Retirement News for Employers

Fall 2012 Edition - December 13, 2012

Hurricane Sandy relief

 Phone forum on plan loans and hardship distributions to Sandy victims (December 11, 2012) 

 Chart – summarizes how retirement plans can give loans and hardship distributions to victims 

 FAQs – answer who is eligible for the relief, tax on hardship distributions from plans and IRA 

withdrawals 

 Help for victims of Hurricane Sandy– YouTube videos, podcasts, news releases and guidance 

Plan operations

 Plan loans – calculate the maximum amount a participant can borrow if you have more than one 

plan that permits loans 

 Internal controls are essential – review your plan annually to avoid mistakes 

 Fixing plan mistakes – what to do if you deposit salary deferrals late 

 Mark Your Calendar – important dates in the upcoming months for your retirement plan 

IRAs and IRA plans

 SIMPLE IRA plans – you can’t make both matching and nonelective contributions 

 IRA year-end reminders – review your IRAs and contribution limits, excess contributions and 

required minimum distributions 

 Required minimum distribution comparison chart – highlights some of the RMD rules for IRAs, and 

IRA-based and defined contribution plans 

Forms and publications

 Forms W-2 and W-3 – make sure the retirement plan information is correct 

 Due date chart – lists due dates for Forms 5500, 945, 5329, 1099-R and others 

 2012 Forms 5500 and 5500-SF (information only) and their instructions 

 Lots of Benefits when you set up or participate in an employee retirement plan, Publication 4118

(Rev. 7-2012) 

 Choose a Retirement Plan – Publication 4484 (Rev. 11-2012) 

 Retirement Plan Distributions: Exceptions to 10% Additional Tax – Publication 5036 (Rev. 10-2012) 

New on the Web

 IRS.gov redesigned – find us by clicking on the “Information For...” drop-down (upper right) and 

selecting “Retirement Plans” 

 2013 COLA limits for retirement plans and IRAs 

 Lifetime annuity guidance – highlights of recent phone forum on how plans can offer annuity options 

for retirees 

 Missing participants or beneficiaries – recent changes to the letter forwarding program 

 Watch “A Taxing Matter - Retirement” – select presentation on left pane, scroll to the bottom of the 

page and select “Audit” 

 DOL Corner – updated information for retirement plans 
Hurricane Sandy Relief – Retirement Plan Loans & Distributions

The IRS has streamlined rules that apply to loans and hardship distributions from employer-sponsored 

retirement plans to help victims of Hurricane Sandy and their families (Announcement 2012-44). Benefit 

practitioners, plan sponsors and employers are encouraged to inform plan participants of these 

streamlined rules.

Eligibility

Who An employee or former employee whose:

 principal residence, 

 parent, grandparent, child or grandchild’s principal residence, 

 place of employment, or 

 parent, grandparent, child or grandchild’s place of employment

was located in the Hurricane Sandy disaster area.

Disaster area Areas in Connecticut, New Jersey, New York or Rhode Island declared federal 

disaster areas. See Tax Relief in Disaster Situations for a list of eligible 

localities.

Date measured Employee or relative’s residence or place of employment must have been in 

the disaster area on October 26, 2012.

Dates affected The streamlined rules apply to loans and hardship distributions made October 

26, 2012 - February 1, 2013.

Verification Plan administrators may rely on an employee’s representation as to the need 

for and amount of a hardship distribution unless they have actual knowledge to 

the contrary.

Loans

Amount Maximum amount of plan loans.

Eligible plans Any qualified plan, 403(b) or governmental 457(b) plan that:

 can make plan loans, or 

 could make plan loans but plan document doesn’t have plan loan 

provisions. 

No loan provision in plan A plan that does not currently provide loans may allow Sandy-related 

loans.

Plan amendment dates If plan sponsors make a Sandy-related plan loan when the loan 

wasn’t permitted by the terms of the plan, they must amend their 

plans to allow plan loan provisions by the end of the first plan year 

beginning after December 31, 2012.

Documentation The plan administrator may temporarily disregard procedural 

requirements that otherwise apply to plan loans, but should obtain any 

required documentation for the loan as soon as practical.

Spousal consent Spousal consent rules apply. However, plan administrators don’t 

have to obtain a death certificate prior to making the loan if they make 

reasonable attempts to obtain it as soon as practical.
Hardship distributions

Amount Any amount eligible for a hardship distribution.

Eligible hardship Any Sandy-related need is an immediate and heavy financial 

need (or an unforeseeable emergency for 457(b) plans) 

eligible for a hardship distribution.

6-month ban on contributions No need to stop elective deferral contributions for six months 

after receiving a Sandy-related hardship distribution even if 

required by the plan’s terms.

Eligible plans Any qualified plan, 403(b) or 457(b) plan that could make 

hardship distributions if the plan document contained hardship 

distribution provisions. Defined benefit or money purchase 

plans are generally ineligible.

No hardship provision in plan A plan that does not currently provide hardship distributions 

may allow Sandy-related distributions.

Plan amendment dates If plan sponsors make a Sandy-related hardship distribution 

when it wasn’t permitted by the terms of the plan, they must 

amend their plans to add hardship distribution provisions by 

the end of the first plan year beginning after December 31, 

2012.

Documentation The plan administrator may temporarily disregard procedural 

requirements, but should attempt to gather any 

documentation required by the plan’s terms as soon as 

practical.

Spousal consent Spousal consent rules apply. Plan administrators may 

overlook a requirement to obtain a death certificate if they 

make reasonable attempts to obtain it as soon as practical.

Tax treatment Generally, hardship distributions are subject to income taxes 

and a 10% additional tax on early distributions.

