Is Your 401(k) Plan on Course? Follow this Checklist

Estimated reading time: 5 minutes

Keeping your 401(k) plan on course requires vigilance, and a good plan sponsor navigates more than just the investment climate and daily maintenance of the plan. Tracking a 401(k) plan includes thorough reviews throughout the year, with employers focused on fees and performance, compliance, and participant communication. Here is a concise checklist to keep your 401(k) plan on course.

401(k) plan checklist

Fees and Performance

Routine reviews offer an opportunity to monitor fees and expenses related to the 401(k) plan, as well as identifying new features that may be incorporated into the plan. When examining the performance and fees of the plan:

  1. Consider the purpose and goals of the 401(k) plan

An assessment of the plan’s objectives is important to recognize whether the plan is meeting those goals for the sponsor and the participants. Achieving the objectives may include:

  • Determining if the original purpose of the plan remains relevant. If priorities have changed, the plan’s design may need to be revised
  • Measuring the success of the plan by setting specific goals and reviewing results, such as improving certain internal processes
  • Gathering feedback from participants through surveys and focus groups
  1. Review service provider fee disclosure requirements (and expense monitoring)

Monitoring expenses is one of the many duties of a plan sponsor and your review of provider’s service fees should include:

  • Reading their disclosures
  • Comparing fees to similar plans through a bench-marking study provided by a trusted consultant
  • Being prepared to explain the expenses paid and why they are reasonable and suitable options for your plan participants
  • Discussing concerns with service providers
  1. Review required participant fee disclosure regulations

Sponsors are responsible for reading and evaluating the materials the plan providers send to participants. As you review the information, consider:

  • Are the fees reasonable?
  • Is all of the required information included in the disclosure?
  • Can participants easily understand the information?
  • Are there other ways to present the information that would make statements more useful?
  1. Revisit plan administrative procedures and implement best practices

An administrative manual provides an organized method of documenting specific processes and procedures for administering the 401(k) plan. The contents can include:

  • Procedures for reconciling plan contributions
  • Details for calculating employer contributions
  • Process for funding contributions
  • Explanation of services provided by various providers, such as nondiscrimination testing, Form 5500 preparation, or plan document maintenance
  • A list of decisions made related to the interpretation of the plan document


With the assistance of your legal counsel and 401(k) service provider, you can ensure your plan complies with federal regulations by:

  1. Conducting a compliance review to identify potential issues

Compliance reviews can uncover issues and administrative gaps, including:

  • Services that should be provided but are currently not being performed
  • Changes in ownership, acquisitions or mergers
  • Changes to the plan’s controlled group status
  • Nondiscrimination tests and who performs the testing
  1. Assessing plan documents to ensure the plan complies with current regulations

Key reasons for this review include:

  • Ensuring the tax-qualified status of the 401(k) plan, which could be at risk if the plan document does not comply with current regulations
  • Conducting a document review annually also helps confirm restatement cycles are met and various administrative procedures are being performed as outlined in the plan document
  • Determining that all safe harbor requirements are met each plan year (for safe harbor plan designs)
  • Updating the plan’s summary plan description (SPD), if necessary. The SPD should be updated once every five years if the plan has been amended within the five-year period, and every 10 years if the plan has not been amended
  1. Confirming that your plan’s fiduciaries understand their responsibilities

The plan sponsor must know – and document – those who are considered fiduciaries for the plan. The fiduciaries should:

  • Receive appropriate training for their role and how to document the duties they perform
  • Adhere to the U.S. Department of Labor’s (DOL’s) fiduciary regulations
  1. Staying alert to legislative changes that may affect the 401(k)

Changes in legislation and regulations may affect your plan. Consider these methods for keeping abreast of updates and revisions:

  • Request that your 401(k) provider shares updates promptly
  • Assign an internal team to track legislation and guidance on existing regulations
  • Set action plans with your legal counsel and 401(k) provider for implementing changes that occur
  • Subscribe and review publications offered by professional organizations such as Findley


A myriad of communications is required to meet fiduciary obligations each year. Fee disclosures, safe harbor notices, automatic enrollment notices and summary annual reports are just a few of the communication requirements. Additional communications may be needed to promote features of the plan or changes to the plan. Your review of the communications should include:

  1. Evaluating the plan’s required communications to determine if they meet fiduciary obligations by:
  • Creating a list of the notices that are required, delivery options and the timing for each
  • Reviewing each communication piece for accuracy and readability
  1. Developing new communications for the plan to:
  • Target messages to groups of participants based on age, contributions rate, employment classification, compensation or other factors that affect participant behavior
  • Promote the idea of preparing for retirement through communication and education about saving and investment
  • Expand the ways messages are delivered by introducing smartphone applications and interactive websites

Questions regarding this checklist and your 401(k) plan? Contact Lauren Schlueter in the below form.

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Copyright © 2021 by Findley, a Division of USI. All rights reserved.

Cash Balance Plans: Wealth Building for Leadership Plan Results

Estimated reading time: 4 minutes

Is your firm looking to offer more options around your current retirement plan? You might want to consider a cash balance plan as a potential wealth-building option for your leadership team. A cash balance plan is ideal for professional service firms who want to set up a plan to achieve qualified retirement plan tax deferrals in excess of defined contribution 401(k) plan limits. In the case study below, we walk through the benefits of implementing a successful new cash balance plan for a large regional law firm.

The Challenge

A large regional law firm wanted to provide greater tax-deferred wealth building and retirement saving opportunities for their partners. Most partners were maximizing their 401(k) deferrals but were limited by their current 401(k) plan’s annual contribution limits. A key concern was that the partners could not accumulate enough savings to maintain their standard living in retirement through the 401(k) plan alone. The partners had been saving personally, but recognized that current taxes and higher retail investment fees were significant impediments to meeting their goals.

Another key concern was that they didn’t want to end up with a plan that had an unfunded liability requiring active partners to fund benefits for retiring partners. They wanted the contributions funded by each partner to be returned to each partner at retirement along with the earnings from the pension trust.

The Solution

We recommended a cash balance plan as the solution that would allow partners the ability to defer significant additional income, tax-deferred. Also, the plan was designed to credit participants’ cash balance plan accounts with the actual portfolio investment return within certain limits, to avoid any unfunded liability occurring due to investment performance. Because this firm has more than 50 partners, we were able to design a highly cost-effective, tax-deferred cash balance plan for partners only.

