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Human Resource UpdateApril 2011
In This Issue
Is My Plan Partially Terminated
The Fix Is In: Common Plan Mistakes
Employee Handbook Pointers
Tips for Staying Healthy at Work
Track Government Spending
Dear New College Grad
eLaws Quick Link
Plan Reporting Calendar
Track Government Spending

 

 

 

 

 

 

 

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Greetings: 
 

The New Monster Under the Bed

 

There really is a monster hiding under the bed.

Up to now, a common fear of those in business has been an activist court. While making new laws should fall only to Congress, we see law (re)written by courts in ways never intended. The new monster under the bed is the National Labor Relations Board (NLRB). The "new" NLRB may have a more direct and immediate effect on business than any activist court. In our December newsletter  we examined GC Memorandum 11-01 which proposes to direct companies to post a notice advising employees that they have the right to unionize. The size of this notice should also be noted - it must be at least 11" x 17".  The comment period for this Memorandum ended on February 22nd. As of this writing no final notice has been made.

Not content with this move to promote unions, last week the NLRB has filed a complaint against Boeing asking an administrative law judge to stop construction of Boeing's new South Carolina plant. At the heart of the matter is the NLRB's stand that Boeing is constructing the SC plant to retaliate against the International Association of Machinists' recent strikes and to move union jobs to a "right to work" State. While Boeing has expanded its unionized workforce by about 2,000 during the construction of the SC plant and will add 1,000 non-union jobs to its workforce when the SC plant opens, the IAM wants it all.

Why should this be of concern to anyone but Boeing? This NLRB complaint is the latest sign that the current administration will do anything it can to promote and preserve unions. It started with the "card check" which although sidetracked is not entirely dead, continues the dance to mandate the inclusion of temporary employees in the union of the company using the temporary employee, demonstrated its dedication with national health care and the special provisions relating to organized labor, and has mushroomed with the two NLRB actions mentioned above.

The main concern the Boeing case raises is the attack on a company's (any company's - not just Boeing's) ability to expand into, or relocate to, a right to work State. This has not escaped the attention of the attorneys general, the governors and members of Congress in several of the right to work States. All of these individuals are raising their voices to protest the NLRB's action. One of the reasons the administration uses as its support of unions is that the number of non-government union members has been decreasing. Starting in 2010 the number of government union members now outnumbers non-government union members.

All of this may be summarized in a statement made by Secretary of Labor Hilda Solis in regard to the card check: "As workers across the country have seen their real and nominal wages decline as a result of the recession, these numbers show a need for Congress to pass legislation to level the playing field to enable more American workers to access the benefits of union membership. This report makes clear why the administration supports the Employee Free Choice Act, a bill that would make it easier to unionize."

In effect, the NLRB is the new activist court and the new monster under the bed. Please become an activist yourself. Please write you Congressional representatives and express your views about this latest NLRB action:

Senate: http://www.senate.gov/general/contact_information/senators_cfm.cfm

House: https://writerep.house.gov/writerep/welcome.shtml

______________________________

If you find value in this newsletter please let us know. Feel free to call me with a comment and/or ask a question at any time (908-689-4200) or send me an email ([email protected]).

We offer this timely information as another benefit of your relationship with our company. If you feel a friend or colleague would benefit from receiving our newsletter, please feel free to forward a copy.

     

 

Sincerely,

  

Michael F. Yates
President

PS: You can view all of our newsletters by clicking the 'newsletter archives' link at our company website (www.mfyco.com).

______________________________

Is My Plan Partially Terminated

As the economic downturn drags on, you may have found yourself in the unenviable position, perhaps more than once, of having to reduce your workforce. Or perhaps you have amended your defined benefit plan to cease accruals or provide a reduced benefit.  If so, you must consider the effect, if any, namely a partial termination, which these actions may have on your qualified retirement plan.

The determination of whether a qualified plan has been partially terminated is made on the basis of all applicable facts and circumstances.  Such facts and circumstances include the exclusion, following a plan amendment, of a group of employees who have previously been covered by the plan and plan amendments that adversely affect the rights of employees to vest in benefits under the plan.

Potential reversion creates partial termination

A special rule applies in the case of defined benefit plans. If a defined benefit plan ceases or decreases future benefit accruals, a partial termination occurs if it results in a potential reversion to the employer maintaining the plan.

