Pre-Tax v. Roth 401(k): Which is Better for Your Financial Portfolio?

Posted on April 22 2014 by admin

Some plans allow participants to make Traditional (pre-tax) contributions and also Roth (after-tax) contributions. Making a decision on which contributions are right for you can be a difficult choice, as there are current and future tax consequences that you should consider.

With a Roth 401(k), you can eliminate concerns about your retirement tax rates, but for some people, traditional 401(k)’s are still the way to go. For example, contributions deferred into a traditional 401(k) plan don’t count as income in the year of the contribution, which makes it a great choice if your gross income is more than you expect it to be in the future. However, if you’re just getting started, or expect a higher tax rate in your retirement years, a Roth 401(k) plan allows you to make after-tax contributions, meaning the contributions do not reduce your taxable income for the year.

Ultimately, a good approach in making your decision is to compare your current tax bracket with which bracket you think you will be in when you retire. If you expect your future tax rate to be lower, then it might be a good idea to go with pre-tax contributions. If you expect your future tax rate to be higher, then Roth might be your best bet. If you are unsure, but the plan allows you to do both, then that would be an option as well.

Looking at your current and future tax rates isn’t the only factor that you should be considering in making your decision; however, it is a good place to start.

By Ryan Wojdacz

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Hardship Distribution Documentation

Posted on March 18 2014 by admin

IRS requirements are surprisingly vague regarding hardship distributions. In the absence of clear-cut rules, we sometimes see hardship distributions with very little or no supporting documentation. As a plan administrator you should not only comply with the IRS requirements, but also document your compliance with these requirements. Let’s look at a few of the requirements and discuss some common sense ideas for documentation.

Requirement – The participant must demonstrate an “immediate and heavy financial need.”

Some plans require the participant to provide documentation supporting their financial need (i.e. medical bills, past due mortgage notices). Other plans may only require a signed affidavit. At the very least, we would recommend having documentation showing the steps that were taken to determine that a financial need existed. This could be as simple as a checklist that is followed for all hardship distributions. The most important consideration is that your process determining that a financial need exists must be applied the same way for all participants. If one participant is required to provide documentation and another only has to sign an affidavit, it could be considered discriminatory.

Requirement – The participant must have exhausted any other liquid sources of income.

It is not typical for plan administrators to request documentation regarding other liquid sources of income available (i.e. bank statements). Typically the plan administrator will just rely on an affidavit signed by the participant. However, as the plan administrator, you do have information regarding the participant’s eligibility for a 401(k) loan. Consider whether a participant that is still eligible for a 401(k) loan has “exhausted other liquid sources of income.” You might, at least, add to your checklist to inquire whether the participant has considered a 401(k) loan as an alternative to a hardship distribution.

Requirement – The hardship distribution cannot be approved for more than the qualified financial need.

The distribution can be grossed up for tax withholdings, but any additional distribution would not be allowed by the IRS requirements. In order to demonstrate that you took this requirement into consideration, you should at least include in your documentation the amount of the financial need that the participant has demonstrated.

Hopefully this article has given you some ideas on forming documentation policies for hardship distributions. Be sure to seek advice from your CPA and attorney if you have any questions specific to your plan.

For more information on IRS regulations regarding hardship distributions, visit

By Rex Platt, CPA

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ERISA Accounts – Plan Assets?

Posted on March 4 2014 by admin

Employee benefit plans are seeing increased regulation and disclosure of plan fees including new disclosures of compensation paid to covered service providers in July 2012 ( The result of the new fee disclosures and oversight by plan fiduciaries is that record-keepers are expanding their offering of expense accounts, typically known as an ERISA Account, to plan sponsors. 

The funds in these accounts are generated when the record-keeper provides a variety of investment options to plan participants, and the record-keeper receives payments from these investments, typically in the form of SEC 12b-1 fees or other administrative fees. With an ERISA Account, these payments are typically placed in two account types for the payment of expenses – a bookkeeping account or a plan account.

With a bookkeeping account, the record-keeper receives payments from the investment and establishes an account on their records. The record-keeper will then pay the plan’s service providers under direction from a plan administrator or fiduciary. While in a plan account, the record-keeper receives the payments but then transfers all or some of the payments to the plan. The plan administrator would then be responsible for paying the plan’s service providers and then allocating any excess amounts to plan participants at year end.

