Retirement News

 for Employers 

Information for Sponsors of Retirement Plans 

Internal Revenue Service Tax Exempt and Government Entities 

Volume 5, Summer 2008 

A Look Inside 

A plan sponsor’s responsibilities to 

employees are discussed by Monika 

Templeman, EP Exam Director...more 

on page 2 

Form 5307 has been revised for optical 

scanning...more on page 2 

Audit findings of SARSEP plans show 

that plan sponsors are not conducting 

annual tests...more on page 5 

HEART, an act providing benefits for 

members of the US Armed Forces 

requires some changes to retirement 

plans...more on page 6 

Form 5500/5500-EZ filing reminders 

in case you haven’t filed yet...more on 

page 7 

Contract signed for testing of Enrolled 

Retirement Plans Agent (ERPA), a 

new type of representative before the 

IRS...more on page 8 

Failure to repay plan loans can be 

fixed under IRS’s Voluntary Correction 

Program in “Fixing Common Plan 

Mistakes”...more on page 10 

Also in this Issue 

We’re Glad You Asked! Page 4

 Recent Guidance Page 8

 DOL News Page 9

 Mark Your Calendar Page 12 

Timing is Everything Page 13

New Resource Helps Keep Your SEP Plan Compliant 

Following the lead of our popular “401(k) Fix-It Guide,” Employee Plans has created one 

for Simplified Employee Pension (SEP) plans. The SEP Fix-It Guide is an online 

resource for SEP plan sponsors and their tax advisors to help find, fix, and avoid 

common plan mistakes in SEP plans. The Guide provides tips and trends for five frequent 

mistakes that the IRS sees in the operation of SEP plans, including: 

• plan document updates, 

• employee eligibility, 

• related businesses and coverage requirements, 

• definition of compensation for determining SEP contributions, and 

• excess contributions. 

By selecting “More,” the user is directed to additional information describing the law, 

guidance, and correction methods for each plan mistake. It also directs plan sponsors and 

practitioners to IRS correction programs to correct the mistake, if needed. Employers 

should consider this list of potential mistakes as they review their SEP plans’ operation. 

We will continue to update the “Fix-It Guide” with the latest SEP error trends – so, 

check back periodically for new information. 

See the SEP Fix-It Guide and the 401(k) Fix-It Guide in their entirety by selecting the 

“Plan Sponsor/Employer” tab at the top of the Retirement Plans Community web page. 

Coming soon...SIMPLE IRA Plan Fix-It Guide.• 
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Form 5307 Has Been Revised 

The updated Form 5307 (revised March 

2008), Application for Determination for 

Adopters of Master or Prototype or 

Volume Submitter Plans, is now available 

and must be used beginning October 1, 

2008. The revised form allows it to be 

optically scanned, thereby improving the 

Service’s processing of determination letter 

applications. The Service will still accept 

applications filed with the prior Form 5307 

(revised September 2001) through 

September 30, 2008. 

The newly-revised Form 5307 is available 

online in a fillable format. Plan sponsors 

are encouraged to complete the form by 

downloading (along with Schedules 8717 

and 8905), printing, and then submitting it 

to the IRS. The bar code at the bottom of 

the return will be optically scanned into 

our computer system. It is important that 

customers send in their printed copy of the 

return and not a photocopy. Photocopies 

of the bar code will not scan properly. 

A limited number of paper copies of Form 

5307 and Schedules 8717 and 8905, 

imprinted with bar codes for optical 

scanning, may be obtained by calling (800) 

TAX-FORM (829-3676) or via the Internet 

link Forms and Publications by U.S. 

Mail. 

Practitioners may create their own version 

of the IRS bar-coded Form 5307 and 

Schedules 8717 and 8905, but must follow 

the procedures in General Rules and 

Specifications for Substitute Forms and 

Schedules, Publication 1167. Substitute 

versions of Form 5307 MUST mirror 

(exactly) the IRS Form 5307. • 

Desk Side Chat With Monika Templeman 

Responsibilities to Employees 

In each issue Monika Templeman, Director of EP Examinations, responds to questions and offers 

insights on retirement plan topics uncovered during audits. You may provide feedback or suggest 

future topics for discussion by e-mailing her at: RetirementPlanComments@irs.gov. 