Related resources:

 Retirement Topics - Loans

 Retirement Topics - Hardship Distributions

 Disaster Relief for Retirement Plans and IRAs

 Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims

 FAQs - Hurricane Sandy Relief - Retirement Plan Loans & Distributions
Hurricane Sandy Relief FAQs – Retirement Plan Loans & Distributions

1. Are Sandy-related hardship distributions from qualified plans and IRAs includible in gross 

income?

Yes, these distributions are includible in gross income except to the extent they consist of alreadytaxed amounts or qualified distributions from designated Roth accounts or Roth IRAs.

2. Does the 10% additional tax on early withdrawals apply to Sandy-related hardship 

distributions?

Yes, the 10% additional tax under Internal Revenue Code Section 72(t) applies to Sandy-related 

hardship distributions unless it is eligible for an exception to the tax. See the chart of exceptions to 

the 10% additional tax.

3. Is a plan participant required to obtain a plan loan before requesting a Sandy-related 

hardship distribution from a qualified plan?

It depends on plan terms. A plan is not required to add loan provisions in order to make Sandyrelated hardship distributions. Generally, a participant must take available plan loans before being 

eligible for a hardship distribution of elective deferrals from a 401(k) plan, but if requiring such loans 

would be impractical under the circumstances, Sandy-related hardship distributions may be made 

from the plan between October 26, 2012, and February 1, 2013, without requiring such loans.

4. Can an individual take Sandy-related hardship distributions from a traditional or Roth IRA?

Generally, an individual can take withdrawals from a traditional or Roth IRA at any time and for any 

purpose. A withdrawal from an IRA is includible in gross income except to the extent it consists of 

already-taxed amounts or is a qualified distribution from a Roth IRA. The 10% additional tax on early 

withdrawals may also apply unless an exception to the tax is available.

5. Which locations qualify for the Hurricane Sandy relief in Announcement 2012-44?

See Help for Victims of Hurricane Sandy for a list of counties and Tribal Nations eligible for relief.

6. Are there any special reporting requirements for Sandy-related hardship distributions?

No, there are no special distribution codes for Sandy-related distributions.

7. For a plan that already provides for loans and hardships and wants to take advantage of the 

relief outlined in Announcement 2012-44, will the plan sponsor need to amend the plan?

No, a plan that currently provides for loans and hardship distributions does not need to adopt an 

amendment in order to make Sandy-related loans or distributions under Announcement 2012-44.

8. Can an individual who is taking substantially equal periodic payments (SEPPs) from an IRA 

take additional amounts from the same IRA to cover Sandy-related expenses without being 

subject to the 10% additional tax?

No. The additional amount is subject to the 10% additional tax unless an exception applies. Also, if 

the individual is under 591⁄2 or has not been receiving the SEPPs for 5 years, the 10% additional tax 

will apply to all the SEPPs already taken from the IRA (unless the individual has died or become 

disabled). 

Related resource:

 Hurricane Sandy Relief - Retirement Plan Loans and Distributions
Loan Limits Apply to All Plans

My company has both a 401(k) and a defined benefit plan. If both plans allow participant loans, 

what is the maximum amount a participant can borrow from each plan?

To determine the maximum amount a participant can borrow from the plans, you must consider all of the 

following:

 both plans, as well as the plans of any related employer, as a single plan for loan purposes (Internal 

Revenue Code Sections 72(p)(2)(D) and 414(b),(c) and (m)) 

 the plans’ limit on loans (statutory or a lesser amount)

 the participant’s prior loans from the plans, if any, and the outstanding balance on these loans if the 

plans allow multiple loans 

 whether there is adequate collateral for the loan 

Maximum amount for a single loan

A plan can either use the statutory limit for all plan loans (IRC Section 72(p)(2)(A)) or a lower limit.

 Statutory maximum

All of a participant’s loans from a plan are limited to the lesser of: 

 $50,000, reduced by: 

 the highest outstanding balance of loans during the 12 months ending the day before the new 

loan, minus 

 the outstanding balance of loans on the day of the new loan; or

 the greater of: 

 one-half the participant’s vested plan account balance (the present value of the participant’s 

vested accrued benefit for defined benefit plans),

 or $10,000. 

Example 1

Bob’s vested account balance in his 401(k) plan is $120,000 and the present value of his vested 

accrued benefit in the same employer’s defined benefit plan is $100,000. Bob, who is unmarried, 

hasn’t previously taken any loans from these plans. Bob’s maximum loan limit is the lesser of:

1. $50,000; or 

2. the greater of: 

 $110,000 (1⁄2 of ($120,000 + $100,000)), or 

 $10,000. 

Bob can get a loan of up to $50,000.

 Lower limit set by a plan’s terms

A plan may limit a participant’s loan to an amount less than the statutory maximum. 

Example 2

Using the same facts as in example 1, except the plans have a maximum loan limit of the lesser 

of $40,000 or 1⁄2 of a participant’s vested account balance (the present value of the participant’s 

vested accrued benefit for the defined benefit plan), Bob can get a maximum loan of $40,000.

Maximum amount for multiple loans

If a plan allows participants to take multiple loans, all of a participant’s loans must not exceed the 

maximum loan amount (statutory or as set by the plan’s terms).

Example 3

Jane’s vested account balance in her 401(k) plan is $60,000 and the present value of her vested 

accrued benefit in the same employer’s defined benefit plan is $120,000. Both plans use the 

statutory maximum for loans. Ten months ago, Jane, an unmarried participant, took a $15,000 

loan from the defined benefit plan and still owes $5,000 on that loan. Her maximum limit for all 

loans (new plus any outstanding) is the lesser of:
1. $40,000 ($50,000 – ($15,000 - $5,000)); or 

2. the greater of: 

 $90,000 (1⁄2 of ($60,000 + $120,000)); or 

 $10,000. 

