Recent Developments in Employee Benefits Regulations
9 December 2002
You may already be aware of these changes, while some may be new to you. The bottom line, we at The Rigby Group believe, is that current information allows you to build the best benefit plan while ensuring full regulatory compliance. Developments of note include:
h2. Retirement Deferral Limits
The maximum salary deferrals for 401(k) plans will increase from $11,000 in 2002 to $12,000 for 2003. The limit will continue to increase in $1,000 increments through 2006 ($15,000) after which it will be indexed. The maximum allowable contribution to a SIMPLE plan will increase from $7,000 in 2002 to $8,000 in 2003 and in $1,000 increments through the year 2005 ($10,000), after which it will be indexed. IRA deductions have increased to $3,000 for 2002-2004. They increase to $4,000 for 2005-2007 and in 2008 will increase to $5,000. “Catch up” contributions are allowed for individuals age 50 and over for IRAs and qualified plans.
h2. Retirement Plan Regulations
Vesting for retirement plans has changed. Five-year “cliff” vesting becomes three years and seven-year “graded” vesting becomes six years. Plans are allowed to retain pre-2002 vesting schedule for pre-2002 contributions. Rollover regulations have been simplified and relaxed, allowing more rollovers between different types of plans. Minimum distribution rules have also changed. If you need additional information regarding these changes, please contact us. Remember, the plan sponsor is responsible for making sure the plan is in compliance with the law. Reliance on a third-party administrator does not relieve the plan sponsor from its fiduciary duties. We can perform a complete review of your plan document to ensure that it is in full compliance with recent law changes.
h2. Savers Credit
A tax credit is now available to families earning less than $50,000 per year for contributing to a salary reduction (401(k)) plan. This credit encourages lower-paid employees to participate in the employer plan. Companies having difficulty passing required discrimination testing should take an active role in educating employees about this credit. We can assist you in developing a communications campaign promoting increased participation through the use of this credit.
h2. Form 5500
Fringe benefit plans are no longer required to file Schedule F, which is obsolete. Most section 125 plans are no longer required to file a form 5500. Medical flexible spending accounts are not exempt from filing the form 5500.
h2. Voluntary Compliance Program for Form 5500 Non-filers
The Department of Labor (DOL) and IRS are now coordinating their efforts to find non-filers of Form 5500. However, they have established a Delinquent Filer Voluntary Compliance Program (DFVC) that substantially reduces penalties for non-filers who voluntarily comply. Penalties have been reduced from $50 to $10 per day with a maximum $2,000 per filing for large plans ($4,000 per plan) and $750 per filing for small plans ($1,500 per plan). Sources indicate that beginning in 2003, “letters of inquiry” will go out to non-filers. Once a plan receives this letter, voluntary compliance is not allowed and significant fines and penalties will be assessed. We would be happy to review your 5500 filings to make sure that your company is in compliance. We can also assist and advise you regarding voluntary compliance in order to avoid significant penalties.
h2. DOL Audits of 401(K) Deposits
The DOL has indicated that it will step up audits of 401(k) deposits. The maximum time period for making these deposits has been shortened from 90 days to the 15th day of month after the deposits are withheld. This rule is not considered to be a “safe harbor” – the DOL’s informal presumption is that a small employer should deposit within 7 days. Are your deposits made on a timely basis? Violation represents a fiduciary breach and a prohibited transaction.
These are only some of the developments that can directly affect your company in the coming year and beyond. To learn more – or for assistance navigating this increasingly complex area – The Rigby Group’s employee benefits consulting practice can help. We provide consulting services, as well as government-required plan audits and Form 5500 filings. To request an initial consultation, please call Steve Himel at 504-586-3050 or e-mail email@example.com.