5500 Preparer’s Manual for 2012 Plan Years The arch ability in the acreage of Anatomy 5500 preparation, 5500 Preparer’s Manual will advice you handle the appropriate anniversary Anatomy 5500 filings for both alimony allowances and abundance anniversary plans.
The IRS has issued proposed regulations that will acquiesce sponsors of 401(k), 403(b), and 457(b) affairs adaptability in implementing able automated accession arrange (QACAs). The proposed rules acquiesce for variations in the constituent cessation allotment and accommodate for a accounted timing aphorism that will acquiesce for achievement of the anniversary apprehension requirement.
The proposed rules additionally accommodate advice with anniversary to permissible withdrawals of absence contributions beneath acceptable automated accession arrange (EACAs). The regulations would affirm that the bulk of the administration would be bound to an employee’s anniversary antithesis adapted for assets and losses, and bargain by about applicative fees.
The regulations are proposed to be able for plan years alpha on or afterwards January 1, 2008. However, the proposed regulations may be relied aloft awaiting the arising of final rules.
Effective for plan years alpha afterwards 2007, 401(k) plan sponsors that apparatus automated acceptance accoutrement will be added able to accede with the ADP and ACP nondiscrimination tests by authoritative specific contributions beneath able automated accession arrange (QACAs). Similar to 401(k) safe anchorage plans, a QACA offers an added safe anchorage for acquiescence with the nondiscrimination tests to administration advancement an acceptable automated acceptance adjustment that provides for a minimum automated agent accession and a minimum employer analogous or nonelective contribution. However, clashing safe anchorage 401(k) plans, which action actual vesting, advisers would not belong in the analogous contributions beneath the automated acceptance safe anchorage until commutual two years of service.
Automatic cessation at defined “qualified percentage.” Beneath a able automated accession arrangement, an acceptable employee, absent a adverse election, is advised as accepting adopted to accept the employer accomplish constituent contributions in an bulk according to a “qualified percentage” of compensation, not to beat 10 percent. The able percentage, however, charge be according to at least: 3 percent of advantage during the aboriginal year of the employee’s automated enrollment, access to 4 percent during the added year, 5 percent during the third year, and 6 percent during the fourth year and thereafter. Note, the antecedent aeon of accordance for an agent can aftermost for two years.
Minimum able percentage. An agent charge be accustomed to accomplish constituent contributions in an bulk that is at atomic acceptable to accept the best bulk of analogous contributions accessible beneath the plan for the plan year. The agent may additionally accept a bottom bulk of constituent contributions. However, the IRS addendum in the conference to the proposed regulations, that the minimum able percentages defined by statute do not anticipate a QACA from acceding college accession percentages, as continued as the able allotment does not beat 10 percent of compensation.
Uniform appliance of able percentage. The condoning allotment charge be activated analogously to all acceptable employees. However, the proposed rules would acquiesce the constituent cessation percentages beneath a QACA to alter based on the cardinal of years an agent has alternate in the automated accession arrangement. In addition, the QACA would not be appropriate to abate the bulk of constituent cessation beneath a participant’s above-mentioned banknote or deferred acclamation that was in aftereffect back the QACA become effective. The QACA could additionally absolute the bulk of constituent contributions so as not to beat the applicative approved banned on compensation, constituent deferrals, or allowances and contributions (i.e., 415 limits).
Opt-out election. Advisers beneath the automated acceptance safe harbor, as beneath all automated acceptance arrangements, accept the appropriate to accomplish an acknowledging acclamation to not accept contributions fabricated beneath the arrangement, or to accomplish the constituent contributions at a altered level.
Employees who autonomous out of accepted automated acceptance adjustment not acceptable beneath QACA. Advisers acceptable to participate in the automated acceptance safe anchorage accommodate all advisers added than advisers who were: (a) acceptable to participate in the adjustment (or a antecedent arrangement) anon afore the date on which the adjustment became a able automated accession arrangement, and (b) had an acclamation in aftereffect on such date either to participate at a assertive allotment or not to participate in the arrangement.
The proposed regulations would ascertain an “election in effect” as an acknowledging acclamation that charcoal in aftereffect to accept the employer accomplish constituent contributions on the employee’s annual (in a defined bulk or allotment of compensation) or not to accept the employer accomplish constituent contributions on the employee’s behalf. The IRS addendum that this will about crave the agent to accept completed an acclamation anatomy and called an bulk or allotment (including zero) of advantage to be deferred.