Voluntary departures do not trigger partial termination

Voluntary employee decisions to leave an employer or terminations not connected with a significant corporate event are not employee terminations that trigger partial terminations of pension and profit-sharing plans. So that the voluntary departure by a group of employees from a firm did not constitute a partial termination of the firm's pension and profit-sharing plans.

Vesting limited to terminated part of plan

The major difference between a partial termination and a full termination is that, in the case of a partial termination, vesting is required only for the part of the plan that is terminated.  Specific rules apply to terminated and partially terminated plans. 

Although service during any period for which the employer did not maintain the plan may be disregarded when calculating vesting service, service provided by an employee after a plan has been partially terminated may not be excluded in calculating a participant's vested benefits.

Example:     ABC Corp. froze benefit accruals under its defined benefit plan on December 31, 2009, the freeze generated a potential reversion for ABC Corp and therefore resulted in a partial termination of the plan in 2010.  As a consequence of the partial termination of the plan, all plan participants become fully vested in accrued benefits following the freeze of accruals. ABC continues to maintain the plan and subsequently amends the plan to allow participants, beginning on January 1, 2015, to accrue benefits under a revised formula. Under the amended plan, a participant's accrued benefit is to be the sum of accrued benefits calculated under the formula used before accruals were frozen and accrued benefits determined under the revised formula.

Because the plan was only partially terminated, service by plan participants for ABC Corp. performed after the establishment of the plan and prior to January 1, 2015, during which accruals under the plan were frozen, may not be disregarded for vesting purposes with respect to future accruals under the plan.  Similarly, if ABC establishes a new plan that is merged into the frozen plan after the partial termination, service provided after the frozen plan was established must be taken into account in determining vesting in benefit accruals under the new plan.

IRS considers all participants in determining plan termination

The IRS believes that a "significant contraction" of the plan may create a partial termination. Thus, all terminated plan participants, both vested and nonvested, are considered in the determination of whether a partial plan termination has occurred. Partial terminations are measured using the ratio of all terminated plan participants to total plan participants.  The IRS position has been affirmed as a reasonable interpretation of the partial termination rules.  A plan's alleged detrimental reliance on a prior determination letter, in which the IRS focused exclusively on nonvested participants, did not prevent retroactive application of the "all terminee" rule.

Examples of partial termination

Court rulings and the IRS have established parameters regarding what corporate action results in partial plan termination.

         Significant-percentage-of employees test. Courts and the IRS have ruled that a partial termination of a plan will occur if a "significant percentage" of employees is excluded from participation in the plan either by reason of plan amendment or by discharge from employment. A termination based on the percentage of employees excluded is also known as a "vertical plan termination."

For example, a partial termination of a qualified plan occurred when an employer discharged 95 of the 165 participants in the plan in connection with the dissolution of one division of the employer's business. Whether the significant decrease in plan participation was the result of adverse economic conditions or causes within the control of the employer was irrelevant.

Similarly, a partial termination of a qualified pension plan occurred when the employer's business was closed and 12 of the 15 participating employees were discharged upon refusing the opportunity to transfer to the employer's new business location.

Significant percentages of excluded employees have been held to be 34%, 51%, 57.6%, 70.6%, and 80%.

         Insignificant percentage. In ruling that 15% of participant exclusion did not amount to a partial exclusion, one court noted that 34% was the lowest percentage deemed significant to warrant a finding of partial termination.

A sale of an employer's facility, which resulted in the discharge of 100 of its 1,599 covered employees, did not constitute a partial termination of the employer's plan since the discharge employees only represented 6.2% of the total number of participants.

Similarly, the termination of 2.5%, 3.7% and 13%, of plan participants in each case was not considered a partial termination. In addition, the Tax Court has ruled that the loss of 19.85% of plan participants, incident to cost-savings measures, including layoffs, implemented by an employer, was not a partial termination.

Rebuttable presumption of partial termination from 20 percent reduction in participation

Back when I was working in the Employee Plans Division of the IRS, a reduction in participants, vested or nonvested of 20% or more was generally considered a partial termination.   We called it the "20% rule" way back then, but apparently it is now called a "rebuttable presumption of partial termination."

