As soon as you return the completed information,
HBCG will begin the reconciliation and testing process. The tests are required by the IRS to make
sure your Plan is operating within the terms of your Plan document and in a
nondiscriminatory manner.
The various tests are described below for you
convenience. Of necessity, the
descriptions are brief. The reference
to the Internal Revenue Code (IRC) follows each test description.
CONTRIBUTION LIMITATION – IRC Section 402(g)
A plan participant may elect to defer a set dollar
amount each calendar year. The IRS sets
the maximum amount each year on a calendar-year basis and the maximum applies
in total to each plan in which an employee defers contributions. (2003- $12,000
and $2,000 catch-up, 2004 - $13,000 and $3,000 catch-up)
(This calculation is based on the calendar year, not the plan
year, which may or may not be on a calendar basis. In order to be eligible to make a Catch-up contribution the
participant must have attained age 50 by the end of the calendar year and must
exceed one of the following limits— 402(g), 415(c), plan’s deferral limit, or
the ADP limit)
ACTUAL DEFERAL PERCENTAGE TEST (ADP) – IRC Section 401(k)(3)
The ADP test limits how much elective deferrals
made by the highly compensated employees may exceed the elective deferrals made
by the non-highly compensated employees.
(The IRS sets a limit on gross compensation that may be used
for this calculation, 2003 gross compensation $200,000, 2004 gross compensation
$205,000)
ACTUAL CONTRIBUTION PERCENTAGE TEST (ACP) – IRC Section
401(m)(2)
If your Plan permits employer matching
contributions, an ACP test will be performed on your Plan in addition to the
ADP test. The principle is the same as
for the ADP test. Matching contributions
made for highly compensated employees may not be substantially more than those
made for non-highly compensated employees.
(The IRS sets a limit on gross compensation that may be used
for this calculation, 2003 gross compensation $200,000, 2004 gross compensation
$205,000)
ANNUAL ADDITIONS – IRC Section 415(c)
The IRS limits the maximum contribution made by or
for each participant to $40,000 in 2003.
Annual additions include all of the following contributions:
·
Employee
Deferral Contributions
·
Employer
Matching Contributions
·
Employer
Discretionary Profit Sharing Contributions
·
Forfeitures
allocated to participants’ accounts
(The IRC Section 415(c) limit for is the lesser of 100% of
compensation or $40,000)
TOP HEAVY TEST – IRC Section 416
Generally, a Plan is Top Heavy if, as of the
determination date, the total account balances of the key employees exceed 60%
of the total account balances of all non-key employees. The determination date for a new plan is the
last day of the first plan year. For an
existing plan, the date is the last day of the preceding plan year.
If your Plan is Top Heavy, it will have to satisfy
minimum vesting and minimum contribution requirements as described in your
Plan’s trust and Adoption Agreement document.
File Format
for Census Data
If you are able to provide census information on
diskette instead of on paper, please use the following column by column
description for the necessary file layout.
Please return the diskette along with the completed compliance package, or
attach the file to an email at compliance@hunterbenefits.com,
and fax or mail the compliance package separately.
Column
A Social Security Number
Column
B Name
Column
C Date of Birth
Column
D Date of Hire
Column
E Date of Termination
Column
F Termination Reason (ie: Termination of Employment, Death,
Disability or Retirement
Column
G Leave of Absence (ie: Military Leave, Maternity Leave/Paternity
Leave)
Column
H Date of Rehire – If an employee was terminated and then rehired
Column
I Hours Worked – Number of hours an employee worked during the plan
year
Column
J Date of Participation – Date Employee started participating in the
plan
Column
K 415 Compensation – Gross compensation for the plan year
Column L Partial
Year Compensation – 415 Compensation from the date of participation through
the end of the plan year. If an
employee’s date of participation is in the year 2003, compensation is needed
from the date they began to participate. (i.e.: If an employee started
participating 4/1/03, we need the compensation from 4/1/03 through 12/31/03)
Column
M Salary Deferrals – Amount of salary deferrals contributed for the
plan year
Column
N Employer Match – Amount of matching contributions made for the plan
year
Column
O Section 125 Contributions – If you have a cafeteria 125 plan, we
need the amount of contributions
Column
P Ownership % - Percentage the employer/employee owns of the company
Column Q Highly
Compensated Employee – An employee is considered highly compensated if he
or she:
Ø
Was
more than a 5% owner any time during the current year or preceding year
Ø
earned
compensation from the employer in excess of $90,000 during the preceding year (2002
Plan Year). (current year compensation not considered)
Column R Key
Employee – Who is an employee a Key Employee? Employees or former employees
who, at anytime during the plan year, met any one of the following criteria:
Ø
An
officer having annual compensation greater than $130,000
Ø
A
more than a 5% owner of the employer
Ø
A
more than a 1% owner with compensation over $150,000
Column S Section
318 Attribution – List if an employee is a spouse, child, grandchild or
parent of an owner.