Many employers are establishing plans for their employees, but are not 

certain of the requirements or obligations they have to employees once they 

set up a plan. Can we discuss a few of them today? 

I would be happy to discuss the responsibilities an employer who sponsors a 

plan has to his or her employees. As a matter of fact, protecting plan participants 

and helping plan sponsors to understand and comply with the law are key 

priorities in EP. First, I would like to emphasize that it is imperative that 

employers ensure the retirement plan their employees count on is in good 

running order. This way, they can keep the promise they made in setting up the 

plan as a qualified retirement vehicle. To stay qualified, the provisions in the 

plan document must satisfy the requirements of the Internal Revenue Code and 

those provisions must be followed. All eligible employees need to be covered by 

the plan and the plan assets must be managed with the best interests of the plan 

participants in mind. 

By adopting a plan for employees, an employer is making a commitment to the 

workforce by providing them an opportunity to save for their retirement. An 

employer’s responsibility does not end once the plan is set up. In addition to 

being responsible for keeping the plan qualified, a plan sponsor must ensure the 

plan participants have the information they need to make good choices. 

Is there an overall responsibility? 

Yes. Keeping the plan in compliance in form and in operation would be the 

overall responsibility. If the plan is not in compliance, then the other items I am 

about to discuss will not be relevant and the employees’ retirement benefits 

could be lost. Many of the items that I have previously discussed in these chats 

assist plan sponsors in keeping their plans compliant. 

Let’s suppose we have a plan sponsor who is doing everything to keep the 

plan in compliance. What should a participant be receiving from the plan 

sponsor? 

The first item the plan sponsor must provide is a Summary Plan Description, 

often referenced by its acronym, SPD. This is a synopsis of the plan document 

and other important plan information in an easier-to-understand format than the 

plan document. 

What kind of information? 

When employees begin to participate in the plan, the type of contributions that 

can be made to the plan, the vesting (ownership) schedule of the contributions an 

employee receives, and the timing of retirement benefits are some of the 

provisions in the SPD. 

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What if a participant wanted to see the plan document? 

The employer is required to provide the plan upon a written request 

from the participant. The employer may charge the participant the cost 

of copying the plan document. 

You mentioned earlier that the plan sponsor must keep the plan 

compliant in form. Should a participant receive updates when 

there are changes made to the plan? 

Yes, the plan administrator must provide the updated information via 

an updated SPD or through a Summary of Material Modifications 

document. 

Are there any other mandatory items the plan sponsor must 

provide? 

Each participant should receive a yearly summary regarding the 

financial information of the plan, which is referred to as a Summary 

Annual Report, or SAR. 

For 401(k) plans, participants must be informed in advance when a 

blackout period of three days or longer occurs. Blackout periods 

sometimes occur when investment options or recordkeepers are 

changing. This would affect the participant’s ability to direct 

investments or to apply for loans, for example. Therefore, a blackout 

period notice must be given stating that there will be a temporary 

shutdown so the participants can plan ahead. 

You have not mentioned anything specific to the participants’ 

individual accounts. In other words, how do they know how much 

money they have saved for retirement? 

With regard to individual account plans that permit participants to 

direct the investment of assets in their account, the plan sponsor must 

give a benefit statement at least once each calendar quarter. Plans that 

do not permit participants to direct their investments must provide a 

statement at least once each calendar year at no cost to the participant. 

Employers have many responsibilities to the employees. Do you 

have any tips on resources to assist plan sponsors? 

Yes, we have a wealth of information available to help plan sponsors 

and plan participants on our EP web site at www.irs.gov/ep. If handson assistance is needed, there are many capable practitioners available 

to assist plan sponsors. While sponsoring a plan does come with many 

responsibilities, its benefits are worth it in the long run. The reasons 

for establishing and maintaining a retirement plan include significant 

tax advantages, increased employee morale and retention, and 

protecting the retirement future for yourself and your employees.• 

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Summer 2008 Retirement News for Employers 

We’re Glad You Asked!
 

Each issue of the RNE looks at a common question we 

receive and provides an answer and additional 

resources in response to the question. 

One of our retired 401(k) plan participants turned 701⁄2 in 2008 and must 

begin taking his required minimum distributions (RMDs) by April 1, 

2009. During 2008 he requested that his entire plan account balance be 

sent to his IRA by direct rollover and assured us that he will take his 

RMD by April, 1, 2009. As plan administrator, can we send his entire 

account balance to the IRA? 