Because Jane’s outstanding balance of her first loan is $5,000, Jane can take a new loan of 

up to $35,000 (the lesser of 1 or 2 above minus her first loan’s outstanding balance ($40,000 

– $5,000)). Review the Collateral section below if Jane wants to borrow the entire $35,000 

from her 401(k) plan.

Collateral

Each plan must have adequate collateral for a loan from the plan. Additionally, if the plan is 

subject to:

 ERISA, the plan can’t use more than 50% of the participant’s vested account balance 

(present value of the vested accrued benefit in a defined benefit plan) in that plan as collateral 

for loans from that plan (DOL Reg. Section 2550.408b-1(f)); and

 survivor annuity requirements, the plan must obtain spousal consent for any plan loan to a 

married participant if more than $5,000 of the account balance (present value of the accrued 

benefit in a defined benefit plan) is used as security for the loan (Treas. Regs. Section 

1.401(a)-20). 

Example 4 – additional collateral

Using the same facts as in example 3, if Jane wanted to borrow $35,000 from only her 401(k) 

plan, which is subject to ERISA, the plan sponsor would have to request additional collateral 

for $5,000 of the loan because $35,000 is $5,000 more than 50% of Jane’s vested account 

balance in the 401(k) plan (50% x $60,000 = $30,000). Alternatively, Jane can borrow up to 

$30,000 from her 401(k) plan and $5,000 from her defined benefit plan without having to 

provide additional collateral.

Example 5 – spousal consent

Using the same facts as in example 3, if Jane is married and she wants to borrow $10,000 

from her defined benefit plan and $25,000 from her 401(k) plan, she wouldn't have to provide 

additional collateral because the amount she wants to borrow from the 401(k) plan doesn't 

exceed 50% of her vested account balance in that plan and the amount she wants to borrow 

from her defined benefit plan doesn't exceed 50% of the present value of her vested accrued 

benefit. Assuming the 401(k) plan isn't subject to survivor annuity requirements (few are), no 

spousal consent is required for the loan from that plan. However, Jane would have to obtain 

spousal consent for her loan from the defined benefit plan because she wants to borrow more 

than $5,000 from a plan that is subject to the survivor annuity requirements.

Additional resources:

 FAQs: Loans

 Retirement Plan Topics - Loans

 Plan Loan Failures and Deemed Distribution
Internal Controls are Essential in Retirement Plans 

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 by emailing her 

at: RetirementPlanComments@irs.gov.

“An ounce of prevention is worth a pound of cure” definitely applies to keeping retirement plans taxqualified. Effective internal controls and annual reviews of your plan are essential “ingredients” to prevent 

costly mistakes that can jeopardize the plan’s tax-favored status. Unfortunately, retirement plan 

examinations and voluntary correction submissions often reveal that plans don’t have needed internal 

controls in place or they aren’t administered properly.

Benefits to having strong internal controls

Having effective practices and procedures to prevent compliance problems is a basic requirement to be 

eligible to use the Self-Correction Program. You can self-correct insignificant operational errors at any 

time and preserve the tax-favored status of the plan without having to pay any fees.

When auditing a retirement plan, the agent begins by evaluating the plan’s internal controls to determine 

whether to perform a focused or expanded audit. In addition, if the agent finds plan errors, the strength of 

internal controls is a factor in the negotiation of the sanction amount under Audit CAP. The agent will 

make every effort to ensure that the plan has internal controls in place when the audit concludes.

Please note that hiring a service provider doesn’t relieve you of the responsibility of keeping your plan in 

compliance. Problems typically occur when there’s a communication gap between you and the plan 

administrator about what the plan document provides and what documentation is needed to ensure 

compliance.

Common mistakes that we see during plan audits resulting from communication problems 

between the plan sponsor and administrator

Failure to timely amend the plan or to follow the terms of the plan

It’s common during examinations that an employer can’t locate documentation to prove the plan was 

timely amended for current law. This results in an Audit Closing Agreement under Audit Cap. If the error 

had been discovered through an annual review of the plan document before the plan was audited, the 

plan sponsor could have filed a much less expensive voluntary correction submission to bring the plan 

current with all law changes (self-correction isn’t available for document failures).

When you change your plan document, you should also make corresponding changes to the summary 

plan description and communicate the changes to plan participants. It’s also important to share changes 

made to the plan with all persons who provide service to the plan. For example, if the plan’s definition of 

compensation is changed, you should communicate this change with anyone involved in determining 

deferral amounts, performing nondiscrimination tests or allocating contributions.

Failure to review in-service, termination, and loan distribution forms to make sure they follow the 

plan terms

Many plan vendors use the same distribution forms for all of the plans they administer despite the fact 

that individual plans may have different distribution options and requirements. Using a generic form can 

lead to incorrect distributions and incorrect tax reporting.

Failure to count all eligible employees in testing

Plan sponsors often fail to share information with the plan administrator on all employees:

 eligible to make an elective deferral, including those terminated during the year, or 

 of a related company with common ownership interests. 
These employees may be eligible to participate in the plan and, therefore, may need to be included in the 

various tests.

