Frequently Asked Questions

Who pays plan-related expenses?

In the past, employers paid the majority of expenses related to retirement plans. Today, costs are often shared among employers, the plan and participants. This tends to be the case more frequently with 401(k) plans than with other retirement plans, but some costs cannot be passed on to other parties. Here’s an overview:

What is the deadline for depositing a participant’s salary deferrals into a retirement plan?

According to regulations released by the Department of Labor (DOL) for small plans (those with fewer than 100 participants at the beginning of the plan year), contributions and loan repayments must be deposited with the plan no later than the seventh business day following the date of receipt or withholding by the employer. For large plans (those with more than 100 participants at the beginning of the plan year), requirements may be more stringent.

In recent years, compliance with the deposit deadline has been a significant audit item for the DOL. Delays in the deposit of employee deferrals and loan repayments can be considered a breach of fiduciary duty. For this reason, all late deposits must be reported on annual Form 5500. Heartland Consulting Group helps relieve the burden of deposits and reporting for businesses. If you have questions regarding the timing of your deposits or need assistance managing deposits, please contact a Heartland consultant.

By what date are we required to deposit our profit sharing and matching contributions?

All company contributions must be paid into the trust by the date your company’s tax return is due to the IRS. This includes any extension period.

What is a fidelity bond, and how much coverage is required?

A fidelity bond must be obtained for plan fiduciaries in order to protect the plan against fraud or other dishonest acts. A plan fiduciary is any individual or entity who handles a plan’s assets. This may include, but is not limited to, the plan administrator, trustee and employer. Minimum bond amounts are generally the greater of $1,000 or 10 percent of the plan’s assets. The maximum bond amount is generally $500,000, although it may be $1,000,000 if the plan holds employer securities. Fiduciaries that are banks or insurance companies need not secure a bond, and bonding is also not necessary when the employer is wholly owned by an individual and/or spouse so long as the individual and spouse are the sole employees.

Often, bonds can be obtained through a commercial insurance company as a rider to the employer’s general liability policy. You can view a list of approved sureties online at the Department of the Treasury website.

We have received a request from an employee’s attorney for information on our QDRO procedures. What is a QDRO?

A QDRO (Qualified Domestic Relations Order) is an order issued by the state court that gives a spouse, former spouse, child or other legal dependent of a plan participant the right to any portion of the participant’s interest in the plan. Every plan sponsor is required to adopt and follow a QDRO procedure.

Heartland Consulting Group strongly advises all clients to seek legal counsel in determining the validity of any QDRO received. Once validity is determined, keep in mind that payment of benefits must be made in compliance with the QDRO, so long as it does not conflict with the terms of the plan.

Our company is contemplating the acquisition of another entity. Will this change our retirement plan?

While an acquisition may require a change to your retirement plan, this is not necessarily the case. Several complex ownership attribution rules come into play regarding qualified retirement plans. These rules may affect which groups of employees are covered as well as the determination of key employees and highly compensated employees in compliance testing. Plan features may also need to change at the time of acquisition.

As you consider an acquisition, be sure to consult closely with your qualified legal counsel as well as your retirement plan consultant. This way you can prepare properly for any required changes to your plan as well as avoid some unpleasant surprises following an acquisition.

What are the primary differences between a SIMPLE 401(k) plan and a Safe Harbor 401(k) plan?

A SIMPLE 401(k) plan has a lower limit on employee pre-tax deferrals than a Safe Harbor plan. For 2016, the limit for a SIMPLE plan is $12,500 while the limit for a Safe Harbor plan is $18,000. Additionally, employer contributions for the SIMPLE plan are only two percent for non-elective contributions and three percent for matching contributions while the Safe Harbor plan allows for up to three percent in non-elective and four percent in matching. Also, an employer may not contribute a discretionary profit-sharing contribution under the SIMPLE plan, nor can you make contributions to any other retirement plan. With the Safe Harbor plan, employers can make additional contributions and maintain other plans.

What is a blackout period?

A blackout applies when there is any restriction, limitation or suspension of participant activity within a plan. This may include investment, distribution or loan transactions. Typically, a blackout occurs during a transition in either record keepers or investment options. If the blackout period lasts more than three days, a participant notice is necessary. Contact your Heartland Consultant if you have further questions about a blackout period, or if you need assistance notifying participants of a blackout.

What is an ERPA?

An ERPA is a classification of individual admitted to represent taxpayers before the Internal Revenue Service on a wide variety of retirement plan matters. The ability to practice before the IRS is governed by Circular 230, which requires professional and ethical standards. Enrolled Retirement Plan Agents (ERPAs) are held accountable for their actions, and as such, will provide added assurances to employers when hiring third party administrators or benefits consultants. To become an ERPA, an applicant must demonstrate competency in retirement plan matters through special enrollment examinations, remain current with continuing education requirements, and follow the same standards as all retirement plan professionals. Heartland is pleased to announce that currently four of our staff members have attained the ERPA designation.

What are Roth contributions, and how do they differ from traditional employee contributions to a 401(k) plan?

Traditional 401(k) plans allow participants to defer taxes on a portion of their current compensation. This portion is invested in the plan, and although the deferrals are excluded from taxable income at that time, they are taxed along with any plan earnings when funds are withdrawn from the plan.

Roth contributions do not provide for tax deferment. Although participants pay taxes on Roth contributions at the time they are made, there is no tax due at the time of a qualified distribution of both contributions and earnings made from the plan. In other words, Roth contributions are not tax deferred, but the earnings are tax free.

What are the differences between Roth contributions to a 401(k) plan and contributions made to a Roth IRA?

There are two key distinctions between Roth contributions to a 401(k) plan and contributions to a Roth IRA:

1. The contribution limits for the 401(k) plan are generally higher than the limits to a Roth IRA. For example, in 2016, the maximum contribution to a 401(k) is $18,000 versus only $5,500 to a Roth IRA for all individuals under the age of 50.
2. Qualifications based on income apply to Roth IRA contributions but not to Roth contributions to 401(k). Individuals making in excess of a certain dollar amount may not contribute to a Roth IRA. In 2016, the income limit for a married taxpayer filing jointly is $184,000. No such limits apply to 401(k) contributions.