No. Assuming the retired plan participant has not already taken his RMD for 

the first required distribution year (2008 in this example), any amounts 

distributed from the plan in 2008 are deemed to be the RMD for that year 

until an amount sufficient to satisfy that year’s RMD has been distributed. An 

RMD is not eligible for rollover, either by 60-day rollover or by direct 

rollover. After you have calculated and distributed this participant’s 2008 

RMD, his remaining account balance can be rolled over in 2008 to his IRA. 

The plan trustee issues two Forms 1099-R: 

• one for the RMD amount paid to the plan participant, and 

• a second for the direct rollover paid to the IRA. 

A plan participant still employed who does not own more than 5% of the 

employer may delay taking RMDs until April 1 following the year of 

retirement, in which case, the same rule as explained above applies: RMDs 

must first be distributed and are ineligible for rollover to an IRA or to any 

other eligible retirement plan. 

For additional information, see: 

Pub 590, Individual Retirement Arrangements (IRAs) 

Pub 575, Pension and Annuity Income 

Form 1099-R Instructions, Instructions for Forms 1099-R and 5498, 

Distributions From Pensions, Annuities, Retirement or Profit-Sharing 

Plans, IRAs, Insurance Contracts, etc. & IRA Contribution 

Information.• 

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SARSEP Plans Examination Trends 

Employee Plans’ recent review of SARSEP plans has revealed error trends 

that could have adverse tax consequences for both the employer/plan 

sponsor and its employees. Plan sponsors should perform diligent reviews of 

their plans in order to avoid these errors. 

SARSEP plans have a number of tests that need to be run and passed every 

year in order for them to maintain their eligibility for contributions. These 

include: 

25 or Fewer Employees Rule - If the employer had more than 25 eligible 

employees at any time during the prior year, the plan cannot accept 

employee salary deferrals in the current year. 

50% Deferral Rule - At least 50% of all eligible employees must elect to 

make deferrals to the plan in any year, or all deferrals in that year are 

disallowed. 

Deferral Percentage Test - The deferral percentage test for SARSEP plans 

compares the deferral percentage of each highly compensated employee 

(HCE) with the average of the deferral percentages of all other employees, 

not the average of the deferral percentages of all HCEs with the average of 

all other employees (as in a 401(k) plan). 

Top-Heavy Minimum Contribution Requirement - Most SARSEP plans, 

including all Model SARSEPs (Form 5305A-SEP), require top-heavy 

contributions. In general, the employer is required to make a 3% minimum 

top-heavy contribution for each eligible non-key employee. Non-key 

employees are generally employees who are not owners or high-paid 

officers. 

Examination findings show that some employers are not running the annual 

tests in order to make certain that the plan is eligible for employer 

contributions and salary deferrals. As a consequence, many SARSEP plans 

are not eligible plans. When the plan loses its eligibility and employees 

made salary deferrals to these ineligible SARSEP plans, those employees 

with salary deferrals must include them in income. Also, employers who 

made discretionary contributions and deducted them, lose the deduction. 

Some SARSEP plans have been terminated as a result of our examinations 

and employers are replacing them with other types of plan arrangements. 

SIMPLE IRA plans are designed to permit salary deferrals and contain safe 

harbor features that do not include annual testing. SARSEP plan sponsors 

may want to consider adopting this type of plan after terminating their 

SARSEP plan. 

Because SARSEP plans were grandfathered in 1996 by the Small Business 

Jobs Protection Act, plans in existence before 1997 may continue, but no 

new SARSEPs may be established after December 31, 1996. Currently, there 

are an estimated 30,000 SARSEP plans. Find more information on 

SARSEPs Trends and Tips on our web page.• 

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Summer 2008 Retirement News for Employers 

Have a HEART for Our Heroes 

The Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART) P.L. 110-245 was signed 

into law on June 17, 2008. HEART provides benefits for members of the Armed Forces of the 

United States. Retirement plan provisions include: 

Death Benefits – Survivors of a plan participant who dies while performing qualified military 

service are entitled to any additional benefits that the plan would provide if 

the participant resumed employment and then died, such as accelerated 

vesting, ancillary life insurance benefits, or other survivor benefits that are 

contingent on the participant’s death while employed. This provision is 

effective with respect to deaths occurring on or after January 1, 2007. 

