Winter 2005 Retirement News for Employers

Good Business and Good Tax Planning, Too

As you know all too well, tax time is just around the corner. Are you looking for a tax deduction for

you and your business? If so, consider establishing a retirement plan for yourself and for your

employees. Retirement plans offer deductible contributions, tax-deferred growth and an attractive

incentive for recruiting and retaining valuable employees.

FYI: There’s still time for many businesses to establish a retirement plan now, make contributions and

qualify for deductions for 2004. Just as an example, contributions to IRAs made by April 15, 2005

may be deductible for the 2004 calendar year. (See a related story on the Saver’s Credit on Page 2.)

If you don’t have a retirement plan:

• Consider the Benefits - for you and your employees. For example, your contributions are tax

deductible, assets grow tax-free with compounding interest and you will attract and retain better

employees. See Publication 4118.

• Choose the Right Plan - It is important to choose the right retirement plan for your business.

There are a number of plans to choose from (IRA-based to defined contribution to pension).

See Publication 3998 for a chart outlining the advantages of each of the most popular types

of retirement plans. (See a related story on Pub 3998 on Page 5.)

If you do have a retirement plan:

 • Watch for Common Mistakes - Avoid the following mistakes:

 1) Not following the terms of the plan document;

 2) Not covering the proper employees;

 3) Not giving the employees required information;

 4) Not depositing employee deferrals or employer

 contributions timely; and

 5) Not limiting employee deferrals and employer

 contributions to the proper limits.

 • • Perform Periodic Reviews of Your Plan - Errors in a

 plan brought on by changes in your work force and its

 salary deferral patterns are easier and cheaper to fix when

 they are small and have not been allowed to continue over a

 long period of time. Changes in your business may produce

 unexpected changes in your business operations. If you have a SIMPLE IRA, SEP or similar

 plan, consider a Check-up now. IRS Employee Plans has developed Publication 4405 which

 outlines available tools, tips/resources and help for a Check-up of your retirement plan. Tools

 include checklists for operating these plans - see Publications 4284, 4285 and 4286.

Retirement News

for Employers

Helping Business Owners with Retirement Plans

Internal Revenue Service Tax Exempt and Government Entities

Volume 1, Winter 2005

Inside This Issue

Small Business Week 2005

page 2

Retirement Savings

Contributions Credit

page 2

The Fix Is In

page 3

Product Profile - Choosing

a Retirement Solution for

Your Small Business

Publication

page 5

Tax Law is Complex...

page 5

No Need to Panic!

page 7

The Filing Cabinet

page 8

DOL News

page 9

Calendar of Events

and Deadlines

page 10
Winter 2005 Retirement News for Employers

• Get an Independent Reviewer to Check Your Plan

• Correct Mistakes Now - The IRS has helpful correction programs that are

 structured to provide financial incentives for finding and correcting mistakes

 earlier rather than later. In fact, many mistakes can be corrected easily, without

 penalty and without notifying the IRS. (See Publication 4224.)

• Monitor the People Who Work with Your Plan

• Watch for Law Changes - Keep your plan up-to-date with the law.

• Report to the Government - Distributions are reported on Form 1099-R.

 Many plans annually file Form 5500 or Form 5500-EZ.

To find out more, visit the Retirement Plans web page and click on “Information for:

Plan Sponsor/Employer.”

Retirement Savings Contributions Credit

Does your business sponsor a Payroll Deduction IRA, 401(k), 403(b) or SIMPLE IRA

plan? Then you, as a plan participant, and your employees may be able to take a tax

credit if you make eligible contributions for retirement. Plan participants may be able to

take a credit of up to $1,000 or up to $2,000 if filing jointly. This credit could reduce –

dollar for dollar – the federal income tax participants pay.

The “Saver’s Credit” primarily benefits moderate to lower income workers. The amount

of credit that plan participants are entitled to is based on their rate of credit and their

adjusted gross income. In order to qualify for the credit, adjusted gross income cannot be

more than:

• $50,000 if the filing status is married filing jointly,

• $37,500 if the filing status is head of household (with qualifying person), or

• $25,000 if the filing status is single, married filing separately, or qualifying

widow(er) with dependent child.

