TIMELY ISSUES & IMPORTANT REMINDERS

ANNUAL PLAN LIMITATIONS

Several important limitations have changed for the 2020 Plan Year. Below are the most relevant limitations for the 2019 and 2020 Plan Years:

ANNUAL REMINDERS

I.401(k) Deferral and Loan Repayment Deadlines- Sponsors of 401(k) plans must ensure that all employee 401(k) deferrals and loan repayments are deposited as soon as possible, but no later than the seventh business day following the day such deferrals or loan repayments are withheld from pay. The IRS and DOL can assess substantial fees for noncompliance.

II. Plan Distributions and Loans -It is important that employers do not permit distributions or loans to be made to participants without the input of Heller Pension Associates, Inc. Employers should contact us if any participant requests a distribution or loan of his or her plan benefits. Please also note that we recently started requiring that Benefit Claim and Election Forms be notarized to help prevent potential fraud.

III. Reducing Potential Fiduciary Liability- There are several methods to reduce potential fiduciary liability for plan sponsors and trustees. However, plan sponsors should be wary of companies that promise “complete protection,” as there is no way to completely eliminate plan sponsor responsibilities as fiduciaries. Regardless of whether a plan offers participants the option of choosing their own investments, plan sponsors should use prudence in selecting and monitoring the plan investments, should build an “audit file” documenting the regular review of the investments and any changes thereto, and should ensure that the plan investments are diverse.

IV. Related Businesses- Subtle changes in a business’ ownership structure or the other businesses owned by any individuals (or their family members) who have ownership in the company that sponsors your retirement plan could result in two or more businesses being deemed to be related for retirement plan purposes. This could have a substantial impact on the operation of the plan and contributions thereto. Please contact us with any changes in the ownership structure of any of your businesses or those of your immediate family members.

V. Prohibited Transactions- The law prohibits individuals and companies related to the plan or plan sponsor from participating in certain transactions with the plan or its assets. Substantial penalties and possible plan disqualification could occur if these rules are not followed. If there is a question with respect to a contemplated transaction, please contact us prior to the commencement of such transaction.

VI. Defined Benefit/Cash Balance Plans- Defined benefit and cash balance plans can provide small business owners with much higher contributions than other types of retirement plans, particularly after the enactment of the 2018 Tax Reform Act. However, these plans aren’t appropriate for everyone, as they generally require a larger commitment and can result in large contributions for non-owner employees. Please contact us if you would like to consider a defined benefit or cash balance plan.

VII. Unrelated Business Taxable Income-Certain investments made in retirement plan accounts and IRAs can trigger a special tax, known as the “Unrelated Business Income Tax.” This tax is applicable, even though the plan is exempt from normal income taxes until the assets are distributed. It is imperative that you inform us of any of the following investments in your plan accounts: (i) any non-publicly traded business (especially any entity that could be deemed to hold inventory), (ii) any nontraditional investment (e.g., real estate) where the plan obtained financing for part or all of the investment, or (iii) partnership interests (for which you should be receiving K-1s and should provide them to us).

VIII. QDROS (Qualified Domestic Relations Orders)- When a participant in a retirement plan goes through a divorce, his/her plan benefits may become subject to division. There are special rules that must be followed to properly comply with applicable law. Please contact our office when you are notified that a participant’s plan account needs to be divided.

We will continue to email the annual Census Request/Questionnaires, unless you let us know that you prefer that these documents be sent via regular mail. If providing any sensitive information to us electronically (e.g., Form W-2s with Social Security Numbers), please password-protect the attachments and remember to send us the passwords.

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If you have any questions regarding these or other issues relating to retirement plans, please feel free to contact our office. We would also be happy to schedule a meeting to discuss any questions that you may have regarding your retirement plan or other retirement plan options that may be available.