News from REPTECH

Item	2009	2008
Annual Compensation	$245,000	$230,000
Elective Deferrals	$ 16,500	$ 15,500
HCE Threshold	$110,000	$105,000
Catch-up Contributions	$ 5,500	$ 5,000
Defined Benefit Limits	$195,000	$185,000
Defined Contribution Limits	$ 49,000	$ 46,000
Key Employee Compensation	$160,000	$150,000

403(b) Deadline Approaches

IRS issues updates on its approval program

The Internal Revenue Service is preparing for 403(b) plan document debuts, those kin to 401(k) plans, but used by certain nonprofitsand educational institutions.

The 403(b) plans fall under final Treasury Regulations that say sponsors must have a written plan document in place by January 1, 2009.

The IRS recently released an update on its progress, noting that it is developing programs similar to those for 401(a) plans, including preapproved plans and a determination letter process.

Program updates also include:

The program for preapproved plans should be open this spring;
The individually designed plan program will open in early 2011;
The IRS will post a draft 403(b) Listing of Required Modifications (LRM) on its website in the fall, asking for public comment; and
The agency will issue a revenue procedure by calendar year end, opening the preapproved 403(b) plan program for submissions from prototype sponsors, it says.

HEART Update

2009 provisions set to start

January 1, 2009 ushers in a second deadline for the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART). The law, signed in June, applies to sponsors of 401(a), 403(b) and 457(b) retirement plans, both defined contribution and defined benefit plans.

For 2009, it requires that sponsors who pay differential wages to active duty military:

consider those employees as active employees; and
deem the differential payments to be compensation for plan purposes. Sponsors must report that compensation on W-2 Forms rather than 1099s.
The Act likewise says active duty participants who serve more than 30 days will have severed employment. They can thus request distributions from their account, although they will then be subject to a a six-month suspension on deferrals.

HEART also made certain provisions retroactive to January 1, 2007, specifically that all 401(a), 403(b) and 457(b) retirement plans provide the same death benefits for participants in qualified military service as they do for participants who die while employed. This applies to deaths

on or after January 1, 2007.

Two other provisions of HEART:

The Pension Protection Act (PPA) allowed qualified reservist distributions, or penalty-free withdrawals from elective deferrals and earnings for military called up after September 11, 2001. It applies to those who serve a minimum of 180 days and who are on active duty. The provision came with a December 31, 2007 deadline. HEART removes that deadline. After active duty, the withdrawals can be repaid within two years.
The Uniformed Services Employment and Reemployment Rights Act (USERRA) required that plans provide full or partial benefit accruals or contributions for the time a participant is serving in the military, once his service is done and he is rehired. HEART takes that a step further, allowing, but not requiring, plans to consider an active duty participant as reemployed on the day prior to his or her death or disability, with termination falling on the date of the death or disability.

Finally, sponsors will need to amend their plans to reflect the HEART Act provisions by the last day of the first plan year beginning on or after January 1, 2010. The government plan deadline is January 1, 2012.

Compliance Zone

Breaking Down the Expenses Paid by a Plan: Settlor Functions v. Plan Administration Functions

ERISA explicitly authorizes the payment of plan expenses from a plan when they are "reasonable" costs of administering the plan. Plan fiduciaries must consider the plan's expenses and determine whether the plan is permitted to pay for each expense. To evaluate whether a plan expense can be paid from the plan, the plan fiduciary must: (1) determine if the plan expense is reasonable; (2) determine if the plan document authorizes the payment of plan expenses from plan assets; and (3) determine if the expense is related to plan administration functions or settler functions.

What are Settlor Functions?

Settlor functions are related to the establishment, design and termination of the plan. Expenses related to settlor functions cannot be paid by the plan.

What are Plan Administration Functions?

Plan administration functions are related to administrative tasks such as recordkeeping, auditing, and disclosing information and documents. Expenses related to plan administration functions may be paid by the plan, provided the plan document permits payment of administrative fees.

Which Types of Expenses Can Be Paid by a Plan? (Examples of Expenses Related to Plan Administration Functions)

Third party administrator (TPA) fees for administration of the plan
Fees for nondiscrimination and other compliance testing
Investment fees, including fees associated with investment education or advice for the plan or for plan participants
Legal, actuarial and consulting fees to keep the plan in compliance with current laws
Legal advice concerning topics such as plan operation, fiduciary responsibilities, or plan interpretation
Plan amendments that are required to comply with Title I of ERISA or to maintain a plan's tax qualified status
Changing a plan's design after the plan has been amended
Fees related to disclosure of plan information, including preparing and distributing summary plan descriptions and other communication regarding participant benefits
Submitting the plan to the IRS for a favorable determination letter
Fees related to a Qualified Domestic Relations Order (QDRO) determination
Audit fees
Trustee fees

Which Types of Expenses Cannot Be Paid by a Plan? (Examples of Expenses Related to Settlor Functions)

Fees for advice on the design or adoption of a plan, including drafting a plan document for a new plan
Fees for amending an existing plan design, other than a required amendment to comply with changing laws
Consulting fees to evaluate possible plan design changes related to new laws (beyond advice about complying with new laws)
Fees incurred in deciding whether to terminate a plan
IRS or DOL penalties
Fees related to the preparation of the employer's corporate financial statements
Reimbursement to the plan sponsor for plan expenses previously paid on behalf of the plan
Fees related to union negotiations

Each issue, Jennifer J. Smith, J.D., REPTECH's Compliance Associate, will explain different document components and their effect on your plan.

Plan Participation Up in '07

EBRI study says numbers up for first time since 1998

They're up. Participation levels in employment-based retirement plans increased in 2007 for the first time since 1998, according to a study from Employee Benefits Research Institute.

Employment-Based Retirement Plan Participation: Geographic Differences and Trends, 2007, released this month, notes that participation of all workers in retirement plans reached 41.5% in 2007, up from 39.7% in 2006.

Participation is strongly tied to macroeconomic factors, the study says, which explains the higher participations rates in the 1990s and lower rates in the 2000s. The study found that participation increased in the late '90s, fell in 2001 and 2002, flattened in 2003 and 2004, and fell in 2005 and 2006.

A few other findings:

Participation increases with age.
Overall, men participate more than women, "but among full-time, full-year workers, women had a higher percentage participating than men (57.0% for women, compared with 54.0% for men)."
Hispanic workers participated less than black or white workers.
Workers in the South, West and Southwest participated least, while those in the Midwest and Northeast participated most. Wisconsin led the country, with a 68% participation rate.

Finally, the study anticipated further growth as automatic enrollment provisions in the Pension Protection Act of 2006 take effect in 2008. The study's summaries did not mention the recent global financial crisis and its effect if any on participation rates.

Ask An Analyst

FAQs answered by REPTECH's QKAs

By Steve Flannery

The Internal Revenue Service says it won't take paper vouchers anymore. You might think that affects your required deposits of mandatory withholding on distributions from retirement plans that are eligible for rollover. You are correct.

If your funds are managed through large vendors, such as John Hancock or ING, no worries for you. They'll make those deposits for you.

But if you use FBOs or self-directed brokerage accounts, this information applies to you.

There is an alternative.

Now you can deposit electronically through the Electronic Federal Tax Payment System, a.k.a. EFTPS. Maybe you use this IRS system Talking heads

already for your business payroll withholding deposits. Now, via the Internet or telephone, you can take care of those deposits of withholding from a 401(k) plan distribution.