In general, eligible contributions (up to $2,000 per person) include:

• Contributions to a traditional or Roth IRA, and

• Salary reduction contributions (elective deferrals) to:

1) A 401(k) plan, including a SIMPLE 401(k);

2) A section 403(b) annuity;

3) A state or local government plan – a section 457 plan;

4) A SIMPLE IRA plan; or

5) A salary reduction SEP

Eligible contributions also include voluntary after-tax employee contributions to a taxqualified retirement plan or section 403(b) annuity. Eligible contributions must be reduced

– but not below zero – by any distributions from any IRA, plan, or annuity received during

the year for which the credit is claimed. This distribution deadline goes until the tax return

is filed and includes the previous two years as well. Also, note that participants can make

IRA contributions – but not 401(k) or 403(b) plan contributions – up to April 15th, 2005

and have them count toward the Saver’s Credit for 2004.

Small Business Week

2005

The U.S. Small Business

Administration will mark the

42nd National Small Business

Week in Washington, D.C.,

April 26-28, 2005, with SBA

Expo ’05 showcasing Small

Business Persons of the Year

from each state, and the

announcement of the National

Small Business of the Year.

National Small Business Week

honors some of the nation’s

estimated 25 million small

business owners that help

drive the nation’s economy.

Small businesses employ more

than half the country’s private

work force, create three of

every four new jobs and

generate a majority of

American innovations.

SBA Expo ’05 will also

feature special events that

include a small business expo,

a business matchmaking event,

business seminars, a town hall

meeting and award

ceremonies. Other highlights

will include notable speakers

and business industry leaders

from trade associations, and

local and federal governments.

Employee Plans will be

exhibiting at the Expo. We

will be offering participants

educational materials as well

as answering employee

retirement plans questions.

Information on SBA Expo ’05

can be found online at

www.sba.gov/expo.

2
Winter 2005 Retirement News for Employers

The Saver’s Credit is nonrefundable. In general, this means the amount of the credit in any year

cannot be more than the amount of tax that would otherwise be paid. If the tax liability is

reduced to zero because of other nonrefundable credits, such as the Hope credit, then the

Saver’s Credit cannot be taken.

The amount of the credit you can get is based on the contributions made and the rate of credit.

The rate of credit depends on income and filing status and it can be as low as 10% or as high as

50%. The lower the income level, the higher the rate of credit. See Form 8880 to determine

your rate of credit.

Announcement 2001-106 and Announcement 2001-120 (Spanish version) include

additional information on the credit in a Q&A format and a sample notice that employers can

give to employees explaining the credit. Additional info can be found in Pub 590.

The Fix Is In: Common Plan Mistakes

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

happens 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

“Not Correcting ADP/ACP Mistakes Timely.”

The Issue

Many of you have 401(k) retirement plans that provide for elective contributions. If you

do, you may be familiar with the Actual Deferral Percentage test (ADP) and the Actual

Contribution Percentage test (ACP). These tests provide a limit on the amount that

certain benefits provided under the plan to highly compensated employees (HCEs) may

exceed the benefits provided to non-highly compensated employees (NHCEs).

Under the ADP test, the average salary deferrals of the HCEs and NHCEs are

calculated and compared on an annual basis based on the plan year. Each employee’s

deferral percentage is the percentage of compensation that has been deferred, pre-tax,

to the 401(k) plan. The deferral percentages of the HCEs and NHCEs are then

averaged to determine the ADP of each group. To pass the test, the ADP of the HCE

group may not exceed the ADP for the NHCE group by 1.25 percent or 2 percentage

points.

Similar to the ADP test, the ACP test applies to matching contributions and/or employee

after-tax contributions. The plan satisfies the nondiscrimination requirements of the law if

it passes the ADP and ACP tests.

If the plan fails the ADP and/or ACP tests, corrective action must be taken to protect

the qualified status of the arrangement. The law and related regulations provide various

methods for correcting mistakes during a “correction period.” This statutory correction

period is the 12-month period following the close of the plan year in which the mistake

occurs. If corrective distributions are made after the first 2 1⁄2 months of the correction

period, the employer (not the HCE) is liable for an excise tax. If correction is not made

within the correction period, the plan is considered “disqualified.”

How to Subscribe to

Retirement News for

Employers

The Retirement News for

Employers will be issued only

through IRS e-mail. For your

free subscription, please go

to the Retirement Plans web

page and subscribe on-line

by selecting “Retirement

Source for Plan Sponsors/

Employers” and then

“Retirement News for

Employers”. All editions of

the Retirement News for

Employers will be archived at

the Retirement Plans web

page.

For your convenience, we

have included Internet links

to referenced materials

throughout the electronic

version of Retirement News

for Employers. These links

are identified on the printed

version by the underlined

text. The electronic version

may be found at the

Retirement Plans web page.

