PENSION RESOURCES, INC.

2000 Linglestown Road Harrisburg, Pa 17110

(717) 541-8510/Fax (717) 541-8093

Winter 2008/2009

LIMITS FOR 2009!!

401(k) and TSA Deferrals$ 16,500 (increased from 15,500)

Deferral Limit for SIMPLE$ 11,500 (increased from 10,500)

Compensation Limit$245,000 (increased from $230,000)

Compensation for Highly Compensated Employees$110,000 (increased from $105,000)

Officer Compensation for Key Employees$160,000 (increased from $150,000)

Annual Addition Limit to Defined Contribution Plan$ 49,000 (increased from $46,000)

401(k) and TSA Catch Up Deferrals$ 5,500 (increased from 5,000)

SIMPLE Catch Up Deferrals$ 2,500 (no increase)

EGTRRA RESTATEMENTS

All retirement plans using a pre-approved plan document will need to be restated during the next 16 months. This restatement is referred to as the EGTRRA restatement, due to the acronym for the legislation containing the changes needing to be adopted. The IRS has attempted to provide some structure for when plan documents need to be restated; most plan sponsors can now expect to restate their plan documents every six years. All pre-approved documents received their IRS approval letters in Spring 2008 and plan sponsors utilizing these pre-approved documents will have until April 30, 2010 to adopt their EGTRRA restatement. This restatement is NOT OPTIONAL; it is required to maintain the qualified status of your plan.

The changes required by this legislation have been implemented during the past several years, with the plan restatement formalizing those provisions. During this restatement process is the time to review all of your plan provisions and consider any other changes to your plan. In addition to the plan restatement, we will also produce a revised Summary Plan Description and updated plan forms.

Since we have a large number of plans to restate, we are offering a discount for those who respond early in this process. See separate mailing or call our office for additional information.

PARTNERSHIPS – EARLIER TAX FILING DEADLINE AND CONTRIBUTION DUE DATE!

In order to be deductible, Pension/Retirement Plan contributions must be made no later than the due date for your business return, including extensions. The extension for partnership returns is being changed to 5 months rather than 6 months. Note that this only impacts partnerships and those being taxed as a partnership, not sole proprietors.

Form 1065 filers who file an extension will need to make their contributions one month earlier than their previous deadline in order to be deductible for the prior year. Note, this change does not affect the minimum funding deadline applicable to money purchase and defined benefit pension plans.

The change is effective for returns due on or after January 1, 2009. You will undoubtedly receive information about this change from your tax professional, but please keep in mind that this affects the contribution due date for your retirement plan.

SEVERANCE PAY

The IRS issued guidance on how severance pay should be handled for retirement plan purposes. The general rule is that pay issued after an employee has terminated is not considered earnings for plan purposes. We now have more guidance on how this impacts plans. Generally, earnings that accrued before separation, but were not paid until after the employee’s termination date but within 2 ½ months of that date, are includable in plan compensation. This includes:

  • compensation for regular or overtime hours worked through the termination date, bonuses, and commissions
  • payments for bona fide vacation, sick, or other leave which the employee would have been eligible to use had his employment continued

Plan compensation does NOT include severance pay that would not have been paid had the employee not terminated employment.

These rules are effective for plan years beginning on or after July 1, 2007, so for many clients, the 2008 calendar year is the first time these rules will apply. Contact our office if you have any questions regarding your plan’s eligible compensation.

TIMING OF EMPLOYEE CONTRIBUTION DEPOSITS

Employee contributions (including loan payments) must be deposited as soon as administratively possible after the pay period in which they are deducted, but no later than the 15th business day after the end of the month. The Department of Labor (DOL) recently issued a Safe Harbor for plans with less than 100 participants – contributions deposited no later than the 7th business day after the pay date will be considered timely. Amounts that are not deposited timely are considered prohibited transactions, with the employer having to contribute “lost interest” to the plan and paying a 15% excise tax on this lost interest. We strongly recommend that you follow the seven-day safe harbor. Contact your administrator if you are not currently remitting within the safe harbor and need to discuss the process.

AUTO CASH-OUTS

Maintaining terminated employees’ accounts in your retirement plan can create headaches and additional fees. The auto cash-out rules were created to allow plan sponsors to distribute small balances where participants who terminate do not complete distribution election forms. These rules apply to participants with a vested balance of less than $5,000, with most plans electing to have a lump sum taxable distribution being made if the balance is less than $1,000 and an automatic IRA rollover if the balance is between $1,000 and $5,000.

When terminated participants do not elect to receive their benefits shortly after they terminate, the plan sponsor must continue to provide statements and Summary Annual Reports to these participants, and must also keep current address information on file. The most common problems we see is that the plan sponsor and co-workers lose touch with the participant so that disclosures and other materials, including distribution election forms, can not be sent. Most plan sponsors like the option to automatically distribute monies, shortly after termination; however, this option must be applied to all participants in this situation. If you do not want to apply this automatic distribution to all participants, please contact your plan administrator.

AROUND THE OFFICE

We ask for your feedback on our services and ways in which we can better serve you!

Our office will be closed December 25th, December 26th and January 1st.

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Have a Healthy and Prosperous 2009!

Maureen Lindsay, Barb Pluta, Jody Kraby, Veronica Maneval, Melanie Hartman, Susan Bonawitz, Diana Timothy, Sandy Eberly, Kristen Fry, Donna Finton, Tracy Mundy and Heather Nafe

Excellence in Retirement Plan Design and Administration