Free tools

The tools on our website can help you strengthen your plan’s internal controls. We have checklists that 

ask questions relating to common errors found in certain types of plans. If you answer “no” to any of the 

questions, you should investigate further to see if you have an error in your plan. If you sponsor a 401(k) 

plan, use our 401(k) questionnaire, which contains more questions that may help determine if there are 

errors in your plan. We also have Fix-It Guides for a number of plan types with tips on how to find, fix and 

avoid common plan errors. The Trends and Tips pages list recurring errors by plan type and issue, and 

include errors we found in large case (EPTA) exams.

The tips in this article and the related links are the ingredients we have available for your retirement plan 

“ounce of prevention” recipe. So, if you haven’t done so already, please check out our user-friendly tools 

on the Information for Retirement Plans Web pages.
Late Deposit of Salary Deferrals - Fixing Common Plan Mistakes

Employers with 401(k) plans are responsible for depositing their employees’ salary deferrals to the plan’s 

trust on the earliest date that the deferrals can reasonably be segregated from the employer’s general 

assets.

The earliest date is based on individual facts and circumstances. If your plan has fewer than 100 

participants, your deposit is considered timely if it’s made within 7 business days after you withhold the 

salary deferrals even if you were able to deposit them earlier. If you don't deposit the salary deferrals 

within 7 business days after you receive or withhold them, then your individual facts and circumstances 

will determine whether your deposit was considered timely. For larger plans (100 participants or more), 

the determination of whether the deposit was timely is based on the individual employer’s facts and 

circumstances.

Regardless of your individual facts and circumstances, you must deposit the salary deferrals no later than 

15 business days in the month following the month in which the amounts would otherwise have been 

payable to your employees in cash. If your facts and circumstances show that you could have made the 

deposit on an earlier date, then you must have deposited your salary deferrals by that earlier date for 

them to be considered timely.

The problem

Failing to timely deposit withheld salary deferrals to the plan is a plan error.

Consequences of not segregating and depositing salary deferrals timely

 Failing to timely deposit salary deferrals: 

 is a fiduciary violation and could subject your plan to the Department of Labor’s civil penalties. 

 could violate your plan’s terms and jeopardize your plan’s tax-exempt status

 Failing to segregate salary deferrals from your general assets and timely forwarding them to the 

plan’s trust allows you prohibited use of plan assets. This can result in you engaging in a prohibited 

transaction for which you can be assessed excise tax. 

The fix - correction programs available to correct this mistake

 DOL’s Voluntary Fiduciary Correction Program

You can correct the fiduciary violation for failing to timely deposit salary deferrals using the DOL’s 

Voluntary Fiduciary Correction Program. VFCP isn't available if your plan is under a DOL 

investigation or an IRS examination.

 DOL’s prohibited tax class exemption in conjunction with VFCP

You may also be eligible to take advantage of the prohibited tax class exemption in conjunction with 

VFCP if you: 

 deposited the salary deferrals to the plan’s trust within 180 days from the date the amounts would 

otherwise have been payable to the employees in cash; 

 satisfied all VFCP requirements; 

 received a no-action letter for your VFCP application; and 

 notified all interested persons in writing within 60 days of submitting your VFCP application. 

There is an exception to this notice requirement if: 

 your excise tax liability would have been $100 or less; 

 you contributed the amount of your excise tax liability to the plan; and 

 you allocated this amount to participants and beneficiaries according to the plan’s terms for 

allocating plan earnings. 

If the transaction qualifies for the prohibited transactions class exemption, then you won't be liable 

for excise tax under IRC Section 4975.

 IRS Employee Plans Compliance Resolution System

If your plan’s tax-exempt status is in jeopardy, then you can use the IRS Employee Plans 

Compliance Resolution System. 
 If your plan is not under IRS examination and meets the other eligibility requirements, you can 

use either the self-correction or voluntary correction programs. 

 If your plan is under examination, you can still self-correct if the failure is insignificant, or you can 

resolve the issue in a closing agreement through Audit CAP. 

DOL and IRS correction programs are not interchangeable

The goal of the DOL's VFCP is to ensure that the employer isn't subject to DOL’s civil penalties. The goal 

of the IRS’s correction programs, including VCP, is to ensure that the plan doesn't lose tax benefits 

arising from its qualified status. It is critical that you know what your objectives are before deciding which 

program you want to use. Also, you may use both the DOL and IRS programs if you have a dual objective 

of avoiding the imposition of DOL’s civil penalties and the IRS’s revocation of your plan’s qualified status.

The fix - correcting the mistake

 Salary deferrals never deposited - If you failed to deposit salary deferrals to the plan, then you must 

make corrective contributions in the amount of the salary deferrals you should have timely deposited 

adjusted for earnings. The adjustment for earnings is measured from the earliest date you could 

have segregated the salary deferrals from your general assets to the date you actually make the 

corrective contributions.

 Late deposit - If you deposited the salary deferrals, but not timely, then to correct this mistake, you 

must contribute the earnings on the late deposited salary deferrals. Earnings are what the late 

deposited deferrals would have earned measured from the earliest date you could have segregated 

them from your general assets to the date you actually deposited them to the plan. 

Differences in the earning adjustment under DOL and IRS programs

The general premise of both the DOL VFCP and IRS correction programs is to restore the plan to the 

position it would have been had you timely deposited the salary deferrals. However, the earnings 

calculation in both programs could be different.

 DOL’s VFCP - earnings are determined using the greater of: 

 lost earnings (earnings that the plan would have earned if you had timely deposited the salary 

deferrals), or 

 restoration of profits (the profit you earned that is directly attributable to your investment of the 

salary deferrals that weren’t timely deposited). 

You can use DOL’s online calculator when using VFCP to calculate earnings.

