DEL. Introducing Ray as CFO.

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2 DEL Introducing Ray as CFO. 2

3 DEL Before we get started, we hope that you have taken note of the materials that you will need to have printed and have next to you for reference to during the webinar. They will come in handy for note taking and writing down those questions that you may have during the webinar. The listed documents will all be referred to during the webinar. 3

4 DEL In order to ask questions, go to the question box at the bottom of the gotowebinar window and type in your question. We will try to answer most of them (depending on the time) at the end of each webinar topic. The remainder will be answered by from the ARP team. If you still have questions after the webinar, please send those to ARP Help. We will not be using the hand raise feature. This webinar will be recorded and will be posted to our website early next week and we will have a full notes version of the webinar posted as well. 4

5 With me on this webinar are some folks who really know this plan, they will also help in today's presentation. Beth Roberts has been with the Adventist Retirement Plan for the last 14 years and is currently our DC Plan Manager. Kristina Dahabura has also been with the Adventist Retirement Plan for the last 14 years, she is our Accounting Software Specialists. Shyamala Injety our DC Plan Specialist and Raymond Vasmout our DC Plan Technical Assistant round out the DC Plan Team. 5

6 Our topics for today will include: 2012 Year End Review for Limits Testing. Locally Funded Policy Reminder. Status Codes. Contact Information in DC Export File. And The new IRS Guidelines for correcting plan errors known as EPCRS. Up first today is Kristina, and she will be covering the first four short but important topics. 6

7 Hi this is Kristina, I just wanted to take a minute and review the 2012 year end compliance testing with you. In February of each year ARP works with VALIC on the IRS compliance testing. VALIC uses the data that has been submitted by the payroll center through out the year and in the year-end census files. The two main test that are run are the 402(g) and the 415(c). 7

8 The 415(c) limit applies to all contributions including employee (pre-tax and after-tax) and employer (basic and match) contributions. It limits total contributions to the lesser of $51,000 or 100% of includable compensation. Includable compensation as defined under 403(b) takes the Federal Taxable Wages combined with the pre-tax deferral amounts. Includible compensation does not include any tax-excludable housing allowance or parsonage exclusion. For the 2012 testing 23,779 individuals were tested from 121 payroll centers. The good news is that for 2012 testing 415(c) excesses were reported for 131 employees however only 38 of these employees were truly over the limit. 93 of the excesses reported were due to false positives triggered from incorrect federal taxable wages being reported on either the last ARP file submitted in 2012 or no census file being submitted to correct that amount. False positives create lots of research for ARP. Each false positive could have been avoided if an accurate FEDWAGE was submitted in a Census File or a Disability Compensation form was submitted as requested. 8

9 You can help the compliance testing process to work as smoothly as possible by doing a few things through out the year. 1. Make sure you send an accurate fedwage in every file you send to ARP for every person in that file. 2. If requested please submit a census file to ARP, the census file should include the box 1 of form W2 for every person you paid during the applicable tax year (not including not eligible student workers), even if a person was terminated or retired prior to year end they need to be included in the census file. 3. Please complete and submit the third party disability disclosure form by the deadline provided for all employees who were on disability during the applicable tax year. 4. Please routinely self audit your ARP file for accuracy. 5. Please read the Admin Manual, and review our past webinars and webinar notes, if you have any questions please call or Beth or I before you make assumptions. Accurate IRS limits compliance testing depends on accurate data. 9

10 Next we want to remind you that the deadline for choosing and implementing a Locally Funded Policy option is December 31, Once you have chosen your Locally Funded option and are ready to update your file make sure you have signed and faxed the Transmittal Form with the Roll-Out date before you send a file in the new format. The deadline for getting a Transmittal form to ARP is November 30,

11 Here is an example taken from the Transmittal from showing where you enter the Roll-out date. Before a file is sent to ARP with the Locally Funded options chosen this form must be received by our office so that the date can be entered into our Inhouse ARP software in anticipation of your file being accepted. If you haven t submitted your transmittal or rollout form we will send you an shortly after this webinar. 11

12 I would like to take a minute to do a quick review of status codes. Status codes are critical to plan operations. They determine the employees eligibility for contributions, loans, and distributions. The Status Date should reflect the date that these particular status code became effective. No contributions can be sent with D, R, T, or X codes but please remember to send an accurate Year-to-date FEDWAGE with all codes including these. Please refer to our Admin Manual for questions on status codes. 12

13 Here is a list of the status codes and which contributions are sent with each code. Depending on which Locally Funded Policy option you have chosen the A and N codes have different characteristics. Please refer back to our webinar called the 2011 Locally Funded Policy Webinar regarding this policy if you have any questions. 13

