The Benefits Bulletin - Winter 1996 - Volume 4, Number 4
As owners, employees and friends, Rocky Mountain Employee
Benefits, Inc. Wishes you and yours a very Merry Holiday Season
and a successful New Year. One very positive change that has occurred in 1996 is the addition of the Daily Valuation System as a key tool providing additional services to our clients. Edgel Blackham has piloted our Daily Valuation system to go where Rocky Mountain has never gone before. Under traditional 401(k) plans administration, all participant accounts are valued in dollars on a periodic basis, usually quarterly or in some cases only annually. Daily valuation, however, values each participant account in shares, so that a valuation of participant accounts may be made each day a market prices is available. The calculation is simple shares x market price=current value. Valuations of participants accounts can therefore be made "daily," and distributions can be calculated based on current market values instead of looking back to the last quarterly or annual valuation. Daily Valuation also allows for more direct participant interaction
with the plan. Participants can telephone our special 800 voice
response number to hear current valuations of their accounts and
then make election changes or fund transfers directly over the telephone.
Plans processed on the Daily Valuation system should hold assets
that can be traded in fractional share using one of our direct electronic
trading links. This article originally appeared
in the hard copy version of the "Benefits Bulletin." Rocky Mountain Employee Benefits is excited to announce our presence on the Internet. We feel this will provide our clients with an excellent source of information and a way to keep contact with us. If you're surfing the World Wide Web, head over to www.rmeb.com where you can retrieve information about our latest retirement programs, current and past issues of the "Benefits Bulletin", and a listing of all of our employees. All employees of Rocky Mountain now have Internet E-Mail delivered right to their desktop. If you're tired of playing phone tag, this is the cure for you. You can send E-mail to anyone by using @rmeb.com as the addressing format. Just replace with the first name of the person you are addressing. If you have a general question about our services and are not sure who you need to talk to, just send your message to info@rmeb.com. For our clients who send us data files, you can now use our FTP site to transfer your data over the Internet. Just point your FTP agent to ftp.xmission.com/pub/users/r/rmeb/ and drop your files into our "Clientdata" directory. Send us a quick E-mail to let us know your files are ready and we will take care of the rest. Those of you who are sending us hard copies of your data may want to consider just sending us the actual computer file. This will save you time, postage, and paper. Of course, our FTP site was designed with security in mind. Any uploaded client files are automatically password protected so that our network administrator only has access to them. For any information regarding our Internet site or how to get your
company involved in the Internet, please contact our network administrator,
Travis Cornes at 801-486-3087 or send E-mail to travis@rmeb.com. Client
Inquiry Q. What are the advantages and disadvantages of using the safe harbor method in determining eligibility for hardship withdrawals? A. The principal advantage of using the safe harbor method in determining eligibility for hardship withdrawals is that the employer avoids having to dig into and verify a participant s personal financial situation. The main disadvantage is that it is less flexible in terms of when such distributions for hardship will be available, which may be a factor in making participation in the 401(k) plan less attractive to employees. The inability to make salary deferral contributions for one year following a hardship withdrawal under the safe harbor rules is also unattractive to would-be participants. Q. Are hardship withdrawals from 401(k) plans subject to mandatory withholding? A. Yes, hardship distributions are considered eligible rollover distributions subject to mandatory 20 percent withholding, although the amount of the distribution can be adjusted upward to take into account the income tax withholding. Q. As an Employer I have a premium-only plan so my employees can enjoy some tax savings on premiums paid on the health care plan. Do I have to file IRS form 5500 for this simple plan? If the health plan involved already is required to file a IRS form 5500, must I file another IRS form 5500? A. Premium-only plans using salary reduction are IRC Section 125 plans and are subject to the Section 125 reporting requirements. Thus, a Form 5500 and a Schedule F are required, even for this simple plan. If the health care plan involved had already been subject to the filing requirements before implementation of the Section 125 plan, it is best to file two 5500 forms. Both ERISA (which contains the filing requirements for the health plan) and IRC Sec. 6039D (which contains the filing requirements for the Section 125 plan) seem to contemplate a plan-by-plan filing. Also, for the sake of administrative convenience, the filing of two forms is preferable, because different information (such as number of participants and plan year) may apply to the health plan and the Section 125 plan. Similarly, if the Section 125 plan were a full-choice cafeteria