Benefit Accruals – For plan benefit accrual purposes under the Uniformed 

Services Employment and Reemployment Rights Act, employers may amend 

their plans to provide that if a participant dies or becomes disabled while performing qualified 

military service he or she will be treated as having returned to employment on the day before 

death or disability and then terminated on the date of death or disability. If an employer chooses 

to provide such benefits, it may choose to provide either partial or full benefits, but whichever 

option is chosen, it must be applied to all similarly situated individuals in a nondiscriminatory 

manner. This provision is effective with respect to deaths and disabilities occurring on or after 

January 1, 2007. 

Elective Deferrals – For purposes of the preceding paragraph, to determine the amount 

of matching contributions in a plan that matches an employee’s elective deferrals, the 

individual is treated as having made deferrals based on his or her average deferrals for 

the 12 months immediately prior to qualified military service. 

Differential Wage Payments – Beginning January 1, 2009, an individual receiving differential 

wage payments from an employer shall be treated as employed by that employer and the 

employer’s plan may provide benefits to the individual based on the differential wage 

payments. However, such benefits must be provided to all similarly situated individuals in a 

nondiscriminatory manner. In addition, differential wage payments are treated as compensation 

for purposes of making IRA contributions. 

Distributions of Salary Deferrals from 401(k), 403(b), and Eligible 457(b) Plans – 

Beginning January 1, 2009, an individual performing service in the uniformed services while 

on active duty for at least 30 days will be treated as having severed from service for purposes 

of receiving a distribution of salary deferrals from a 401(k), 403(b), or eligible 457(b) plan. In 

the case of such a distribution, the individual may not make salary deferral contributions until 

six months after the date of distribution. 

Qualified Reservist Distributions – Prior to the HEART Act, favorable tax rules applied to 

“qualified reservist distributions” made to individuals ordered to active duty after September 

11, 2001, and before December 31, 2007. For example, a distribution from a salary deferral 

account in an employer-sponsored plan or from an IRA is exempt from the additional 10% tax 

on premature plan withdrawals and the amount of the distribution can be contributed to an IRA 

when the active duty ends. The HEART Act removed the “and before December 31, 2007” 

limitation so that the favorable tax treatment now applies whenever the individual is ordered to 

active duty, as long as it is after September 11, 2001. 

Plans do not have to be amended for HEART until the last day of the 2010 plan year. Governmental 

plans have different amendment dates.• 

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Other Items to Note: 

Notice 2002-24 suspended the filing 

requirement for fringe benefit plans. Fringe 

benefit plans include §125 cafeteria plans, §127 

educational assistance plans, and §137 adoption 

assistance plans. Note: Notice 2002-24 

suspended the filing requirements for fringe 

benefit plans. It did not change the filing 

requirements for welfare plans. 

Welfare benefit plans required to file must use a 

Form 5500 and cannot use Form 5500-EZ. (See 

Form 5500 Instructions under “Welfare Benefit 

Plans.”) 

If you need assistance completing your Form 

5500/5500-EZ, would like to confirm the receipt 

of forms you submitted, or have related 

questions, call the EFAST Help Line at (866) 

463-3278 (toll-free) and follow the directions as 

prompted. The EFAST Help Line is available 

Monday through Friday from 8:00 a.m. to 8:00 

p.m., Eastern Time.• 

Things to Remember - 2007 Forms 5500/5500-EZ 

Assuming you’re on a calendar-year basis, your Forms 5500 or 5500-EZ for 

2007 were due July 31, 2008, unless you filed for an extension. Below are 

some things to remember when you do file your return: 

Form 5500: 

Under the Pension Protection Act of 2006 (PPA), a new simplified reporting 

option is available for eligible plans with fewer than 25 participants, as of 

the beginning of the plan year. The simplified reporting option limits the 

required filing to: 

1.	 The entire Form 5500; 

2.	 Schedule A for any insurance contract for which a Schedule A is 

required under current rules, completing lines A, B, C, D, and the 

insurance fee and commission information in Part I; 

3.	 The entire Schedule B; 

4.	 The entire Schedule I; 

5.	 Schedule R identifying information and Part II; and 

6.	 The entire Schedule SSA. 

See the instructions for the “Voluntary Alternative Reporting Option for 

Certain Plans with Fewer Than 25 Participants,” on page 8 of the 2007 

Form 5500 Instructions describing this reporting option and its eligibility 

requirements. 