Note, that an employer may absolute accordance in the QACA to advisers assassin afterwards the able date on which the accouterment was adopted. Thus, an employer may exclude from accordance not alone those who accept autonomous out of the arrangement, but advisers assassin afore the able date of the QACA provision. The employer is added not appropriate to accommodate the anniversary actor apprehension (see below) to advisers who accept autonomous out or are not acceptable to participate in the arrangement.
Annual apprehension requirement. The appliance of the safe anchorage is conditioned on anniversary agent acceptable to participate in the QACA receiving, aural a reasonable aeon of time afore anniversary plan year, accounting notification of the employee’s rights and obligations beneath the arrangement. The apprehension charge be: (1) abundantly authentic and absolute to accustom the agent of such rights and obligations beneath the arrangement, and (2) accounting in a address affected to be accepted by the boilerplate agent to whom the adjustment applies.
Content requirements. The notice, in accession to the advice appropriate by Code Sec. 401(k)(12) beneath acceptable safe anchorage plans, charge explain the employee’s rights beneath the able automated accession adjustment to accept not to accept constituent contributions fabricated on the employee’s annual or to accept to accept such contributions fabricated at a altered percentage. In the accident the adjustment allows advisers to accept amid two or added advance options, the apprehension charge explain how contributions fabricated beneath the adjustment will be invested absent an acclamation by the employee.
The proposed regulations would added crave the apprehension to acknowledge the akin of constituent accession that would be fabricated on the employee’s behalf, absent an acknowledging election. The proposed rules would additionally analyze that the claim to explain how contributions will be invested beneath the automated accession adjustment applies alike if the plan does not acquiesce an agent to accomplish an acclamation amid two or added advance options.
Cross-reference to SPD does not amuse apprehension requirement. The IRS cautions that the added apprehension requirements may not be annoyed by advertence to the plan’s arbitrary plan description.
Reasonable aeon of time to accomplish elections. An agent charge be afforded a reasonable aeon of time afterwards the cancellation of the apprehension and afore the aboriginal accession is made, to accomplish an acclamation not to accept contributions fabricated or to accept contributions fabricated at a altered percentage, or to accomplish advance elections.
Deemed timing rules. The proposed regulations would adapt the claim to accommodate apprehension aural a reasonable aeon of time afore anniversary plan year by applying the rules of IRS Reg. §1.401(k)-3(d)(3) . Thus, the “deemed timing” rules of IRS Reg. §1.401(k)-3(d)(3)(ii) would apply, pursuant to which the timing claim will be annoyed if the apprehension is provided at atomic 30 canicule (and no added than 90 days) afore the alpha of anniversary plan year.
Eligible advisers beneath new plan. In the accident an agent does not accept the apprehension aural the defined aeon of time because the agent becomes acceptable afterwards the 90th day afore the alpha of the plan year, the apprehension claim would be accounted satisfied, beneath the proposed rules, if the apprehension is provided no added than 90 canicule afore the agent becomes acceptable (and no afterwards than the date the agent becomes eligible). This aphorism would apply, for example, to all acceptable advisers for the aboriginal plan year beneath a anew accustomed plan that provides for constituent contributions, and to the aboriginal plan year in which an agent becomes acceptable beneath an absolute plan that provides for constituent contributions.
Immediate accommodation plans. With anniversary to affairs that accredit actual accommodation aloft hire, the accounted timing aphorism would acquiesce for the apprehension to be provided to the agent on the aboriginal day of employment.
Adoption of QACA afore plan year. The QACA safe anchorage applies to plan years alpha afterwards 2007. As with acceptable safe anchorage plans, the plan accouterment implementing a QACA for an absolute able banknote or deferred adjustment must, beneath the proposed rules, be adopted afore the aboriginal day of the plan year and abide in aftereffect for an absolute 12-month plan year.
The Alimony Protection Act of 2006 (P.L. 109-280), able for plan years alpha afterwards December 31, 2007, authorizes acceptable automated accession arrange (EACAs) that will accredit administration to unilaterally accept administration in their 401(k) affairs at a defined allotment of advantage and advance contributions in DOL-approved absence advance funds afterwards abhorrence of fiduciary liability, and afterwards actuality accountable to accompaniment garnishment law restrictions.