In Halliburton the Tax Court emphasized that the determination of whether an employer's reduction of its workforce constitutes a partial termination depends on all relevant facts and circumstances. A partial termination is not based on a threshold termination number that reflects the number of participants leaving a plan as a percentage of individuals retaining employment.

In an effort to make the law as "certain as possible without opening up gaping loopholes," the Seventh Circuit, after a review of the IRS position and judicial resolutions of the issue, has adopted a rebuttable presumption that a 20 percent or greater reduction in plan participation is a partial termination, while a reduction under that threshold is not a partial termination.  The Seventh Circuit's position, assumes a "band" around 20 percent in which consideration of tax motives or consequences can be used to rebut the presumption created by the percentage.  Under this band, a reduction in coverage below 10 percent would be conclusively presumed not to be a partial termination. By contrast, a reduction in coverage above 40 percent would be conclusively presumed to be a partial termination.

The final authority

As you can see, it is often very difficult to determine whether a partial termination has occurred and, if it has, when it occurred.  While MFYCO will gladly review the facts and circumstances of you particular situation, the only way to have 100% certainty that you have handled a partial termination or potential partial termination correctly, is to apply to the IRS, using IRS Form 5300, for a determination on whether your particular set of facts constitutes a partial termination.

 

 

The Fix Is In: Common Plan Mistakes

Periodically the Internal Revenue Service (IRS) publishes an article that it calls "The Fix Is In: Common Plan Mistakes" that present common mistakes that happen in retirement plans.  These articles describe a common problem, how it happened, how to fix it and how to lessen the probability of the problem happening again.  Over the course of the next several months, we will be reproducing some of those articles that we believe would be helpful to you in the day-to-day administration of your plan.

Improper Forfeiture Suspense Accounts

The Issue

Many defined contribution plans require participants to complete a period of service before becoming fully vested in matching or nonelective employer contributions. If a participant leaves a company before completing the service required for full vesting, his or her non-vested account may be forfeited. Some plan administrators place these forfeited amounts into a plan suspense account, allowing them to accumulate over several years. The Internal Revenue Code does not allow this practice.

Find the Mistake

Forfeitures must be used or allocated in the plan year incurred. The Code does not authorize forfeiture suspense accounts to hold unallocated monies beyond the plan year in which they arise. Revenue Ruling 80-155 states that a defined contribution plan will not be qualified unless all funds are allocated to participants' accounts in accordance with a definite formula defined in the plan. This would preclude a plan from carrying over plan forfeitures to subsequent plan years, as doing so would defy the rule requiring all monies in a defined contribution plan to be allocated annually to plan participants. Revenue Ruling 84-156 states that forfeitures may be used to pay for a plan's administrative expenses and/or to reduce employer contributions. Treasury Regulations �1.401-7(a) notes that forfeitures must be used as soon as possible to reduce employer contributions.

The plan document's terms should have provisions detailing how and when a plan will exhaust plan forfeitures. A plan's failure to use forfeitures in a timely manner denies plan participants additional benefits or reduced plan expenses.

Common causes for this error include:

         The plan's sponsor and/or third party administrator fails to monitor the plan's forfeiture account to ensure that forfeitures generated in that plan year are used according to the plan's terms.

         The plan sponsor erroneously thinks that he or she has discretion over how and when forfeiture monies in the suspense account can be applied.

         Plan document terms are vague in describing how forfeitures are to be handled and results in the plan's document and operation being inconsistent with the holdings in Revenue Rulings 80-155, 84-156 and the Code.

Fix the Mistake

Generally, this failure can be corrected by reallocating all forfeitures in the plan's forfeiture suspense account to all plan participants who should have received them had the forfeitures been allocated on time. The plan sponsor should revise prior plan year allocation reports to reflect the forfeiture allocation and pay any amounts due to terminated participants. Depending on the plan terms or the facts and circumstances of a particular situation, it may be appropriate to take the non-current-year forfeitures and use them as employer contributions for the current plan year. Plan sponsors should apply the correction principles in Revenue Procedure 2008-50, section 6 when making correction.