Form 5500-EZ: 

Plans established on or before December 31, 2006, for which a Form 5500-

EZ was required to be filed, will not need to continue filing the Form 5500-

EZ, unless their total plan assets (for one or more one-participant plans, 

separately or together) exceed $250,000 at the close of the plan year 

beginning on or after January 1, 2007. 

All one-participant plans must file a Form 5500-EZ for their final plan year 

even if the total plan assets have always been less than $250,000. The final 

plan year is the year in which the distribution of all plan assets is 

completed. (This would include rollovers to IRAs or transfers to other 

plans.) Check the “final return” box in Part I, Line A of Form 5500-EZ and 

zero assets should be indicated on line 11a(b), assets at the end of the year. 

Remember that for the 2005 plan year and later, filers of 5500-EZ are no 

longer required to file any schedules with the form. Defined benefit plan 

filers are still required to collect and retain a completed and signed 

Schedule B, but are not required to file them with their Form 5500-EZs. 

Schedules are still required to be filed for all years prior to 2005.• 

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Recent Guidance 

T.D. 9418 73 Fed.Reg. 43860 

(July 29, 2008) 

Relates to Code §408A and provides 

guidance on the tax consequences of 

converting a non-Roth IRA annuity to a 

Roth IRA. The regs. affect individuals 

establishing Roth IRAs; beneficiaries 

under Roth IRAs; and trustees, custodians, 

and issuers of Roth IRAs, and are effective 

July 29, 2008. They are applicable to any 

Roth IRA conversion where an annuity 

contract is distributed or treated as 

distributed from a traditional IRA on or 

after August 19, 2005. 

Announcement 2008-44, 2008-20 

I.R.B. 982 

Provides that individuals who have 

payments made by direct deposit under the 

Economic Stimulus Act of 2008 to their 

IRAs or certain other tax-favored accounts 

may remove them without incurring 

adverse tax consequences. 

Revenue Procedure 2008-50, 2008-35 

I.R.B. 

Updates the comprehensive system of 

correction programs, called EPCRS, for 

sponsors of retirement plans that are 

intended to satisfy the requirements of 

Code §§401(a), 403(a), 403(b), 408(k), or 

408(p), but that have not met these 

requirements for a period of time.• 

ERPA Contract Awarded - Testing to Begin in January 2009 

On August 1, 2008, the IRS awarded, through a competitive bid process, the 

American Institute of Retirement Education, LLC (AIRE) the contract to 

conduct the examinations for the Enrolled Retirement Plan Agent (ERPA) 

program. ERPA tests are slated to begin in January 2009. ERPA candidates 

may apply to take the ERPA test beginning October 23, 2008. 

The IRS Restructuring and Reform Act of 1998 placed limitations on 

retirement plan professionals to represent their clients before the Service. As a 

result, based on recommendations from the Advisory Committee on Tax 

Exempt and Government Entities, Circular 230 was revised establishing a 

new classification of practitioner called an ERPA. 

An ERPA is limited to representation with respect to issues involving the: 

• Employee Plans Determination Letter program; 

• Employee Plans Compliance Resolution System (EPCRS); and 

• Employee Plans Master and Prototype and Volume Submitter

 programs. 

In addition, ERPAs are generally permitted to represent taxpayers with respect 

to Form 5300 and 5500 series returns, but not with respect to actuarial forms or 

schedules. 

Don’t expect to see any ERPAs signing the Form 2848, Power of Attorney and 

Declaration of Representative, quite yet! To become an ERPA, a candidate 

must demonstrate competency in retirement plan matters by passing the 

two-part ERPA Special Enrollment Examination, each having approximately 

75 questions. Then the candidate must apply for enrollment with the IRS, 

satisfying professional and ethical standards of conduct. Thereafter, an ERPA 

must follow continuing education requirements and renewal procedures. 

For more information on the ERPA program, see our ERPA web page. In 

addition, AIRE has established www.ERPAEXAM.org for further information 

on the testing process.• 

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DOL News
 

Plan Filing Update Webcast 

Visit EBSA’s Webcast page for the 

archived version of EBSA’s recent webcast 

with the IRS on common filing errors, 

selecting an auditor for your plan, 403(b) 

plan filing preparation, blackout notices, 

and voluntary correction programs, among 

other issues. 