How the Plan Works

The partners make annual contributions based on a predefined formula and their cash balance account grows with the actual return on the plan’s assets. The formula requires contributions based on partners’ budgeted compensation for a year. Partners with higher budgeted compensation make larger contributions to their account. The annual contributions range from $5,000 to $200,000. The returns are determined on a daily basis. The partners can access their account balance at any time using our online administration portal, RetirementFocus™. This allows them to see their daily account balance based on actual daily plan returns. When a partner retires, they receive the value of their account balance as a lump sum payment.

Technical Issues Addressed Through the Design

In order to satisfy the hybrid pension plan rules there were some constraints placed on the design and operation of the plan. Our task was to design the plan so that all requirements could be met by design and any required compliance testing could be easily passed, avoiding any negative surprises. A maximum investment return and cumulative minimum investment return limit were applied to the cash balance accounts. However, the plan’s investment strategy has been crafted so these maximum and minimum investment return limits should rarely come into play.

In order to satisfy benefit accrual rules, the plan was designed so that the accruals would change at certain ages but would change gradually. We modeled different accrual patterns for the partners to ensure the plan had enough margins to pass the testing on an annual basis while providing significant deferral opportunities for the partners. To satisfy annual coverage, minimum participation, and nondiscrimination testing to prove the plan does not unfairly discriminate in favor of the partners, the firm provides a 7.5% profit sharing to all non-attorney staff.

Cash Balance Plan Results

The plan continues to provide significant savings opportunities for the firm’s partners especially as they get closer to retirement age. In the short time the plan has been in existence, senior partners who are close to retirement age have been able to defer and accumulate cash balance accounts in excess of $1 million. 

In addition, the plan continues to pass all annual regulatory testing requirements. We developed an annual streamlined process to provide the firm with timely testing results, appropriate partner contribution amounts and actuarial valuation results. In addition, we developed a process to assist the firm’s staff with annual retirement calculations support when needed. These steps allow the firm’s staff to focus their time on other important benefit issues while the cash balance plan runs fairly autonomously.

Is a Cash Balance Plan Right for Your Firm?

Looking for a more detailed breakdown of how this option could benefit your firm? Check out all your options in our Whitepaper: Retirement Program Options for Professional Firms

This solution was developed specifically for a law firm but many other organizations can take advantage of this solution as well. Professional service firms such as physicians, architects, engineers and accountants should consider this plan design, as well as any other organization that has executives with the same challenges described here. If you have further questions, please contact Larry Scherer in the form below to start the conversation on how this can benefit your firm.

Published on March 9, 2021

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Copyright © 2021 by Findley, A Division of USI. All rights reserved.

Developing a Strategy for Moving from Pension to 401(k) Benefits

Budgeting for next year’s cost of employer-provided benefits can seem daunting, especially when an organization sponsors both a defined benefit pension plan and a 401(k) defined contribution plan. Is it time to consider moving away from the defined benefit pension plan to avoid the volatility and risk? If so, plan sponsors should develop a well-thought-out process for analyzing the alternatives and impact to both employer costs and participant benefits. The overall strategy and objectives should be reviewed.

Each year, an actuary provides projections for the defined benefit pension plan and the amount required to fund seems to be ever-increasing. It feels like there’s no end in sight. Becoming fully funded seems to be a dream instead of a reality. Even in years when the assets in the plan had double-digit returns, there was either a new mortality table that needed to be adopted or the required interest rates dropped – all increasing the plan’s liability. This can be very difficult to manage going forward.

Strategy for Moving from Pension to 401(k) Benefits

While it is challenging to deliver an equivalent benefit in a defined contribution plan at the same level of contribution, defined contribution plans provide a predictable level of employer contribution each year. If plan sponsors are considering a transition to a replacement 401(k) plan, an analysis should be conducted to:

  • Determine the level of benefit desired for employees
  • Set a budget that provides the desired level of benefit when considering a defined benefit pension plan freeze

Performing the Analysis

When performing this type of analysis, we encourage companies to start by thinking of both the defined benefit pension and defined contribution plans together as a total retirement benefit. This allows the plan sponsor to contemplate its philosophy and develop a strategy related to short- and long-term goals for the retirement program.

Pension to 401(k) Benefits Flowchart

Establish Guidelines

Plan sponsors should start with a well-defined and proven process, taking the time to establish guidelines and understand the financial strategy. Begin by discussing the organization’s philosophy and define objectives for the retirement program to guide decision-making. These guidelines should include how the plan sponsor feels about management/budgeting of retirement plan costs, willingness to take on risk, providing benefits based on the organization’s ability to fund – discretionary vs. mandatory, the level of employees’ retirement benefits, and the competitiveness of benefits.

Determine Affordability

By evaluating all the current retirement plans and the projected cost and benefits, organizations will better understand the current and projected state of the plans and be able to determine the affordability of current plans over the long-term. The evaluation also allows them to discuss acceptable benefit levels and a cost strategy. A thorough analysis of the current and projected costs should include an outline of the current state of the program, including five-year projections under three scenarios for the defined benefit pension plan:

  • Ongoing plan
  • Closed to new entrants
  • Frozen accruals

In addition, the termination liability estimate under agreed upon assumptions should be calculated.

Determine Competitive Position

The guidelines and budgets are then coordinated with competitive market benchmarking to identify relevant alternatives to evaluate. Benchmarking the retirement plan benefits with competitive norms relative to the market allows the organization to measure the competitive position of benefits and expenses compared to industry/geographic region/employer size based on revenue or number of employees. The benchmarking helps the plan sponsor make informed decisions on the:

  • Form of benefit to be provided
  • Desired level of benefit for new hires/newly eligible participants
  • Impact on total compensation and the benefits package
  • Desired contribution allocation structure – pro-rata on pay, position-based, or based on age and/or length of service

Evaluate Alternate Strategies

Potential plan design alternatives including utilizing the current defined contribution plan should be developed based on previous discussions related to the organization’s philosophy, objectives and strategic direction for the retirement program. Alternative strategies can be assessed to determine the final strategic direction of the retirement program, such as modifying the current level of pension benefits or reduction/elimination of the defined benefit pension plan by freezing pension benefit accruals for all participants and moving toward a defined contribution plan only strategy.

Other strategies such as grandfathering selected participants or providing participants a “choice” between defined benefit and enhanced defined contribution benefits should be considered. If providing enhanced defined contribution benefits, determination of how the benefit will be provided – either with matching contributions and/or non-elective contributions in a fixed amount, performance-based, or based on a tiered age and/or service allocation – should be evaluated as well.

Modeling different plan designs that include variations of both defined benefit pension and defined contribution structures helps the plan sponsor compare costs and benefits. Based on the guidelines set upfront, these plan designs reflect the organization’s philosophical principles for providing these benefits to employees. The results of this analysis and each alternative are compared to the current plan(s) to show the overall impact on the employer-provided cost and level of employee benefit. Be prepared to study supplemental alternatives at this point because the first set may provoke additional thoughts or refinements.