14 Here is an example of the status code flow for an employee who had a retirement allowance that was paid after the retirement date. When Sally retired an R code was sent to ARP with a status date of 12/31/2010. When the employer wanted to send her RA in February 2011 they had to change her status code back to A dated 1/1/2006 the original A date so the contribution could be submitted. Once the contribution was submitted the R code had to be resent with the correct Retirement date of 12/31/2010. When Sally decided to work part-time during retirement her status code became an N dated 6/1/2011 the date she started working part-time. 14

15 This slide shows the time line for the Disability Codes. The P code is for the elimination period immediately following a period of active employment. During this elimination period, both employee and employer contributions may continue to flow. The P Code marks the beginning of the 18-month period. The second code is F and is used for the period following the elimination period (the second part of the 18-month disability period referred to in policy). During this period only employer basic contributions are allowed; the employee may not make personal contributions (and, of course, there is then no employer match). Following the elimination period the D Code is used to indicate the final stage of disability No Contributions are allowed with the D Code. 15

16 In this second example we will look at John and the disability codes. For the first phase of disability John was given a P code dated 1/1/2011 this code allowed all contributions to be submitted. Once he was past the elimination period his status was changed to F 7/1/2011 under this code only employer basic contributions are allowed. In the final phase John s status was changed to D for disabled where no contributions are allowed. If you have an employee who had employer contributions under disability and third party disability payments the ARP office will request a Disability Disclosure Form to be filled out and submitted for that tax year. This third party disability income is needed for our yearend compliance testing. 16

17 Just a friendly reminder that the ARP Team uses the contact information you provide in your ARP File as the primary way to contact each payroll center. Please make sure that the contact information located in the header record A is accurate including the contact name (CONTACTNME), contact phone number (CONTACTPHN), and the contact address (CONTACTEML). This information updates our ARP software and is used as our primary source to contact the Payroll Center regarding all issues. Thank you for working with the Adventist Retirement Plan as a team in an effort to serve your employees. Next Ray and Beth will be going over the new IRS Employee Plans Compliance Resolution System or EPCRS. 17

18 We will now answer the questions that have come in so far. You can also your questions to 18

19 On December 31, 2012 the IRS released a new Revenue Procedure called EPCRS or the Employee Plans Compliance Resolution System for correcting Plan errors If you make mistakes with respect to your plan, you can use the IRS Employee Plans Compliance Resolution System to remedy those mistakes and avoid the consequences of plan disqualification. It also encourages Plan Sponsors to establish administrative practices and procedures that ensure that the plan is operated in accordance with the applicable requirements of the IRS code. EPCRS includes the following basic elements Self Correction Program which we will now refer to as SCP Voluntary Correction Program which will be known as VCP Audit Closing Agreement Program know as Audit CAP 19

20 RAY: Beth, the IRS no longer refers to MOF s or Mistakes of Fact for plan operational failures as we have been used to in the past. Some of these operational failures have included: Failure to follow the terms of the plan Excluding eligible participants Not making contributions as promised under the plan terms Loan failures All of which are eligible for the new Self Correction Program or SCP, give us a rundown on SCP and what practices and procedures have changed? BETH: Essentially the same as MOF s in correction types and process. Everything is handled directly with us, using the new forms and procedures which we will get to shortly. Additionally, two new terms to become familiar with will be make-up or catch-up contributions which refer to contributions that SHOULD have gone to VALIC and didn t. The second term is overpayment(s) which will refer to monies that were submitted to VALIC in error and the employer is now trying to retrieve. 20

21 RAY: The second way to correct mistakes under the new EPCRS guidelines is the Voluntary Correction Program. How is the Voluntary Correction Program or VCP different from the SCP or Self Correction Program? BETH: We will NOT be involved in any way with this type of resolution. The employers will work directly with the IRS. (Refer to the slide and note the two forms that are involved) The next slide shows the breakdown by number of plan participants the potential fee assigned. 21

22 Here is the Fee Schedule for organizations that have to use VCP to correct failures. 22

23 RAY: The last method to correct mistakes under the new EPCRS guideline is the Audit Closing Agreement Program that we refer as Audit CAP. It is our least favorite method for fixing mistakes. Tell us about Audit CAP. BETH: This will be the type and process of correction is used when the employer finds themselves in the unfortunate situation of being in the an active IRS audit, errors have been found and the employer is given the opportunity to fix them at that time and must also pay a negotiated sanction. RAY: Lest you think it might never happen to you, think again. We have had the IRS audit some of our institutions, and they have found plan failures. In the course of an audit the IRS can also discover operational failures, one such as failure to submit remittals on a timely basis. We get a lot of grief over the delinquency letters we send out, however if we don t stay on top of those delinquencies, the grief that you ll get from the IRS will be much worse. We want to encourage all of our participating payroll centers to act prudently when it comes to our plan practices and procedures and to take them seriously. 23