In 2013, the Department of Labor (DOL) issued an Advisory Opinion ( that provides some further insight into these accounts and whether either of these account types should be considered plan assets.  The DOL noted that “Title I of ERISA does not expressly describe what constitutes assets of an employee benefit plan”, thus the DOL “has indicated that the assets of an employee benefit plan generally are to be identified on the basis of ordinary notions of property rights”. The DOL notes that the accounts might be plan assets depending on the arrangement and communications between the record-keeper and the plan. But, the circumstance of a bookkeeping account, described above, doesn’t lead the DOL to believe that the account is a plan asset until the plan receives the funds. Based on the wording of the agreement, the plan might have a claim against the record-keeper for the amount owed, which would represent a plan asset. While the plan account, described above, would be considered a plan asset as the payments were received by the plan.

While every agreement is different, the above should provide a general basis of whether an ERISA Account should be considered assets of the employee benefit plan.

By Kevin C. Bach, CPA, CVA

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Plan Fiduciary: Important Tasks and Dates to Remember

Posted on February 4 2014 by admin

Are you a benefit plan fiduciary, or maybe you are the administrator for a benefit plan and work closely with the plan fiduciary? If you are, then hopefully this article will provide some key dates and tasks to remember; or, if you are currently aware of all these dates and tasks, then hopefully this article provides some peace of mind that you are meeting your fiduciary responsibilities. (However – please note – this article is not meant to cover/explain all key dates and fiduciary responsibilities). 

Key Responsibilities

1) Have you scheduled your 2013 plan year performance review? (Assuming your plan year end is 12/31/2013).  Be sure to invite your third party administrators to attend, and maybe even your plan auditors. You should also review your plan’s investments and ensure they are still practical and supportive of your plan’s investment policies and strategies. 

2) Be sure to re-evaluate all goals and objectives that you established at the beginning of the year. (I.e. increase employee deferral participation rates, provide more educational workshops, and track your employees’ usage of the third party administrator’s website resources).

3) Review any plan amendments that were signed in the prior plan year and evaluate the results to the expected outcomes.  Also, start planning and considering new regulations that may require 2014 amendments.

4) Did your employer acquire another company, or maybe your employer was acquired. Did you consider the necessary plan amendments and documents needed?

5) Have you been with the same third party service provider for more than a few years? Are you still comfortable that they are providing the required level of service at the most affordable and/or acceptable fee rates? 

6) Be sure to review all the reports that were provided by your third party administrator for reasonableness and accuracy. (Trust statements, administrative expenses, loan reports, distribution and contribution reports, etc.)

7) Did you address the auditor comments from the prior year audit? 

Key Dates (most are assuming a December 31, 2013 year-end)                                                  *(reference

1) January 31, 2014 is the deadline for mailing IRS Forms 1099-R to those participants that had distributions made in the prior plan year.

2) February 28, 2014 is the deadline for filing the IRS Forms 1099-R with the IRS.

3) March 15, 2014 is the deadline for issuing distributions to those participants who failed the compliance ADP/ACP tests (if applicable).

4) March 31, 2014 is the deadline for reporting excise taxes for the late return of excess distributions using IRS Form 5330.

5) April 15, 2014 is the deadline for corrective distributions of excess deferrals.

6) July 31, 2014 is the deadline for filing Form 5558 with the IRS to request a 2.5 month extension in the filing of Form 5500/8955-SSA, and independent auditors report (if large plan filer).

7) July 31, 2014 is the deadline for filing Form 5500/8955-SSA and independent auditors report (if large plan filer), if not extending filing.

8) September 30, 2014 is the deadline for distributing the Summary Annual Report (often called SAR) to plan participants, assuming a 2.5 month extension was not requested from the IRS.

9) October 15, 2014 is the deadline to file Form 5500/8955-SSA with the Department of Labor for plans that filed the extension 5558 (see #6 directly above).

10) December 15, 2014 is the deadline for distributing the Summary Annual Report assuming the 2.5 month extension was filed (see #8 directly above).

If you have any questions on the key tasks or key dates noted above, feel free to contact us.

Victor L. Fuentes

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Choosing the Best Service Provider for Your Employee Benefit Plan

Posted on January 21 2014 by admin

A key element in setting up an employee benefit plan is determining which service provider to use. With so many to choose from how do you know which one is the best for your employee benefit plan? Sure, each service provider has a plethora of information about their services available on their website, but how do you compare it and determine who will be the best for your plan? Better yet, once you determine which service provider to use, what are the best ways to monitor the activities of the service provider to ensure your plan is receiving the services you are paying for?

Summarized below are tips and recommendations from the United States Department of Labor on selecting the best service provider and monitoring their activity over your employee benefit plan. See the bottom of the blog for the link to the full article on the Department of Labor’s website.

Tips for determining and selecting the best service provider:
• Consider what services you need for your plan.
-Legal, accounting, trustee/custodial, recordkeeping, investment management, investment education or advice.
-Make sure to present each potential service provider identical and complete information regarding the needs of your plan.