Plan sponsors must be aware of compliance testing restrictions and be sure that any alternative considered will satisfy compliance rules — there is no point in studying an alternative that cannot be adopted due to nondiscrimination or coverage issues.

Making and Implementing the Decision

When all alternatives are reviewed, a final recommendation that ultimately links the retirement strategy with the philosophy and desired objectives is presented. Any potential transition issues or challenges should be outlined and a communication strategy should be developed. Establishing a formal communication plan is very important.

Develop and Document the Retirement Plan Strategy and Implementation Plan

The end result of the review should include a proposed retirement plan strategy to be presented to the board of directors. The proposed strategy should document the findings and conclusions of the review process and identify the steps necessary to carry out the recommendations within the strategy.

Change Management: Communicating to Employees

After the decision is made to change retirement benefits, communication to those impacted is key. This is the perfect time to remind employees of the retirement program and its overall value. In addition to government-required notices, you should also consider proactively sending out an individualized statement outlining the changes and providing the impact on participant’s benefits. It is important to make sure the changes are communicated clearly and that each participant understands the changes. Sometimes plan sponsors will hold group or one-on-one meetings with those impacted.

In Perspective

A change in the retirement program is a significant decision that affects the organization and its employees significantly. A thoughtful approach to a change like this can lead to better alignment of the overall program with organizational philosophy and goals, while still providing employees with competitive benefits.

If you have any questions regarding your options with transitioning from pension to 401(k) benefits, please contact Amy Kennedy at or Kathy Soper at

Published May 14, 2020

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Copyright © 2020 by Findley, Inc. All rights reserved

The CARES Act and its Impact on Retirement Plans

After several days of intense negotiations between Senate leadership and the Executive branch, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act” or “Act”) was passed by the House on Friday, March 27th. The CARES Act will provide $2.2 trillion to fund responses to the economic impacts of the COVID-19 (coronavirus) pandemic.

The CARES Act is a very extensive piece of legislation that is meant to provide emergency assistance to large and small distressed businesses, in order to stabilize the U.S. economy that has been hammered by this pandemic. By now, almost everyone has likely heard about provisions of the Act that provide direct payments of $1,200 to individuals, and those that provide employers whose business is fully or partially suspended as a result of COVID-19, with tax credits intended to allow them to keep paying employees on furlough. This bill covers a lot more of those highly publicized provisions. This article will specifically focus on the provisions that directly impact tax-qualified retirement plans.

The House passes the CARES Act in response to coronavirus turmoil, which has an impact on retirement plans

Coronavirus Related Plan Distributions

The Act provides rules for the optional provision of special coronavirus-related distributions from eligible retirement plans and IRAs that do not exceed $100,000 for any taxable year. Under the Act, the distribution would not be subject to the 10% penalty on distributions to individuals who have not yet reached age 59-1/2. Additionally, the mandatory 20% withholding tax on these distributions would not apply. The following rules apply to these special distributions:

  • Individuals who are eligible for this distribution must be participants (or their spouse or dependents) who are diagnosed with SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control (CDC) or who experiences adverse financial circumstances as a result of being quarantined, laid off, furloughed or who suffer reduced working hours, or who are unable to work because of the lack of child care.
  • A plan can rely on a participant’s certification of their eligibility for the distribution.
  • Amounts distributed can later be repaid to a qualified plan, or an IRA provided it is an account to which a rollover contribution could be made.
  • The repayment of the distribution can be made at any time over the three-year period that begins on the date the distribution was received.
  • The distribution can be spread out for tax purposes ratably over the three taxable years beginning with the taxable year of the distribution to the extent that the distribution is not repaid.
  • These distributions will be treated as satisfying the requirements for hardship distributions from a 401(k) plan.

Plan Loans

The CARES Act increases the maximum dollar amount available for loans from tax-qualified plans from $50,000 to $100,000, and increases the maximum percentage limit for loans from 50% of the present value of a participant’s benefit to 100% of the present value of a participant’s benefit under the plan.

The new due date for any plan loan with a current due date beginning on the date of the enactment of the CARES Act (presumably the date it is signed into law) and ending on December 31, 2020 will be extended for one year, or if later, until the date that is 180 days after the date of the Act’s enactment. For this purpose, the 5-year limit on plan loan repayments is disregarded.

Required Minimum Distributions – The CARES Act provides a one-year delay in required minimum distributions (RMDs) from 401(a), 403(b), 457 plans, as well as from IRAs. At this point, it does not appear that the delay will apply to defined benefit pension plans. This delay applies to RMDs due April 1, 2020, as well as to 2020 RMDs. In addition, the Act permits amounts subject to the RMD rules in 2020 to be rolled over.

Minimum Funding Contributions  – Minimum funding contributions for tax-qualified plans, including quarterly contributions, may be delayed until January 1, 2021 under the CARES Act. However, interest will accrue for the period between the contribution’s original due date and the payment date, at the plan’s effective rate of interest for the plan year in which the payment is made.

Funding Status – The Act also permits a plan sponsor to elect to treat the plan’s 2019 adjusted funding target attainment percentage (AFTAP) (which may subject the plan to certain benefit restrictions if the AFTAP is below 80%) as the AFTAP for the 2020 plan year.

Certain filing dates – The CARES Act allows the Secretary of the Department of Labor to postpone certain filing deadlines for up to one year. The prerequisite is that the Secretary of the Department of Health and Human Services must declare a “public health emergency,” which was already done on January 31, 2020.

Effective date – The revisions and expansions made by the CARES Act, as described above, apply for calendar years beginning after December 31, 2019. Plans would need to be amended to reflect these new rules by the last day of the plan year beginning on or after January 1, 2022. For calendar year plans, the due date is December 31, 2022. For governmental plans, the due date is the last day of the plan year beginning on or after January 1, 2024.

What Plan Sponsors should do

Plan sponsors should review their plans in light of the provisions of the CARES Act, and work with their service providers to execute the appropriate changes that apply for them.  If you have any questions about what the CARES Act entails for you, please contact the Findley consultant you regularly work with or Sheila Ninneman at, or 216.875.1927.

Published March 27, 2020

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The IRS Provides Clarity on Uncashed Retirement Distribution Checks

Qualified retirement plan sponsors now have answers to a few of the questions they have tossed around for years about the tax treatment of uncashed retirement distribution checks.