Plan sponsors can correct this mistake using the Employee Plans Compliance Resolution System (EPCRS). Using the Self-Correction Program, the mistake must generally be fixed within two years following the close of the plan year in which it occurred. Unless the failure can be classified as insignificant, the Voluntary Correction Program must be used after this time. VCP must also be used if the plan document terms are defective and need to be corrected retroactively by a plan amendment.

Avoid the Mistake

Plan sponsors and third party administrators need to monitor plan forfeitures. If a suspense account is used, then they must ensure that all forfeitures for a plan year are promptly used according to the plan's terms.

         No forfeitures in a suspense account should remain unallocated beyond the end of the plan year in which they occurred.

         No forfeiture should be carried into a subsequent plan year.

For those plans that use forfeitures to reduce plan expenses or employer contributions, there should be plan language and administrative procedures to ensure that current year forfeitures will be used up promptly in the year in which they occurred or in appropriate situations no later than the immediately succeeding plan year.

Page Last Reviewed or Updated By The IRS: May 18, 2010

Employee Handbook Pointers 

When creating an employee handbook it should begin with a welcoming statement from your President, CEO or the like, follow with the history of your company incorporating significant facts that are legendary and state future plans if any. Your employee handbook should:

         be considered a communication tool that reflects the values of upper management and create an employee-friendly environment.

         be geared towards your company size, geographic location, scope of operation, culture, employee expectations, etc.

         be a summary of benefits.

         be a summary of your most important policies. There is no need for it to be comprehensive or list every procedure.

         have subsections that describe each benefit offered but do not include information that changes from time to time.  For example when describing health coverage, do not state the insurance premiums and costs, rather state, for example that benefit levels and costs are subject to change.

         Direct employee questions to Human Resources or to the current summary plan descriptions.

The handbook should be broken down into the following major sections:

  1. Benefits and other things of value that you provide. Create subsections and list employees' pay, paid holidays, vacations and other paid time off such as sick, bereavement, medical, civic duty, leaves that are not paid, reimbursement programs, relocation benefits, employee discounts, etc.  Don't forget to include subsections for Social Security, workers' compensation, COBRA, modified duty or reasonable accommodation.
  2.  Insurance and retirement benefits.
  3. Safety.
  4. Work rules such as rules of conduct, policies relating to harassment, discrimination, drugs and alcohol, electronic communications, workplace violence, conflicts of interest, confidential information, driving or criminal records, and other significant policies.

Events will take place and change will happen, so when making updates reflect on past situations, changes and events and incorporate these in your changes for the future.

Finally, have your employee handbook reviewed by your attorney or benefits consultant to be sure that your handbook remains in compliance with all the applicable laws.

 

 
Call: 908-689-4200 to contact a
MFYCO professional consulting associate.
happypeople

 Tips for Staying Healthy at Work

 

Spring has sprung and so has allergy season. Staying healthy at the workplace isn't always easy. With folks sneezing and sniffing around you and your employees, it may seem impossible. Here are a few simple tips that could help keep you and your employees healthy this season.

Wash your hands frequently. Hands should be washed every time the restroom is used, before eating, after sneezing or coughing and any other time hands feel dirty. Also, encourage your employees to keep a bottle of hand sanitizer at their desks, for those times when going to the washroom is not convenient.

 

Cover coughs and sneezes with a tissue, or cough and sneeze into the elbow. Dispose of tissues in no-touch trash receptacles.

Keep workspaces clean. Phones, computer keyboards and anything else that is used frequently should be cleaned on a regular basis. Even if an item is normally used by only one person, germs can live on these objects and re-infection can occur.

 

Do not use other people's phones, desks, offices, or other work tools and equipment. If there is a need for someone to use anyone else's phone, desk, or other equipment, clean it first. And as a courtesy, also clean the item after using.

Avoid folks who are sick. You would hope that folks who are contagious would stay home from work. Unfortunately, this is usually not the case. If they do show up, try to avoid direct contact with them.

Take frequent breaks throughout the day. Folks should be encouraged, when feeling tired or sore, to get up and walk around for a few minutes. Taking breaks will help folks feel better and make them more productive.

Use vacation days. It may feel like there is never a good time for you or key staff members to be away from the office, but people who do not take vacations are more likely to be sick. Vacations are a good way to relieve stress, which has been proven to contribute to illness.

 

 


 What would you like to see in a future issue?

Contact our office with your suggestions.

