Volume 3, Fall 2006 

Inside This Issue 

The ACT Asks for Your 

Comments 

page 3 

Delay in Effective Date for 

Regulations Under 

Section 403(b) 

page 3 

Critical FewPoints...By 

Michael Julianelle 

(Director, EP 

Examinations) 

page 4 

Product Profile - Have you 

had your Check-up this 

year? for 401(k) 

Retirement Plans 

page 5 

The Fix Is In: Common 

Plan Mistakes 

page 6 

Safe Harbor Notice 

Reminder 

page 8 

DOL Corner 

page 9 

Net Gains 

page 11 

The Filing Cabinet 

page 12 

Calendar of Events 

and Deadlines 

page 13 

Timing is Everything 

page 14 

Retirement News 

for Employers 

Helping Business Owners with Retirement Plans


Internal Revenue Service Tax Exempt and Government Entities


Provisions of the Pension Protection Act of 2006 

Effective in 2007 

The Pension Protection Act of 2006 (H.R. 4) was signed into law by the President on August 

17, 2006. We featured a brief summary of some of the retirement related provisions included 

in the law in the Summer 2006 edition of the Retirement News for Employers. The law is 

the most sweeping pension legislation in over 30 years and includes a number of significant tax 

incentives to enhance retirement savings for millions of Americans. This edition of the RNE will 

focus on provisions of the law relating to defined contribution plans which are effective in 

2007. 

•	 Permanent Retirement and Savings Incentives - The Economic Growth and 

Tax Relief Reconciliation Act of 2001 (EGTRRA) substantially increased pension 

and individual retirement account (IRA) contribution limits through 2010 as well as 

making other improvements in pensions and retirement savings through enhanced 

vesting, portability and reduced regulatory burdens. The law makes these favorable 

changes permanent. The law also indexes the income limits for traditional, spousal 

and Roth IRAs to prevent these benefits from being eroded by 

inflation. 

•	 Vesting - All employer contributions made to a defined


contribution plan after 12/31/06 must be vested using


either a 6-year graded or 3-year cliff vesting schedule.


•	 Notice and Consent Period Regarding Distributions 

-A notice must be provided to plan participants at least


30 days but not more than 180 days before a distribution


stating the participant’s rights regarding cash-outs


(explaining the consequences of not deferring the


distribution), eligible rollover distributions and survivor


annuities.

Fall 2006 Retirement News for Employers 

•	 Saver’s Credit Made Permanent - The law makes permanent the Saver’s Credit of up to 

$2,000. Without this extension, the credit would not have been available after 2006. The 

law also indexes the Saver’s Credit income limits to prevent this benefit from being eroded 

by inflation. (See also the “Timing is Everything” flyer on page 14.) 

•	 Requirement to Allow Employees to Divest Plan Assets - The law requires employers 

to allow participants in defined contribution plans that are invested in employer securities to 

elect to direct the plan to divest employer securities into other investment options. 

Participants are required to be notified of their right to divest and of the importance of 

diversification. Issuance of a model notice for this purpose is being considered, and 

guidance is expected to be issued very soon. 

•	 Hardship Distributions -This provision was effective on August 17, 2006 and modifies 

the rules governing hardships to include events that occur to a participant’s spouse or 

dependent. 

•	 Treatment of IRA Contributions for Guard and Reservists Called to Active Duty ­

The law provides that distributions from an IRA or pension plan taken by members of the 

National Guard and Reserves called to active duty after 9/11/2001 and before 12/31/2007 

for a period in excess of 179 days are not subject to early withdrawal penalties. Withdrawn 

amounts may be repaid to the IRA or pension plan within two years of the distribution 

without regard to the annual contribution limit. 

•	 Rollover Rules - The law provides new rollover requirements for after-tax rollovers in 

annuity contracts, direct rollovers from retirement plans to Roth IRAs, and rollovers by 

nonspouse beneficiaries of certain retirement plan distributions. 

•	 In-Service Distributions at Age 62 - The law allows pension plans to provide for 

distributions to employees who have attained age 62 and who have not separated from 

employment at the time of the distributions. 

Additional guidance on these provisions will be issued by the IRS and Treasury. Please check our 

Published Guidance page frequently for updates. 

For additional information, see:

 • Summary and Bill Information - Pension Protection Act of 2006.

 • Technical Explanation of the Pension Protection Act of 2006. 

