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Newsletter
December
2003 Volume
19 - Number 4
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This newsletter is addressed to
our clients their attorneys, accountants and other professional advisors.
Citations may be included for those who want to refer directly to the source
material. IN THIS ISSUE:
2003 CONTRIBUTION & BENEFIT LIMITS -Thanks
mostly to EGTRRA many of these limits increased. Otherwise, most of the limits tied to cost of living increases
remain the same.
WHEN SHOULD AN EMPLOYER CHECK THE PENSION PLAN BOX
ON A W-2? This, along with the employee’s adjusted gross income,
will affect the deductibility of the employee’s IRA contribution, if any.
NEW LOANS RULES - These regulations generally
adopted the proposed regulations issued in July of 2000. However, there are some of the differences
between the proposed and final regulations.
DELINQUENT FILER VOLUNTARY COMPLIANCE (DFVC)
PROGRAM - This program is likely to be more widely used now that
the IRS and DOL are cooperating and sharing data to identify delinquent and
non-filers.
GUST & EGTRRA PLAN DOCUMENT UPDATE IS EXTENDED,
BUT - Don’t get too excited. There are several advantages to updating by the prior
deadline.
2003 CONTRIBUTION &
BENEFIT LIMITS
WHEN SHOULD AN EMPLOYER CHECK
THE PENSION PLAN BOX
ONFORM W-2? Checking this box on an employee’s W-2 form
indicates that an IRA contribution by this employee, on behalf of 2002, may
not be deductible or may be only partially deductible. Check the
pension plan box if: Defined
Benefit Pension Plan - If an employee is eligible to participate at any
time during the year (even if they decline to participate in the plan). Money
Purchase or Target Pension Plan - If an employer contribution
or forfeiture is required to be allocated to that employee’s account. Profit
Sharing Plan - If an employer contribution or forfeiture is allocated
to the employee’s account during the year.
A contribution is allocated to the employee’s account on the later of
the date the contribution is made or allocated. For example, if the 2001 contribution is deposited in 2002,
then check the box in 2002, not 2001. 401(k)
Plan - If an employee makes a 401(k) salary deferral or
receives a profit sharing contribution or forfeiture. Do not
check the pension plan box if: Defined
Benefit Pension Plan - If an employee is not eligible or if the plan is
frozen. Money
Purchase Plan - If the plan is frozen or terminated and no employer
contribution is required. Profit
Sharing Plan – If no contribution was deposited in 2002 or no
forfeitures were allocated in 2002. 401(k) Plan – If an
employee is eligible, but does not make any 401(k) salary deferrals and does
not receive a profit sharing contribution or forfeiture. |
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NEW LOANS
RULES On December 3,
2002, the IRS issued additional final regulations under code section
72(p). The new rules generally apply on
January 1, 2004. These final
regulations generally adopted the proposed regulations issued in July of
2000. However, some of the
differences between the proposed and final regulations are highlighted
below. Military
Leaves of Absence - Loan
payments will be suspended for entire period of military service, even if
longer than one year. Repayment must
be completed within the term of the original loan plus the period of military
service. If original loan term is
less than 5 years, it may be extended to 5 years plus the period of the
military service. The interest on the
loan may not exceed 6%. Subsequent
Loans Following Deemed Distributions
- Any subsequent loan from the plan must be secured by adequate security in
addition to the participant’s account balance, or the repayment of the new
loan must be made by payroll withholding. Refinanced
Loans - A refinanced
loan is treated as a continuation of the prior loan. This means that the prior loan amount
cannot be amortized beyond the original five-year term. However, the excess portion of the loan
can be amortized over a new 5-year period.
Multiple Borrowing Limit Dropped - While the proposed regulations
limited participants to no more than 2 loans in one year, the final
regulations have no limit on the number of loans that can be taken out. |
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DELINQUENT FILER VOLUNTARY
COMPLIANCE (DFVC) PROGRAM Those who have failed to file Form 5500s
should take advantage of the Delinquent Filer Voluntary Compliance
Program. This program has been
updated to substantially reduce the penalty amounts for delinquent Form 5500
reports in order to make it easier to use the program. Normally,
the following penalties apply to late filing of the Form 5500: ·
The IRS may assess penalties of $25 per day (up to $15,000)
for failure to file Form 5500 returns. ·
The Department of Labor may assess civil penalties of
$1,100 per day for failure to file Form 5500 returns. Under the DFVC program, those that voluntarily
file all delinquent Form 5500s and pay the applicable penalty will not be
subject to the above onerous penalties. Plans with less 100 participants: ·
$750 for failure to file a single year’s Form 5500 ·
$1,500 for failure to file more than one year, regardless
of the number of years that returns weren’t timely filed. Plans with more than 100
participants: ·
$2,000 for failure to file a single year’s Form 5500 ·
$4,000 for failure to file more than one year, regardless
of the number of years that returns weren’t timely filed. |
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GUST
& EGTRRA PLAN DOCUMENT UPDATE IS EXTENDED, BUT …
The
Internal Revenue Service has extended the deadline for GUST & EGTRRA
update for some qualified retirement plans, but be aware, there is a
catch. After repeatedly stating that there would be no
extension, the Internal Revenue Service issued Revenue Procedure
2002-73. This revenue procedure
extends the deadline for plans that qualify for the December 31, 2002 or a
later deadline to at least September 30, 2003. Now for the catch, although the deadline for the
EGTRRA amendment is extended, there is no relief from the 411(d)(6) anti-cut
back rules. This means that plans
that would not be required to make top heavy minimum contributions under the
new EGTRRA rules, must adopt the good faith amendment on or before the end of
their plan year in order to take advantage of these rules. There are other plan provisions that may need to be amended sooner as
well. For example, employee
class-based plans use cross-testing to satisfy non-discrimination
requirements and need to update the plan provisions to satisfy the new
gateway requirements. To avoid any
possible backlash, it is best to update plans for GUST and EGTRRA now and not
rely on the September 30, 2003 extension.
HAPPY NEW YEAR
and BEST WISHES FOR A HAPPY HOLIDAY SEASON FROM ALL OF US
AT PACIFIC
RETIREMENT PLANS, Inc. |
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