 

Dear New College Grad

 

You have your degree and a fresh start at the world. You may be looking around at all the things that life has to offer you. Wow, better get busy! But hold off on a shopping spree. You need to think about the future. Time goes by so quickly and taking full advantage of it will pay off big time.
  

The earlier you start saving, the more you will have. You are 30 years from retirement. In 30 years, savings will compound and grow dramatically. For just a couple hundred dollars a month, you could be looking at retiring early and comfortably.
 

Only 31% of workers under 25 contribute to their company's 401(k) plan. Sixty-three percent of those between 26 and 41 contribute, while 72% of those 42 and older contribute. If you wait until you are 42, you'll be playing catch up. You will have to sacrifice more money out of your monthly paycheck just to be able to retire.
 

If you are under 25, here are a few wake up calls.

 

1. Don't count on anything but your savings. Your company may have an excellent retirement plan but what if circumstances lead you out the door before you are vested.

2. There's always time later. The more time goes by, the more you have to put in savings. If you start at 20, by the time you are 40, you can save $100,000 by putting $3,272 a year towards an investment with a 4% annual return. If you wait until 30, you'll need to save $6,559 a year at 8% to see that $100,000 goal.

3. That's what Social Security is for. I wouldn't count on it.

 

Yes, there are a lot of things that you need when you are starting out. There are housing costs, student loans, credit cards and car loans. This can often eat up your paycheck. But so do new clothes, iPods, new cars, eating out and other luxuries.

 

One of the best ways to save is through automatic withdrawals. When things come automatically out of your paycheck or checking account, they become very simple. You never actually see the money -- you aren't tempted to spend it. It is actually the simplest way to save. After a while, you forget about it. Then one day, you are surprised to see how much you have saved up.

 

 

Retirement isn't as far away as you think. One day, you are just out in the real world. The next, you have a spouse and children. The next, you are ready to retire. Don't let it get away from you. Make it a goal to start saving right now. Think of it as a way to retire early. If you make the right decisions, you might be able to retire at 55. Or 50. Wouldn't that be great? The more you save, the less time you will spend working.
 

Saving for retirement, working to eliminate debt and making wise spending decisions will

make your new life in the real world a good one. Start early.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 
 

The Great Keyboard Escape

Run little guy, run!

Maybe he just needed a little 'Space' and a new 'Home' that he could 'Insert' himself into to 'Start' a new life before his 'End' came.
esc
 

  
 
Plan Reporting Calendar
 

 

2010 FILING DUE DATES FOR
CALENDAR YEAR PLANS
 
This calendar is not intended to be an exhaustive listing of every due date under the Code or ERISA, but rather reflects some of the most common due dates.

View Calendar 


 
about MFYCO ...

  • Michael F. Yates & Company, Inc. can help you with a variety of services ranging from retirement plans to providing results-oriented survey instruments, training and development programs for your employees. Our products and services are intended to help you maximize the effectiveness of your Human Resources function.
     
  • These products and services incorporate our years of experience so that you receive rapid results and exceptional value. From onsite consulting, to strategic business integration, to Web enablement, we understand how Human Resources can be applied to solve your problems and achieve your goals. As a result, we can help you get the most out of your investment and turn your most precious resource into a competitive advantage.
     
  • We offer Consulting, Retirement Planning, Pension and 401(K) both qualified and non qualified Plans, Welfare Plans, Communications, Computer Systems, Executive Plans, Compensation, Mergers, Acquisitions, Divestitures and Other Services. 
     
    We offer a true and honest, Client Partnership.
     

Take the Michael F. Yates & Company, Inc. challenge!

Call us today ... 908-689-4200 



mh group
 How to Track Government Recovery Spending
 
"The Board shall establish and maintain...a user-friendly, public-facing website to foster greater accountability and transparency in the use of covered funds. The website...shall be a portal or gateway to key information relating to the Act and provide connections to other government websites with related information." 

 
 
Michael F. Yates & Company, Inc.
_________________

 
101 Belvidere Avenue
P.O.Box 7
Washington, NJ 07882-0007 
 
908-689-4200

fax: 908-689-6300
 
 
Our staff and firm are proud
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Society for Human Resource Management

WorldatWork

 American Management Association
 
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Better Business Bureau
 
 

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