“Timing is Everything” 

The first anniversary edition of our “Timing is Everything” 

flyer is on page 14. In this edition, we have information 

on 2007 contribution limitations and the Retirement 

Saver’s Credit. Feel free to go ahead and print and/or 

share the flyer with your employees. 

2 
Fall 2006 Retirement News for Employers 

The Act Asks for Your Comments


How to Subscribe to 

Retirement News for 

Employers 

The Retirement News for 

Employers is issued by IRS 

e-mail. For your free 

subscription, go to the 

Retirement Plans Community 

web page and subscribe online 

by selecting “Newsletters” 

under “Retirement Plan 

Community Topics.” All 

editions of the Retirement 

News for Employers are 

archived there. 

For your convenience, we 

have included Internet links 

to referenced materials 

throughout the electronic 

version of Retirement News 

for Employers. These links 

are identified by the blue and 

underlined text. 

The Advisory Committee on Tax Exempt and Government Entities (the “ACT”) 

serves as an advisory group to the Commissioner, Tax Exempt and Government 

Entities Division of the IRS on employee plans, exempt organizations, tax exempt 

bonds, and federal, state, local and Indian tribal government issues. Presently, the 

ACT is considering recommendations to assist employers, who have or will adopt 

pre-approved qualified retirement plans through institutions, service providers or 

other professionals, to remain compliant with IRS rules and regulations. Any 

employer, who has adopted a pre-approved plan and is willing to provide 

comments, is asked to respond directly to the ACT’s e-mail address at 

tege.act@irs.gov on the following questions: 

1. Who, if anyone, assisted you in completing the documents relating to

 your plan (such as an attorney, consultant, broker, representative of

 the plan’s sponsor, etc.)? 

2. Who, if anyone, provides technical assistance to you in the ongoing

 operation of your plan? 

3. What have been the most difficult aspects of operating your plan and

 complying with the IRS’ document requirements? 

4. What recommendations would you make to help improve compliance

 with the IRS’ rules and regulations? 

5. What other information would you like to share with the ACT

 concerning your experience as an adopter of a pre-approved plan? 

Delay in Effective Date for Regulations Under 

Section 403(b) 

As mentioned in our August 29, 2006 News Flash, the Internal Revenue Service announced 

that the general effective date for the regulations regarding section 403(b) arrangements that 

were proposed in 2004 (including the related controlled group regulations under section 

414(c)) will be extended. 

In order to provide employers, employees, insurance carriers, and mutual funds involved in 

section 403(b) arrangements a reasonable advance period before the regulations go into 

effect, the final regulations generally will not be effective earlier than January 1, 2008. 

3

Fall 2006 Retirement News for Employers 

Critical FewPoints...By Michael Julianelle (Director, EP Examinations) 

This is my last time sharing my thoughts on our Critical FewPoints in the EP Examination Program. 

I will be assuming my new position as IRS Director of Government Entities this month. Upcoming 

editions of this newsletter will continue to share the thoughts of my replacement. 

Though IRS Employee Plans is undergoing changes in its senior leadership, our efforts these past 

years to focus our limited resources and attention to what we call the “Critical Few” priorities/ 

goals in our Examination Program remains unchanged. We recognize the importance of a 

reasonable and vigorous EP Examination Program to the Retirement Plans Community. 

For FY 2007, we will focus on three “Critical Few” priorities/goals as follows: 

• Expand Compliance Contacts 

• Research & Analysis 

• Focused Examinations 

Let’s outline some details on each of the FY 2007 Critical Few: 

First, Expand Compliance Contacts includes effectively dealing with abusive schemes, 

increasing the number of returns examined, addressing new market segments, expanding contacts 

from the EP Compliance Unit (EPCU), working new projects (such as risk-based targeted 

exams) and completing specialty work (such as EPTeam Audits). 

Second, Research & Analysis is key in making certain that the most appropriate plans are 

selected for enforcement. We will more effectively use our data and develop projects through 

analysis performed by the Data Analysis Unit and the EP Compliance Unit. One effort is what we 

will call LESE which stands for Learn, Educate, Self-Correct and Enforce. LESE cases are quick 

projects where returns selected for examination contain issues of interest in a particular market 

segment. 

Third, Focused Examinations started in FY 2006 will continue due to the favorable results in 

using the technique to work our examination cases. This is also the proper way to conduct an 

examination. The focus is on non-compliant taxpayers to produce efficient examinations by 

identifying more productive issues before assignment and concentrating on pre-audit, initial 

interview, internal controls and examining key issues. Thus, this approach saves compliant 

taxpayers time and money. Agents can still perform a quality examination, determine if the issues 

warrant further investigation, and close the case in a more timely manner. 