IRS Provides Clarity on Uncashed Retirement Distribution Checks

In Revenue Ruling 2019-19, August 14, 2019, the IRS provides guidance regarding the tax treatment of distribution checks cashed in a year other than the year of distribution or not cashed at all.

The IRS clarifies that if a participant or beneficiary does not cash a distribution check in the year of issuance, the individual must still include the amount in gross income for that year. In addition, if any withholding is required on the distribution, the issuer must withhold and report for the year in which the distribution is made, regardless of whether the check is cashed in the same year. In addition, the 1099-R is issued for the year of distribution and must reflect the distribution amount and amount withheld.

Unfortunately, the IRS did not take this opportunity to provide clear guidance around what to do when a distribution involves a missing or lost participant. In this ruling, the IRS states that it is still analyzing the missing participant issue. Presumably, this means that if a check is returned to a plan as undeliverable this IRS guidance does not apply.

Even without guidance on the missing participant issue, this IRS ruling provides welcome clarity in an area that was confusing for participants and plan administrators alike. In addition, it may provide needed encouragement to participants and beneficiaries to cash distribution checks in a timely manner. The result would relieve the plan administrator’s need to continue to track the distribution checks and eliminate any possible need for amended tax returns for the participant or beneficiary.

Questions? Please contact the Findley consultant you regularly work with, Sheila Ninneman at, 216.875.1927, or John Lucas at, 615.665.5329.

Published August 28, 2019

© 2019 Findley. All Rights Reserved.

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Audit Survival Tips for Retirement Plans

Although only a small fraction of retirement plans are audited each year, over time it’s almost certain that you and your plan will be audited by either the Internal Revenue Service (IRS) or the Department of Labor (DOL). Your preparation for an audit and your approach to an audit will save your organization thousands of dollars in productive time, penalties, and interest.

Audit or Investigation: A rose by any other name still has thorns

While both the DOL and IRS perform plan audits, their enforcement powers are governed by different laws and regulations, and they focus on different issues.

The DOL is responsible for the enforcement of labor laws, including the Employee Retirement Income Security Act (ERISA). The DOL has the power to exact penalties for breaches of fiduciary conduct, and if it chooses, it can sue fiduciaries for these breaches on behalf of a plan. In cases of egregious misconduct, it can initiate litigation that may put a plan’s fiduciaries in jail. The DOL’s investigation and enforcement emphasis is on fiduciary breaches and prohibited transactions. The DOL calls its enforcement program the Employee Benefit Plan Investigation Program.

The IRS is responsible for the management of our tax system through the Internal Revenue Code (the Code) and has the power to enforce infractions under the Code. When infractions are found, it can impose taxes, penalties, and interest. The IRS’s audit and enforcement emphasis is on compliance with the requirements of the Code, which rolls up under the umbrella of the plan’s tax qualification. The IRS calls its enforcement program the Employee Benefit Audit Program.

Both the DOL and the IRS select plans for audit primarily by random selection; however, there are a number of other audit triggers that sponsors should keep in mind. Answers to certain questions on the Form 5500 may trigger an audit. For example, checking the box indicating this is the plan’s final 5500 return or answering “yes” to the question, “Was there a failure to transmit to the plan any participant contributions within the time period described in the DOL regulations?” can trigger an audit. Participant or union notifications, complaints, or lawsuits also often trigger DOL investigations.

Bankruptcy filings and reports from the media can also trigger an investigation. In the spirit of interagency cooperation, the DOL may refer a case to the IRS if it discovers compliance infractions that are subject to penalties and interest under the Code.

While selection is generally random, there are certain audit initiatives that may focus on types of plans or sizes of employers, thus increasing the audit-selection odds for plans that fall within the initiative’s criteria. In 2014, 50 large employers were part of a program to determine the audit focus on future nonqualified plan audits. It is not uncommon for the IRS to issue plan sponsor questionnaires designed to help determine areas of audit focus, and—we suspect—to mark a certain number of plans for later audit. Failure to respond to an IRS questionnaire is comparable to sending the IRS an invitation to audit your plan.

Although the odds of your plan being audited are low, if the DOL or the IRS perceives some elevated risk of noncompliance, your chances of an audit will go up substantially.

It Begins with a Letter

The DOL and the IRS initiate their audit process through what they call an Information Request Letter. The Information Request Letter indicates the date the audit team plans its on-site visit to review documents and conduct interviews with individuals who have responsibilities in the administration of the plan. The letter also lists specific information that is to be made available to the auditor(s). This list often provides insight into the types of violations the auditor will be looking for during the audit.

The following list summarizes a DOL Information Request Letter that was recently sent to one of our clients regarding its pension plan. Looking at the list, it is apparent the focus is on fees and expenses.

  1. Corporate minutes
  2. Trust reports showing all receipts and disbursements
  3. Detailed documentation of fees and expenses paid from the trust
  4. Documentation regarding alternative investments
  5. Documents showing valuation of assets if assets are not readily tradable
  6. Service agreements and engagement letters
  7. Fee disclosure statements
  8. List of parties-in-interest
  9. Organization chart of the plan sponsor
  10. Trustee and investment committee minutes
  11. Plan documents, summary plan description, trust agreements, investment policy statements
  12. Summary annual reports
  13. Participant statements
  14. Evidence of fidelity bond, fiduciary liability insurance policy, if any
  15. Fiduciary training

For this client, follow-up questions focusing specifically on items 3, 6, and 7 required more detailed responses about the nature of the services provided and the fees charged. In DOL audits of defined contribution plans, we typically see a focus on fees and the timing of deposits.

Preparing for the Audit

It goes without saying, both preparation and attention to detail are essential for a positive audit experience. If you receive an Information Request Letter, don’t panic, but do recognize that you’ll need to immediately begin preparing for the audit process.

Your goal for the on-site visit is to make the auditors’ tasks as efficient as possible. Being difficult, defensive, or uncooperative is counterproductive; it wastes time, and it won’t make the auditors go away. Instead, use your time to review all of your plan documentation and begin collecting and organizing the information requested before the first auditor steps through your door. Investing ample time and energy before the on-site visit will insure that your entire team is fully prepared for dialogue, questions, and requests for further information during the on-site visit.

As part of the preparation process, we recommend that you defer or delegate projects due at the time of the scheduled audit, and you should also clear your calendar during that time in order to be available for dialogue and questions. Depending on your other responsibilities and projects, it may be wise for you to delegate the management of the audit to another team member while you retain decision-making and internal management reporting responsibilities.