Free Compliance Assistance Events: 

For dates and locations of free compliance 

assistance events sponsored by EBSA for 

both retirement and health benefit plans, 

visit EBSA’s homepage.• 

Department of Labor’s Employee Benefits Security Administration (DOL/EBSA) announced new 

guidance and tools to assist plan sponsors in complying with ERISA, including those featured below. 

You can subscribe to DOL/EBSA’s web site homepage or PPA page for updates. 

Proposed Regulation to Improve Disclosure of Fees and Expenses to 

Participants 

On July 23, DOL/EBSA published a proposed rule that would provide 

workers in 401(k)-type plans with useful summary information, including fee 

and expense information, for investment options available in their plans. 

The centerpiece of the proposed regulation is the required provision of 

investment-related information in a comparative chart or similar format. DOL/ 

EBSA has developed a model chart for complying with this requirement, 

while giving fiduciaries the flexibility to design their own charts or 

comparative formats. Fiduciaries are also required to disclose basic 

information about the plan and its investment options, such as what options are 

available, how to give investment instructions, investment returns and fees and 

expenses, and how to obtain more detailed information. This information 

would be given to participants on a regular and periodic basis. When finalized, 

the regulation would be effective for plan years beginning on or after January 

1, 2009. 

Comments on the proposed regulation can be submitted on or before 

September 8, 2008, electronically to e-ORI@dol.gov or mailed to the U.S. 

Department of Labor, Employee Benefits Security Administration, Room N5655, 200 Constitution Avenue, NW, Washington, DC 20210, Attn: Participant 

Fee Disclosure Project. 

Guidance on 2009 Form 5500 Schedule C 

On July 14, DOL/EBSA issued guidance to help plan administrators and 

service providers comply with the new requirements for reporting service 

provider fee and compensation information applicable to Form 5500 Annual 

Returns/Reports filed for plan years beginning on or after January 1, 2009. 

DOL/EBSA released 40 frequently asked questions (FAQs) on the new 

Schedule C requirements. The FAQs cover such issues as the alternative 

reporting option for eligible indirect compensation, electronic disclosure of fee 

information by service providers, fee reporting for brokerage window options 

in participant-directed plans, and reporting on gifts, entertainment and other 

non-monetary compensation. 

In response to concerns expressed by service providers trying to make changes 

to their recordkeeping and information management systems in order to 

provide their clients with fee and compensation information required for 2009 

reports, DOL/EBSA announced that plan administrators will not be required to 

report service providers on the Schedule C as failing to provide fee and 

compensation information if the service provider provides the plan 

administrator with a written statement that (i) the service provider made a 

good faith effort to make any necessary recordkeeping and information system 

changes in a timely fashion, and (ii) despite such efforts, was unable to 

complete the changes for the 2009 plan year.• 

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Fixing Common Plan Mistakes: 

Participant Loans in a 401(k) Plan 

Each issue of the RNE looks at a common error that occurs in retirement plans and provides information 

on fixing the problem and lessening the odds of it happening again. 

The Problem: 

A 401(k) plan permits participants to take loans. The plan sets forth the loan limits of 

Code §72(p)(2) so that a loan to a plan participant will not be treated as a distribution to 

the participant. Thus, the plan provides for the appropriate dollar limit on loans, for level 

amortizations over no longer than five years (longer if the loan is used to purchase a 

principle residence), and for payments to be made at least quarterly. If a loan does not 

satisfy the Code’s requirements, then the loan is deemed to be a taxable distribution to the 

participant. This can happen if the participant does not make the payments required under 

the terms of the loan. 

Example: On June 1, 2007, Jane took a $10,000 loan from her employer’s 401(k) plan. 

The interest rate on the loan was 8%. Her loan was for a five-year period and required 

monthly payments of $203. Her loan payment was to be made by payroll withholding. The 

plan did not provide for a “cure period” for missed installments. Paychecks are issued at 

the beginning of the month. Jane’s loan information was not forwarded to the payroll 

department and, as a result, no payments were withheld in 2007. The problem was 

discovered on December 15, 2007, during an annual review of the plan’s records. July 1, 

2007 is considered to be the first missed payment, and her outstanding loan balance of 

$10,067 (loan plus accrued interest) is treated as a deemed distribution. Jane is required to 

report $10,067 in income on her 2007 Form 1040. 