Check out the FY 2007 EPWork Plan for more details on the EP Examination Program. 

Finally, I want to thank you for reading my words and for the comments you have given me in 

person and through e-mail. I wish for all of you to have continued success with your businesses 

and with your retirement plan goals for you and your employees. 

4 
Fall 2006 Retirement News for Employers 

Product Profile - Have you had your Check-up this year? for 

401(k) Retirement Plans 

Two years ago, in the Fall 2004 edition of the Retirement News for Employers, we profiled 

Publication 4405, Have you had your Check-up this year? for SIMPLE IRAs, SEPs, and Similar 

Retirement Plans. We are pleased to announce its new companion Publication 3066, Have you had 

your Check-up this year? for 401(k) Retirement Plans. Just as you need to give your car periodic 

check-ups to ensure that you have a solid, well-oiled, dependable machine when you need it, a 

retirement plan needs regular attention and care to keep it operating well. 

This publication provides the roadmap to help you maintain your 401(k) plan and participant benefits. 

Have you had your Check-up this year? for 401(k) Retirement Plans is a plain-language publication 

that provides you with basic information on: 

401(k) PLAN CHECKLIST

This Checklist is not a complete description of For Business Owner’s Use 


all plan requirements, and should not be used as (DO NOT SEND THIS WORKSHEET TO THE IRS) 


a substitute for a complete plan review.


Every year it is important that you review the requirements for operating your 401(k) retirement plan. This checklist 


is a “quick tool” to help you keep your plan in compliance with many of the important rules. Underlined text below 


shows a link to expanded explanations and resources available at www.irs.gov/ep. 


1. Has your plan document been Yes No 6. Have you timely deposited employee Yes No 

updated within the past few years ■ ■ deferrals each pay period? ■ ■ 

to reflect recent law changes? You are required to deposit deferrals as soon as they can be 

If your plan has not been updated to reflect EGTRRA, the segregated from the employer’s assets. Most employers 

plan needs to be revised. deposit salary deferrals when making payroll tax deposits. 

2. Have you notified the people who Yes No 7. Have you identified all your highly Yes No 

service your plan of any plan changes? ■ ■ compensated employees and key ■ ■ 

Notify plan servicers right away with any changes in the employees, including owners and their 

form or operation of your plan, including acquisition or family members, so that your TPA can 

ownership changes affecting the employer. perform your nondiscrimination tests? 

Failure to provide this information prevents yourTPA from 

3. Is your plan’s operation based on Yes No properly performing your nondiscrimination tests. 

the definitions and requirements ■ ■ 

(terms) written in your plan document? 8. Have the 401(k) nondiscrimination Yes No 

Failure to follow the terms of the plan is a common problem tests (ADP, ACP, and Top-Heavy) been ■ ■ 

encountered on audit. performed counting all eligible employees? 

You may not need to—find out how a safe harbor 401(k) plan 

4. Were all eligible employees identified Yes No may allow you to completely avoid these tests. 

and given the opportunity to make an ■ ■ 

elective deferral election? 9. Have you filed a Form 5500 series Yes No 

By supplying your third party administrator (TPA) or advisor return, and have you distributed a ■ ■ 

with information regarding all employees who receive a Summary Annual Report (SAR) to all 

Form W-2, you may reduce the risk of omitting eligible plan participants this year? 

employees. Responsibility for filing the Form 5500 and distributing 

the SAR lies with you, the plan sponsor. 

5. Is the plan’s definition of Yes No 

compensation used for all deferrals ■ ■ 10. Are elective deferrals limited to Yes No 

and allocations? the amounts under IRC 402(g) for the ■ ■ 

Because your plan may use different definitions of compen­ calendar year? 

sation for different purposes, it’s important that you apply Elective deferrals are limited to $15,000 for 2006, including 

the proper definition in a consistent manner when dealing any designated Roth contributions made by participants, and 

with deferrals and allocations. exclusive of any catch-up contributions. 

If you answered “No” to any of the above questions, you may have a mistake in the operation of 

your 401(k) plan.This list is only a guide to a more compliant plan, so answering yes to each question may not mean 

your plan is 100% compliant. Many mistakes can be corrected easily, without penalty and without notifying the IRS. 