It’s also essential that you notify other members of your plan administration team that your plan is entering into an audit to ensure they will be available to the auditors. Keep in mind that your plan team includes more than just fellow employees who work on the plan; it also includes your ERISA attorney, plan consultant, administrator, investment advisor, and trustee. You may want to consider having your legal counsel or consultant manage the audit for you. This is particularly useful if your provider is supporting you in most of the advisory roles of the plan.

Schedule a team meeting prior to the on-site visit to review the Information Request Letter, review plan provisions and procedures, and prepare for any questions. Having your plan documents and plan governance documentation organized, labeled, and bound makes the auditor’s job more efficient and conveys the message, “We’re ready for this audit, and we are not worried about anything.”

Finally, whether it’s the DOL or the IRS, if your schedule doesn’t permit you to be fully prepared or responsive, don’t be afraid to ask for more time before the on-site visit. The regulators recognize and appreciate it when you ask for a different schedule for good reasons. Like you, they can’t afford to waste time in an inefficient audit.

The Audit

Auditors are looking for specific information, so provide only what is requested. Ideally, your plan is in good condition, but if it isn’t, providing more information than is requested is like giving a hangman extra rope. During the audit, proactively address any issues of concern raised by the auditor, be available and responsive, and be patient with the process. In addition to the on-site visit, the audit team may take certain documents for further review.


The DOL focuses its examinations on prohibited transactions. The most common forms of “technical prohibited transactions” are late deposits of deferrals, problems with loans to participants, and improper processing of qualified domestic relations orders (QDROs). And as we saw in the Information Request Letter above, fees are of particular interest to the DOL. With most fees now paid by plan participants, the DOL focuses on enforcement of the fundamental fiduciary conduct that:

  • The fiduciary is acting at all times in the best interests of plan participants,
  • That fees paid by the plan (and its plan participants) are reasonable, and
  • Fiduciaries are diligent to avoid conflicts of interest in their hiring of advisors and service providers to the plan.


While the DOL focuses on participants and fiduciary roles and responsibilities, there is clearly a shared focus with the IRS on compliance (i.e., compliance with the plan document, compliance with regulations, etc.). Obviously, tax-related issues, such as current deductions or delaying the recognition of income, are in the IRS’s jurisdiction. So is compliance with the regulations that pertain to plan qualification, including nondiscrimination testing and all limits.

The IRS also looks at compliance with the plan document, which includes consistency among all your plan documents and plan operation, compliance with constantly changing regulations, and administration of plan eligibility. More recently, the IRS has become concerned with improper investment valuations in cases where an asset is illiquid or is not readily valued, which can cause an undervalued or overvalued benefit distribution.

The IRS will request information on your nondiscrimination and limits testing, including the primary data. You can expect your recordkeeper to provide the reporting of this testing and the primary data for their review.

The following is a list of the 12 most common issues the IRS finds in its audits of retirement plans:

  • Plan document not up-to-date
  • Plan operation doesn’t follow the plan document
  • Plan definition of compensation not followed
  • Matching contributions not made to all eligible employees
  • ADP/ACP test performed improperly
  • Eligible employees not allowed to defer
  • Deferral limits exceeded
  • Deferral deposit delay
  • Participant loans don’t follow plan documents, procedures and/or law
  • Hardship distributions improperly administered
  • Top-heavy requirements ignored
  • Failure to file Form 5500 timely

The process for both agencies becomes more complex if enforcement issues are found.

After the Audit

Most auditors we meet are assigned to multiple cases, so while you should be prepared to hurry up for them, you must also be prepared to patiently wait for their responses to you. Once the audit is completed, the auditor will follow-up with a phone call to verbally convey the audit findings; this phone call is followed by a written audit findings letter.


In the best case, the result of a DOL investigation is a “no action” letter. The plan has passed the DOL’s testing, and no further action is being pursued by the DOL. The letter may include disclaimer language that says there may be ERISA violations in certain areas, but no such activity was found during the investigation.

The more common letter these days is a Voluntary Compliance Letter, which documents that certain infractions were found (most commonly late deferrals or issues relating to the loan program), and certain corrective action under the Voluntary Fiduciary Compliance Program (VCP) is required. When egregious compliance errors are found, the DOL can sue for civil penalties on behalf of plan participants and initiate litigation against fiduciaries for breach of fiduciary responsibilities.


For an IRS audit, the best case is an audit findings letter showing that no further actions are necessary and that the audit file has been closed. If errors are found, then certain corrective action may be necessary through the IRS’s Audit Closing Agreement Program. Here, the general principle is to make the plan and its participants whole. This often includes a corrective contribution plus interest to plan participant accounts, excise taxes required by Code Section 4975, and other fees and penalties payable to the IRS.

If you and your legal counsel disagree with the audit conclusions in some way, there is an appeals program that enables another review of the audit findings and your position.

Fortunately for plan sponsors, the voluntary corrections and audit corrections programs have made plan disqualification extremely rare.

Staying prepared: a different kind of “selfie”

Because plan administration is so complex, it’s common for plan sponsors to have some correction issues at some point in the life of the plan. Many of the errors that occur and corrections that need to be made arise out of a triggering event, such as payroll staff turnover, system changes, one-off processing events, annual limits, or business reorganizations.

If you’ve had a potential error-inducing event, it may be time to conduct a self-audit to ensure that your plan’s operation is consistent with plan documents and all laws. Performing regular self-audits will give you greater protection against an IRS or DOL audit.

As a plan sponsor, there are three things you can do to make your plan audit-ready, should that letter arrive from the DOL or the IRS: organize, review, and retain. We’ve provided a list of action steps below. You’ll notice that organize and retain steps are simple and really only involve good record-keeping practices, while some of the steps in the review phase may involve engaging an advisor to ensure the correct result.


  • Current records
  • Records eligible for summarization and archiving


  • Updated roster of key plan officials, including external advisors
  • Investment policy statement, loan procedures, QDRO procedures documents
  • Determination letter and upcoming determination letter cycles
  • Service agreement for necessary changes to reflect actual operation of plan, changes in law or regulation
  • Documentation of internal controls and update as needed
  • Fees and fee changes, fee disclosures, and documentation
  • Plan and data transmission requirements with payroll staff
  • Plan document and summary plan descriptions against plan operation
  • Fidelity bond coverage
  • IRS 401(k) Fix-It Guide and make self-corrections as necessary
  • Plan operation relative to terms of plan
  • All documentation related to corrections under SCP or VCP


  • Signed plan documents, trust agreements, plan amendments, and board resolutions
  • Summary of materials modifications, summary annual reports, and other required participant notices and document their dates of distribution
  • Investment process documentation and decisions, committee minutes
  • Compliance testing, participant allocation, and other plan operation reports
  • Current Form 5500, schedules, and audit report
  • All documentation related to corrections under SCP or VCP

As you can see, this process is similar to the year-end close of a corporation’s financial statements and tax return filings, and it’s an opportunity for you to review, update, and finalize your records for the year. You should adopt this practice as part of your year-end close or annual review and planning process.

