FAQs

By the end of the 7th month following the end of the plan year, or if placed on extension using Form 5558 by the 15th day of the 10th month following the end of the plan year. For example, for a plan year which ends on 12/31, the due date is 7/31 of the following year, with an extended due date of 10/15.

If the plan permits the distribution at this time then the IRS requires that specific paperwork be signed by a participant before he or she can be paid his or her vested benefit from a qualified plan. You should contact PRS to verify that a distribution may be made at this time and request that we prepare the necessary paperwork for signature.

Starting January 2011, the withholding tax procedures have changed. You are no longer allowed to remit the taxes manually using a Form 8109 (deposit coupon) and you may be assessed a 10% penalty if you try. Withholding taxes have to be paid electronically through the Electronic Federal Tax Payment System (EFTPS) by the 15th day of the month following when the participant receives his or her distribution. Please refer to the website www.eftps.gov or contact us for further information.

The IRS requires that plans be updated to reflect recent laws and regulations even if those new laws and regulations may not pertain to the current participants of the Plan. For example, rules regarding military service must be included in the document, even though there may not be participants in the military. Each year, the IRS publishes a “Cumulative List” of the changes that must be incorporated into the document (interim amendments). It appears that almost every year there is at least one item that requires inclusion in the document.

In order for a plan to retain its tax qualified status (and for the sponsor to reap the benefits of a qualified plan such as a tax deduction for its contributions) it must have a written plan document that is in compliance. A plan document not timely amended, could in a worst case scenario, disqualify the Plan which could result in negative tax consequences. The IRS sponsors correction programs, where upon correction and for a fee, the plan would retain its qualified status.

Although the IRS requires the Plan be amended in between restatements (interim amendments), the IRS also requires that a plan maintain its qualified status by being restated every five or six years depending upon the classification of the type of written plan document. A restatement requires a complete document be adopted.

The IRS would like a plan’s sponsor to maintain a qualified retirement program for at least 10 years. If valid business reasons arise that make the plan sponsorship a hardship, then the programs can be terminated prior to that time.

A Cash Balance Plan, also known as a Hybrid Plan is a type of defined benefit plan which acts more like a defined contribution plan. Annual contributions are allocated to hypothetical account balances and credited with interest each year.

Contributions can be invested in almost all instruments that have a tradeable street value…equities, fixed income, real estate, life insurance, etc. Plan documents generally specify the permissible investment options.

Expenses are divided into two categories – settlor functions and administrative functions. Expenses for administrative functions (eg. preparation of communication materials, distribution packages, annual services, including the preparation of Form 5500 filing) may be paid from plan assets. Settlor functions (eg. the establishment of the Plan) cannot.

For a Profit Sharing or 401(k) Plan, the employer contribution must be deposited by the date of the corporate tax return, including extensions, if any, in order for the contributions to be deductible on the company’s tax return.

For a Money Purchase, a Defined Benefit and a Cash Balance plan, the employer contribution is due by the earlier of:

• the due date of the corporate tax return, including extensions, if any, and
• the 15th day of the 9th month following the end of the plan year.

If the plan year and the employer’s fiscal year are 12/31, the contribution is due by 3/15 of the following year for a corporate filing (4/15 for a personal filing) and by 9/15 if the filing extension due date is later than 9/15.

Department of Labor (DOL) regulations require that employee 401(k) contributions or loan payments be deposited into the plan as soon as they can reasonably be segregated from the general assets of the employer. For small plans (fewer than 100 participants) this can be no later than seven days from the date they were withheld.