■ contact your benefits professional ■ visit the IRS at www.irs.gov/ep ■ call the IRS at (877) 829-5500 

Department of the Treasury Publication 4531 (7-2006) 


Internal Revenue Service Catalog Number 48552T 


www.irs.gov

• 	 Tools - For a quick review to see if you meet

 some basic requirements in operating your

 business’s retirement plan, get the one-page

 IRS 401(k) Checklist of 10 questions. The

 online version of the checklist includes

 expanded explanations to key terms in the

 questions. The checklist does not cover all plan

 requirements, so you should not use it as a

 complete plan review. It is, however, an easy

 way to start your plan check-up. 

•	 Tips/Resources - Help ensure that the plan is in

 good running order. 

•	 Help - through IRS Programs. The IRS has

 helpful correction programs that provide

 incentives for finding and correcting mistakes

 earlier rather than later.After reviewing the plan

 and completing the appropriate checklist, an

 employer may find an error in the plan’s

 operation. The employer may want to correct

 the error using one of the IRS correction

 programs. 

Finally, the publication provides additional resources for your use if you need more in-depth information. 

The publication, as well as additional information on 401(k) plans and checklists for SIMPLE IRAs, 

SEPs, and SARSEPs, can be found on the Retirement Plans Community web page, www.irs.gov/ep. 

Copies of the publications can be ordered by calling 1-800-TAX-FORM (829-3676). The number is 

toll-free. 

5

Fall 2006 Retirement News for Employers 

The Fix Is In: Common Plan Mistakes 

In each issue of the Retirement News for Employers we present a common mistake that occurs 

in retirement plans. We describe the problem, how it happened, how to fix it and how to lessen 

the probability of the problem happening again. This edition of the column focuses on 

“Correction for Exclusion of Employees for Elective Contributions orAfter-Tax 

Employee Contributions.” 

The Issue 

A plan must specify how an employee becomes a participant. In other words, what are the plan’s 

eligibility conditions? IRC §§401(a)(3) and 410(a) establish minimum standards relating to age 

and service requirements for eligibility purposes. Failure to timely include all eligible employees in 

a qualified plan will cause the plan to lose its tax-qualified status. 

The Problem 

If an employee is improperly excluded from a profit-sharing plan, they miss out on any 

contributions made (with earnings) during the period of exclusion. Calculating the amount that the 

employee lost in this situation is simple. The allocations of any plan contributions during the 

exclusion years are recalculated by including the excluded participant and are adjusted for lost 

earnings. When a plan allows elective contributions or after-tax employee contributions in a 

401(k)/(m) arrangement, the calculation of the loss suffered by the excluded employee becomes 

more complex. When an employee misses the chance to make a deferral or after-tax contribution, 

the dollars that would have been contributed are still in the possession of the employee. The 

affected employee has lost the opportunity to put a certain amount of money into a tax-favored 

account. 

The Fix 

Improperly excluding an employee from making elective contributions or after-tax employee 

contributions will cause a plan to become disqualified, resulting in adverse tax consequences to the 

employer and employees under the plan; however, employers may get relief from these adverse 

consequences through the Employee Plans Compliance Resolution System (EPCRS) by 

correcting the failures. The Voluntary Correction Program (VCP) and the Self-Correction 

Program (SCP) can be used to correct these mistakes. 

Prior to the issuance of Revenue Procedure 2006-27, the correction for excluding an otherwise 

eligible employee from making deferrals or after-tax employee contributions into a 401(k)/(m) 

plan was for the employer to contribute both: 

1.	 A Qualified Non-Elective Contribution (QNEC) equal to the average deferral percentage 

(ADP) for the class of the excluded employee (either Highly Compensated Employee 

(HCE) or Nonhighly Compensated Employee (NHCE)) times the employee’s 

compensation during the period of the failure, and 

2.	 An additional QNEC equal to the average contribution percentage (ACP) for the class of 

the excluded employee (NHCE or HCE) times the employee’s compensation during the 

period of the failure. 

6 
Fall 2006 Retirement News for Employers 

The above amounts would be adjusted for earnings. The average deferral percentage, or ADP, is 

determined by averaging the deferral percentages separately calculated for the eligible employees in 

the §401(k) arrangement. A QNEC is a contribution made by an employer that meets certain vesting, 

distribution and nondiscrimination requirements. 

It can be argued that this correction creates something of a “windfall” for affected employees because 

under the ADP portion of the correction the employee receives both the corrective contribution and 

the cash compensation upon which the QNEC is made. 