 IRS correction program - earnings are generally determined based on what the plan would have 

earned had you timely deposited the salary deferrals. The IRS correction programs do, however, 

allow you to use reasonable estimates (including the DOL’s online calculator) to calculate the 

earnings on the late deposited salary deferrals if either: 

 it’s possible to make a precise calculation but: 

 the probable difference between the approximate and the precise restoration of participants’ 

benefits is insignificant, and

 the administrative cost of determining precise restoration would significantly exceed the 

probable difference, or

 it’s not possible to make a precise calculation (for example, where it’s impossible to obtain plan 

data). 

Making sure it doesn’t happen again

Establish a procedure for depositing elective deferrals with or after each payroll date, or according to the 

terms in your plan document. If you have instances when your deferral deposits are later than the normal 

timely deposit (because of vacations or other disruptions, for example), keep a record of why those 

deposits were late. Coordinate with your payroll provider and others who provide service to your plan to 

determine the earliest date you can reasonably make deferral deposits. The date and related deposit 

procedures should match your plan document provisions, if any, dealing with this issue. If you have a 

change in the person in charge of making these deposits, make certain the new person understands 

when he or she must make these deposits.
Keep in mind that despite all of your good efforts, mistakes happen. In that case, the IRS can help you 

correct the problem so that you retain the benefits of your qualified plan.
Mark Your Calendar

Operating a retirement plan can be time-consuming. To help you, we’ve listed some important dates in 

the upcoming months. Please note that most of these deadlines are for calendar-year plans (noncalendar-year plans must adjust the dates):

December 31:

 Distribute 2011 401(k) excess contributions and excess aggregate contributions (both adjusted for 

2011 income and losses) without jeopardizing the plan’s tax-qualified status. 

 Revoke a single-employer defined benefit plan sponsor’s previous election to use a funding balance 

to offset minimum required contributions for the 2012 plan year, to the extent the election exceeded 

the full minimum required contribution for the year (This deadline only applies to plans with valuation 

dates as of the first day of the plan year.) 

 Elect to reduce January 1, 2012, funding balances to avoid or lift benefit restrictions under IRC 

Section 436 for single-employer defined benefit plans. 

 Elect to restore any single-employer defined benefit plan’s funding balances if a reduction that was 

made before applying MAP-21 rates is no longer necessary (if the original election was made on or 

before September 30, 2012 – see Notice 2012-61). 

 Recertify a single-employer defined benefit plan’s 2012 AFTAP if it had previously been certified 

using pre-MAP-21 rates on or before September 30, 2012, if the sponsor’s decision to apply the 

MAP-21 rates prospectively would otherwise cause a “material” change in the AFTAP (see Notice 

2012-61). 

January 15: Make the 2012 fourth quarter contributions for defined benefit plans.

January 31:

 File Form 945, Annual Return of Withheld Federal Income Tax. If you made deposits timely in full 

payment of the taxes for 2012, you may file Form 945 by February 11, 2013. 

 Trustees and custodians must issue Form 1099-R, Distributions From Pensions, Annuities, 

Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to recipients of 2012 retirement 

plan distributions. 

 Amend for recent law changes and submit the plan for a determination letter, if desired, for Cycle B

individually designed plans. 

Visit the Retirement Plans Web page for a complete list of upcoming Employee Plans Educational 

Events/Conferences.
SIMPLE IRA Plan Employer Contribution

The only employer contribution you can make to your SIMPLE IRA plan is either:

 a matching contribution capped at 3% of compensation, or 

 a 2% nonelective contribution. 

You can’t make both.

Matching contribution

You can choose to make a matching contribution for each employee’s salary deferrals on a dollar-fordollar basis up to 3% of the employee's compensation. In this instance, compensation is not limited by 

the annual compensation limit, but you can’t exceed the 3% cap.

Less than 3% match - You can reduce the 3% matching contribution for a particular year, but only 

if:

 you don't reduce it below 1%, and 

 you don't reduce it more than twice in the 5-year period ending with that year. 

2% nonelective contribution

Instead of the matching contribution, you can choose to contribute 2% of each eligible employee’s 

compensation regardless of whether or how much the employee defers. For nonelective contributions, an 

employee’s compensation is limited to the annual compensation limit ($250,000 in 2012 and $255,000 in 

2013).

Notice

You must annually:

 choose whether to make: 

 the matching contribution (and the match limit), or 

 the nonelective contribution, and

 notify all employees of your choice before the election period. 

Regardless of your business structure, you must use the same contribution formula for all employees 

(including yourself).

Changing the contribution type or percentage

You can’t amend or terminate a SIMPLE IRA plan mid-year. Once you’ve notified your employees of the 

type and percentage of employer contributions you’ll make for a year, you can’t change your mind. For 

example, if you notify your employees you’ll make the 2% nonelective contribution for the upcoming year, 

you can’t then decide to make the 3% matching contribution for that year. Likewise, if you’ve notified your 

employees that you’ll make the matching contribution with a 3% cap, you can’t reduce the cap to 2%.

Additional resources:

 SIMPLE IRA Plans - FAQs

 Notice 98-4, SIMPLE IRA Plan Guidance 

 Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

 Publication 4334, SIMPLE IRA Plans for Small Businesses

 SIMPLE IRA Plan Fix-It Guide
IRA Year- End Reminders

Whether you are still working or retired, you should periodically review your IRAs. Here are few things to 

remember.

Contribution limits

If you’re still working, review the 2012 IRA contribution and deduction limits to make sure you are taking 

full advantage of the opportunity to save for your retirement. You can make 2012 IRA contributions until 

April 15, 2013.

