Deferred Compensation News and Updates

Deferred Compensation News brings you the latest information and insights on 409A nonqualified deferred compensation; institutional COLI, BOLI, and ICOLI; tax-and cost-efficient non-COLI funding strategies; low-cost tax managed non-COLI asset/liability designs; executive benefits benchmarking; succession planning and timely issues of executive pay and benefits. 
Featured image for “February Compliance Calendar for Retirement Plans and Other Benefit Plans”
January 31, 2020

February Compliance Calendar for Retirement Plans and Other Benefit Plans

401(k)

Thanks IslerDare PC for providing a checklist of 2020 compliance deadlines, covering retirement plans along with other health and welfare benefit plans. #retirementplan #fulcrumpartners #SECUREAct
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Featured image for “Legacy and Retirement Planning After the SECURE Act”
January 29, 2020

Legacy and Retirement Planning After the SECURE Act

401(k)

Fulcrum Partners is pleased to share these in-depth insights about the SECURE Act (Setting Every Community Up for Retirement), published January 23, 2020 by the AALU WR Newswire. The WRMarketplace is created exclusively for AALU members by experts at Baker Hostetler LLP and the AALU staff, led by Jonathan M. Forster, Partner, Rebecca S. Manicone, Partner, and Carmela T. Montesano, Partner. WR Marketplace #20-02 was written by Michael P. Vito, Counsel, and John F. DeStefano, Associate, Baker & Hostetler LLP. #secureact #plansponsor #retirement #retirementplan
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Featured image for “ICYMI: The 401(k) Excess Contribution Solution”
July 06, 2019

ICYMI: The 401(k) Excess Contribution Solution

401(k)

In case you missed it (#ICYMI), we’re republishing one of the most-read updates we’ve shared this year on Deferred Compensation News and Updates. Download report as a PDF Offsetting the 401(k) Refund To help ensure that a 401(k) plan does not favor business owners or other highly compensated employees (HCEs), plan sponsors are required to perform specific nondiscrimination tests. The Actual Deferral Percentage test (ADP) is used to help determine a 401(k) plan’s deferral limits. IRC Section 401(k)(3)(A)(ii) established the ADP test to compare a plan’s average deferral percentage by HCEs to the average deferral percentage of non-highly compensated employees (NHCEs). How successfully a plan passes this test, however, may not be known until the end of each year. If the deferrals of HCEs are too high relative to the deferrals of NHCEs, some of the HCEs may have a portion of their deferrals refunded to them in the next tax year. This is known as an excess contribution or a 401(k) refund. A 401(k) refund immediately becomes unplanned taxable income for the employees, and potentially a lost opportunity to collect company matching dollars for 401(k) savings. Additionally, the employer is at risk of fines and/or potentially losing qualified plan
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June 19, 2019

Offsetting the 401(k) Refund with a Nonqualified Deferred Compensation Plan

401(k)

Download report as a PDF The 401(k) Excess Contribution Solution To help ensure that a 401(k) plan does not favor business owners or other highly compensated employees (HCEs), plan sponsors are required to perform specific nondiscrimination tests. The Actual Deferral Percentage test (ADP) is used to help determine a 401(k) plan’s deferral limits. IRC Section 401(k)(3)(A)(ii) established the ADP test to compare a plan’s average deferral percentage by HCEs to the average deferral percentage of non-highly compensated employees (NHCEs). How successfully a plan passes this test, however, may not be known until the end of each year. If the deferrals of HCEs are too high relative to the deferrals of NHCEs, some of the HCEs may have a portion of their deferrals refunded to them in the next tax year. This is known as an excess contribution or a 401(k) refund. A 401(k) refund immediately becomes unplanned taxable income for the employees, and potentially a lost opportunity to collect company matching dollars for 401(k) savings. Additionally, the employer is at risk of fines and/or potentially losing qualified plan status. Nonqualified deferred compensation plans (NQDC) can be designed to allow plan participants to defer an amount of their base salary equal
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May 07, 2019

Looking Out for Key Employees

401(k)

Benefits designed for employees also provide advantages for companies Key employees help lead a company and keep it on the right path. So finding and keeping those key employees is a priority. Key employees also want to work for a company that values their hard work – and offers them additional ways to save for the future. A nonqualified deferred compensation plan is a smart solution for companies and their key employees. It’s designed to help top talent save beyond 401(k) plan limitations for retirement and other savings goals, while helping the organization recruit, retain, and reward them. Here’s how it works A deferred comp plan is a type of savings vehicle an organization provides to select key employees. Participants can defer a portion of their annual compensation or bonuses into the plan before taxes. And the organization promises to pay that money to the employees at a future date, plus any earnings or additional contributions the organization may offer. How a company informally finances its plan can help accomplish these goals – whether the company uses corporate owned life insurance or taxable investments, or company cash flow. “The plan allows my employer to show employees that they are fully
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March 28, 2019

Save More than a 401(k) or 403(b) Plan Allows

401(k)

