2006 Personal Tax Estimator
December 28, 2006
H&R Block has a pretty slick online tax estimator that estimates your federal refund or how much you will owe.
To follow-up yesterday's post, here is another summary of Field Assistance Bulletin 2006-03.
Benefit Statement Good Faith Guidance
December 27, 2006
The Pension Protection Act of 2006 (PPA) requires benefit statements to be provided to participants on an annual basis (or a quarterly basis if the plan is self-directed). The DOL has not issued guidance as to the details of the requirements. Until the guidance is issued, they will treat a plan administrator as satisfying the requirements if they have acted in good faith. They released Field Assistance Bulletin No. 2006-03 to provide good faith guidance and it addresses the following issues:
- Form of furnishing statements –multiple documents or sources may be used to satisfy the requirements (if certain requirements are met).
- Manner of furnishing statements – information can be provided in written, electronic, or continuous (via secure website) format (if certain requirements are met).
- Dates for furnishing statements – the requirements are effective for plan years beginning after December 31, 2006 (12/31 plans must begin providing quarterly statements as of 3/31/07 or annual statements as of 12/31/07), and statements must be provided no later than 45 days following the end of the period.
- Right to direct investments – a plan is not automatically considered self-directed (and subject to quarterly statements) if they have a participant loan provision.
- Limitations or restrictions on right to direct investments – benefit statements must include certain disclosures, including the limitations imposed by the plan (but not limitations imposed by investment funds, other investment vehicles, or state or federal laws).
- Investment principles – benefit statements must include certain disclosures, including an explanation of the importance of a "well-balanced and diversified investment portfolio", and must include "a statement of the risk that holding more than 20 percent of a portfolio in the security of one entity (such as employer securities) may not be adequately diversified".
- Notification of diversification rights – plans that previously satisfied the new diversification requirements can satisfy their first notice requirement with their first quarterly benefit statement. A Morgan Lewis Employee Benefit LawFlash has more details.
- Department of Labor Web site – benefit statements must direct participants and beneficiaries to the DOL website for more information on individual investing and diversification.
The EBIA also summarizes FAB 2006-03.
Happy Holidays and Safe Travels
December 22, 2006
I hope everyone is able to take a few days away from the office to enjoy the holiday season. I will be back with some more posts next week. Happy Holidays and Safe Travels!
Required Minimum Distribution (RMD) Calculators
December 21, 2006
December 31 is almost here and, as discussed in the Distributions installment of the ESOP Planning series, required minimum distributions (RMDs) need to be paid by December 31. There are a lot of online sources to help with the calculations of RMDs. Here are two RMD calculators that I found online.
- The first RMD calculator only requires you to enter the age as of December 31, 2006, and the balance as of December 31, 2005. This calculator will not handle the scenario of a spouse beneficiary that is more than ten years younger than the participant, as this scenario requires the usage of the Joint Expectancy tables.
- The second RMD calculator has more factors to input but is able to handle the above-mentioned scenario. The calculator will also estimate future RMDs and account balances based on your future estimated rate of return. You may need to install some updates to use this calculator.
While I have not thoroughly tested the calculators, I did perform one sample RMD calculation using this Uniform Lifetime Table, and my calculation agreed to the online calculators.
The IRS also has a Retirement Plans FAQs regarding the Required Minimum Distributions on their website.
The final installment of the ESOP Planning series is online.
Plan Documents and Disclosures Year End Checklists
December 20, 2006
The Plan Documents and Disclosures installment of the ESOP Planning series discussed amending the plan for changes in legislation. Here are two additional employee benefits checklists that discuss some of the amendments that need to be adopted by the end of the plan year:
Employee Benefits Year-End Checklist
Year-End Employee Benefits and Executive Compensation Checklist
The Appraisal of Employer Securities installment was posted online earlier today.
IRC Section 409(p) Final Regulations
December 19, 2006
Benefitslink.com has reported that the long-awaited 409(p) Final Regulations have been released effective December 20, 2006 and apply to plan years beginning on or after January 1, 2006:
45 pages; December 20, 2006 effective date; also, generally applicable with respect to plan years beginning on or after January 1, 2006. The temporary regulations published in December of 2004 are retained for plan years beginning before January 1, 2006. Scheduled to be published in the December 20, 2006 Federal Register. (Internal Revenue Service)
Stay tuned to The One-Stop ESOP Blog for more information.
The Dividends and S Corporation Distributions of Earnings installment of the ESOP Planning series is now online.
