New tax law provides additional breathing room for repayment of retirement plan loans

Say what you will about 401(k) loans – and we have over the years – they are a fact of 401(k) life and were addressed in the recently passed Tax Cuts and Jobs Act (the “Act”). Before we get to the new rules, let’s start with the state of 401(k) plans. Recent data is difficult to come but a research report, An Empirical Analysis of 401(k) Loan Defaults, published by the Pension Research Council in 2010 can still provide us some insight.

For the three year period, July 2005-June 2008, one out of five active participants had loans; and, approximately 80% of 401(k) plan borrowers terminating employment defaulted on their loans – or approximately $600 million. So maybe a provision in the Act could be helpful to cut down the number and amount of defaults.

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Will 2016 Form 5500 reveal outdated fidelity bonds or none at all?

The 2016 Form 5500 deadline has come and gone for calendar year taxpayers, and a number of them revealed outdated fidelity bonds or retirement plans without bonds at all.

The fidelity bond requirement is high up on the Department of Labor’s compliance priorities so it’s not a stretch to assume that the Department of Labor monitors this item on Form 5500. 2016 is history but it’s not too late to meet this important compliance requirement. Here are the basics:

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Still time to set up a retirement plan for 2017

If you are a business owner/employer with a calendar fiscal year, you still have time to adopt a qualified retirement plan for 2017. Here’s what you have to do:

Before December 31, 2017:

  • Sign adopting resolutions and a plan document, and
  • Deposit a de minimis amount, e.g., $1,000 in a trust account to establish corpus.

After December 31, 2018:

  • Fund the balance of the deductible contribution no later than the time your tax return is filed including extensions, and
  • File Form 5500, if applicable

And if this is your first retirement plan, check with your accountant to see if you are eligible for the tax credit for pension plan start up costs.

“Decumulation”: It’s here now for individuals approaching retirement

“Decumulation” is a word that has now entered the lexicon of those individuals approaching retirement. The definition of which is the conversion of retirement plan assets accumulated during an employee’s working life into pension income to be spent during retired life.

It’s a new risk for the record number of those moving from the accumulation phase of their lives to the distribution phase. The actuaries call it “longevity risk”. But those of us in the financial service industry simply call it “running out of money”.

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Department of Labor targets retirement plans with missing participants

It’s a familiar story: you or your retirement plan’s third party administrator (TPA) need to make a benefit distribution to an ex-employee. But the employer’s records are out of date and the former employee cannot be located. Worse yet, the missing participant has attained age 70½ so the plan is required to make minimum distributions (RMDs) but cannot do so.

Can you sit back and wait for the missing ex-employee to come forward and claim their benefits? If they never show up, can you forfeit their benefits? Continue Reading

SIMPLE vs. 401(k): November 1 Deadline Approaching

Tax planning as in life can be a series of trade-offs. Whether to have a SIMPLE-IRA vs. a 401(k) plan is one of those trade-offs. And if you currently have a SIMPLE-IRA and want to change to 401(k), then you’ve got a November 1, 2017 deadline approaching.

That’s the date by which employers have to provide notice to their employees that 2017 will be the last year for the SIMPLE-IRA and will be replaced by 401(k).

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October 1 401(k) Safe Harbor deadline gets closer

That’s No. 3 in my Pension Plan Procrastination Perils Proper Personal Planning list. If you want to set up a new Safe Harbor 401(k) plan for 2017, it has to be done by October 1. A Safe Harbor plan permits owners and other Highly Compensated Employees (HCEs) to maximize their contribution regardless of how much the Non-HCEs contribute. For 2017, the maximum is $18,000 plus a $6,000 catch if age 50 or older.

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Seven ways a fiduciary can follow “Procedural Prudence”

“Procedural Prudence” is not a new concept. It’s underlies one of ERISA’s bedrock requirements. A fiduciary must discharge its duties prudently with care, skill, and diligence.

It’s the process by which a fiduciary can accomplish this. In other words, it’s the “how” a decision gets made which is what the courts have focused on in ERISA fiduciary litigation.

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