Finding the Mistake: 

At the beginning of each month, the plan should reconcile the aggregate payroll deposits 

to the plan (employees’ elective contributions and loan repayments), with the payroll 

amounts that should have been deposited to the plan, including Jane’s in the above 

example. If there are gaps, then payroll records, election forms, and loan documents 

should be analyzed on an individual basis to determine whether the correct amounts 

(including loan repayments) were withheld from the employees’ paychecks and deposited 

into the plan. 

Fixing the Mistake: 

A loan’s outstanding balance will be a deemed distribution to the participant if the plan 

does not receive a required loan payment by its due date. To remedy this, the employer 

may request and obtain relief from the IRS under its Voluntary Correction Program (VCP). 

In order to obtain relief, the mistake must be corrected. In the example, if the failure was 

corrected on January 1, 2008, the plan administator could have asked Jane to: 

(1)	 make a lump sum payment of $1,245 for the six missed installments (adjusted for 

interest at 8%) and continue making the $203 installment payment for the 

remaining period of the loan; 

(2)	 reamortize the outstanding balance of the loan, resulting in increased installment
 

payments of $230 per month for the remainder of the loan period; or
 

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Contributors to 

this Issue: 

Avaneesh Bhagat 

Bob CreMeens 

Kathy Davis 

Roger Kuehnle 

Mark O’Donnell 

Nancy Payne 

Sharon Polo 

John Schmidt 

Brenda Smith-Custer 

Monika Templeman 

Mikio Thomas 

Kathy Tuite • 

(3)	 make a partial lump-sum payment (an amount less than $1,245 - the 

six missed payments, adjusted for interest) and reamortize the 

outstanding balance of the loan, resulting in a monthly payment that 

is higher than $203 per month but less than $230 per month. 

Correction Program Available: 

In appropriate cases, under VCP, the plan may correct certain participant loan 

failures and obtain relief from reporting the loans as deemed distributions 

under §72(p) (for details, see section 6.07 of Revenue Procedure 2008-50). 

SCP and Audit CAP are not available for the purpose of obtaining relief from 

reporting a defaulted participant loan as a deemed distribution. 

Avoiding the Mistake: 

(1) Require transmittal of loan information to payroll before making the 

loan. 

The plan should institute procedures that would include evidence of 

receipt of the loan information by the payroll department, before a 

check is issued for the loan. For example, procedures could provide 

that an application form that has been reviewed and approved by the 

plan administrator must be initialed by an authorized individual in the 

payroll department, before a check for the loan is issued. 

(2) The plan could permit a cure period. 

A plan may provide that a loan does not become a “deemed 

distribution” until the end of the calendar quarter following the 

quarter in which the payment was missed. A cure period gives the 

plan administrator time to take corrective action without negative 

consequences. In the example, if the plan administrator followed such 

a procedure, then upon discovery on December 15, 2007, the plan 

administrator would have had the opportunity to secure the missed 

payments from Jane and prevent the loan from being treated as a 

deemed distribution (the first missed payment that was due on July 1, 

2007, could have been secured by December 31, 2007).• 

11 
Spring

Spring 20

Summer 2008 Retirement News for Employers

Summer 2008 Retirement News for Employers 

Retirement News for Employers 

Retirement News for Employers (RNE) is a 

free, quarterly newsletter aimed at keeping 

employers informed about retirement plan 

sponsorship. RNE is prepared by the IRS’s 

Employee Plans (Tax Exempt and 

Government Entities) office. 

For your convenience, RNE includes Internet 

links – identified by the blue underlined text – 

to referenced materials. 

How to Subscribe 

RNE is distributed exclusively through IRS email. Sign up for your free subscription by 

going to the Retirement Plans Community 

web page and selecting “Newsletters” in the 

left pane. Prior editions of the RNE are also 

archived there. 

Send Comments/Suggestions to: 

EP Customer Education & Outreach 

SE:T:EP:CEO 

1111 Constitution Ave., N.W., PE-4C3 

Washington, DC 20224 

FAX: (202) 283-9525 

E-Mail: RetirementPlanComments@irs.gov 

Have a Question? 

