cross-testing, egtrra 25% ps limit, penalty for not having surety bond

[Guest Donna Neuhauser]

several questions please: effective for plan years beginning in 2002, is it ok to have a ps at 25% and also a mp at 25% as long as the increased limit of the lesser of 100% of comp or $40k is not exceeded? next: I have been trying to find what the penalty is if a plan does not carry an ERISA Surety Bond. An attorney is telling me despite it being a requirement there is no penalty if the plan sponsor does not have one. next: I have read 2001-77 several times and am trying to clarify if a cross-tested psp (Corbel volume submitter document) has automatic reliance. Safe harbor comp definition being used, along with 1000 hours and last day provision. OK not to submit because of "partial" reliance? HELP please. Thanks so much.

[rcline46]

Of course it is ok. Problem is that you can only DEDUCT under 404 25% of pay, so you would have non-deductible contributions.

There is no penalty at this time for not having a surety bond. However, the DoL successfully prosecuted a plan sponsor who refused to get a bond this past summer. Removed forever as a fiduciary. I think fine and jail went along with it.

If the volume submitter has no changes in language, the you get language reliance. No reliance on testing methods or results, but you never really had that after the submission year anyway.

[Belgarath]

I'd be very careful on the bonding issue. (my personal opinion is that not getting the bond is just begging for trouble.)

Specifically, make sure you check your plan document, as many documents require the bonding. In addition, although I haven't seen anything suggesting this, I'd be concerned about the liability for violating the fiduciary prudence standards of ERISA 404(a)(1)(B). I'll bet the DOL could take a fiduciary to the cleaners on this.

[Guest TAG]

Here is an article describing what rcline has eluded to... I have a client who just doesn't want to part with the $100 or so for the bond so I sent him this article...haven't heard any whining since.

http://www.ebia.com/weekly/articles/ERISA001214Herman.html:D

[Lynn Campbell]

The bonding requirement is more worrisome than ever, now that the Dept. of Labor has issued regulations that provide that for small plans (less than 100 participants) the plan will need an audit by an independent public acct. unless at least 95% of assets are "qualifying plan assets" or the bond is adequate to cover the entire value of "non-qualifying assets". These rules are in effect for plan years beginning after April 17, 2001. There are additional requirements in these regs. that must be met to avoid an audit for a small plan - expanded Summary Annual Report, mainly. Another thing to worry about - we need that!