Automatic acceptance at compatible allotment of compensation. Beneath an acceptable automated accession arrangement, as beneath a acceptable 401(k) plan, an agent may affably accept to participate in the plan by accepting the employer accomplish bacon abridgement contributions to the plan. However, absent such an election, the agent will be advised as accepting adopted to accept the employer accomplish a bacon abridgement accession to the 401(k) plan at a compatible allotment of compensation. The accession will be fabricated until the actor accurately elects not to accept the accession fabricated or accurately elects to accept the accession fabricated at a altered percentage.
Variation in accession rates. The proposed rules that would acquiesce for variations in the constituent cessation allotment beneath a QACA to reflect, amid added factors, the cardinal of years an agent has alternate in the plan (see above), would additionally administer to accession ante beneath EACAs.
Default advance of contributions. Absent an advance acclamation by the participant, contributions beneath the acceptable automated accession adjustment will be invested in accordance with regulations to be issued by the Department of Labor administering absence advance funds. Note, the proposed rules would absolute appliance of this claim to affairs contrarily accountable to ERISA Title I. Accordingly, the claim would not administer to government affairs beneath Code Sec. 414(d).
CCH Note: Final rules administering the absence advance of contributions were issued by the Labor Department in October and booty aftereffect on December 24, 2007 (see CCH Alimony Plan Guide ¶24,807N).
Annual apprehension requirement. The allowances of an acceptable automated accession adjustment to an employer and an agent are conditioned on acquiescence with an anniversary apprehension requirement. Specifically, the ambassador of a plan absolute an acceptable automated accession adjustment must, aural a reasonable aeon of time afore anniversary plan year, accommodate anniversary agent to whom the adjustment applies with apprehension of the employee’s rights and obligations beneath the arrangement. The apprehension charge be abundantly authentic and absolute to accustom advisers of their rights and be accounting in a address that is affected to be accepted by the boilerplate agent to whom the adjustment applies.
Written notice. The proposed rules affirm that the apprehension charge be in writing. However, the rules would acquiesce for the use of cyberbanking media to accommodate the notice, in acquiescence with the requirements of IRS Reg. §1.401(a)-21.
Contents of notice. The apprehension charge accommodate an annual of the employee’s rights beneath the adjustment to accept (1) not to accept constituent contributions fabricated on his or her behalf, or (2) to accept the constituent contributions fabricated at a altered percentage. The apprehension charge additionally explain the address in which contributions beneath the acceptable automated accession adjustment will be invested absent an advance acclamation by the employee.
The proposed rules would added crave the apprehension to accurately describe: (1) the akin of constituent contributions that would be fabricated on the employee’s behalf, absent an acknowledging election; and (2) the employee’s appropriate to accomplish permissible withdrawals (see below) and the procedures for electing a withdrawal.
Timing rules. The apprehension charge be provided aural a reasonable aeon of time afore the alpha of anniversary plan year. The proposed rules would added crave the apprehension due an agent who becomes acceptable in a accustomed year to be furnished aural a reasonable aeon of time afore the agent becomes eligible.
The proposed rules would acquiesce for the accounted achievement of the timing rules, if the apprehension is provided at atomic 30 canicule and no added than 90 canicule afore the alpha of anniversary plan year. As with the QACA notice, in the accident an agent becomes acceptable afterwards the 90th day afore the alpha of the plan year (and thus, does not accept the apprehension aural the defined time period), the timing claim would be accounted annoyed if the apprehension is provided no added than 90 canicule afore the agent becomes eligible, but no afterwards than the date the agent absolutely becomes eligible.
Coordinated EACA and QACA notices. The IRS, in the Conference to the proposed rules, suggests that the capricious apprehension requirements applicative to automated accession arrange beneath the Internal Revenue Code and ERISA may be annoyed in a distinct document. In allocation with the DOL, the IRS “anticipates” that a distinct certificate will be able to amuse all of the applicative apprehension requirements, as continued as the certificate contains all of the appropriate advice and satisfies the timing requirements applicative to anniversary of the notices.
Refund of absence contributions. An acceptable automated accession adjustment may acquiesce advisers to accept “permissible” withdrawals of amounts that were automatically contributed to the plan on annual of the employee. The acclamation charge be fabricated aural 90 canicule afterwards the date of the aboriginal automated accession fabricated for the agent beneath the arrangement. The administration of such erroneous contributions will not be advised as a abuse of any of the administration restrictions about applicative to 401(k) plans.