For taxpayer assistance with retirement 

plans technical and procedural questions: 

Please call (877) 829-5500 or visit the 

“Contact EP/Services” section at 

www.irs.gov/ep. 

For questions relating to retirement income, 

IRAs, Roth IRAs, educational IRAs, 

medical savings accounts, and §125 

cafeteria plans: 

Please call (800) 829-1040.• 

Mark Your Calendar 

Operating a retirement plan can be a time-consuming job. There are deadlines, not 

just for reports and forms but also for making contributions. There are conferences 

and seminars. And then there is information you need to give to participants. 

So to help you navigate the retirement plan timeline, here is a look at some of the 

important moments in the months to come. Please note that all of the filing dates 

below are for calendar-year plans – adjust the dates for noncalendar-year plans: 

August 26 - 28: IRS Nationwide Tax Forum – New York, NY. 

September 9 - 11: IRS Nationwide Tax Forum – San Diego, CA. 

September 11: EBSA Seminar: Fiduciary Education Workshop – 

Boston, MA. 

September 15: Deadline for making final required minimum contributions for 

2007 calendar-year end plans. 

September 24: EBSA Seminar: Fiduciary Education Workshop – 

Wichita, KS. 

September 30: Summary Annual Report due to participants for 2007 calendar-year 

end plans. 

October 15: File 2007 Form 5500, Annual Return/Report of Employee Benefit 

Plan, or Form 5500-EZ, Annual Return of One-Participant (Owners and Their 

Spouses) Retirement Plan, with DOL/EFAST if you filed for a 2-1/2 month 

extension prior to August 1. 

October 15: Deadline for making third quarter contributions to 2008 calendar-year 

defined benefit plans. 

October 20: EBSA Seminar: Fiduciary Education Workshop – 

Pittsburgh, PA. 

November 1: Last day for employers with SIMPLE IRA and SIMPLE 401(k) plans 

to notify eligible employees of their 2009 salary reduction rights and whether the 

employer’s required contributions will be matching or nonelective contributions. 

For a comprehensive list of upcoming EP Educational Events, visit the 

Retirement Plans Community web page, select “Plan Sponsor/Employer,” 

then “Questions: Where to Get Answers,” and click on “Upcoming EP 

Educational Events.”• 

Department of the Treasury Publication 4278 (08-2008) 

Internal Revenue Service Catalog Number 37968B 

12 www.irs.gov 
g 2008 Retirement News for Employers

008 Retirement News for Employers

Summer 2008 Retirement News for Employers

 

Summer 2008 Retirement News for Employers 

Timing is Everything 

Some helpful retirement tips for employees from the IRS... 

National Save for Retirement Week 

Congress has designated October 19 - 25, 2008, as “National Save for Retirement Week” in an effort to increase 

awareness of the need to save adequate funds for retirement. 

The Internal Revenue Service also supports the goal and has information and resources to educate employees about 

retirement savings. 

Did You Know... 

• Retirement can last for 30 years or more? 

• Retirees may need up to 80% of their annual income today to retire comfortably? 

•	 The average amount paid monthly by the Social Security Administration in the form of a benefit is

 $1,083? 

Why Participate in a Retirement Plan? 

Saving through an employer retirement plan is one of the easiest ways for employees to save. Recent tax law 

changes have increased the contribution amounts that are deductible for 401(k) plans and IRAs, for example. 

Participants age 50 or older can save additional amounts to help catch up on their savings as they near retirement. 

Other employee benefits include: tax on employee contributions is deferred until distributed, investment gains in the 

plan are not taxed until distributed, retirement assets can be carried from one employer to another, contributions can 

be made easily through payroll deductions, Saver’s Credit is available, and better financial security is available upon 

retirement. 

Future Retirement Savings Value 

Monthly Savings, 6% 5 Years 15 Years 20 Years 

$50 $3,489 $14,541 $23,102 

$200 $13,954 $51,164 $92,408 

$500 $34,885 $145,409 $231,020 

How We Can Help 

The Internal Revenue Service is committed to working to assist employees by providing publications, web site 

resources (www.irs.gov/ep), outreach, and telephone assistance ((877) 829-5500) to help in understanding federal 

retirement plan law. 

Department of the Treasury Publication 4278 (08-2008) 

Internal Revenue Service Catalog Number 37968B 

www.irs.gov 

13