Revenue Procedure 2006-27 introduced a new optional correction method based on the principle that 

the employer should contribute to the plan on behalf of the excluded employee an amount that 

measures the value of the “lost opportunity” to the employee to have a portion of his or her 

compensation contributed to the plan. This correction principle applies solely to this limited 

circumstance. It does not, for example, extend to the correction of: 

•	 A failure to satisfy a nondiscrimination test, e.g., the ADP test pursuant to §401(k)(3) and the 

ACP test pursuant to §401(m)(2). 

•	 §414(v) catch-up contributions or Roth contributions. 

The method of correction cannot be used until after the correction of other qualification failures. Thus, 

for example, if in addition to the failure of excluding an eligible employee, the plan also failed the ADP 

or ACP test, the correction method described cannot be used until after correction of the ADP or ACP 

test failures. 

The new correction for a failure to include an eligible employee in a 401(k) plan is based on the “lost 

opportunity cost” to make deferrals. For salary deferrals, the required make-up payment is 50 percent 

of the pre-tax deferrals the employee would have made had the employee been timely included in the 

plan. This is based on the employee’s compensation times the ADP of the employee’s class (NHCE or 

HCE). The matching contribution for the excluded employee equals the matching contribution that 

would have been received had the employee made pre-tax deferrals. However, the corrective 

matching contribution is based on the full amount of deferrals (ADP) and not the 50 percent lost 

opportunity cost applicable to employee deferrals. Similar correction rules apply to safe harbor 

401(k) plans. However, in calculating the correction amount the plan must apply its safe harbor 

formula rather than the ADP amounts for the applicable class of employees. 

Example: A NHCE has compensation of $40,000 and is incorrectly excluded for a full 

year from a plan that provides a match equal to 100 percent of the first 3 percent of 

IRS employees contributing to compensation. The plan has a NHCE ADP equal to 5 percent. The QNEC for lost 

this edition of the Retirement opportunity cost to make deferrals is $1,000 ($40,000 x 5% x 50%). The QNEC for News for Employers are: the matching contribution is $1,200 ($40,000 x 3%). 

Michael Julianelle The correction for after-tax contributions is based on a different “lost opportunity cost” ­ Joyce Kahn namely, 40 percent of the after-tax contributions the employee would have made had the Roger Kuehnle 

Peter McConkey employee been timely included in the plan. This amount is based on the employee’s 

Mark O’Donnell compensation times the ACP for the employee’s class (NHCE or HCE). The applicable 

Nancy Payne ACP in this calculation may be limited to the portion of the ACP that is attributable to 

Marty Pippins after-tax employee contributions (excluding matching contributions). Keith Ruprecht 

John Schmidt 

Brenda Smith-Custer and 

Mikio Thomas 7 
Fall 2006 Retirement News for Employers 

Making Sure It Doesn’t Happen Again 

Employers need to have a system in place to ensure that employees are allowed entry into the 

plan according to the terms of the written plan. Employers should work with plan administrators 

to ensure that the administrators have sufficient employee data to calculate the proper entry date 

and rate of deferrals desired by the employee. 

However, keep in mind that, despite all of your good efforts, mistakes can happen. In that case, 

the IRS can help you correct the problem and retain the benefits of your qualified plan. 

CONTACTING 

EMPLOYEE PLANS 

The Retirement News for Employers 

welcomes your comments about this issue 

and/or your suggestions for future articles. 

Send comments/suggestions to: 

EP Customer Education & Outreach 

SE:T:EP:CEO 

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

Washington, D.C. 20224 

or FAX (202) 283-9525 

or E-Mail: 

RetirementPlanComments@irs.gov 

For EP Taxpayer Assistance: 

For retirement plans technical and 

procedural questions: 

Please call (877) 829-5500 

Or visit the EP Customer Account Services 

section at www.irs.gov/ep. 

For questions relating to retirement 

income, IRAs, Roth IRAs, educational IRAs, 

medical savings accounts and section 125 

cafeteria plans: 

Please call (800) 829-1040 

For further Employee Plans Information: Go 

to www.irs.gov/ep. 

Safe Harbor Notice Reminder 

Employers with calendar-year safe harbor 401(k) plans are required to 

give employees a written notice within a reasonable period before the 

beginning of each plan year of their rights and obligations under the 

plan. The regulations under section 401(k) provide that the timing 

requirement for the notice is deemed satisfied if the notice is given at 

least 30 days but no more than 90 days before the beginning of each 

plan year. 