plan, a separate Form 5500 and Schedule F should be filed for the
Section 125 arrangement and separate 5500s for each benefit plan
offered within the Section 125 plan. 1997 Dollar Limits - Important Numbers for 1997
*However, there is no excise penalty for distributions taken in 1997, 1998, 1999 above the maximum Distribution limit. The Fiduciary Exception
To The Most think that attorney-client communications are privileged. In the field of employee benefits, that is not necessarily so. The privilege often depends upon whether counsel is hired by the plan or by the plan sponsor. In a recent case, the Secretary of Labor sued trustees
of an employee benefit plan for allegedly violating ERISA s fiduciary
duties. The Secretary served the trustees with a discovery request
that included documents relating to all communications, formal or
informal, about the administration and management of the plan. The
request included communications between the plan trustees and the
plan s counsel. In response to the request, the defendants produced
a list of hundreds of documents they believed were protected by
the attorney-client privilege. They refused to produce the documents.
Were the documents protected by the attorney-client privilege? Courts have carved out a very broad exception to the attorney-client privilege in the context of fiduciary litigation. When an attorney advises a fiduciary about the administration of a benefit plan, courts recognize that the attorney-client privilege should not be used as a shield against the parties who the fiduciaries are obligated to serve. The attorney-client privilege is frequently relied on in response
to a request for documents of a subpoena in a lawsuit. A motion
to compel the production of documents can often be obtained based
on the principles of this fiduciary exception to the attorney client
privilege. Understanding the exception and its limitations is critical
for effective counseling. Although the exception does While the attorney-client privilege typically will not protect trustee-attorney communications (except in anticipation of and during litigation) for Title I purposes, the same is not necessarily true for Title II (that is, Internal Revenue Code) controversies. Thus, where an attorney is advising a fiduciary or plan sponsor on issues related to plan defects, those communications are generally protected from IRS inquiry by the attorney-client privilege. Unfortunately, the same protection may not extend to communications with other advisors, for example, actuaries and administrators (unless those advisors are hired by the law firm for a project—e.g., a voluntary compliance audit or analysis). So, where the confidentiality of communication could be important, the analysis of plan defects should be conducted under the auspices of a law firm. It should also note that there are times where the privilege may have little practical value. For example, it is not uncommon for the IRS and the DOL to concurrently investigate the same plan. In those cases, if the DOL discovers information, it may provide the IRS with communications it finds. 1997 Reminders Timing of deposit of 401(k) elective deferrals. The DOL has amended existing regulations regarding
when participant contributions, including elective deferrals, become
plan assets which the employer must deposit timely in a qualified
trust. However, the amended regulations modify the maximum 90-day deadline to the 15th business day of the month immediately following the month the employer received the participant s contribution or withheld the elective deferrals from the employee s compensation. An employer may obtain a 10 business day extension if the employer satisfies certain notification and bonding conditions. The amendments to the regulations are effective February 3, 1997. Form 945 Amended regulation section 331.6011(a)-4(b) provides that the form must be filed only if there is a withholding liability for that year. A plan that makes no distributions during the calendar year would not have to file Form 945 for that year, even though a form has been filed in prior years. Rollover of overpayment to IRA In private letter ruling 9633041, the taxpayer received an overpayment
from his employer's qualified plan. The entire distribution was
rolled over to an IRA. The IRS explains the tax consequences of
rolling over the overpayment and withdrawing that amount from the
IRA. The overpayment should be included in the taxpayer's income
for the year it was distributed from the plan, as if the rollover
did not occur.
Copyright© 1996 Rocky Mountain Employee Benefits, Inc. |