Some of our Key Tips of the Month are listed below.
2012 Cost-of-Living Adjustments for Qualified Retirement Plans
The Internal Revenue Service has announced the 2012 plan year cost-of-living adjustments for the dollar limitations on benefits, contributions, compensation and other items relating to qualified retirement plans. The limits are shown in the following year-to-year comparison:
| MAXIMUM DOLLAR LIMITS |
| |
2012 |
2011 |
| 401(k) Elective Deferrals |
$17,000 |
$16,500 |
| 401(k) Catch-up Contributions (Age 50 & older) |
$5,500 |
$5,500 |
| Defined Contribution Annual Additions (415 limit) |
$50,000 |
$49,000 |
| Annual Compensation Limit |
$250,000 |
$245,000 |
| Highly Compensated Employee* |
$115,000 |
$110,000 |
|
*An employee must earn $110,000 in 2011 to be highly compensated in 2012 and must earn $115,000 in 2012 to be highly compensated for 2013 plan year testing.
In addition, the Social Security Taxable Wage Base has been increased to $110,100 for Plan Years beginning in 2012.
As a reminder, The DOL aggressively investigates employee allegations of late deposits. They do not have materiality thresholds and they follow up on every employee complaint of late deposits.
The DOL has strict regulations regarding the time frame in which elective deferral contributions and loan repayments must be deposited by an Employer to a qualified plan. Both the Internal Revenue Service ("IRS"), upon Plan audit, and DOL insist that deferrals and loan payments must be segregated from the general assets as soon administratively possible. The IRS and DOL normally consider this to be within three (3) to five (5) business days*** of being withheld from employee paychecks. Deposits to the Plan must be made consistently and as early as possible each and every time that elective deferral contributions are withheld from paychecks. If participants are paid on a bi-weekly basis, 401(k) deferrals and loan payments should be processed on a bi-weekly basis. Monthly deposits are not acceptable and are not considered timely if your payroll cycle is more frequent than monthly.
*** Note that in January, 2010, the DOL issued final Regulations regarding the timing of deposits and have indicated that 7 business days is acceptable for plans with less than 100 participants. A participant is defined as an employee or former employee who is covered by the plan. This includes active employees regardless of whether they are actively contributing to the plan and terminated employees with account balances.
The annual IRS Form 5500 and Form 5500-SF include a question that asks “Did the employer fail to transmit to the plan any participant contributions within the time period described in 29 CFR 2510.3-102?” This Labor regulation sets the time frame under which employee contributions must be deposited once deducted from paychecks in order to be considered plan assets. It is very important that all Plan Sponsors comply with this regulation. Deposits funded outside of this time frame are considered prohibited transactions as the DOL feels the Employer is using participant funds for its own use. If not, it is our understanding that responding YEs to this questions (indicating that some deposits have not been timely contributed) may trigger a DOL audit as well as potential penalties and excise taxes.
Please feel free to contact us at 215.703.0844 if you have any questions regarding your company’s retirement plan.
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