The regulations also provide that certain information otherwise required 

to be contained in the safe harbor notice can instead be crossreferenced to the relevant portions of the plan’s summary plan 

description that is currently available to employees. However, a 

description of the plan’s withdrawal and vesting provisions applicable to 

contributions under the plan may not be cross-referenced to a summary 

plan description. This is a change: For plan years beginning before 

2007, a safe harbor 401(k) plan notice could have cross-referenced the 

plan’s summary plan description for the plan’s withdrawal and vesting 

provisions. 

So, for plan years beginning after December 31, 2006, a safe harbor 

notice must include a description of the plan’s withdrawal and vesting 

provisions applicable to contributions under the plan (merely crossreferencing to the relevant portions of a summary plan description is not 

sufficient). 

8 
Fall 2006 Retirement News for Employers 

DOL Corner 

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

new guidance, relief and tools to assist plan sponsors and practitioners in complying with ERISA. 

You can subscribe to DOL/EBSA’s web site homepage as well as the Compliance Assistance page 

for notice of updates posted on the web site. 

Securities Lending 

On October 31, DOL/EBSA published in the Federal Register a final 

class exemption expanding the opportunities for securities lending 

between employee benefit retirement plans, banks and brokerdealers. 

The exemption, which consolidates two existing class exemptions, 

provides conditions to safeguard the assets of plans involved in 

securities lending transactions. The updated requirements will permit 

retirement plans to earn additional income by lending securities from 

their portfolios to a greater universe of permissible borrowers. 

Under the exemption, the categories of permissible borrowers have been expanded to include 

broker-dealers and banks of the United Kingdom, Canada and certain other foreign broker-dealers 

and banks. In addition, the types of collateral that may be offered to plans for securities lending 

transactions have been broadened to include negotiable certificates of deposits payable in the 

United States, mortgage backed securities, the British pound, the Canadian dollar, the Swiss franc, 

Japanese yen, the Euro, securities issues by Multilateral Development Banks, rated foreign 

sovereign debt and irrevocable letters of credit issued by certain foreign banks. If the plan’s U.S. 

domiciled lending agent agrees to indemnify the plan against losses resulting from a borrower’s 

default, the final exemption permits a plan to accept any other type of collateral currently permitted 

by the Securities and Exchange Commission under Rule 15c3-3 of the Securities Exchange Act of 

1934. 

ERISA gives DOL/EBSA authority to grant an exemption from the law’s prohibited transaction 

provisions. DOL/EBSA grants class exemptions when it determines that the exemption is in the 

interest and protective of the rights of benefit plan participants and beneficiaries. 

The final exemption revokes and replaces Prohibited Transaction Exemptions 81-6 and 82-63. 

Default Investment Alternatives for Participant-Directed Plans 

On September 27, DOL/EBSA published in the Federal Register a proposed rule to make it easier 

for fiduciaries of 401(k) and other participant-directed defined contribution plans to adopt 

automatic enrollment design features. The proposed rule is the first major regulation resulting from 

the Pension Protection Act of 2006 (PPA). 

The proposal implements provisions of the PPA to provide relief to plan fiduciaries who invest the 

assets of participants in “qualified default investment alternatives” in the absence of participant 

investment direction (including through plans that have automatic enrollment plan features). Default 

investment alternatives under the proposed regulation are intended to encourage the investment of 

employee assets in appropriate investment vehicles for long-term retirement savings. 

9 
Fall 2006 Retirement News for Employers 

Public comments on the proposed rule should have been submitted to the U.S. Department of 

Labor, Employee Benefits Security Administration, Room N5669, 200 Constitution Avenue, NW, 

Washington, DC 20210, Attention: Default Investment Regulation; or electronically to 

e-ORI@dol.gov or www.regulations.gov by November 13, 2006. 

A fact sheet on the proposed rule and the proposed rule are available on DOL/EBSA’s web 

site. 

Electronic Filing and Proposed Improvements to Form 5500 Annual 

Reports 

On July 21, DOL/EBSA published in the Federal Register a final regulation requiring plans to file 

Form 5500 Annual Reports electronically beginning with 2008 plan year filings due in 2009. 

Simultaneously, DOL/EBSA, along with the IRS and PBGC, proposed changes to the forms that 

will be processed under the new electronic system. 