A nonqualified deferred compensation plan (NQDC) allows employees to save above and beyond the limits of a 401(k) or 403(b) plan. Plus, employees may be able to take advantage of tax benefits not offered with other savings options. Unlike a deferred comp plan, a 401(k) plan, 403(b) plan and Individual Retirement Accounts (IRAs) have limits on how much the employee can save each year. Additionally, 401(k) and 403(b) plans are subject to nondiscrimination testing that can limit the amount of employee and employer contributions to the plan. 2019 savings limits for different retirement plans 401(k) or 403(b) retirement plans: $125,000 of wages earned in the preceding year classifies an employee as highly compensated. Various statutory or testing limits with 401(k) or 403(b) plans may limit deferrals (1.25%/2.0% nondiscrimination limit). $19,000 maximum deferral ($25,000 if age 50 or older). Total amount of organization and employee contributions limited to $56,000. $280,000 maximum eligible compensation limit. Defined benefit plans: $225,000 maximum annual benefit. $280,000 maximum eligible compensation limit. Individual Retirement Accounts: $6,000 maximum contribution ($7,000 if age 50 or older). Employees with modified adjusted gross income above certain amounts (depending on filing status) cannot deduct contributions to  an IRA account if participating in
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Featured image for “Important Changes in the Rules for Hardship Withdrawals from 403(b) Retirement Plans”
March 12, 2019

Important Changes in the Rules for Hardship Withdrawals from 403(b) Retirement Plans

401(k)

Effective January 1, 2019, the rules for hardship withdrawals from many types of retirement plans changed. The changes, which come as a result of revisions to the Tax Cuts and Jobs Act of 2017 and, more specifically, the Bipartisan Budget Act of 2018, generally make it easier for plan participants to withdraw funds from their 401(k) or 403(b) plans, in the event of immediate financial need. Some of the changes to the rules for hardship withdrawals include: The required six-month suspension from making elective or employee contributions to any employer plan after taking a hardship withdrawal has been eliminated. The change is effective January 1, 2020 but can be applied as early as January 1, 2019. The requirement that the plan participant take out a loan or otherwise exhaust his/her borrowing capability before requesting a hardship withdrawal is now an optional condition. This change is effective for plan years beginning after December 31, 2018. The sources of money that can be included in funding hardship withdrawals have been expanded to include safe harbor contributions and investment earnings. Acceptance by the plan provider of self-certification of need, previously optional, is now required for distributions occurring after January 1, 2020. The plan
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Featured image for “Your Retirement Savings: What Changed with the Mid-Term Elections”
December 13, 2018

Your Retirement Savings: What Changed with the Mid-Term Elections

401(k)

It’s been just over a month since U.S. midterm elections yielded a partial change in command in Washington D.C. While the Republicans retained the Senate, Democrats won the House. Right now, you’re probably spending long hours on the holiday hamster wheel, where you and your staff try to complete 8 weeks of work and projects in 5 and a half. But if you’re concerned about your retirement savings, the changes in Washington are worth pausing to consider. Here is a summary of what is presently in play: The Big Picture: Republicans control the Senate and Democrats control the House. Stalemates are inevitable with the two parties polarized on an alarming number of issues. Democrats will outnumber Republicans 219 to 193 when the 116th Congress begins in January. Should they succeed in passing legislation, unless the law is backed by support from both the House and the Senate of a two-thirds majority, President Trump will still have the final say and the power of veto. The Retirement Enhancement and Savings Act of 2018: This bill would amend the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). As of the date this is being written, the Retirement
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April 25, 2017

Is Congress Going After Your 401K?

401(k)

Grab Your Pitchforks, America, Your 401(k) May Need Defending from Congress In last week’s The Wall St. Journal article, “Grab Your Pitchforks, America, Your 401(k) May Need Defending from Congress,” author Jason Zweig called out members of Congress, describing them as “lucky participants in one of the best retirement plans around.” He then went on to suggest that lawmakers may be coming after your 401(k) and other similar retirement plans, while their own plans remain well-insulated and protected. Zweig, who writes The Wall Street Journal’s “Intelligent Investor” column, and is a past senior writer for Money magazine, looked at the startling contrasts between the average 401(k) or similar retirement savings plan and the plans held by U.S. representatives, senators, and other select federal employees. According to Zweig, whereas only 13 percent of US employees are covered by a 401(k) plus a traditional pension that assures stable, lifelong income, 100 percent of the members of Congress have the peace-of-mind that comes with enjoying both a 401(k) and a pension plan. And while retirement savers in the private workforce pay management fees that can exceed 1 percent annually, members of Congress pay a maximum of 0.039% for funds that, said Zweig, “…
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Featured image for “IRS Proposes to Relax Rules Permitting Forfeitures to Fund 401(k) Plan Safe Harbor Contributions”
February 17, 2017

IRS Proposes to Relax Rules Permitting Forfeitures to Fund 401(k) Plan Safe Harbor Contributions

401(k)

IRS Proposes to Relax Rules Permitting Forfeitures to Fund 401(k) Plan Safe Harbor Contributions The following report was published by IslerDare PC (www.IslerDare.com) and is republished here with their permission. Note: Mentions in this article of the IRS refer to the Internal Revenue System (IRS). IRS Proposes to Relax Rules Permitting Forfeitures to Fund 401(k) Plan Safe Harbor Contributions and to Correct Operational and Nondiscrimination Test Failures Executive Summary The IRS recently proposed regulations that would permit employers to use forfeiture accounts to fund or offset safe harbor contributions and to correct operational and nondiscrimination test failures. This represents an important relaxation of the IRS’s somewhat controversial position and, if finalized, would be a welcome change providing enhanced flexibility for employers. What You Should Do Consult with your vendors and review the terms of your 401(k) plan to determine if changes need to be made to your services agreement or plan document to allow you to use forfeitures to fund safe harbor contributions or to correct operational and nondiscrimination test failures, either now or when the proposed regulations are finalized. Background In recent years, many employers have structured their 401(k) plans as “safe harbor” plans, which provide a certain level
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