Excess contributions

If you exceed the 2012 IRA contribution limit, you may withdraw excess contributions from your account 

by the due date of your tax return (including extensions). Otherwise, you must pay a 6% tax each year on 

the excess amounts left in your account.

Required minimum distributions

If you are age 701⁄2 or older this year, you must take a 2012 required minimum distribution by December 

31, 2012 (by April 1, 2013, if you turned 701⁄2 in 2012). You can calculate the amount of your IRA required 

minimum distribution by using our Worksheets. You must calculate the required minimum distribution 

separately for each IRA that you own other than any Roth IRAs, but you can withdraw the total amount 

from one or more of your non-Roth IRAs. Remember that you face a 50% excise tax on any required 

minimum distribution that you fail to take on time.

Additional resources:

 IRA Web pages

 FAQs: IRAs

 FAQs: Required minimum distributions

 Publication 590, Individual Retirement Arrangements (IRAs)
RMD Comparison Chart (IRAs vs. Defined Contribution Plans)

This chart highlights some of the basic RMD rules as applied to IRAs and defined contribution plans (e.g., 

401(k), profit-sharing, and 403(b) plans).

Required Minimum Distributions for Account Owners

IRAs including SEP, SIMPLE and 

SARSEP IRAs

Defined Contribution Plans

When do I take 

my first RMD (the 

required 

beginning date)?

You must take your first RMD by April 1 of 

the year following the year in which you 

turn 701⁄2, regardless of whether you are 

still employed.

April 1 of the year following the later of 

the year you turn 70 1⁄2 or the year you 

retire (if allowed by your plan). If you are 

a 5% owner, you must start RMDs by 

April 1 of the year following the year you 

turn 701⁄2.

When do I reach 

age 701⁄2?

You reach age 701⁄2 on the date that is 6 

calendar months after the date of your 70th 

birthday.

Example: Your 70th birthday was June 30, 

2010. You reached age 701⁄2 on December 

30, 2010. You must take your first RMD 

(for 2010) by April 1, 2011.

Example: Your 70th birthday was July 1, 

2010. You reached age 701⁄2 on January 1, 

2011. You do not have an RMD for 2010. 

You must take your first RMD (for 2011) by 

April 1, 2012.

Same as IRA rule

What is the 

deadline for 

taking 

subsequent 

RMDs after the 

first RMD?

After the first RMD, you must take 

subsequent RMDs by December 31 of 

each year beginning with the calendar year 

containing your required beginning date.

Example: You turn 701⁄2 on July 15, 2010. 

You must take your first RMD, for 2010, by 

April 1, 2011. You must take your second 

RMD, for 2011, by December 31, 2011, 

and your third RMD, for 2012, by 

December 31, 2012.

Same as IRA rule

How do I 

calculate my 

RMD?

Your RMD is generally determined by 

dividing the adjusted market value of your 

IRAs as of December 31 of the preceding 

year by the distribution period that

corresponds with your age in the Uniform 

Lifetime Table (Table III in IRS Publication 

590, Individual Retirement Arrangements 

(IRAs)).

If your spouse is your sole beneficiary and 

is more than 10 years younger than you, 

you will use the Joint Life and Last Survivor 

Expectancy Table (Table II in IRS 

Publication 590).

Required Minimum Distribution Worksheets

Same as IRA rule 

Your plan sponsor/administrator should 

calculate the RMD for you.

How should I If you have more than one IRA, you must If you have more than one defined 
take my RMDs if 

I have multiple 

accounts?

calculate the RMD for each IRA separately 

each year. However, you may aggregate 

your RMD amounts for all of your IRAs and 

withdraw the total from one IRA or a 

portion from each of your IRAs. You do not 

have to take a separate RMD from each 

IRA.

contribution plan, you must calculate and 

satisfy your RMDs separately for each 

plan and withdraw that amount from that 

plan.

Exception: If you have more than one 

403(b) tax-sheltered annuity account, 

you can total the RMDs and then take 

them from any one (or more) of the taxsheltered annuities.

May I withdraw 

more than the 

RMD?

Yes, an IRA owner can always withdraw 

more than the RMD. You cannot apply 

excess withdrawals toward future years’ 

RMDs.

Same as IRA rule

May I take more 

than one 

withdrawal in a 

year to meet my 

RMD?

You may withdraw your annual RMD in any 

number of distributions throughout the 

year, as long as you withdraw the total 

annual minimum amount by December 31 

(or April 1 if it is for your first RMD).

Same as IRA rule

What happens if I 

do not take the 

RMD?

If the distributions to you in any year are 

less than the RMD for that year, you are 

subject to an additional tax equal to 50% of 

the undistributed RMD.

Same as IRA rule

Note: There are no RMD requirements for a Roth IRA while the owner is alive. However, designated 

Roth accounts are subject to the RMD rules.

Additional Resources

 FAQs - Required Minimum Distributions 

 Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

 Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and 

Certain Tax-Exempt Organizations

 Publication 575, Pension and Annuity Income

 Publication 590, Individual Retirement Arrangements (IRAs)
Common Errors on Form W-2 Codes for Retirement Plans

You must ensure that the information on Form W-2, Wage and Tax Statement, and Form W-3, 

Transmittal of Wage & Tax Statements, you issue to your employees contains correct retirement plan 

information because:

 employees need accurate information to determine the correct deductions and credits on their tax 

return, and 

 IRS agents use the information from these forms to determine whether employers are complying 

with income and employment tax reporting requirements. 