Year End Amendments
December 18, 2006
The Plan Documents and Disclosures installment of the ESOP Planning series discussed the following:
"While your review of the plan documents should be an ongoing process, you generally need to make sure that any amendments or restatements are executed by the last day of the plan year if you intend for them to be effective for that plan year."
As I continue my search to locate all ESOP-related blogs, I read a post from The RSM McGladrey ESOP Blog that reiterates the importance of completing a plan amendment prior to the end of the plan year:
"Since many ESOPs have a plan year that ends each December 31st, now is the time for you to ensure that any amendments that need to be adopted prior to 12/31/06 are already n place or will be soon. In many cases, a plan amendment can be effective retroactive to the beginning of the plan year if adopted prior to the end of such plan year. In other cases, even though the amendment will be prospective, you may want the amendment in place before the beginning of the next plan year."
If you have not already done so, I recommend that you review Plan Documents and Disclosures and ensure that you have all of your plan amendments prepared and executed prior to the end of the plan year. Since many professionals will be taking some time off for the holidays, you should contact them as soon as possible to find out when they will be available to assist you with your plan document needs.
Also, the Contributions installment of the ESOP Planning series is now online.
ESOP Planning Update
December 14, 2006
The fourth installment of the ESOP Planning series is now online. This installment deals with distribution planning, and it is the longest and probably the most important of the installments. The remaining installments of the ESOP Planning series will be online next week.
ESOP-specific Blog Search (continued)
December 12, 2006
The latest installment of the ESOP Planning series is now online. This installment discusses the benefits of reviewing your plan expenses and things to consider during your review.
Yesterday I mentioned that I am searching for all existing ESOP-specific blogs. Another one that I am aware of is the ABRC-ESOP Blog. It appears to have been started in October 2006 and includes discussions about the reasons for and the benefits from forming an ESOP, various survey results on the performance of ESOP companies, the methods of valuing employer stock and how employees can impact the value, and ESOP fiduciary responsibilities.
ESOP-specific Blog Search
December 11, 2006
The second installment of the ESOP Planning series has been added to the site and is listed in our main menu. This installment discusses what to consider when reviewing your plan documents.
One of the objectives of this blog is to provide you with links to other blogs and websites. So far I have only found a handful of blogs whose primary purpose is to cover ESOPs. One of these blogs, ESOP Law Blog, has a post focusing on the ESOP-related PPA provisions, including some planning considerations for ESOP companies. The November 2006 edition of the ESOP Report also made reference to this blog.
ESOP Planning
December 10, 2006
The year 2006 is almost over, and that means it is almost time to start working on the December 31, 2006 allocation. Before you jump into the new plan year, it is important to review the 2005 allocation process and plan for the upcoming plan year. To assist you with the review and planning process, we have added an ESOP Planning section (listed in our main menu) to our website. You should find this information useful even if you have a different plan year end. We will be adding new content throughout the week, so please check back often. The first topic is the Allocation Timeline. I like to think of the allocation timeline as a map to guide you through the allocation process. Like a map, if you use an allocation timeline, you are likely to find your way through the process in a timely manner and ultimately achieve your objectives. If you do not use one, you could very well become lost, frustrated, and overwhelmed.
Employee Plans Compliance Resolution System (EPCRS)
December 9, 2006
The Employee Relations Law Journal has written about the recent updates to the Employee Plans Compliance Resolution System (EPCRS). The article starts by establishing the IRS position on errors:
"The IRS takes the position that any errors in the operation of a plan or the form of plan documentation, no matter how inconsequential or unintentional, can disqualify a plan, and when challenged (which is infrequent), the courts have held that this position was not an abuse of the IRS's discretion. The IRS has also consistently refused to recognize a "scrivener's error" defense for plan language that does not reflect actual operations. Most plans with errors discovered on audit are not disqualified, but they face heavy penalties, and the threat of disqualification and the loss of prior and future tax benefits is a major bargaining tool for the IRS."
EPCRS consists of the following three correction programs:
- Self-Correction Program (SCP) – self-correction without IRS approval
- Voluntary Correction Program (VCP) – self-correction with IRS approval
- Correction on Audit Program (Audit CAP) – correction after IRS catches the error(s)
The IRS categorizes the failures into the following categories:
- Operational (e.g., incorrect administration or failure to follow the plan document)
- Plan document (e.g., failure to amend timely or properly)
- Demographic (failing a nondiscrimination test)
- Employer eligibility (an employer not being eligible to adopt the plan it is using)
The 20-page article answers many questions about how to use the EPCRS.