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QDROs and Retirement Plan Valuations


Below are certain current issues related to qualified retirement plans:

I. Annual Plan Limitations for 2016 and 2017- Some important limitations have changed for the 2017 plan year. Below are the most relevant limitations for the 2016 and 2017 plan years:

2016 2017
401(k)/403(b) Deferrals (Under 50/50 or Older) $18,000/$24,000 $18,000/$24,000
Profit Sharing (Under 50/50 or Older) (includes 401(k) deferrals and “catch-up”) $53,000/$59,000 $54,000/$60,000
Defined Benefit Plan (Annual Benefit) $210,000 $215,000
Annual Compensation $265,000 $270,000

II. Contribution Deadlines-The IRS has changed the tax filing due date for several business entities. These changes result in changes to the employer-based contribution deadlines for retirement plans. Following are the updated deadlines based on these changes for Calendar Year taxpayers:

S-Corporations (including LLCs Taxed as S-Corps): March 15/September 15 with extension

C-Corporations: April 15/September 15 with ext

Partnerships (including LLCs Taxed as P-Ships and LLPs): March 15/September 15 with ext

Sole Proprietorships: April 15/October 15 with ext (September 15 for Defined Benefit Plans)

III. Qualified Domestic Relations Orders (QDROs)-Retirement assets are generally considered marital assets and are subject to division in case of divorce. When a divorce or settlement agreement provides that retirement plan assets are to be divided, a QDRO must be drafted. It then must be approved by the plan and the court. Once approved by both, the account is divided inside the plan. No distribution to the participant's former spouse can be made until both the plan approves the QDRO and the acount has been segregated. Then, the former spouse must complete distribution paperwork. Please ensure that all orders are provided to us for approval and processing. Do not allow any plan distributions or loans to occur without first notifying our office.

IV. 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).

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.

II. 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. However, these plans aren't appropriate for all employers, 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.

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. Aggregation of Section 401(k) and Section 403(b) Plans- When calculating the maximum amount that an individual can have withheld from pay as either a Section 401(k) or Section 403(b) deferral, the individual must take into account all Section 401(k) and Section 403(b) plans in which he/she participates in a given calendar year, regardless of whether such plans are with the same or different employers.

VI. 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.

"Save My 401(k)" Campaign- Congress is continuing to consider ways to reduce the contribution limitations to qualified retirement plans, including 401(k) and profit sharing plans. These changes will severely impact the amounts that owners and their employees save for retirement through these plans. This will cause an even worse burden on our already fragile social security system. We ask that you please visit to learn more about this extremely important issue.

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.

New York and Florida Retirement Plan Lawyers
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