Sorry - I didn't realize this was already on today's benefits link newsletter links.

For taxable wage base: http://www.socialsecurity.gov/pressoffice/pr/2006cola-pr.htm

For IRS limits:

IR-2005-120

October 14, 2005

IRS Announces Pension Plan Limitations for 2006

WASHINGTON — The Internal Revenue Service today announced cost‑of‑living adjustments applicable to dollar limitations for pension plans and other items for tax year 2006.

Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. It also requires that the IRS commissioner annually adjust these limits for cost‑of‑living increases.

Many of the pension plan limitations will change for 2006. For most of the limitations, the increase in the cost-of-living index met the statutory thresholds that trigger their adjustment. Furthermore, several limitations, set by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), are scheduled to increase at the beginning of 2006.

For example, under EGTRRA, the limitation under section 402(g)(1) on the exclusion for elective deferrals described in section 402(g)(3) is increased from $14,000 to $15,000. This limitation affects elective deferrals to section 401(k) plans and to the Federal Government’s Thrift Savings Plan, among other plans.

Cost-of-Living limits for 2006

Effective Jan. 1, 2006, the limitation on the annual benefit under a defined benefit plan under section 415(b)(1)(A) is increased from $170,000 to $175,000. For participants who separated from service before Jan. 1, 2006, the limitation for defined benefit plans under section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2005, by 1.0383.

The limitation for defined contribution plans under section 415©(1)(A) is increased from $42,000 to $44,000.

The Internal Revenue Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of section 415(b)(1)(A). These dollar amounts and the adjusted amounts are as follows:

The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)©, and 408(k)(6)(D)(ii) is increased from $210,000 to $220,000.

The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $135,000 to $140,000.

The dollar amount under Section 409(o)(1)©(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5‑year distribution period is increased from $850,000 to $885,000, while the dollar amount used to determine the lengthening of the 5‑year distribution period is increased from $170,000 to $175,000.

The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $95,000 to $100,000.

The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost‑of‑living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $315,000 to $325,000.

The compensation amount under Section 408(k)(2)© regarding simplified employee pensions (SEPs) remains unchanged at $450.

The compensation amounts under Section 1.61‑21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes remains unchanged at $85,000. The compensation amount under Section 1.61‑21(f)(5)(iii) is increased from $170,000 to $175,000.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $10,000.

Limitations specified by statute

The Code, as amended by the Economic Growth and Tax Relief Act of 2001 (EGTRRA), specifies the applicable dollar amount for a particular year for certain limitations. These applicable dollar amounts are as follows:

The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) is increased from $14,000 to $15,000.

The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations is increased from $14,000 to $15,000.

The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $4,000 to $5,000. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or 408 (p) for individuals aged 50 or over is increased from $2,000 to $2,500.

Administrators of defined benefit or defined contribution plans that have received favorable determination letters should not request new determination letters solely because of yearly amendments to adjust maximum limitations in the plans.

Sole prop makes a deferral election prior to the end of 2004 to defer 14,000 for 2004. Now as he is finalizing his taxes, he decides he only wants to put in $12,000.

Now I know that being a sole prop he may search his files and find the corrected election that he did last year. But assuming he doesn't, is there any legal way for him to avoid making this deferral, assuming he has at least 14,000 in income? I can't find one, but I'm probably missing something obvious. Thanks.

We have a potential 401(k) client who also has a noneligible 457(f) plan. She wants to switch brokers for both products, but the current TPA for her 457 plan won't continue working for her if she switches brokers. Therefore, we're searching for a TPA firm who will relatively inexpensively do plan document and compliance work on a one-person 457(f) plan. Any recommendations?

HCE transfers from one employer to another in a controlled group. One employer maintains a safe harbor 401(k) plan, the other does not. Safe harbor plan provides a safe harbor match of 100% up to 6% of pay. The other plan provides 100% up to 5% of pay.

The aggregation rules require aggregating HCE contributions in both plans for each plans nondiscrimination testing. In the aggregate, the rate provided to this HCE is slighly lower than everyone else in the safe harbor plan because part of his aggregate deferrals are matched up to 5%, not 6%. Does this mean the safe harbor plan is ok?

A buyer who currently maintains an ordinary 401(k) plan purchases a seller (stock deal) that maintains a SIMPLE 401(k). The buyer is not eligible to sponsor the SIMPE 401(k) (too many employees). Can (or must) the buyer termiante the SIMPLE 401(k)? The reason why I ask is because 401(k)(10) prohibits an employer from terminating a 401(k) if they maintain or adopt another 401(k) within 12 months.