Correcting Errors

If you find a problem during the self-audit of plan operations or in your review of plan documentation, there are ways to voluntarily correct these problems. Depending upon the nature of the issue, you may be able to self-correct your plan, document the corrections for the file, and move forward without a formal filing with the IRS or the DOL. More significant issues, such as failing to amend the plan timely or failing a nondiscrimination test and discovering the problem in a later plan year, generally require filing for and obtaining approval of the self-correction methodology.

The more common the problem, the more likely it is that other plan sponsors have experienced the same thing. The IRS and the DOL continually publish new procedures for automatic corrections and guidance on how to perform formal corrections, so it’s likely that an issue you’ve uncovered can be corrected efficiently through a self-correction program before being discovered during an audit.

In Perspective

While getting that letter from the IRS or the DOL is never pleasant, if you do receive one of those much-dread letters, there are things plan sponsors can do to prepare. Reviewing the Information Request Letter, collecting the required information, being thoroughly familiar with your plan’s operation, and of course, fully cooperating with your auditors will go a long way in getting you through the audit.

And while the chances of being audited are relatively low, the most successful approach is to assume that you will be audited and prepare accordingly by performing an annual self-audit. Adding a self-audit to your annual compliance calendar will save you time and your organization dollars. And if that’s not enough motivation, consider these words of wisdom from Dave Barry: “We’ll try to cooperate fully with the IRS, because, as citizens, we feel a strong patriotic duty not to go to jail.”

For more information contact Tom Swain at 615.665.5319 or or the Findley consultant with whom you normally work.

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Retirement Savings Opportunities for High Earning Owners and Professionals

Overview: For successful small businesses, a 401(k) plan combined with a cash balance plan can provide opportunities to:

  • Build wealth and retirement savings for the owners/ professionals with much greater contributions than through a 401(k) plan alone
  • Save on federal, state, and local taxes through higher deductible contributions
  • Protect substantial assets from creditors or legal action
  • Provide attractive retirement benefits for nonowner
  • Attract and retain talented employees
  • Enhance financial well-being and retirement readiness for all participants

The Tax Cuts and Jobs Act substantially reduced corporate tax rates for C corporations, and added a complex set of rules on deductions for pass-through entities such as partnerships, LLCs, and S corporations. Fundamentally, tax reform enacted a slightly lower individual tax rate (top brackets reduced from 39.6 percent to 37 percent) for high-earning owners, which means that these plans are still tax effective, while the substantial long-term benefits remain unchanged. Business owners who are currently sponsoring or planning to set up a 401(k) plan and cash balance plan should talk with their tax advisor and actuary, to see if any changes to plan design or their business structure are desirable.

Impact of the Tax Cuts and Jobs Act

A lot has been written and said about the Tax Cuts and Jobs Act and the tax rule changes that affect businesses. In this article, we focus on the very fundamental aspects of these changes.

C corporations now have a flat 21 percent income tax rate and pass-through entities now have a 20 percent deduction on qualified business income. This 20 percent deduction is limited or phased-out based on the type of business and business income through very complex rules. For taxpayers in the top individual income tax bracket of 37 percent, this 20 percent deduction can be viewed as a 7.4 percent (20 percent of 37 percent top individual income tax rate) rate reduction.

Thus for most high-earning owners and professionals, the evaluation of the tax effectiveness of their 401(k) and cash balance plan will involve only a change in tax rate from 39.6 percent to 37 percent. We’ve seen that this may cause subtle changes in design and contribution levels, but it does not change fundamental decisions on whether to adopt one or both plan types.

To illustrate how the combination of a 401(k) and cash balance plan can be used, let’s look at a case study of a professional firm we’ll call ABC Services.

Case Study:  ABC Services

Cash Balance  Plan Contribution Chart

ABC Services is a partnership of any type of business professionals such as accountants, doctors, or lawyers. There are three partners in the business, each owning one-third of the practice. The firm has a number of nonowner professionals we’ll call associates. The firm employs other staff as well.

The partners at ABC have these goals for their retirement program:

  • Partners – Adam and Bill (both age 55) would like to maximize their retirement savings. Carol (age 45) needs more current income and less saving for retirement. No partner wants to subsidize the retirement benefit of the other partners.
  • Associates – the associates are ages 30 to 45. Associates prefer current compensation over future retirement benefits. ABC wants to minimize retirement plan contributions to this group.
  • Staff – ABC hires relatively young staff and experiences moderate turnover among this group. ABC wants to offer a market-competitive level of retirement benefits to attract staff employees.

Tables 1A and 1B show the employer contributions provided under the 401(k) and cash balance plans established by ABC. Each participant can make salary deferral contributions to the 401(k) plan up to the IRS limits, including additional catch-up contributions for individuals age 50 and older.

Table 1A: Annual contribution amounts for ABC partners


Eligible Pay

Employer 401(k)
Cash Balance
Adam $280,000 $25,000 $14,000 $140,000 $154,000 $179,000
Bill $280,000 $25,000 $14,000 $140,000 $154,000 $179,000
Carol $280,000 $19,000 $14,000   $35,000   $49,000   $68,000

*Subject to IRS limits

Table 1B: Annual employer contributions, as a percentage of eligible pay, by employment category

  Employer 401(k)
Employer Cash Balance
Total Employer
Adam 5% 50.0% 55.0%
Bill 5% 50.0% 55.0%
Carol 5% 12.5% 17.5%
Associates 0%      0%       0%
Staff 5%   2.5%    7.5%

How well does this retirement program accomplish ABC’s objectives?

  • Partners – Adam and Bill are able to receive contributions of (and defer tax on) $179,000 each year. Carol accomplishes her goal by having a meaningful, but significantly lower, contribution amount of $68,000 per year with flexibility to change her contribution amounts through the 401(k) plan.
  • Associates – ABC minimizes retirement contributions for associates by providing a separate, employee deferral only 401(k) plan for associates, and excluding the associates from the cash balance plan.
  • Staff – ABC offers a strong benefit to this group in order to attract and retain staff employees. The plan design provides employer contributions of 7.5 percent of pay for staff, plus employee 401(k) salary deferrals and  catch-up contributions if the employee is at least age 50.

What Types of Employers Should Consider a 401(k) Cash Balance Plan?