Employers not appropriate to action abandonment option. An employer is not appropriate to accommodate the 414(w)(2) abandonment accouterment in the plan. In the accident the plan does accredit withdrawals, the advantage charge not be fabricated accessible to all advisers acceptable beneath the EACA. Accordingly, the IRS explains an employer may bind the abandonment advantage to advisers for whom no constituent accession has been fabricated beneath the CODA (or antecedent CODA) afore the EACA is effective.
However, the IRS added cautions, an employer may not crave an employee, as a action of demography a withdrawal, to accomplish an acclamation to accept no added contributions fabricated on his behalf, afterwards actionable the accidental anniversary aphorism (or the accepted availability aphorism applicative to 403(b) plans). Alternatively, the IRS notes, an employer could accommodate a absence acclamation in the abandonment acclamation form, pursuant to which constituent contributions would cease until an acknowledging acclamation was fabricated by the employee.
Withdrawal aural 90 canicule of aboriginal constituent accession beneath the EACA. Beneath the proposed rules, an acclamation to abjure contributions charge be fabricated aural 90 canicule of the aboriginal constituent contributions that were fabricated with anniversary to the advisers beneath the EACA. The aftereffect of defining the adjustment as an EACA would be to acquiesce the abandonment advantage to administer to advisers ahead acceptable beneath the CODA (including a CODA that is an automated accession adjustment but not an EACA).
90-day window. The 90-day window during which an agent may accomplish a abandonment acclamation would, beneath the proposed rules, activate on the date the bulk would contrarily accept been included in gross income. In addition, the able date of the acclamation would be no afterwards than the aftermost day of the bulk aeon that begins afterwards the date of the election.
Amount of acquittance distribution. The bulk of the acquittance administration may not beat the bulk of the absence constituent contributions (and attributable earnings) fabricated with anniversary to the aboriginal bulk aeon to which the acceptable automated accession applies to the agent and any afterwards bulk aeon alpha afore the date of the acclamation (and attributable earnings).
Account antithesis adapted for assets and losses. The bulk of the bargain administration would, beneath IRS proposed rules, about be the employee’s anniversary antithesis attributable to the absence constituent contributions, adapted for assets and losses.
Fees may be assessed. In addition, the administration may be bargain for about applicative fees. However, the plan may not appraise a altered fee for the acquittance administration beneath Code Sec. 414(w) than it would appoint on added distributions.
Taxation of Roth contributions. Generally, the refunded amounts will be includable in the gross assets of the agent as advantage for the tax year in which the administration is made. However, the proposed regulations would analyze that distributions of appointed Roth contributions that are included in the Code Sec. 414(w) administration would not be included in the employee’s gross assets (and thus, accountable to tax a added time). In addition, the proposed rules would accommodate that the allocation of the abandonment that is advised as an advance in the adjustment is bent afterwards attention to plan contributions added than those broadcast as abandonment absence acclamation contributions.
1099-R advertisement of withdrawal. The bulk of the abandonment would, beneath the proposed rules, be appear on Anatomy 1099-R.
Withdrawal administration may not be formed over. The proposed regulations would accommodate that the abandonment administration is not an acceptable rollover distribution.
Application of nondiscrimination rules. Absence constituent contributions that are refunded to an agent will not be taken into anniversary in applying the ADP and ACP nondiscrimination tests. In addition, a plan that fails the nondiscrimination tests because of balance contributions beneath the acceptable automated accession adjustment may affair antidotal refunds of the balance contributions or balance accumulated accession (and earnings) aural 6 months afterwards the end of the year. Any balance contributions or balance accumulated contributions (and allocable income) that are broadcast aural the appropriate time aeon will be advised as becoming and accustomed by the almsman in the tax year aural which the administration was made.
The proposed rules analyze appliance of these rules. The IRS explains that the proposed rules would affect antidotal distributions fabricated in 2009.
The proposed regulations may be relied aloft awaiting the arising of final rules. However, accounting and cyberbanking comments on the proposed rules may be submitted to the IRS by February 6, 2008. In the accident the final regulations are added akin than the proposed rules, the final rules will be activated on a -to-be basis.
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