FAQs - Retirement Plan Services for Business

For 2012, a participant may contribute up to $17,000 in 401(k) deferrals. If the participant is over age 50, he or she may make an additional $5,500 "catch-up" contribution for a total of $22,500. The 2012 maximum combined limit for both employee and employer contributions for a participant is $50,000 ($55,500 if you are over age 50).

If a plan has fewer than 100 participants at the beginning of the plan year, contributions deposited by the seventh business day after the date it would have been paid to the participant are considered timely. This applies to loan payments as well.

This is completely dependent upon how the definition of compensation is written in your plan. It is very important you know that definition. If it includes bonus payments to your employees, then you must withhold the deferrals. If your definition excludes bonuses, you are not permitted to withhold deferrals. The action taken is not based on your preference, or the employee’s – it is determined by the plan.

However, some plans have an option allowing your employees to sign a “special bonus election”. They can choose to have a different amount withheld from their bonus compared to their regular paycheck. It could be anywhere from zero to one hundred percent. Not surprisingly, excluding bonuses from compensation or permitting special elections for bonuses requires some additional effort on you and your administration firm’s part, so make sure you discuss the pros and cons before amending your plan to reflect a new definition or procedure.

Adding the option of Roth deferrals to a 401(k) plan allows employees to contribute post-tax deferrals to the plan. These deferrals grow tax free and are not taxed upon distribution from the plan, provided the contributions have been invested for at least five years (counted from the year of the first deposit), and the participant has reached age 59½ at the time of distribution.

In general, Roth deferrals benefit younger workers who expect to be taxed in a higher bracket upon reaching retirement age. High income individuals who normally cannot contribute to a Roth IRA due to income restrictions may find the Roth 401(k) option useful in estate planning.

The Small Business Jobs Act of 2010, which was passed September 7, 2010, authorizes plans that permit 401(k), 403(b) and governmental 457(b) Roth deferrals to now permit Roth conversions, or “rollovers” inside a plan. This allows participants to pay the taxes now and let the income accumulate tax-free going forward, without ever moving funds from the plan.

The plan must allow for in-service distributions and the balance can be rolled over is highly dependent upon a) the age of the participant, b) the money type (such as 401(k) deferral or employer profit sharing), and c) any limitations you as plan sponsor may write into the in-service feature of your plan. We recommend you discuss this with your plan administration firm if you are interested in adding this feature to your plan.

Once an employee has met all eligibility requirements for a plan, you should give the employee an enrollment packet. This packet should contain a deferral/investment election form, a beneficiary designation form, the Summary Plan Description, and complete information regarding the investment selections in the plan.

A forfeiture is the non-vested portion of a participant’s account after the participant has terminated employment. Depending on the plan specifications, these forfeitures can be added to an employer contribution or they can be used to reduce the employer contribution.

The short answer for most cases is ‘yes’. For all plan years beginning in 2009, the Department of Labor instituted a requirement that all 5500’s must be filed electronically. Excluded from this requirement is the Form 5500EZ, which is only used by single owners and their spouses, or one or more partners and their spouses in a partnership.

Each person who would typically sign the Form 5500 must obtain special electronic signing credentials on the DOL website. Your 5500 preparer will give you all of the instructions needed for you to submit the form once it is complete, but you also may also authorize your plan administration firm to do it for you.

You will be required to file a large form 5500 and undergo an audit once your retirement plan exceeds 100 participants. This number includes all eligible employees, not just those with balances in the plan.

Employers are given a transition period before the large filing is required. If the number of participants reported at the end of the prior plan year plus those who became eligible on the first day of the current plan year is between 80 and 120, you may elect to file the same form as the prior year.

If you exceed 120 participants at the beginning of the year, you must switch over to a large filing and engage an accounting firm to prepare an audited financial statement of the plan.

Your plan can incorporate a few different features that might allow employees access to their funds without terminating employment. You could add a loan feature, which would have to be paid back, or a hardship withdrawal feature, which would not.

It is also possible to add an “in-service” withdrawal feature. Each of these distribution options has its own set of rules and limitations, so we’d suggest that you talk them over in advance with your document provider. Keep in mind, most plans allow an employee to withdraw, at any time, any rolloverthey made into the plan.

A fidelity bond insures the plan against losses due to fraud or dishonesty by persons who handle the plan funds. All qualified plans are required to have a fidelity bond of 10 percent of the plan assets, with a maximum of $500,000 of coverage.

Most insurance companies write fidelity bonds; they are typically referred to as an "ERISA Bond.” A bond can be added as an endorsement to the business policy. The endorsement must specify the plan's name.