We’ve noted that any successful business can consider implementing a 401(k) and a cash balance plan. We find, however, that businesses with the following characteristics are the most likely to see the benefits of implementing these plans together:

  • The business owners are age 40–64
  • The business has had consistent cash flow and profitability
  • The future of the business looks good, with positive cash flow and profitability over the next five years
  • The ratio of nonowner employees to owner employees is relatively low
  • The business has a 401(k) plan in place and is making employer contributions currently

Also, we frequently hear these goals in discussions with owners of successful businesses:

  • We want (or need) to save more for retirement than the current IRS annual limit imposed on the 401(k) plan
  • We want to reduce our current taxes
  • We need protection of assets from creditors, or in the event of a lawsuit
  • We want to recognize and reward key staff
  • We want to attract and retain the best employees

By implementing a 401(k) plan and cash balance plan with advanced plan designs, successful businesses can meet their owners’ goals for wealth building and retirement savings and offer an attractive and cost-effective retirement program to their employees.

Looking Closer at Cash Balance and 401(k) Plans

Qualified retirement plans are divided into two categories: defined benefit (DB) plans and defined contribution (DC) plans. Cash balance plans are a typical DB design for small businesses and professional firms, while 401(k) plans are a common DC plan design.

A cash balance plan is structured to look like a DC plan with each participant having a recordkeeping account that receives employer contributions and interest credits. These interest credits are often defined and guaranteed by the plan.

Common Features

Since both 401(k) and cash balance plans are types of qualified retirement plans, they share a number of common features that are important for employers and participants:

  • Contributions are tax-deductible
  • Trust earnings are tax-deferred
  • Trust assets are protected from the claims of creditors
  • Distributions are usually immediately available after termination, retirement, death or disability
  • Lump sum distributions may be rolled over to a successor plan or another tax-advantaged plan
  • Distributions are not subject to FICA or FUTA tax

Key Differences

Table 2 highlights the key differences between 401(k) and cash balance plans:

401(k) Plans Cash Balance Plans
Contributions (based on 2019 limits) Contributions
Participants can save up to $19,000 in before tax or Roth (after tax) employee savings

Participants age 50 or older can save an extra $6,000 in catch-up contributions

The employer and employee contributions can be up to $56,000 ($62,000 including catch-up contributions)

Employer contributions (match and profit sharing) are usually discretionary
Contributions can be far greater than current 401(k) limits, depending on the owner’s/professional’s current age

The cash balance account is guaranteed
Additions to the cash balance account are based on pay credit and interest rate factors defined in the plan document

Employer contributions are required
Investments Investments
Participants usually direct the investments in their 401(k) account

The participant chooses their investment strategy and bears the investment risk
Assets are invested in a pool for all participants in the plan, usually with a conservative investment strategy

Plans are allowed to credit the actual performance of the portfolio to participants’ cash balance accounts (certain restrictions apply)

The employer sets investment strategy and often bears all the investment risk
Accounts Benefits
The participant’s account value is based on contributions and actual investment returns (or losses) The participant’s account has guarantees; the account is based on contributions, interest credits as defined by the plan, and minimum guarantees required by law



In-service distributions are allowable for hardship or upon reaching age 59½

Distributions are usually as a lump sum, some plans allow for installments or purchase of an annuity

Participant loans are often available through the plan

In-service distributions are allowable at or after age 62

Distributions are usually made as a lump sum, annuity options are available through the plan

Loans are usually not offered

Other Considerations

With examples showing the benefits of implementing a 401(k) plan and cash balance plan to owners and their employees, the natural question is: why not implement these plans?

Business owners considering these plans should also discuss these issues with their actuary, tax advisor, and plan consultants:

  • Higher contributions for nonowner employees will likely be required
  • There will be higher administrative costs for a second plan, including hiring an actuary to certify the minimum funding required of the cash balance plan
  • There may be PBGC premium expense for certain plans and employers; however, PBGC coverage can result in additional deductible contributions
  • There are annual required minimum contributions for the cash balance plan
  • Volatility in the investments held by the cash balance plan can lead to volatility in the required minimum contributions
  • Funding levels must be managed to avoid certain restrictions on distributions

In Summary

The combination of a 401(k) plan and a cash balance plan is often the best solution for a successful business wishing to provide substantial tax-deferred savings for key individuals. This combination of plans is easy to understand and can provide surprising flexibility along with increased contribution limits.

The case study shown in this article shows the retirement accumulation potential of implementing a 401(k) and cash balance plan. Other cost-effective plan designs are generally available; for more information, please contact your Findley consultant.

Published on June 7, 2019

© Copyright 2019 • Findley • All rights reserved

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When a Retirement Plan has the Beneficiary Blues

If you’ve administered a retirement plan for any length of time, then you’ve probably “sung the blues” at some point when it comes to distributions to beneficiaries. Whether it’s the hassle of incomplete beneficiary designation forms; the mathematical mystery of a split among beneficiaries that equals 110%; the puzzle created when a primary beneficiary is allocated 50% of the benefit and the “contingent beneficiary” is apparently allocated the other 50%; or the dilemma, in the face of no form, when a daughter submits the deceased participant’s last will and testament as evidence of her mother’s intent, you know the pain of the beneficiary blues.

How to avoid the blues

Check the plan for beneficiary provisions. The first thing you should do is review your plan and ensure it has a default beneficiary provision. It should state something along the lines of “in the event that a participant fails to name a beneficiary or the named beneficiary, or any successive or contingent beneficiary, predeceases the participant, or the designation is invalid for any reason, then the benefit will be distributed in the following order of priority to . . .” Alternatively, the plan may reference the order of priority provided in the intestate law for the state of the deceased participant’s residency. In either case, you will have a ready answer when you discover too late that no beneficiary has been validly designated to receive a deceased participant’s benefits. If you are unable to find such language, take the appropriate action to have your plan amended to add a default beneficiary provision.

In addition to the default beneficiary provision, there are other helpful provisions when it comes to determining the appropriate beneficiary in a complicated situation. A plan may provide that a properly completed beneficiary designation form submitted to the administrator revokes all prior designations, and that, except for specified events, a divorce decree automatically revokes a participant’s prior designation of a now former spouse as beneficiary.

Review beneficiary designation forms carefully and immediately upon submission. Reviewing beneficiary designation forms when they are first submitted will not avoid the issue created when a sole beneficiary passes away prior to the participant, but it will avoid the above mentioned 110% and 50% problems. In those cases, the administrator admitted that they thought a quick glance for beneficiary names and social security numbers, as well as the participant signature, was all that was needed. Before accepting a designation form from a participant’s lawful agent, keep in mind that a power of attorney must specifically authorize an agent to designate a beneficiary. A simple reference to your retirement plans, or retirement benefits in general, is not enough. As in many aspects of plan administration, creating a checklist of required review steps will prove helpful to you.