3
Winter 2005 Retirement News for Employers

The Problem

One of the most common mistakes submitted for correction under the Voluntary Correction

Program (VCP) is the failure to timely test for and correct ADP or ACP mistakes. Common

reasons for this mistake are:

1) Incorrectly classifying employees as HCE or NHCE;

2) Using an incorrect definition of compensation in the tests; and

3) Calculating the test incorrectly.

The Fix

Employers may get relief from treatment of the 401(k) plans as nonqualified through the

Employee Plans Compliance Resolution System (EPCRS) by correcting the mistakes

after the statutory correction period has passed. The Self-Correction Program (SCP) or

Voluntary Correction Program (VCP) can be used to correct the mistakes. In order to fix the

mistake under SCP, generally the mistake must be fixed within two years after the end of the

statutory correction period (i.e., the 12-month period following the close of the plan year).

Unless the failure can be classified as insignificant, VCP must be used after this time.

3⁄4 Example: A calendar year plan with a 401(k) arrangement fails the ADP test for the plan

year ending 12/31/02. The statutory correction period is the 12-month period from

01/01/03 to 12/31/03. The self-correction period under SCP runs from 01/01/04 to

12/31/05. After this date (unless the violation is considered insignificant), VCP must be

used to correct the violation.

Note that there is more than one way to correct ADP and ACP mistakes under EPCRS.

Generally, if SCP or VCP is used to correct a violation of the ADP/ACP test after the statutory

12-month correction period, the employer is required to make Qualified Non-Elective

contributions (QNECs) for the NHCEs. QNECs are contributions made by the employer that

are 100% vested, have the same distributions rules as 401(k) deferrals and do not discriminate in

favor of HCEs. Under one corrective approach, the employer contributes enough QNECs to all

the NHCEs in order to raise the ADP of the NHCEs to a level necessary that satisfies the ADP

test. Another approach under EPCRS permits correction solely by making distributions to the

HCEs after the statutory correction period as long as the employer is willing to make a

contribution for the NHCEs that equals the total amount being distributed.

Making Sure It Doesn’t Happen Again

Completing the ADP/ACP nondiscrimination tests accurately and timely is vital for employers

maintaining 401(k) plans. The plan document, employee data, etc., should be carefully reviewed

to ensure that employees are correctly classified, the proper definition of compensation is used

and proper testing/correction methods are used. Plans with matching contributions and/or

employee after-tax contributions can be structured so that the employer can adjust the

contribution rates of the HCEs in order to prevent the plan from failing the ACP test. Similarly,

some plans are designed with a discretionary matching contribution formula, where the employer

can declare a different rate of matching contribution for the HCEs.

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

IRS can help you correct the problem and retain the benefits of your 401(k) retirement plan.

Want more

information on

fixing mistakes?

Just go to

www.irs.gov/ep,

click on

“Retirement

Source for Plan

Sponsors/

Employers” and

select “How Do

I Fix a Plan

Mistake?”

Mistakes happen.

In fact, the IRS

sees a lot of the

same mistakes

again and again.

In “The Fix Is In”

we’ll help you

avoid some of

these common

problems.

4
Winter 2005 Retirement News for Employers

Product Profile – Choosing a Retirement Solution for Your

Small Business Publication

Does your business sponsor a retirement plan? Are you considering establishing one for you

and your employees? Is the retirement plan that your business currently sponsors not meeting

the needs of your growing company? Are you confused by all of the choices? Should you

adopt a SEP? A SIMPLE? A 401(k)? Something else?

The IRS and Department of Labor, in a joint effort with the U.S. Small Business Administration

and the U.S. Chamber of Commerce, have developed a publication to assist you in choosing

the right retirement plan for your business. Publication 3998, Choosing a Retirement

Solution for Your Small Business is a plain-language publication that provides basic

information on the different types of plans available to you, including Payroll Deduction IRA,

SEP, SIMPLE IRA, 401(k), Profit-Sharing and more. The centerpiece of the publication is a

two-page chart that outlines the different features of each type of plan in the pub:

• Key Advantage

• Employer Eligibility

• Employer’s Role

• Contributors to The Plan

• Maximum Annual Contribution

• Contributor’s Options

• Minimum Employee Coverage Requirements

• Withdrawals, Loans and Payments

• Vesting

Finally, the publication provides additional sources for more in-depth information if you need it.

The publication, as well as additional information on choosing a retirement plan, can be found on

the Retirement Plans web page.

