Hot Topics for Retirement Plans

Ginny Gribble, Director of Retirement Plan Services   email | bio
August 2009

Suspension of 2009 Minimum Required Distributions

If you are age 70 ½ or older and have been taking minimum required distributions from your retirement plans, including IRAs, the requirement to take your 2009 distributions has been waived. This only applies to the 2009 distribution; if you turned 70 ½ in 2008 and needed to take your 2008 distribution by April 1, 2009, that has not changed. Note that some plans may not allow a choice. Check with your plan administrator to determine what your plan allows for and/or requires.

Mid-Year Suspension of Safe Harbor Contributions

Your 401(k) or 403(b) plan may have a Safe Harbor contribution feature. This allows you to forego non-discrimination testing on elective deferrals if you provide fully-vested minimum matching or non-elective contributions to your participants. You are required to issue a notice prior to the beginning of each year in order to use a Safe Harbor feature. Traditionally, Safe Harbor matching contributions may be suspended during the year with 30 days advance notice, but now, you may do the same with the 3 percent Safe Harbor non-elective contribution. You must show a “substantial business hardship” in order to suspend Safe Harbor non-elective contributions. In either case, match or non-elective, you must make the Safe Harbor contributions through the 30-day notice period, amend your plan to eliminate the Safe Harbor feature and satisfy non-discrimination testing for the entire year using the current year method. One note of caution: if your plan is top heavy (more than 60 percent of the plan’s account balances are for the benefit of key employees), you must satisfy the requirement to make top-heavy minimum contributions to all non-key employees. If this is the case at your organization, it may not make sense to suspend your Safe Harbor contributions.

EGTRRA (Economic Growth and Tax Relief Reconciliation Act of 2001) Plan Document Restatements

All pre-approved prototype and volume submitter plan adopters must restate their plan documents in their entirety by April 30, 2010 in order to comply with EGTRRA, along with several subsequent pieces of legislation. If you would like to make changes to your plan, the EGTRRA restatement would be a good time to incorporate those as well. Most document drafters will charge the same fee whether you are making additional changes or not.

IRS-Required PPA Amendments

The EGTRRA-updated plan documents were approved before the changes from the PPA (Pension Protection Act of 2006) could be incorporated. An interim amendment to bring your plan into compliance with the PPA must be adopted by December 31, 2009.

403(b) Plan Documents

Many nonprofit organizations, hospitals and public schools sponsor 403(b) plans. New 403(b) plan regulations were issued in 2007 and one of the new requirements is that all 403(b) plans, whether ERISA compliant or not, must have written plan documents. The original deadline for these was January 1, 2009, but it has been extended to January 1, 2010.

Roth Conversion Window

In 2010, any individual whose adjusted gross income (AGI) is over the limit to make Roth IRA contributions ($110,000 single taxpayer; $160,000 joint) may convert traditional IRAs to Roth IRAs. A few things to be aware of: (1) such individuals may not make new Roth IRA contributions; (2) any pre-tax contributions and/or earnings in the traditional IRA(s) are taxable; and (3) for the 2010 conversion only, taxes may be spread over two years, with half due in 2011 and the other half in 2012. Contact your tax adviser to see if converting to Roth makes sense for you.

This is just a sampling of the issues affecting retirement plans. If you have questions or would like more information, please contact Ginny Gribble (262/754-9400).