Radachi Benefits Group

Fidelity Bond Requirements

mwhite — Thu, 26 Aug 2010 12:51:41 +0000

Fidelity bonds protect retirement plans from losses caused by the actions of individuals who handle plan assets or have discretionary authority over the plan and its assets. The vast majority of retirement plans are required to have a fidelity bond. Some exceptions are those plans which cover only the owner of the employer, the owner and his/her spouse, partners in a partnership, or partners and their spouses.

The amount of the bond must be the greater of $1,000 or 10% of the plan’s assets as of the beginning of the plan year, with a capped dollar amount of $500,000. If your plan holds employer securities, the capped dollar amount is $1,000,000. Bond information is reported annually on the Form 5500.

Most employers tend to hold their plan’s fidelity bond as a rider to their corporate insurance coverage. This is acceptable as long as the plan itself is the “named insured.”

In certain situations, additional bonding is required. Radachi and Company reviews bond requirements each plan year and advises clients if changes are needed. If you have questions regarding fidelity bond rules, please contact us.

Participant Loan Disclosures Update

mwhite — Fri, 06 Aug 2010 14:18:24 +0000

Effective July 1, 2010, participant loans from retirement plans are exempt from providing the Truth-in-Lending Act disclosures (aka, “Regulation Z disclosures”) to participants. These disclosures provided the participant with information regarding the amount financed, any finance charges, the annual percentage rate, and the security interest required to make the loan. This requirement only applied to plans that had more than 25 loans in total or at least five loans for the purchase of a principal residence.

In order to take advantage of the exemption, plans must follow the Internal Revenue Code’s loan requirements regarding the amount limitation, the repayment requirement, and the amortization requirement. In addition, the loan must be a directed investment of the participant’s account and satisfy the prohibited transaction rules. These are all normal, everyday requirements of obtaining plan loans.

If you have any questions regarding this or any other retirement plan rules, please contact Radachi and Company at (440) 365-3115 or benefits@radachi.com.

Client Alert! – IRS Begins Mailing “401(k) Compliance Check Questionnaire”

admin — Tue, 15 Jun 2010 20:02:10 +0000

The Internal Revenue Service has begun mailing letters to the plan sponsors of 1,200 401(k) plans instructing them to complete an online questionnaire about their retirement plan’s compliance with federal laws and regulations.

You are required to complete this questionnaire if you receive a letter from the IRS instructing you to do so. (A copy of the cover letter may be found here) Failure to complete the questionnaire in a timely manner will lead to further IRS enforcement actions and may include an audit of your plan. However, if you receive a letter instructing you to complete this questionnaire, do not try to complete it on your own. Rather, contact our office so we may help determine the easiest, most efficient, and safest way for you to complete the questionnaire.

The questionnaire uses many legal and industry-specific terms (it includes a glossary with over 100 different definitions) and includes questions that may not pertain to your plan. In addition, the IRS has stated that they may further examine or audit a plan depending on how certain questions on the questionnaire are answered.

For these reasons, if you receive a letter instructing you to complete this questionnaire, please contact our office at (440) 365-3115 as soon as possible so that we may assist you.

For more information please see the IRS’ website for the “401(k) Compliance Check Questionnaire”

Timely Deposit of Employee Contributions

admin — Sat, 19 Dec 2009 19:23:02 +0000

The Department of Labor requires employers to remit employee contributions to retirement plans on a timely basis. In general, employee contributions must be remitted to the plan by the earlier of:

the date the employee’s contributions can be reasonably segregated from the company’s assets, or
the 15th business day following the month that the employee contributions were withheld from pay.

In 2008, the Department of Labor issued a “proposed regulation” in an effort to clarify this rule.

First, this regulation allows small plans (those with less than 100 participants) to remit employee contributions to the plan within 7 business days following a payroll date. Those contributions will automatically be considered to be remitted on a timely basis.

Second, this rule clarified that it is no longer acceptable for an employer to hold all deferrals during the month and deposit them the following month. Rather, employers should be depositing their employees’ deferrals as soon as administratively possible every pay period. For example, if an employer pays weekly, employee contributions should be sent to the plan on a weekly basis. If a company pays semi-monthly, employee contributions should be sent to the plan on a semimonthly basis.

Finally, while the 7th business day rule only applies to small plans, the Department of Labor explicitly stated that they are interested in issuing a similar rule for large plans (those with over 100 participants). Therefore, even large plans should adjust their procedures so that they are remitting employee contributions to the plan as soon as administratively possible for each pay
period.

Radachi and Company will be working with clients to review current payroll procedures and suggest the appropriate changes to ensure that all contributions are timely remitted to the retirement plans.