image of cost of living

NOTE- this is courtesy of Associated Pension Consultants, Syosset, NY

  • COST OF LIVING ADJUSTMENT FIGURES

COLA (Cost of Living Adjustment) notice for the coming 2017 plan year.   We are providing these figures for informational purposes and no action is required on your part at this time.

2017 COLA figures, as released:

Elective Deferral Limit 402(g)(1)

$ 18,000.00

Catch-Up Limits for 401(k) Plans (Age 50+)

$ 6,000.00

Defined Contribution Dollar Limit 415(c)(1)(A)*

$ 54,000.00

Maximum Compensation Limit 401(a)(17)

$ 270,000.00

Highly Compensated Employee Definition 414(q)(1)(B)**

$ 120,000.00

2016 Social Security Taxable Wage Base

 $ 127,200.00

                * –   $60,000.00 for participants age 50 and older.

 

** – Highly Compensated Employee status is determined based upon the compensation earned by  

       the individual in the prior calendar year.  For example, a participant earning in excess of   

       $120,000.00 during 2016 will be considered a Highly Compensated Employee for the 2017

       Plan Year .

  • REQUIRED MINIMUM DISTRIBUTIONS

Required Minimum Distributions are necessary for any plan participants who have attained age 70 1/2 and are:

  • Greater than 5% Owners (at any point during 2015 or 2016)
  • Lineal descendants of those owners (including parents, grandparents)
  • Terminated participants as of 12/31/16

If a participant is a non-owner and active as of 12/31/2016, they have the option whether or not to receive the distribution.

It is very important not to miss the deadline for receiving such distributions as the IRS will issue large penalties for any missed RMD. 

We urge you to review the participants in your plan and advise us of any participants that may be required to receive a Required Minimum Distribution.

 

  • ADP / ACP Testing , SAFE HARBOR CONTRIBUTIONS and TOP HEAVY PLANS

As a general rule, 401k plans must satisfy certain non-discrimination requirements including Average Deferral Percentage (ADP) and Actual Contribution Percentage (ACP) testing of employee and employer contributions.  Many plans whose Highly Compensated Employees contribute a greater percentage of their compensation than Non-Highly Compensated Employees have difficulty passing these tests. The correction is often a return of a portion of their contributions and in turn, requiring that taxes be paid on the returned amounts.  In addition, some plans are considered ‘top heavy’.  Top heavy plans are those in which the key employees hold 60% or more of the plan’s assets as of the prior plan year end.  Top heavy plans require a minimum contribution be deposited for all non-key plan participants.

The Small Business Job Protection Act of 1996 provided 401k plans with alternative, simplified methods of meeting the non-discrimination requirements above. 401k plans that adopt one of these alternative methods are referred to as “safe harbor 401k” plans. 

There are two types of safe harbor contributions that satisfy the IRS regulations and allow plans to avoid the annual testing of employee contributions: 

  • Safe Harbor Non-Elective Contributions (SHNEC): A fully vested contribution 3% of compensation to all plan participants.
  • Safe Harbor Matching Contributions (SHMAC): A fully vested contribution (options vary but generally match of 100% of the first 3% of compensation contributed by the participant plus an additional 50% of the next 2% of the compensation contributed by the participant).

Since this feature requires that an additional notice be provided to your plan participants no later than December 1, 2016 for the 2017 plan year, it is important to contact your administrator here as soon as possible if you are interested in learning more about this option.

 

  • NEW COMPARABILITY PROFIT SHARING FORMULA/ CASH BALANCE PLANS

Plan sponsors looking to provide larger contribution rates to certain participants (usually higher paid and/or key employees) can amend their plan documents to add a New Comparability profit sharing formula.  Under a new comparability plan design, the percentage of the plan contributions for owners and other highly compensated employees can be much higher than under a traditional profit sharing plan – if they are older on average than the other employees, and have longer records of service.  This is permitted because IRS regulations provide a method, based on an analysis of projected benefits at retirement age (rather than the amount of the contribution currently allocated to a participant), of showing that the benefits provided to highly compensated and non-highly compensated employees are comparable.  Please do not hesitate to contact us if you are interested. 

 

  • LOAN DEFAULTS

For plans that utilize Associated Pension Consultants, Inc. for their annual loan reconciliation, we will need to be advised of any participants whose loans should be defaulted. Associated Pension will prepare 1099-R forms only for those participants for whom we are instructed to default. There is a fee of $25 for any 1099-R.

  • PLAN FORFEITURES

Each plan year, forfeitures should be used to pay expenses and/or reduce/supplement the employer contributions.  Please be sure to utilize plan forfeitures during the year.  We can assist with the allocation of plan forfeitures following the close of the plan year.

  • FIDELITY BOND COVERAGE

 

All qualified plans must have fidelity bond coverage in place to cover at least 10% of the plan’s assets.  Please be sure to contact your casualty broker if your bond coverage is insufficient.

  • COMPANY STRUCTUREPLEASE BE SURE TO LET US KNOW IF THERE WERE ANY COMPANY ACQUISITIONS DURING THE PRIOR YEAR(S).  THESE CAN DRAMATICALLY AFFECT YEAR-END TESTING RESULTS 

 

  • TIMELINESS OF CONTRIBUTIONS

 

 

The Department of Labor’s safe harbor rule for small plans regarding the timing of deposits for 401(k) and loan repayments requires that the funds be deposited into the plan within seven (7) business days of the payroll date.  The Department of Labor’s position regarding the timing of 401(k) and loan repayments for large plans is that contributions should be deposited within a shorter time frame than the seven business day safe harbor rule applied to small plans. Generally, participant contributions will be considered plan assets as of the earliest date on which the contributions can be reasonably segregated from the general assets of the employer.  We strongly recommend that all contributions and loan repayments be deposited immediately after being withheld from the employees’ payroll.  Failure to comply with this requirement may result in severe penalties.  Please keep this in mind when remitting 401(k) contributions.

 

  • BONUS ELECTIONS

 

Please be sure unless you have it specified in the plan document, participant elections must be deducted from participant’s bonuses.  Very often we find that plan sponsors believe a bonus payroll is not subject to 401(k) plan deductions.  Please be sure to keep this in mind when processing such payrolls.