investments available under the plan and how the investments may be directed. 

The 2013 participant fee disclosure notice must be provided by the anniversary of the date that you provided the initial 2012 notice.  For example, if you provided the initial notice on August 30, 2012, you will need to provide the 2013 notice no later than August 30, 2013.   If you have any questions regarding your plan’s fee disclosure, please contact your BMI plan administrator.


Roth Conversion Update - The American Taxpayer Relief Act of 2012

Congress, in a gesture primarily designed to avoid going over the “Fiscal Cliff,” at least in the short-term, has passed The American Taxpayer Relief Act of 2012.  Buried in this legislation, a fundamental change to the in-plan Roth conversion option currently available within qualified plans was constructed.  Essentially, whereas with the current version of in-plan Roth conversions, a participant may only convert their account balance within a contribution source which is otherwise distributable (e.g, no earlier than age 59 ½ with regard to Employee Deferrals), the newly passed legislation eliminates this restriction and now permits the conversion of any source at any time (however still within restrictions placed on a participant’s right to convert as designed by the Plan Sponsor).

As the IRS will need to clarify a number of operational issues related to the change, we encourage our clients who are determining whether to offer this option under their plan to postpone a final decision until we have a better understanding of the logistics and consequences of electing an in-plan Roth conversion under the new rules later this year.  For example, it is anticipated, although not yet confirmed, that the IRS will approve a current year change for safe harbor 401(k) plans (rather than permitting the change only as of the first day of the next plan year). 

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Roth Conversions Within Plan Are Now Available – see above update related to passage of The American Taxpayer Relief Act of 2012

The recently enacted Small Business Jobs and Credit Act of 2010 has provided plan sponsors with the option to now authorize Roth conversions within their 401(k) retirement plan.  If authorized, plan participants will have the ability to request a conversion of all or a portion of their vested account balance in the plan from current sources (pre-tax deferrals / safe harbor / profit sharing / matching contributions / etc.) to Roth after-tax sources.  Highlights of the Roth conversion follow:

  • Roth conversions are accomplished through a direct transfer within your retirement plan (simply a recordkeeping adjustment – no actual check issued or wire transfer processed).
  • Restriction - only 401(k) plans are permitted to offer Roth conversions.  Further, the 401(k) plan must allow for both pre-tax and Roth after-tax deferrals within the plan.  If your plan does not currently allow for Roth deferrals, you can add to the plan through an amendment in 2011/2012.
  • Restriction – only distributable funds are available for conversion (see update for The American Taxpayer Relief Act of 2012).  Generally, IRS regulations restrict an in-service distribution from 401(k) and safe harbor sources to participants who have attained age 59 ½ (this will limit the scope of who may elect to convert these sources).  With respect to all other sources, plan sponsors have the option to add an in-service distribution (e.g., available upon attainment of age 40) and add a caveat that the in-service distribution is only available with respect to an employee’s election to convert to Roth.
  • Solely with respect to the conversion transaction, the 10% early withdrawal penalty generally applicable to a participant who has not attained age 59 ½ will not apply with respect to any portion of the account balance converted.
  • No federal tax withholding on the converted funds, although the amount converted is includible in the participant’s gross income for the tax year in which the conversion takes place (note the income is automatically included in the year the balance is converted).

If you elect to permit in-plan Roth conversions, please encourage any participant electing to convert to first consider (1) whether paying taxes at current income tax rates is likely to result in a lower taxes than if recognizing the income at a later time, (2) whether the participant has offsetting losses that might reduce or neutralize the tax impact, and (3) how the participant will fund the tax liability.

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Electronic Federal Tax Payment System (EFTPS)

Effective January 1, 2011, the IRS will no longer accept paper Federal Tax Deposit Coupons for the mandatory taxes withheld from distributions and issued by check. To facilitate the electronic remittance of tax withholding, BMI is registered as a batch provider of EFTPS services. This will enable us to remit the federal withholding initially distributed by your investment institution by check to the Treasury Department on behalf of your plan. If this issue is applicable to your plan, we will contact you to set up a PIN number once we receive a request for any distribution that requires federal tax withholding.