I had addressed a few unrelated plan issues recently that when considered together offered a possible solution for one of our clients. I wanted some input as to whether or not this was viable -

1.) Top Heavy 401(k) plan - husband & wife own the company (only HCEs & Key EEs).

2.) They do not defer into the plan to avoid having to make a top heavy contribution.

3.) Both are over age 50.

4.) ERISA Outline Book states that catch-up contributions are not considered in calculating the highest Key EE allocation percentage.

Question - Can we amend the plan to limit HCE deferrals to 0% and then have husband & wife defer the maximum catch-up contribution for the plan year and avoid having to make a top heavy contribution?

Just a thought

Does an employer have a time limit for making the prevailing wage fringe benefit deposits? It's been brought to my attention that an employer is several months behind in making these deposits. I can't believe that this can go on without the employer getting in serious trouble. Has the DOL ever imposed a time limit?

A participant in a 401(k) plan died. She was unmarried and the death benefit is less than $5,000. She named a non profit hospital as her beneficiary. Do we need to send a distribution election form to the non profit or just send the non profit her vested benefit without first sending an election form? Since the distribution is going to a non profit there would be no withholding, since there is no taxation on the non profit, correct?

If someone has an answer, could they please provide the source of the answer.

Thank you very much

Dan

Does anyone know exactly why we all file Schedule P's? I think a common thought out there is that somehow it starts the statute of limitations for IRS audit. I know this can't be true because IRS auditors go back as many years as they want when they discover recurrent operational defects. Also, when you terminate a plan, you have to go back 6 years to show operational compliance.

I suspect filing Schedule P protects trustees (not plan sponsors) from something, I'm just not sure what. Since most of our plans are trusteed by the business owner who is also the Plan Administrator and Plan Sponsor, is it necessary to file Schedule P and what is the benefit?

Has anyone had a CPA request "ESOP Transaction Documentation" for a non-leveraged ESOP plan contribution?

If yes, what did you provide?

I am posting this here as well as on the health plans board although I realize this board is intended for multiemployer pension plan issues but I am hoping that folks on this board might have particular expertise with MEWA issues as well.

I understand that the small employer exception which allows small employers to have Medicare pay primary rather than secondary for working aged employed by the small employer is generally extended to small employer groups participating in multiple employer group health plans (a category which I assume includes MEWAs) but only if the MEWA formally elects to have Medicare provide primary coverage. If the MEWA properly elects the small employer exception and complies with some basic reporting and disclosure obligations established by CMS, the exception basically permits the small employer threshold to be applied on a group-by-group basis in the context of a MEWA, even if the MEWA has some very large employer groups and a large number of total "plan" participants overall. In the absence of such an election, small employer groups participating in a MEWA with a range of large employer groups presumably are not entitled to the small employer exception.

My question is what happens if the MEWA has been acting as if this mandatory small employer election had been made years ago but, in fact, an election was never made. I assume the MEWA is on the hook for having to repay all amounts to Medicare on which Medicare paid as primary rather than secodnary and possibly pay interest and penalties as well. However, I have heard refernce to possibly being able to negotiate or work out a compromise with CMS on the issue if the MEWA voluntarily corrects the problem. I am curious if anybody out there has negotiated a compromise with CMS on similar grounds and, if so, exactly what is realistic to expect. (For example, is the compromise just that you have to pay Medicare back for all amounts they paid as primary but you get interest and penalties waived or is there a possiblity you can get Medicare to agree not to require return of all the amounts on which they paid primary if you can show that, but for the filing of the election, Medicare would have generally paid the amounts as primary. Thanks in advance for any assistance.

I understand that the small employer exception which allows small employers to have Medicare pay primary rather than secondary for working aged employed by a small employer can generally be extended to small employer groups participating in multiple employer group health plans (which I assume includes MEWAs) but only if the MEWA formally elects to have Medicare provide primary coverage. If the MEWA properly elects the small employer exception and complies with some basic reporting and disclosure obligations established by CMS, it is my understanding that the small employer threshold to be applied on a group-by-group basis in the context of a MEWA, even if the MEWA has some very large employer groups and a large number of total "plan" participants overall. In the absence of such an election, small employer groups participating in a MEWA with a range of large employer groups presumably are not entitled to the small employer exception.