The final electronic filing rule is effective for plan years starting on or after January 1, 2008. This 

will give plans and service providers needed time to adapt to the new system and any changes to 

the Form 5500. The wholly electronic filing system will be streamlined, cost-effective and more 

efficient for plans. It will also increase the accuracy of the information used by the public and the 

government. 

The proposed changes to the content of the form are intended to simplify filing and ensure 

compatibility with the electronic processing system. Among the proposed revisions to the Form 

5500 are: creation of a new short form for small plans whose assets are held in easy-to-value 

investments with regulated financial institutions; increased transparency of plan-related fees and 

expenses; improved information on the funding of defined benefit plans; and realignment of the 

reporting rules of 403(b) plans (subject to Title I) to be compatible with those of 401(k) plans. 

The new system will also customize information required to be filed to the type of plan involved in 

each filing. 

The comment period on the proposed Form 5500 revisions closed September 19, 2006. The 

comments are available on EBSA’s web site. 

For further information, see DOL/EBSA’s web page on electronic filing and the proposed 

improvements. 

EFAST2 Project Request for Proposal 

On September 1, DOL/EBSA released a Request For Proposal (RFP) to support a new mandate 

on electronic filing of the Form 5500 Series reports required by ERISA. The RFP was published 

online by Federal Business Opportunities. 

The RFP solicits proposals from the information technology (IT) community for a wholly 

outsourced IT system to be designed, developed and operated by a private-sector vendor under 

contract to the Department of Labor. The IT system, known as EFAST2, is intended to receive, 

process, store, publicly disclose, distribute and archive an estimated 1.1 million electronically filed 

Form 5500 reports annually submitted by the public via the Internet. 

A copy of the EFAST2 Request for Proposal is available online or through the Department of 

Labor’s Procurement Office at 202-693-4585. 

10 
Fall 2006 Retirement News for Employers 

2006 Form 5500 Annual Report 

On July 13, DOL/EBSA, the IRS and PBGC released advance copies of the 2006 Form 5500 and 

instructions. 

The modifications to the Form 5500 for plan year 2006 are described under “Changes 

to Note” in the 2006 Instructions. Of particular importance, the Schedule P (Annual 

Return of Fiduciary of Employee Benefit Trust) is no longer required; the instructions for 

the Schedules H and I are updated to refer to EBSA’s revised Voluntary Fiduciary 

Correction Program and companion exemption; new addresses for submitting late filing 

penalties under the Form 5500 Delinquent Filer Voluntary Compliance Program are 

provided; and the instructions for counting welfare participants and beneficiaries are 

improved. 

Information copies of the forms, schedules and instructions are available on DOL/EBSA’s web site 

at www.efast.dol.gov. Filers should monitor the EFAST web site for information on approved 

software vendors for completing the 2006 forms and on the availability of the official, government 

printed forms. Advance copies of the 2006 Form 5500 can not be used for 2005 filings. 

Upcoming Compliance Assistance Events 

Fiduciary Education Seminars: December 5 in Sacramento, California; February 8 in Saddle Brook, 

New Jersey. 

Visit DOL/EBSA’s web site at www.dol.gov/ebsa for registration brochures for these seminars and 

for the announcement of additional seminars around the country. 

Net Gains 

Welcome back to Net Gains, the column devoted to providing you with the latest Retirement 

Plans Community web page information. This portion of the IRS web site contains almost 

everything you want to know about retirement plans but didn’t know where to find it. 

More New FAQs 

In the Summer edition of the Retirement News for Employers we told you about our new FAQs 

on obtaining a waiver of the 60-day rollover period. Since then we have added additional FAQs 

regarding Loans, Hardship Distributions and Plan Investments. Check out these and our other 

Frequently Asked Questions. 

New Examinations Communication Tools 

We recently posted two new Examinations Communication tools. The first, the Employee Plan 

Audit Efficiency Guide was developed by a team of practitioners and Employee Plans managers. 

It is intended to ease the communication between the plan sponsor and the examining agent so the 

audit can proceed as efficiently as possible. The guide will be completed jointly by the agent and the 

plan sponsor so both will know what to expect during the audit. 

The second item is Top Ten Tips to Prepare for an Efficient Audit. This listing provides the plan 

sponsor with ways to prepare for an examination of its plan and trust. Each tip comes with detailed 

explanations to assist the plan sponsor in getting the necessary items ready for the examination. 

11 
Fall 2006 Retirement News for Employers 

COLAs 

As we mentioned in the October 19, 2006 Special Edition, the 2007 Cost-of-Living 

Adjustments for retirement plans have been released and can be found on the Retirement Plans 

Community web page. 