• Consider a service provider that can provide “bundled services”.
-Bundled services are multiple services such as custodial trustee, investment management, or recordkeeping, all provided by one service provider
-Note: Consider the risks with potential conflicts of interests. 

• Ask each prospective provider to be specific about which services are covered for the estimated fees and which are not.
-Compare the information you receive including fees and expenses to be charged for various providers for similar services.

• Check to make sure the service provider has a fidelity bond if they will be handling plan assets.
-A fidelity bond is a type of insurance that protects the plan against loss resulting from fraudulent or dishonest acts.

• Understand the terms of any agreements or contracts signed with service providers and the fees and expenses associated with the contracts.
-In particular, understand what obligations both you and the service provider have under the agreement and whether the fees and expenses to be charged to the plan and plan participants are reasonable.

• Prepare a written record of the process you follow in reviewing potential service providers and the reasons for your selection of a particular provider.
-This record may be helpful in answering any future questions that may arise concerning your selection.

• Receive a commitment from your service provider to regularly provide you with information regarding the services it provides.

• Periodically review the performance of your service providers to ensure that they are providing the services in a manner and at a cost consistent with the agreements.

• Review plan participant comments or any complaints about the services and periodically ask whether there have been any changes in the information you received from the service provider prior to hiring.

See the full article here:

Josh Mitchell

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Fee Disclosure Regulations for Covered Service Providers

Posted on January 8 2014 by admin

The Department of Labor’s 408(b) Final Fee Disclosure Regulations took effect on July 1, 2012.  These regulations expand disclosure of compensation paid to covered service providers.  A “covered” service provider is a person or entity who enters into a contract or arrangement with an employee benefit plan and expects to receive $1,000 or more in compensation for providing services to the plan. Covered service providers are required to provide responsible fiduciaries with information they need to assess reasonableness of total compensation, identify potential conflicts of interest, and satisfy reporting and disclosure requirements under Title I of ERISA.  Generally, the service provider must make the disclosures prior to the date the arrangement is entered into, extended, or reviewed. 

Covered service providers must disclose required information in writing to a responsible plan fiduciary.  They may use an electronic means to disclose information provided that the website or other medium are readily accessible to the fiduciary and the fiduciary has clear notification of how to access the information.  Required information includes describing the services to be provided and all direct and indirect compensation received by the covered service provider, its affiliates, or subcontractors.  Direct compensation is received directly from the plan while indirect compensation is received from a source other than the plan, plan sponsor, covered service provider, affiliates, or subcontractors. The disclosure of indirect compensation must describe the arrangement between the payer and covered service provider. Examples of indirect compensation include commissions, finder’s fees, and incentive fees based on business placed or retained.  Disclosure of allocation of compensation made among related parties is also required.

Covered service providers must disclose whether they are providing recordkeeping services and the compensation attributable to these services, even if recordkeeping is part of a service contract.  If a contract or arrangement is to be terminated the service provider must disclose a description of compensation expected to be received in connection with the termination. If an error or omission in required disclosures occurs and the covered service provider is acting in good faith with reasonable diligence, timely correction is permitted and must be made no later than thirty days from the date the error or omission is discovered. For further information please visit the Department of Labor’s website at or contact your service provider.

Trisha Thornton

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Taking Out A Loan On Your 401K Plan

Posted on December 31 2013 by admin

If you are considering taking out a loan on your 401K plan it is important to know that there are certain restrictions and rules that you must take into effect. First, you want to make sure that your plan allows for participant loans. The next step would be to review the restrictions and rules according to your particular plan in regard to taking a loan. Last, you want to make sure you are aware of the implications if you become unable to pay the loan back within the terms of the loan. Let’s take a look at what some of the more common restrictions and implications may be. 

Step 1: Does your plan allow for participant loans? If the answer here is yes, you can proceed with your research. It is good to be aware that some plans do not allow for loans.

Step 2: Review restrictions and rules. These may vary from one plan to another but there are some general rules to look for:

  1. Plans will typically have a limit on the amount of money that you can take from your 401K. Some of the most common limitations state that the loan must be the lesser of $50,000 reduced by any outstanding loan that you may already have or 50% of your vested balance.
  2. Most plans do not allow for a term of more than 5 years.
  3. The plan will also limit the number of loans that you can have within a given year. Some may be as small as 1 and others may allow for 2 or more.
  4. When taking a loan from your 401K it is important to know that you will be paying yourself interest, so you will want to see what the interest rate is before requesting a loan.

Step 3: Implications if unable to pay your loan back (including interest).

  1. If your loan goes into default, depending on the timeframe determined by your plan, your loan will become a distribution to you. When it becomes a distribution there will be tax implications as well as fees incurred in order to do this.
  2. If you or your employer terminates your employment with the company, the company may require for you to pay back your loan in full at that time or treat the loan as a distribution discussed in 1 above.