My question is what happens if the MEWA has been acting as if this mandatory small employer election had been made years ago but, in fact, an election was never made. I assume the MEWA is on the hook for having to repay all amounts to Medicare for which Medicare paid as primary rather than secodnary and possibly pay interest and penalties as well. However, I have heard refernce to possibly being able to negotiate or work out a compromise with CMS as to back amounts if the MEWA voluntarily corrects the problem. I am curious if anybody out there has negotiated a compromise with CMS on similar grounds and, if so, exactly what is realistic to expect. (For example, is the compromise just that you have to pay Medicare back for all amounts they paid as primary but you get interest and penalties waived or is there a possiblity you can get Medicare to agree not to require return of all the amounts on which they paid primary if you can show that, but for the filing of the election, Medicare would have generally paid the amounts as primary. Thanks in advance for any assistance.

A plan has forfeited some ineligible deferrals. Normally the interest earned would be reallocated to all participants. Due to an administrative burden this really isn't an option. Is it appropriate to put these earnings to the forfeiture account?

Our test is 1/1/04 to 12/31/04 and there is a HCE who is due an ACP refund.

They were 50% vested on 12/31/04 and they are 75% vested now.

Anyone know what vesting % to use to determine how much of the refund has to be forfeited?

Thanks!

Does HIPAA offer credible coverage provisions for US corporations who employ international employees, both ex-pats and foreign nationals, when leaving governmental or social health programs and joining the corporate plan?

To determine HCE's, I've been instructed to use "gross compensation". Does this include things like moving expenses, company use of vehicle, life insurance, etc? We have an employer who payrolls totalled $80K in compensation, but these additional items will put him over $90K.

Perhaps this is out there somewhere, but I have not seen a clear answer to the question of how a stock award that is subject to 409A must be drafted to comply with 409A. Here's the situation: Company A has granted nonqualified stock options (nondiscounted and no deferral feature) and restricted stock to employees of Company B. The relationship between Company A and Company B does not satisfy the requirements under the proposed regs for Company A to constitute the "service recipient." Thus, the awards are subject to 409A and there is no "fix" (as there is for discounted options) to exempt them.

How must the options be amended to comply with 409A? Since the regs provide that a calendar year can be designated as the payment date, can the options provide that they can be exercised at any time during a specified calendar year? Must anything else be done to them?

For the restricted stock, is it really subject to 409A, and if so, what exactly does that mean? The shares will vest according to a vesting schedule, at which time the shares will be unrestricted and the employee will be taxed. It seems that the payment date and the vesting date are the same, which should satisfy the short-term deferral exemption. Am I missing something?

It's my understanding that a 2004 calendar year PSP that timely filed Form 5558 extension (by 7/31/05) had until 10/15/05 to file its 2004 Form 5500 and had until 10/15/05 to contribute its 2004 PSP contribution (and thus get a tax deduction for it on the employers 2004 business tax return).

Am I correct in thinking that if the employer is located in a Hurricane Katrina declared disaster area .... then the employer automatically has additional time to file the 2004 5500 and pay the 2004 contribution ( in order to deduct that contribution on its 2004 business tax return)?

Is that automatic exteded date 01/03/06 or 02/28/06?

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What about if the plan was a MPPP. The 2004 5500 was extended to 10/15/05 and the contribution was going to me made on 09/15/05..... But Hurricane Katrina hit on 08/29/05. Does the Katrina Emergency Tax Relief Act of 2005 cover a MPPP?

I havn't seen anything that allows a MPPP employer in the Katrina disaster area to be allowed to wait until 01/03/06 (or 02/28/06) to make its 2004 MPPP contribution. Does anyone know ?

I know (or I think I know) that participants inside of a 401k can continue to contribute after age 70 1/2 as long as they have earned income. I understand that RMD must also be taken after age 70 1/2. I cannot find any information to support either way. Any advice? Thanks!

Section 3508 of the IRS code says that 3 groups of employees are to be treated as non-employees for withholding purposes, including getting a 1099. These three are direct sellers, real estate agents and companion sitters: even when they are in fact common law employees. In Who's the Employer?, Derrin tells a little more about this, but I still have one question. For compensation purposes, do I use 1099 minus business expenses reported on schedule C?

Also, can anyone with experience tell me of any surprises in adiminstering a Plan with a few of these people in it?

Or provide any tips on how to get the information on expenses from these people?