An important part of maintaining strong client relationships is providing our clients with timely and useful information that is easily accessible. Below you will find some frequently asked questions (FAQ's) and answers.

1. When do I have to send in 401(k) deferrals?
   The IRS says that “participant contributions are plan assets at the earliest date they can reasonably be segregated from the employer’s general assets”, but in no event later than the 15th business day of the month following the month the deferrals were withheld from the payroll. The important information to note is that the IRS and DOL consider that most organizations can have the contributions to the trust accounts shortly after each payroll.
   
2. Can I deposit funds to reimburse a trust account?
   The IRS considers any deposit into the plan to be a contribution. Therefore, if a trust account is charged for investment management fees by a broker directly from the trust, the plan sponsor may not deposit funds to reimburse the trust account. If the plan sponsor does not want the trust account charged, they should make arrangements in advance to be billed for those fees.
   
3. Who needs a 5500 audit?
   In general, an audited financial statement must be attached to any Form 5500 filed for a plan with over 100 participants. However, there is a transition rule if you are a growing company. Line 6 on the 5500 indicates the number of participants at the end of last year, plus those eligible for the full year being reported. If you calculate a beginning number between 80-120, as the 5500 is being done this year, you need to review Line 6 on the prior year's return. If that number is also between 80-120, the plan sponsor can file the same form that was filed the previous year – which is presumably the “small plan” Form with a Schedule I instead of a Schedule H. No financial statement should be attached.

   If the beginning number is under 100 for this year as well as last year, there is no concern for the plan sponsor. If, for example, you have 117 this year and 93 last year, you can still do a “small plan” return. Then you re-check again next year. If you were to have 119 next year, and you had 117 this year, you are able to complete a small plan return once again. Theoretically, this may be the case for several years.

   When a plan sponsor has at least 125 participants in their plan at the end of the current year, we can assume that the opening number next year will be over 120. In this scenarios, there is no longer a transition rule. The plan sponsor will need to complete an audit the next year.

1. What is the maximum I can contribute to my 401(k) plan annually?
   Generally, you may contribute to your 401(k) Plan on a pre-tax basis the lesser of $14,000 or 100% of includable compensation in 2005, unless you are eligible for catch-up. The catch up amount for 2005 is $4,000.

   If you are a participant in more than one type of retirement plan, contact a representative for details on combined contribution limits.

2. What happens if I leave my current employer?
   If you leave your employer, you should speak to your employer upon leaving so that the company policies are explained. Then you must make a choice about the balance in your retirement plan. Generally, you may:
   1. Leave your money invested in the plan until your required distribution date
   2. Transfer your vested assets into your new employers retirement plan, if allowed
   3. Withdraw your money*
   4. Roll your vested account balance into an IRA

      *Distributions are taxable – penalties may apply.

      Withdrawals are subject to ordinary income taxes. Withdrawals received prior to age 59½ may be assessed a 10% federal income tax penalty.

3. When am I required to withdray my money?
   You are required to begin receiving benefit payments from your account the later of April 1 of the calendar year following the calendar year in which you:
   1. attain age 70½ or
   2. sever employment with the employer sponsoring your plan

      Failing t o begin minimum distributions when required will subject you to IRS penalties that equal 50 percent of the amount that should have been distributed but was not.