Retirement Plans Community Site Map 

Need help finding a topic? Visit the Retirement Plans Community Site Map which contains a 

listing of information by topic on the Retirement Plans Community web site. 

The Filing Cabinet 

Forms - you can’t live with them, you can’t live without them. Just like you use forms when 

running your business - everything from spreadsheets to receipts to invoices - you also use forms 

when dealing with a retirement plan. 

New Products 

In keeping with our ongoing commitment to supply basic information on different types of 

retirement plans, we’re happy to announce the release of the following new publications dealing 

with 401(k) and 403(b) plans respectively: 

•	 Publication 3066, Have you had your Check-up this year? for 401(k) Retirement 

Plans. (See the Product Profile on page 5.) 

•	 Publication 4531, 401(k) Plan Checklist. (See the Product Profile on page 5.) 

•	 Publication 4547, Have you had your Check-up this year? for 403(b) Retirement 

Plans is an educational brochure designed to inform and encourage employers to perform 

a periodic “check-up” of their 403(b) plans through the use of the 403(b) Plan 

Checklist, and how to initiate corrective actions if necessary. 

•	 Publication 4546, 403(b) Plan Checklist is directed at the public educational institution 

or charitable organization and designed to help them identify possible operational 

problems within their specific 403(b) plan. It is to be used in conjunction with the 

Publication 4547. 

All of these new publications are available on the Retirement Plans Community web page at 

www.irs.gov/ep by clicking on “EP Forms & Publications” under the “Retirement Plans 

Community Topics” or by calling 1-800-TAX-FORM (829-3676). 

New Joint-Agency Publication 

Once again, we’ve partnered with the U.S. Department of Labor’s Employee Benefits Security 

Administration (EBSA) to create another plain-language publication. Payroll Deduction IRAs for 

Small Businesses is directed at the small business owner who wants to help its employees save 

for retirement. The publication is available on the Internet at www.dol.gov/ebsa. 

12 
Fall 2006 Retirement News for Employers 

Let’s Just Take It One Three-Month Period at a Time


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

= contribution 

= conference 

= file forms 

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 our month-by-month 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 non-calendar year plans: 

December 5: DOL Seminar: Fiduciary Education Seminar - Sacramento, CA 

December 31: Deadline for ­

• Making required minimum distributions for 2006. 

• Distributing prior year’s excess contributions - including

 income or losses - without losing plan’s tax-qualified status. 

January 15, 2007: Fourth quarterly contribution due date for 2006 calendar-year defined benefit 

plans. 

January 31: Deadline for ­

• Filing Form 945, Annual Return of Withheld Federal Tax. 

• Giving payees Form 1099-R, Distributions From Pensions, Annuities, Retirement or

 Profit-Sharing Plans... 

February 8: DOL Seminar: Fiduciary Education Seminar - Saddle Brook, NJ 

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

Community web page, select “Educational Services” under “Retirement Plans 

Community Topics” and then “Upcoming EP Educational Events.” 

Department of the Treasury Publication 4278 (11-2006) 

Internal Revenue Service Catalog Number 37968B 

www.irs.gov 

13 
Fall 2006 Retirement News for Employers 

Timing is Everything 

Some helpful retirement tips from the IRS for 2007... 

How much can I contribute to my retirement plan? 

• 401(k) and 403(b) Plan Participants: 

o You can make up to $15,500 in elective contributions. 

o Over age 50? You may be eligible to make “Catch-Up Contributions” up to an additional 

$5,000. 

• SIMPLE IRA Plan Participants: 

o You can make up to $10,500 in pre-tax contributions. 

o Over age 50? You may be eligible to make “Catch-Up Contributions” up to an additional 

$2,500. 

Am I entitled to a tax credit for my contributions? 

• Retirement Saver’s Credit: 

o Tax credit of up to $1,000 or up to $2,000 if filing jointly. 

o In order to qualify for the credit, adjusted gross income cannot be more than: 

• $52,000 if married filing jointly, 

• $39,000 if head of household, or 

• $26,000 if single, married filing separately or qualifying widow(er). 

o File Form 8880, Credit for Qualified Retirement Savings Contributions, to calculate the 

credit. 

See your employer or www.irs.gov/ep for additional information on these items. 

Department of the Treasury Publication 4278-B (11-2006) 

Internal Revenue Service Catalog Number 47879D