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Final Regulations Set Clear Standard for Deposit Timing of 401(k) Deferrals

Under final regulations issued by the DOL, plan sponsors with less than 100 participants at the beginning of the plan year are deemed to have made a timely deposit of deferral contributions if they deposit such contributions no later the 7th business day following the payroll check date.  This is a well-received change to the current rule which requires plan sponsors to remit deferral contributions as soon as can reasonably be segregated from the employer’s assets, generally determined to be within 2-3 days following each payroll check date.  It is important to note that although this new regulation only applies to small employers, the DOL is currently considering whether a similar change is beneficial and necessary for those employers with more than 100 participants at the beginning of the plan year.  However, until the DOL releases any additional regulations, we encourage our large plan sponsors to continue to remit deferral contributions within 2-3 days following each payroll check date.

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Annual Required Minimum Distributions

Generally, a participant who attains age 70 ½ must begin receiving required minimum distributions of his/her plan interest no later than April 1 of the calendar year immediately following the calendar year in which the employee retires (April 1, 2014).  Each succeeding annual required minimum distribution must occur prior to December 31 of the respective calendar year for which it is due.  Note than any participant who is a 5% owner of the plan sponsor or any co-sponsor must begin receiving required minimum distributions of his/her plan interest no later than April 1 of the calendar year immediately following the calendar year in which the employee turns 70 ½.  We will begin forwarding required minimum distribution notices for 2013 in October.  At that time, we will also begin contacting employers to determine whether any participant who has turned age 70 ½  in 2013 or in a prior year is intending to retire on or prior to 12/31/2013.

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2012 Cost of Living Adjustments

The 2013 limit for elective deferrals (402(g) limit) is $17,500.  This does not include the 2013 $5,500 catch-up contribution for participants who are at least 50 years old at any time during 2013.

The 2013 SIMPLE 401(k) limit is $12,000.  This does not include the 2013 $2,500 catch-up contribution for participants who are at least 50 years old at any time during 2013.

The 2013 compensation limit has increased to $255,000.  The compensation limit is effective for plan years beginning in 2013.

The individual 415 limits for plan years ending in 2013 have increased to the lesser of $51,000 or 100% of compensation.  This limit does not include the $5,500 catch-up contribution.

Reminder: the 2012 402(g) limit was $17,000.  This is a calendar year limit that applies to each individual regardless of the plan year.  If you have a participant whose salary deferrals for 2012, not including the $5,500 catch-up contribution, exceeded $17,000 please contact us immediately.

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PPA Notices

The Pension Protection Act of 2006 (PPA) requires that participants in a defined contribution plan receive additional disclosures with their employee benefit statements.  While the Department of Labor (DOL) has issued Field Assistance Bulletins 2006-03 and 2007-03 to provide good faith guidance regarding these statements, we are currently awaiting final guidance and sample benefit statements from the DOL. 

For plans that allow participants to direct any portion of their investments, participants must receive all of the following information on at least a quarterly basis:

  • Statement showing the participant’s accrued benefit and the value of each plan investment determined as of the most recent valuation date;
  • An explanation of any permitted disparity formula (social security integration) used to determine profit sharing allocations, if applicable;
  • An explanation of any limitations that may exist regarding a participant’s right to diversify investments;
  • An explanation of the importance for diversification of investments and the risk of holding more than 20% in any one security; and
  • A notice directing participants to the Department of Labor’s website for sources of information regarding individual investing and diversification (http://www.dol.gov/ebsa/investing.html).

The participant must also be furnished with vesting information on an annual basis.  (Our benefit statements have always provided this information).

The DOL has indicated that this information may be disseminated in multiple forms as long as the participant is provided with an annual notice explaining as such.  This notice should be provided before the participants begin receiving their first quarterly benefit statement.  The DOL has further stated that if the required quarterly information is supplied at least 45 days from the calendar quarter the plan sponsor will be deemed to have met good faith compliance with these requirements.

For plans that only have trustee-directed assets the participants must be provided with an annual statement showing the following:

  • Statement reflecting the participant’s accrued benefit and the value of each plan investment determined as of the most recent valuation date;
  • An explanation of any permitted disparity formula (social security integration) used to determine profit sharing allocations, if applicable; and
  • Vesting information

The DOL has indicated that as long as this information is provided by the due date of the plan’s 5500 including extensions the plan sponsor will be deemed to have met good faith compliance with these requirements.

Benefits of Missouri provides both the supplemental annual and quarterly notices to our plan sponsors with participant-directed plans that use either daily valuation products or individual accounts.  We are providing the additional requirements for our participant-directed balance forward plans with our quarterly benefit statements and for our trustee-directed plans as part of our annual benefit statement.

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