New
Small Plan Audit Exemption Requirements
Previously, small plans were automatically exempt
from the audit requirement. Under the new rules for plan years beginning after
April 17, 2001, the requirement is waived for small plans for each year if the
following conditions are met:
1.
At
least 95% of the assets of the plan constitute "qualifying plan
assets" (defined below), or any person who handles plan assets that do not
constitute qualifying plan assets is bonded in accordance with section 412 of
ERISA for the amount of such non-qualifying assets.
2.
The
Summary Annual Report, required to be provided to plan participants each year,
includes additional information (detailed below).
3.
The
administrator makes available for examination, or furnishes copies, free of
charge, to any participant or beneficiary who requests a statement from any
regulated financial institution or evidence of any bond required by this
regulation.
Qualifying Plan Assets
If at least 95% of plan
assets are "qualifying plan assets," the plan need not obtain
additional bonding. For this purpose, qualifying plan assets are defined as any
of the following:
1.
Qualifying
employer securities as defined in ERISA section 407(d)(5).
2.
Any
participant loan meeting the requirements of section 408(b)(1) of ERISA.
3.
Assets
held by any of the following institutions:
a.
Bank
or similar financial institution
b.
Insurance
company
c.
A
registered broker-dealer
d.
Any
other organization authorized to act as trustee for individual retirement
accounts under Internal Revenue Code section 408.
4.
Shares
issued by a registered investment company such as a mutual fund company.
5.
Investment
and annuity contracts issued by an insurance company.
6.
Assets
in individual accounts of participants or beneficiaries over which the
participants or beneficiaries have the opportunity to exercise control and
where statements from a registered financial institution of such assets are furnished
at least annually to the participants or beneficiaries.
Example: A retirement plan has 60% of its assets invested
in mutual funds, 20% in bank certificates of deposit, 17% in annuity contracts
and 3% in real estate limited partnerships. Since 97% of the assets are
considered qualifying plan assets, the plan would not be subject to the
additional bonding requirement.
The determination as to the
percentage of plan assets that constitute qualifying plan assets is generally
made as of the first day of the plan year. Special rules apply, based on
estimates, for the initial plan year.
Where
the new small plan audit rules require that a bond be obtained, it need not be
in addition to this long-standing 10% bonding requirement. The 10% bond may be
enough to satisfy the audit exemption bonding requirement, or an additional
bond may need to be purchased to make up the difference.
Example: A plan has 92% of its assets in qualifying
plan assets. Since this amount is less than the required 95%, a bond is required
for 8% of the plan assets. But since the plan already has a 10% surety bond, no
additional bond must be obtained.
If
the plan had only 85% of its assets in qualifying plan assets, an additional
bond for 5% of plan assets would be needed.
Additional
Summary Annual Report Information
A summary of Form 5500,
called the Summary Annual Report, must be provided to each plan participant and
beneficiary. Small plans will now have to include the following additional
information in the Summary Annual Report in order to be exempt from the audit
rules:
1.
The
name of each regulated financial institution holding or issuing qualifying plan
assets and the amount of such assets reported by the institution as of the end
of the plan year. However, this does not include employer securities,
participant loans that satisfy ERISA section 408(b)(1) and participant-directed
individual accounts.
2.
The
name of the surety company issuing the bond, if more than 5% of plan assets are
non-qualifying assets.
3.
A
notice indicating that participants and beneficiaries may, upon request and
without charge, examine or receive copies of:
a.
Evidence
of the required bond, and
b.
Statements
received from the regulated financial institutions describing the qualifying
plan assets.
A notice stating that participants and
beneficiaries should contact the Regional Office of the U.S. Department of
Labor's Pension and Welfare Benefits Administration if they are unable to
examine or obtain copies of the regulated financial institution statements or
evidence of the required bond, if applicable.