Common mistakes

During Form 5500 examinations and EPCU projects, IRS agents found employers using incorrect codes 

in Box 12 of Form W-2, for example:

 code D for 401(k) elective deferrals incorrectly included 403(b), 457, or non-qualified amounts. 

 code E for 403(b) contributions but did not have a 403(b) plan. 

 code H to incorrectly report health benefits; code H is for elective deferrals to a 501(c)(18)(D) taxexempt organization plan. (In fact, a recent Employee Plan Compliance Unit project found that only 6 

% of employers who used this code actually contributed to a 501(c)(18) plan.) 

 code S for a SIMPLE 401(k); the correct code for a SIMPLE 401(k) is code D. 

Common codes used for Box 12

Letter 

code: Used for: Description:

D 401(k) contributions Elective deferrals to a 401(k) cash or deferred arrangement, 

including SIMPLE 401(k)s

E 403(b) contributions Elective deferrals made under a 403(b) salary reduction 

agreement

F 408(k)(6) contributions Elective deferrals made under a SARSEP

G 457(b) contributions Elective and nonelective deferrals made to a 457(b) 

deferred compensation plan

H 501(c)(18)(D) contributions Elective deferrals to a Section 501(c)(18)(D) tax-exempt 

organization plan (Included in the "Wages, Tips, Comp." 

amount in Box 1)

S 408(p) SIMPLE contributions Deferrals made under a SIMPLE IRA plan

AA Roth contributions Designated Roth contributions under a 401(k) plan

BB Roth contributions Designated Roth contributions under a 403(b) plan

EE Roth contributions Designated Roth contributions under a governmental 457(b) 

plan (a tax-exempt organization’s 457(b) can’t have a 

designated Roth account)

See the Instructions for Forms W-2 and W-3 for a complete list of codes.

 

Form W-2, Box 13

The “Retirement plan” indicator in Box 13 shows whether an employee is an active participant in your

company’s plan. If this box is checked, it lets the recipient know that depending on their filing status and 

modified adjusted gross income, they may not be entitled to a full deduction for their traditional IRA 

contributions. You should check the retirement plan box if an employee was an “active participant” for any 

part of the year in:
 a qualified pension, profit-sharing, or stock-bonus plan under Internal Revenue Code Section 401(a) 

(including a 401(k) plan). 

 an annuity plan under IRC Section 403(a). 

 an annuity contract or custodial account under IRC Section 403(b). 

 a simplified employee pension (SEP) under IRC Section 408(k). 

 a SIMPLE retirement account under IRC Section 408(p). 

 a trust described in IRC Section 501(c)(18). 

 a plan for federal, state, or local government employees or by an agency or instrumentality thereof 

(other than a 457(b) plan). 

Active participant

Generally, an employee is an active participant if covered by a:

 defined contribution plan (for example, a 401(k) plan) for any tax year and is credited with any 

contributions or forfeitures, or 

 defined benefit plan for any tax year that the employee is eligible to participate. 

Don’t check the retirement plan box if your company only has non-qualified or 457(b) plans.

Form W-3, Box b

Form W-3, Box b has checkboxes to specify the type of employer filing the form. You should check the 

appropriate box if you are a:

 non-governmental tax-exempt 501(c) organization; 

 state or local government or instrumentality; 

 state or local government or instrumentality and have received a determination letter from the IRS 

indicating that you are also a 501(c)(3) tax-exempt organization; or 

 federal government entity or instrumentality. 

Otherwise, you should check the “None apply” box. Only check one box.
401(k) Resource Guide - Plan Sponsors - Filing Requirements

The plan sponsor is responsible for ensuring that its plan operates in compliance with the rules related to 

qualified plans. The plan sponsor is also subject to certain filing requirements. A list of those requirements 

is included here. Penalties may apply for the late filing or non-filing of required returns and reports.

This checklist may be used as a tool to help you meet 401(k) filing requirements. Please see the 

instructions to the applicable forms or the references for detailed information. This checklist is not 

intended to be all-inclusive and does not apply to government plans or non-electing church plans.

Required to be file annually:

Item Explanation Due to:

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 

applicable schedules and independent 

auditor's report, if applicable.

Form 5500 Instructions

Form 5500-EZ Instructions

Required Schedules

An administrator or sponsor of an 

employee benefit plan subject to ERISA 

must file information about each plan 

every year.

A Form 5500-EZ may generally be filed 

for a plan that provides benefits solely 

for an individual (and spouse) who 

wholly owns a trade or business; or 

partners or partners (and spouses) in a 

partnership.

IRS/DOL: By the 

last day of 7th 

month after the end 

of the plan year.

Form W-2, Wage and Tax Statement and 

Form W-3 Transmittal of Wage and Tax 

Statements

Instructions

Reports wages and the amount of 

elective deferrals for a 401(k) plan.

Employees: By 

January 31st 

following the 

calendar year.

IRS: by February 

28th following the 

calendar year.

Required to be file when applicable:

Item Explanation Due to:

Form 945, Annual Return of 

Withheld Federal Income Tax

Instructions

Used to report income tax 

withheld from distributions 

made from qualified plans.

Deposits of the tax with a 

Form 8109 to an authorized 

depositary must be made at 

specified times during the tax 

year.

IRS: By January 31st of the year 

following the calendar year in which the 

distribution was made.

Form 990-T, Exempt Organization 

Business Income Tax Return

Used to report gross 

unrelated business income of 

$1,000 or more.

IRS: By the 15th day of the 4th month 

after the end of the tax year.
Instructions Generally deposits of the tax 

with a Form 8109 to an 

authorized depositary must 

be made at specified times 

during the tax year.

Form 1099-R, Distributions From 

Pensions, Annuities, Retirement 

or Profit-Sharing Plans, IRAs, 

Insurance Contracts, etc.