Tax Law is Complex but We Can Help

National Taxpayer Advocate Nina E. Olson released a report to Congress on January 10,

2005 that identified the complexity of the Internal Revenue Code as the most serious problem

facing taxpayers and the IRS alike. The report cited the alternative minimum tax, the earned

income tax credit, and the large number of provisions designed to encourage taxpayers to save

for education and for retirement as key illustrations of the problems of complexity of the tax

code.

We here at Employee Plans recognize the complexity of the tax code and have developed

several tools to assist you in navigating your way through the retirement plan provisions:

The Retirement Plans web page – www.irs.gov/ep:

The Retirement Plans web page has a new name and look. It’s now available under

“Retirement Plans Community” on the main IRS landing page. You will now find

“Information For” categories of “Benefits Practitioner,” “Plan Participant/Employee” and “Plan

Sponsor/Employer.” The pages are filled with all of the retirement plan information that you’ve

come to expect from us.

5
Winter 2005 Retirement News for Employers

We are redrafting material for easier use by plan sponsors and participants. We will continue

adding, redrafting and editing retirement information for each of these customer groups. If you

have any suggestions about what we should provide, please e-mail us at

RetirementPlanComments@irs.gov.

Publications:

Unceasing in our attempts to supply plain-language information on

retirement plans, we’re happy to announce the recent release of the

following publications:

•Publication 4334, SIMPLE IRA Plans for Small Businesses,

was created with our colleagues at DOL/EBSA and is designed for small

business owners and tax practitioners with clients that may want to start

or already have a SIMPLE IRA Plan. It provides guidance on the

establishment and operation of such a plan.

•Publication 4336, SARSEPs for Small Businesses, is an

informational tool that provides guidance on the operation of a Salary

Reduction Simplified Employee Pension (SARSEP).

•Publication 4405, Have you had your Check-up this year? for

SIMPLE IRAs, SEPs, and Similar Retirement Plans is an

educational pamphlet designed to inform and encourage employers to

perform a periodic “check-up” of their IRA-based retirement plan

through the use of checklists and how to initiate corrective actions, if

necessary.

•Publication 4406, 403(b) and 457 Retirement Plans (with plan

feature comparison chart), outlines the features of 403(b) and 457

plans and compares them to 401(k) plans.

•Publication 4407, SARSEP - Key Issues and Assistance, is an

educational pamphlet that highlights various key issues regarding the

operation of a SARSEP, while listing different resources for assistance.

And don’t forget about our not so recent releases:

• Publication 3998, Choosing a Retirement Solution for Your Small

Business.

• Publication 4222, 401(k) Plans for Small Businesses.

• Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and

Qualified Plans).

All of these publications are available on the Retirement Plans web page by clicking on

“EP Forms & Publications” under the “Related Topics” section and can be ordered by calling

(800) TAX-FORM.

So don’t let the complexity of the tax code keep you from securing your future – and

your employees’ futures.

6

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 of the

Retirement Plans web page 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 the

Retirement Plans web page at: www.irs.gov/ep.
Winter 2005 Retirement News for Employers

There’s No Need to Panic!

A-U-D-I-T: No one likes to even say the word, let alone be the subject of one. Most folks are

familiar with audits of individual tax returns or of business tax returns. But did you know that

part of the IRS also conducts audits of retirement plans?

Because of the trust that employees place in their retirement plans and because of the sheer

amount of assets that retirement plans have (more than $10 trillion), the IRS needs to make

sure that retirement plans are operated in accordance with the law. The IRS calls this proper

operation of plans “compliance” and Employee Plans, or “EP” is the part of the IRS that handles

the auditing (or examining) of retirement plans. To improve compliance by plan sponsors, EP

employs a sort of “carrot and stick” approach.

The “carrot” is our self-correction program (see our continuing series, “The Fix Is In,” for

more info on this program). The “stick” is an audit. (see the accompanying sidebar article

about a new audit program that EP is starting).

EP understands that the thought of any IRS audit, including an audit of your retirement plan, can

be a scary one. So, EP has come out with some new publications that help explain the audit

process and your rights during an audit.

These new pubs – and other new material – are results from and a direct response to Customer

Satisfaction surveys about the EP examination process.

Several EP Examinations Customer Satisfaction teams, consisting of EP managers, agents, and

practitioners, were commissioned to develop products that address the concerns expressed by

you, our customers. These teams came up with some new products as well as enhancing some

existing products.