Taking out a loan may or may not be a good decision for you, but either way, it is a good idea to ensure you are well informed prior to taking the loan. Prior to taking out any loan it is always a good idea to contact your service provider to ensure that the loan payments you have to make will be an amount you are comfortable making.

For more information and guidelines on participant loans, go to—Plan-Sponsors—General-Distribution-Rules

Brie Keckler, CPA


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The Importance of the Plan Document

Posted on December 10 2013 by admin

It is important to understand how your Plan works.  Those responsible for the management and oversight of the retirement plan must follow certain rules for operating the Plan, handling the plan’s money, and overseeing the firms that manage the money.  One area that is crucial to the operation of any Plan is knowing and following the Plan Document.

Each retirement plan is required to have a formal, written plan document that details how it operates and its requirements.  There is also a booklet that describes the key plan rules, called the Summary Plan Description (SPD), which should be much easier to read and understand. The SPD also should include a summary of any material changes to the plan or to the information required to be in the SPD. In many cases, you can start with the SPD and then look at the plan document if you still have questions about how the plan should operate.

As laws change due to Congressional or regulatory action, employers are required to update their plan document to conform to new laws.  In between required restatements, employers may be required to adopt interim amendments to keep their 401(k) plan document current.

Those responsible for the management and oversight of the Plan should follow the Plan Document for all Plan related decisions.  If you fail to follow the Plan Document throughout the operation of the Plan, there can be some costly consequences.  Especially if you get selected for a Department Of Labor audit.

Ryan Wojdacz

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2014 Retirement Plan Limits

Posted on November 12 2013 by admin

On October 31, 2013, the Internal Revenue Service (“IRS”) announced the cost-of-living adjustments (“COLA”) for the 2014 tax year. These COLA rates are used to adjust over 40 tax provisions from the standard deduction and personal exemption to retirement plan limits.  Based on the changes in consumer price index, used by the IRS to determine the COLA rates, there are no increases in the 2014 elective deferral catch-up contributions for 401(k) plans but there are increases in the maximum defined contribution deferrals as well as compensation levels.

See the tables below, for a comparison of the 2013 and 2014 retirement plan limits:

Microsoft Word - 2014 Retirement Plan Limits_Bach_111213









For further information visit the following IRS website:

2014 Inflation Adjustments –

COLA Increases for Dollar Limitations on Benefits and Contributions –

Kevin C. Bach, CPA, CVA

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Plan Transfers

Posted on October 29 2013 by admin

In today’s market the mergers and acquisitions of businesses are on the rise.  If the company maintaining your 401(k) plan is purchased, or merges with another company, what issues should you be considering?  There are risks associated with the accounting of plan transfers that the plan administrator should be aware of.  Plan transfer risks include:

1. Mergers and spin-offs are not recorded in the proper period.
2. Appropriate assets and liabilities are not properly transferred.
3. The value of assets and liabilities transferred do not reconcile between plans.
4. Mergers and spin-offs are not fairly presented in the financial statements and not appropriately disclosed.
5. Plans have been merged or assets spun off without appropriate authorization.

It is important to take note of the above issues so that you not only avoid making the mistakes associated with them, but also so that you can ensure that your auditors are working to help verify that everything is accounted for properly.  Here are some tips to help: 

1. Determining the proper merger date will ensure that everything is recorded in the proper period.  The effective date of the merger is when all plan assets were legally transferred to the control of another plan. 
2. In order to make sure that the appropriate assets and liabilities are properly transferred, it is important for both trustees and third party administrator to meet and discuss the details of the transfer.
3. As stated above, the meeting of the trustees and third party administrator of both plans is essential to properly account for the transfer.  Having communication between all parties involved with the plan will ensure that the proper value of the assets and liabilities is transferred to the new plan.
4. By working with your auditors on the disclosures, you can be certain that the merger will be fairly presented in the financial statements.
5. Lastly, it is important to have controls in place to make sure that the plan transfer is properly authorized and fully documented.  In addition, all employees should be made aware of the transfer.

Hopefully bringing certain risks to your attention beforehand will help in the merger/acquisition process!  If you have any questions or comments, please feel free to post them to the site!

Brittney Blais

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Finding information on employee benefit plans can be difficult and time consuming. As a service to our clients, and other interested parties who are involved in or in need of employee benefit services, we'll gather all of the information for you. We'll keep you up-to-date on the latest laws and regulations and we will even add our own personal insight into what else is occurring in the employee benefits world. We will provide these posts weekly and hope to get your input and feedback on the various topics. We will also share that feedback with others, as we find appropriate.

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