QUALIFIED PLANS
Recent audits of small 401(k) plans have borne fruit. Examiners looked at 50 “top heavy” plans, which are subject to special rules because the bulk of the plans’ benefits go to highly paid employees. Among the problems: Failing to make required minimum contributions for low paids; excluding eligible workers from the plan. And not depositing employee contributions in a timely manner. Look for IRS to broaden its reach and order up more audits of these small plans. Employers get an extra year to amend plans to reflect pension law changes approved by Congress over the past few years. The new deadline is Dec. 31, 2010.
Among the changes requiring amendments; Quicker vesting for cash balance plans, Curbs on benefit accruals for underfunded pensions, And rules allowing participants in 401(k) s to diversify out of employer stock. Announcement of the new deadline just three weeks before the original due date may come too late to provide relief for many plans, because amendments generally have been in the works for months. And IRS is giving itself more time to set procedures for OKing 403(b) plans.
Major new rules for these plans took effect Jan. 1, 2009, including a requirement that these plans must be in writing by the end of this year. The Revenue Service expects to have 403(b) plan approval procedures in place within a few months. The bottom line for sponsors: No need to petition IRS for the time being to get approval of a plan’s tax qualified status. The Service will announce sometime in 2010 when it will be ready to accept determination letter requests. Until then, employers using a prototype plan developed by IRS can assume that they are OK as long as they follow the procedures that the Service will announce next year.
Recent audits of small 401(k) plans have borne fruit. Examiners looked at 50 “top heavy” plans, which are subject to special rules because the bulk of the plans’ benefits go to highly paid employees. Among the problems: Failing to make required minimum contributions for low paids; excluding eligible workers from the plan. And not depositing employee contributions in a timely manner. Look for IRS to broaden its reach and order up more audits of these small plans. Employers get an extra year to amend plans to reflect pension law changes approved by Congress over the past few years. The new deadline is Dec. 31, 2010.
Among the changes requiring amendments; Quicker vesting for cash balance plans, Curbs on benefit accruals for underfunded pensions, And rules allowing participants in 401(k) s to diversify out of employer stock. Announcement of the new deadline just three weeks before the original due date may come too late to provide relief for many plans, because amendments generally have been in the works for months. And IRS is giving itself more time to set procedures for OKing 403(b) plans.
Major new rules for these plans took effect Jan. 1, 2009, including a requirement that these plans must be in writing by the end of this year. The Revenue Service expects to have 403(b) plan approval procedures in place within a few months. The bottom line for sponsors: No need to petition IRS for the time being to get approval of a plan’s tax qualified status. The Service will announce sometime in 2010 when it will be ready to accept determination letter requests. Until then, employers using a prototype plan developed by IRS can assume that they are OK as long as they follow the procedures that the Service will announce next year.
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