User Fee and Tax Credit

[Guest caddieadmin]

I've read a few different things online, and I just wanted to double check something.

As far as the determination letter process is concerned, if you're initiating a new retirement plan for your company and you have fewer than 100 participants, the user fee is waived for the first 5 plan years? So all you would pay would be a filing fee (is it $125?)?

And as far as the employer tax credit goes, is it up to $500 for the first 3 years of the plan or is it now up to $1000?

Thanks so much.

[John Feldt ERPA CPC QPA]

The top section of Form 8717 allows the employer to certify that they are an eligible small plan, thereby paying no fee to file a Form 5300, 5307, 5310 or 6406. This user fee exemption currently applies to any DC plan established on or after January 2, 1997 and to any DB plan established on or after January 3, 1996 (due to the way in which the remedial amendment periods have been established by the IRS). I am not aware of any additional required filing fee to obtain the determination letter if you qualify for the new small plan exception. The cost of filing is your own cost to prepare the proper forms and proper attachments.

Under IRC Section 45E, the credit is limited to 50% of the first $1,000 in expenses. This is the credit that is available in the first credit year and each of the 2 taxable years immediately following the first credit year. The credit cannot exceed $500 per year and it's nonrefundable, meaning you may not generate an income tax refund for the credit. The Employer must have 100 or fewer employees and the Plan must have at least one non-highly compensated employee (NHCE) participating in the plan.

[Guest caddieadmin]

Does the employer qualify as a "small plan" under the tax credit (and I suppose for the purposes of form 8717 as well) if there are fewer than 100 "participating" employees, or is it because the employer has fewer than 100 employees working for the company?

[John Feldt ERPA CPC QPA]

If you look in the code, you'll find the answer as IRC Section 45E references IRC Section 408(p)(2)(c )(i) in order to define the term "eligible employer" for this purpose.

408(p)(2)(c )(i)(I): "The term "eligible employer" means, with respect to any year, an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year."

To me, that looks like it's based on the number of employees, not the number of participants.