Know your options when you’ve got the blues

Get all the information you need for your determination. Where it is unclear on the face of all the plan documentation who the proper beneficiary is, you have to make a preliminary determination. You must decide whether you possess, or can obtain, enough information to make the beneficiary determination yourself, or if you need to ask a court to issue a declaratory judgment as to the proper beneficiary. You may consider numerous circumstances in processing your determination. You can take into account whether there is employer information outside of plan records, such as a life insurance beneficiary form, that provides you with confidence that your interpretation of a fuzzy beneficiary designation form is appropriate. You may also want to consider whether the relative size of the benefit means that imposing your interpretation of an unclear form is a low risk proposition and the costs of obtaining a declaratory judgment are disproportionately high, or vice versa.

Remember you’re wearing your fiduciary hat. Keep in mind that directing the distribution of retirement plan benefits is a fiduciary act. You must weigh carefully all of the circumstances surrounding the assessment of a beneficiary designation form, and appropriately process your determination. You may want to consult with your trusted advisors or even obtain an opinion from legal counsel.

Questions? Contact the Findley consultant you normally work with, or Sheila Ninneman at, 216.875.1927.

Posted on March 12, 2019

© 2019 Findley. All Rights Reserved.

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IRS Releases 2018 Required Amendments List for Qualified Retirement Plans

The Internal Revenue Service (IRS) recently issued Notice 2018-91, which contains the Required Amendments List for 2018 (2018 RA List). The 2018 RA List does not reflect any changes in qualification requirements. This means that for individually designed plans there are no required amendments due to changes in qualification requirements under the current list.

As a reminder, in Revenue Procedure 2016-37, the IRS stated that it intends to publish annually a Required Amendments List (RA List). The RA List establishes the date that the remedial amendment period expires for changes in qualification requirements contained on the list. For an individually designed plan, the remedial amendment period for a disqualifying provision resulting from a change in qualification requirements listed in the  RA List generally extends to the last day of the second calendar year beginning after its issuance.

The RA List includes statutory and administrative changes to qualification requirements first effective during the plan year in which the list is published. The RA List does not include:

  • statutory changes for which the IRS expects to issue guidance (which would be included in a future RA List);
  • changes to qualification requirements that allow (but not require) optional plan provisions; or
  • changes in tax laws that affect qualified plans but do not change qualification requirements (for example, changes to the tax treatment of plan distributions).

Certain annual, monthly, or other periodic changes to amounts and items are considered to be included on the RA List for the year in which the changes are effective, even if not directly referenced on the RA List. Examples of these periodic changes include the various dollar limits that are adjusted for cost of living increases, such as those provided in Code Sec. 415(d); Code Sec. 417(e)(3) spot segment rates used to determine the applicable interest rate; and the Code Sec. 417(e)(3) applicable mortality table. However, the IRS expects that few plans have provisions that need to be amended for these changes.

Questions? Contact the Findley consultant whom you normally work with or Sheila Ninneman at, 216.875.1927.

IRS Updates Model Tax Notices for Eligible Rollover Distributions from Retirement Plans

In its recent Notice 2018-74, the Internal Revenue Service (IRS) provides updated model tax notices for the required written explanations given to recipients of eligible rollover distributions from qualified retirement plans. These updated notices reflect recent changes to the laws in this area as well as IRS guidance. Plan administrators should review the notices they are currently using to see if they need updating. If they are not up-to-date, plan administrators may use the updated IRS model tax notices or should take steps to update their notices.

The Internal Revenue Code (IRC) generally requires that the plan administrator of a qualified retirement plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation of specified information to the recipient of that distribution. This requirement also generally applies to a plan administrator of 403(a), 403(b), and 457(b) plans.

The updated IRS model tax notices are safe harbor explanations that the IRS states may be used by plan administrators and payors to satisfy the applicable notice requirements (at least until any further law changes are made).

The plan administrator or payor is not required to use the IRS model tax notice and can develop its own notice as long as it has the required information, and it is written in a manner designed to be easily understood.

Changes to the IRS Model Tax Notices

The IRS updated the model tax notices to reflect specific legislative changes and IRS guidance issued since 2014, including:

  • The extended rollover deadline for qualified plan loan offset amounts under the Tax Cuts and Jobs Act of 2017
  • The self-certification procedures under Revenue Procedure 2016-47 for claiming eligibility to waive the deadline for making rollovers
  • The exception to the 10% additional tax on early distributions for phased retirement distributions to certain federal retirees under the Moving Ahead for Progress in the 21st Century Act (MAP-21)
  • The expanded exception to the 10% additional tax on early distributions for specified federal employees, who have reached age 50 under the Defending Public Safety Employees’ Retirement Act

Also, the IRS modified the model tax notices to clarify specific matters, such as:

  • Clarifying that the 10% additional tax on early distributions applies only to amounts includable in income
  • Explaining how the rollover rules apply to governmental section 457(b) plans that include designated Roth accounts
  • Clarifying that the general exception to the 10% additional tax on early distributions for payments from a governmental plan made after a qualified public safety employee separates from service (if the employee will be at least age 50 in the year of separation) is not available for payments from IRAs
  • Recognizing the possibility that taxpayers affected by federally declared disasters and other events may have an extended deadline for making rollovers

Using the Updated IRS Model Tax Notices

The new 2018 IRS guidance provides two separate model tax notices. One model tax notice reflects the rules for distributions that are not from a designated Roth account. The other reflects the rules for distributions that are from a designed Roth account. Both model tax notices should be provided to a participant if that participant is eligible to receive eligible rollover distributions both from a designated Roth account and from an account other than a designated Roth account.

The IRS recognizes that some plan administrators that have been using the old model tax notices issued in 2014 in Notice 2014-74 may wish to update those model tax notices by making amendments to them (rather than replacing them with the revised model tax notices). The 2018 IRS guidance provides instructions on how to amend the model tax notices in Notice 2014-74 to reflect the modifications made in the revised model tax notices.

The IRS guidance provides that a plan administrator or payor may customize a model tax notice by omitting any information that does not apply to its plan. The IRS provides several examples illustrating this in the guidance. Also, the IRS guidance provides that the plan administrator or payor may provide additional information with the IRS model tax notice if the information is consistent with IRC section 402(f).

Questions? Contact your Findley consultant or John Lucas at or 615.665.5329.

Posted October 25, 2018

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