• A new product scheduled for March 2005, Employee Plans Examination Process Guide,

helps retirement plan sponsors and practitioners understand the examination of employee

plans. This web-based guide, which is intended as a reference or resource to provide

information about the examination process, will initially consist of eleven sections. The guide

also contains all the products referenced below.

• A new publication, 1-EP, Understanding the Employee Plans Examination

Process, was created to replace the Publication 1 (Your Rights as a Taxpayer) in the

initial contact package. It answers many of the questions you might have regarding our

examination process. The first part of this publication explains some of your most important

rights as a taxpayer. The second part explains the examination process in depth.

• The Form 1346, appointment letter, was updated and made friendlier in an attempt to

address the #1 question raised by customers - “Why was I selected for examination?” The

revised letter explains why certain returns are selected for examination. The letter also

references two new products that were created to explain customer rights and the

examination process: a flowchart and bookmark (see below). The itemized listing of

information needed for the examination is organized by code section and explains why the

information is needed. This information will help you understand the underlying reason for

our request.

7

Employee Plans

started a new

examination

review program

in the first

quarter of FY

2005 for SIMPLE

IRA plans. The

plans were

randomly

selected from the

total population

of SIMPLE plans.

We expect the

SIMPLE review

program to

continue

throughout FY

2005 and 2006.
Winter 2005 Retirement News for Employers

• The Employee Plan Examination Process flowchart illustrates the steps involved in an

examination of a retirement plan. The flowchart begins with letting the taxpayer know that

the IRS will be coming to them to conduct the audit and ends with a comment about

how issues will be handled if identified during an examination.

• The Employee Plans Examination bookmark provides a concise explanation of your rights

at a glance. It also reminds customers of the advantages and responsibilities of having a

retirement plan.

• A “status” letter has been developed for updating you (and your representative) when there

are delays in the processing of the case.

These products are now available on the Retirement Plans web page and they’re

currently being used by our examination agents.

As we said earlier, no one wants to be the subject of an IRS audit. But if you are, these

new products are there to explain the process, explain your rights and, we hope, lessen

your anxiety.

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.

Changes to the Form W-2 for 2005

The following new codes have been added to the Form W-2, Wage and Tax

Statement for 2005:

• Code Y - Deferrals under a section 409A nonqualified deferred compensation plan -

 for use in box 12. Section 409A was added to the Internal Revenue Code by recent

 legislation, generally effective after December 31, 2004, and requires employers to

 report annual deferrals under a nonqualified deferred compensation plan on each

 employee’s Form W-2. The deferred amounts should be reported in box 12 of Form

 W-2, using Code Y.

• Code Z - Income under section 409A on a nonqualified deferred compensation plan

 – for use in box 12. This code and other reporting will be used to identify income

 recognized due to participation in a nonqualified deferred compensation plan that

 fails to meet the requirements of Code section 409A. This income is subject to an

 additional tax and interest imposed on the individual.

Ringing In the New Year

With the arrival of 2005, the IRS has revised its highly popular Publication 1518, IRS Tax

Calendar 2005 for Small Businesses and Self-Employed. The calendar is filled with helpful

hints, general tax information and a listing of the most common tax filing dates. Each month

highlights a new tax tip intended to help small businesses during both the tax filing season and the

entire year. A copy of the calendar can be ordered by calling (800) TAX-FORM. Happy New

Year to all!

8

IRS employees

contributing to this edition

of the Retirement News

for Employers are:

Bob Brambilla

Robert CreMeens

Evelyn DeWald

Larry Isaacs

Cathy Jones

Joyce Kahn

Peter McConkey

Todd Newman

Mark O’Donnell

Nancy Payne

Keith Ruprecht

Michael Sanders

John Schmidt

Brenda Smith-Custer

and Susan Taylor
Winter 2005 Retirement News for Employers

New Publications

The following publications have been revised for use in preparing 2004 returns and are currently

available:

• Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and

Qualified Plans)

• Publication 575, Pension and Annuity Income

• Publication 590, Individual Retirement Arrangements (IRAs)

In addition, the Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For

Employees of Public Schools and Certain Tax-Exempt Organizations, was revised

in December 2004.

All of these revised publications are available on the Retirement Plans web page by

clicking on “EP Forms & Publications” under the “Related Topics” section and can be ordered

by calling (800) TAX-FORM.

DOL News

The Department of Labor’s Employee Benefits Security Administration’s ongoing compliance

assistance program to help employers, plan officials, service providers and others continued to

expand with the issuance of new guidance.