Instructions

Used to report distributions, 

including direct rollovers, 

from qualified plans.

Participant: by January 31st following 

the calendar year of the distribution.

IRS: By February 28th of the year 

following the calendar year of the 

distribution.

Form 5310-A, Notice of Plan 

Merger or Consolidation, Spinoff 

or Transfer of Plan Assets or 

Liabilities; Notice of Qualified 

Separate Lines of Business 

(QSLOB)

Instructions

Used to inform the IRS of 

plan merger or consolidation, 

spinoff or transfer of plan 

assets or liabilities, or 

QSLOB.

IRS: At least 30 days prior to plan 

merger, consolidation, spinoff or transfer 

of plan assets to another employer.

For QSLOB: By the later of October 15th 

of the year following the testing year, or 

the 15th day of the 10th month after the 

end of the plan year of the plan of the 

employer that begins earliest in the 

testing year.

Form 5329, Additional Taxes on 

Qualified Plans (Including IRAs) 

and Other Tax-Favored Accounts

Instructions

Used to report and pay 

additional taxes.

IRS: As an attachment to the Individual 

Income Tax Return. (Note: filed by 

participant)

Form 5330, Return of Excise 

Taxes Related to Employee 

Benefit Plans

Instructions

Used to report tax on the 

following IRC sections:

4971 - minimum funding 

deficiency

4972 - nondeductible 

contributions to qualified 

plans

4973(a)(3) - excess 

contributions to a 403(b)(7) 

custodial account

4975 - prohibited transactions

4978, 4978A - certain ESOP 

dispositions

4979 - excess contributions 

to plans with cash or deferred 

arrangements

4979A - certain prohibited 

IRS: For taxes due under:

4971 - later of the last day of the 7th 

month after the end of the employer's 

tax year or 8 1/2 months after the last 

day of the plan year that ends with or 

within the filer's tax year.

4972, 4973(a)(3), 4975, 4978, 4978A, 

and 4979A - last day of the 7th month 

after the end of the tax year of the 

employer or other person who must file 

this return.

4979 - last day of the 15th month after 

the close of the plan year to which the 

excess contributions or excess 

aggregate contributions relate.

4980 - last day of the month following 

the month in which the reversion 

occurred.

4980F - last day of the month following 
allocations of qualified 

securities by an ESOP

4980 - reversion of qualified 

plan assets to employers

4980F - failure of applicable 

plans reducing future benefit 

accruals to satisfy notice 

requirements

the month in which the failure occurred.

Form 5558, Application for 

Extension of Time to File Certain 

Employee Plans Returns

Provides a 2 1/2 month 

extension to file the Form 

5500 or 5500-EZ; a 6 month 

extension to file Form 5330.

IRS: By the last day of the 7th month 

after the end of the plan year for a 5500 

extension; before otherwise due for a 

5330 extension.
DOL Corner

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

guidance as featured below. You can subscribe to DOL/EBSA’s homepage for updates.

Guidance on fee disclosure rules

For your employees – DOL/EBSA held a webcast on September 13 to help participants understand the 

new fee disclosures they are receiving from their retirement plans. An archive of the webcast is available. 

DOL/EBSA also posted a dedicated Web page that includes publications, FAQs and videos.

On July 30, DOL/EBSA issued a set of frequently asked questions and answers in Field Assistance 

Bulletin 2012-02R to help plan administrators and service providers comply with the requirements of new 

rules improving the transparency of fees and investment expenses in retirement plans.

On July 18, DOL/EBSA published improved procedures for plan sponsors who want to obtain fiduciary 

relief for a service provider’s failure to comply with the plan-level fee disclosure rule.

The final 408(b)(2) regulation, effective on July 1, 2012, includes a provision to protect plan sponsors or 

other responsible plan fiduciaries from liability for a breach of their fiduciary duties under ERISA when, 

unknown to the plan sponsor, a service provider failed to comply with the regulation’s comprehensive 

disclosure requirements. If a plan sponsor discovers that required information has not been furnished, the 

sponsor must notify DOL/EBSA, electronically or by regular mail, when efforts to obtain the undisclosed 

information from a service provider are not successful. The new procedures allow a plan sponsor to notify 

DOL/EBSA online or by mail. The web-based tool will assist plan sponsors in ensuring that all required 

information is submitted with immediate confirmation of receipt by DOL/EBSA.

On February 3, DOL/EBSA published a final rule under ERISA Section 408(b)(2) that requires disclosures 

to employers sponsoring pension and 401(k) plans about the administrative and investment costs 

associated with providing such plans to their workers.

On October 20, 2010, DOL/EBSA published a final rule to help America’s workers manage the money 

they have contributed to their 401(k) accounts, or similar retirement plan accounts, by requiring the 

disclosure of information regarding the fees and expenses associated with their plans. This participantlevel disclosure rule, under ERISA Section 404(a), also ensures that workers receive core investment 

information in a format that enables them to meaningfully compare their plan’s investment options.

Guidance for apprenticeship and training plans

On July 26, 2012, DOL/EBSA held a webcast for apprenticeship and training plans on fiduciary 

responsibilities. The webcast covered basic fiduciary responsibilities, including guidance on graduation 

ceremonies and program marketing Field Assistance Bulletin 2012-01. The archived webcast is available 

on DOL/EBSA’s website.

Outreach and education

For notice of upcoming events as they are scheduled, subscribe on DOL/EBSA’s homepage. DOL/EBSA 

also conducts seminars for small businesses sponsoring health benefits plans. Information on these 

events is also available on DOL/EBSA’s homepage.