24 RAY: We are going to move on to some of the significant ways that processing and correcting plan failures have changed and the first one is on Make-up Contributions. Please remember that these are new IRS guidelines that we are following. BETH: Again, this is for contributions (of any money type) that were missed, mis-calculated basically NOT sent to VALIC. Whether because of a missed SRA (Salary Reduction Agreement form), a missed change to an SRA or payroll software issues as examples. Please be aware #1) there are new forms with changes and #2) it s now a multi-step process. 1) We will need the actual pay dates (as before) with the contributions listed (by money type) entered on the new form. 2) The employers will send that form in PRIOR to submitting the contributions and file to us. 3) After Shyamala receives & reviews the form, she will contact the employer, basically giving the ok to submit the file and contributions to us. And that can be a stand-alone file or run with a regular payro ll file. 4) Shyamala will forward the information to VALIC. UNlike before, VALIC will calculate the gains and notify Shyamala of the variance. We are still fine tuning this part of the process so PLEASE be patient with us. 5) Shyamala will then inform the employer of that amount and the employer will then send ANOTHER file and the funds to make the employee whole. PLEASE NOTE: A significant change is that in the case of missed contributions where the employee WOULD have contributed their OWN money (as in the case of a missed SRA) the employer is REQUIRED to contribute 50% of what the employee s missed deferral contribution(s) WOULD have been. Because that contribution is not technically employer money or employee money, the money has to be submitted in yet ANOTHER money type bucket. Please be aware that we will be adding the bucket for employee missed deferral contributions to our file specs in the very near future. We are aware that this will involve software changes to some of you we will be working with them when the we have adopted the necessary requirements on our end. 24

25 Here is the new Make-up Contribution Form. Beth, please point out the significant changes on this form vs. the old MOF form. 25

26 BETH: PLEASE NOTE: This is a multipurpose form we will need the employer to specify what type of contribution they may be submitting. We ve noted RA s and missed disability contributions specifically to aid us at year-end processing and limits testing. 26

27 RAY: Here is an example of how you handle a Make-Up Contribution. 27

28 RAY: Our next new term that we come to is the Overpayments. This is quite another change in the IRS Guidelines. And we will have the perspective of the Employer and Employee to look at. BETH: The term overpayment encompasses those monies submitted to VALIC in error and the employer is attempting to get them returned. I need everyone s UNDIVIDED attention here!!! There are HUGE changes in the process for these situations!!! 1) in the PAST, we would receive the request, submit it to VALIC and they would calculate the gains. As a side note this is still more or less a manual process, so it s NOT a fast turn around time). VALIC would send us a check and in turn we would send a check to the employer. THAT WILL NO LONGER BE THE PROCESS!!!!! 2) Going forward, we have a new form that the employer will still need to fill out and submit to us. 3) As with make-up contributions Shyamala will submit the request in to VALIC (a reminder here the 12 month look back policy is STILL in effect). 4) VALIC will move the funds to a suspense account and calculate the gains/losses. 5) VALIC will then communicate the new or correct amounts to Shyamala. 5) Shyamala will then notify the employer of that amount and the employer will short the next contributions due to be submitted to us by that amount. 6) When the next file and funds are sent to VALIC, we will notify them when the correction is being processed and VALIC will move the funds out of the suspense account to make the payroll file whole. 7) PLEASE NOTE: This ONLY pertains to employer money. EmployEE money going forward is processed differently and will NOT be returned to the employer. 28

29 RAY: Next we come to overpayments from the employee perspective. BETH: In the event an employer submitted employee contributions in error, we will need the form filled out and submitted those steps are the same. The significant change in these scenarios will be that after VALIC has determined any gains/losses they will then cut a check to the employee AS WELL AS they will be filing a 1099R for that amount at the end of the year for that employee! (I believe I can hear all the audible sighs and gasps for air from here!) I probably don t need to point out that this could have potential and significant tax implications for the employee specifically for those situations where large amounts are involved. 29

30 Here is a sample of our revised Overpayments Form As mentioned before these 2 forms can be found on our website. 30

31 RAY: perspective. This is an example of how the process works from the Employers 31

32 RAY: This is an example of and overpayment from the Employees perspective. 32

33 We will now answer questions the questions that have come in regarding EPCRS. If you have more questions please feel free to contact us or us at Our Admin manual is also available on our website. Please take time to give it a read and get familiar with the guidelines and procedures of the ARP plan. Our goal is to help you get it right the first time. This webinar will be posted to our website including a Notes Version. We hope this webinar has been helpful. On behalf of our DC Plan team, Thank you for joining us today! Take Care and God Bless! 33