Single Employer Defined Benefit Pension Reform

 On January 10, 2005, Secretary of Labor Elaine L. Chao released the Bush

Administration’s plan to strengthen the retirement security of the 34 million workers and

retirees covered by private, single employer defined benefit pension plans, ensure the long

term solvency of the Pension Benefit Guaranty Corporation (PBGC) and encourage continued

participation in the voluntary pension system. The Administration proposes to reform the

funding rules to ensure pension promises are kept by improving incentives for funding plans

adequately; improving disclosure to workers, investors and regulators about pension plan

status; and adjusting premiums to better reflect a plan’s risk and ensure the pension insurance

system’s financial solvency.

The Administration’s plan to reform the funding rules will bring simplicity, accuracy, stability,

and flexibility to the funding rules, encouraging employers to fully fund their plans and ensuring

that benefit promises are kept. It replaces multiple measures of pension liabilities with one

measure, bases plan funding targets on the pension plan sponsor’s financial health, requires

financially weak companies to immediately fund additional benefits they promise, and allows

plan sponsors to make additional contributions during good economic times.

Improved disclosure will help workers make informed decisions about their retirements and

plan for the future, and will provide investors and regulators with timely information about the

status of pension plans to evaluate plan sponsors’ financial obligations and to ensure

compliance with the law.

The Administration’s plan to reform the premium structure will reflect more accurately the cost

of the program and shift the emphasis to risk-based premium funding. It adjusts flat rate

premiums paid by all companies to reflect the growth in worker wages since 1991, when the

current rate was set, indexing them to wage growth going forward and requires all underfunded

plans to pay risk-based premiums that are related to their funding targets.

9

What’s New on

the Web

Our web page now

reflects information for

the community of

retirement plan sponsors/

employers, benefits

practitioners, and

participants/employees.

Over the coming months,

look for further content

written specifically for

plan sponsors/employers

and participants/

employees. To see the

new look, visit

www.irs.gov/ep and

look for “Information

for:” each part of the

Retirement Plans

Community.
Winter 2005 Retirement News for Employers

Duties of a Directed Trustee

On December 17, 2004, DOL/EBSA released Field Assistance Bulletin (FAB) 2004-03 providing guidance

on the responsibilities of a directed trustee under the Employee Retirement Income Security Act (ERISA).

The guidance clarifies that a directed trustee is a fiduciary under ERISA, responsible for carrying out its duties

prudently and solely in the interest of the participants and beneficiaries of employee benefit plans. The FAB also

makes clear that the named fiduciary, not the directed trustee, is primarily responsible for ensuring the prudence of

plan investment decisions. A directed trustee is only required to question the directing fiduciary’s instructions

regarding transactions involving publicly traded securities in rare circumstances.

The FAB specifically addresses the responsibilities of a directed trustee in determining whether a direction is

“proper” – consistent with the terms of the plan and not contrary to ERISA. When a directed trustee has nonpublic information regarding a security that is necessary for a prudent decision by the directing plan fiduciary, the

FAB provides that the directed trustee has a duty to inquire about the named fiduciary’s knowledge and

consideration of the information. In the case of public information, a directed trustee would be required to question

the instructions of the directing fiduciary only in extraordinary circumstances. The FAB provides that a directed

trustee may have to question directions involving the purchase or holding of a security where there are “clear and

compelling public indicators” as evidenced by an 8-K filing with the Securities and Exchange Commission (SEC), a

bankruptcy filing or similar public indicator that call into question the issuer’s viability as a going concern.

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 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:

February 18: SWBA/IRS Plan Administrative Skills Workshop - Oklahoma City, OK

February 25: SWBA/IRS Plan Administrative Skills Workshop - Houston, TX

March 15: Deadline for -

• Submitting waiver requests for the 2004 plan year for single employer plans.

• Change in funding method requests for the 2004 plan year if a statement is attached detailing the

 reason for the delay.

April 1: Last day to make required minimum distributions - Code section 401(a)(9) requires that distributions

begin no later than April 1 of the calendar year following the later of:

• the calendar year in which the employee attains age 70 1⁄2 (required for 5% owners) or

• the calendar year in which the employee retires.

April 15: Excess elective deferrals and any earnings thereon from the prior year must be distributed by this

date.

April 15: First quarterly installment due date for the 2005 plan year.

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

“Retirement Source for Plan Sponsors/Employers” and then “Upcoming EP Educational Events”.

= contribution

= conference

= file forms

Department of the Treasury Publication 4278 (2-2005)

Internal Revenue Service Catalog Number 37968B

www.irs.gov