Look for the redesigned PlanFacts in May! March 15, 2016 Make Corrective Distributions for Excess 2015 Contributions. For plan year end

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1 As you may know, Verisight, DailyAccess and The Newport Group will unite under a single brand Newport Group. Our new brand will officially launch on March 31. You will be seeing our new name in the next issue of PlanFacts. Our quarterly newsletter will also boast a new look, all in keeping with our new brand. PlanFacts will continue to provide information on the latest regulatory changes, as well as timely, meaningful articles that are related to retirement and benefit plans. Look for the redesigned PlanFacts in May! The October 2015 edition of PlanFacts reported that a highway funding bill enacted in July 2015 included provisions that lengthened the filing extension period for Form 5500, Annual Return/Report of Employee Benefit Plan. The highway funding bill changed the filing extension period from 2½ to 3½ months. 1 After this bill was passed into law, industry organizations raised concerns about how the change would affect plan administration. Another bill then repealed the change in the filing extension period. 2 This means there will be no change to the Form 5500 filing extension. You will continue to have a 2½-month extension available for filing your annual Form As a reminder, most retirement plans are required to file Form 5500 by the last day of the seventh month following the end of the plan year. 3 For example, a plan that operates on a calendar-year basis must file Form 5500 by July 31, unless an extension has been obtained. An automatic extension of 2½ months following the original due date October 15 for calendar-year plans can be obtained by filing Form 5558, Application of Extension of Time to File Certain Employee Benefit Returns, by the original due date for filing Form Alternatively, an automatic extension until the extended due date of the business federal income tax return can be obtained without filing Form To be eligible for this extension, the plan year and your business tax year must An Update on Our New Brand 1 New Law Repeals Change to Form 5500 Filing Deadline 1 Correcting ADP/ACP Testing Failures 2 Compliance Deadlines 4 For more about plan deadlines read the Compliance Deadline article on page 4 of this edition of PlanFacts. March 15, 2016 Make Corrective Distributions for Excess 2015 Contributions. For plan year end April 1, 2016 Make Initial Required Minimum Distributions for For plan year end April 15, 2016 Distribute Excess Deferrals (402(g) Refunds). For plan year end April 30, 2016 Pre-approved plan document restatement deadline under the current 6-year cycle (the PPA restatement ) Download Verisight s Fact Sheets P a g e 1

2 be the same, and your business must have an extension of time to file its federal income tax return to a date later than the normal due date for filing Form NOTE: The July 2015 highway funding bill also made changes to the tax-filing deadlines for partnerships and C corporations. These deadline changes were not affected by the subsequent bill that repealed the changes for Form Consequently, the new tax filing deadlines for partnerships (March 15 for a calendar-year filer) and C corporations (April 15 for a calendar-year filer) are in effect for tax years beginning after December 31, Verisight Solution: If you have any questions about your Form 5500 filings or the deadline for your plan, please contact your Verisight Representative at or info@verisightgroup.com. Footnotes 1 Surface Transportation and Veterans Health Care Choice Improvement Act of Fixing America s Surface Transportation (FAST) Act of Plans subject to ERISA generally must file an annual Form Small plans (generally fewer than 100 participants) may meet the requirements to file a shortened version, Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan. A one-participant plan is required to file Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan, if plan assets exceed $250, General Instructions to Form 5558, Application of Extension of Time to File Certain Employee Benefit Returns Each year 401(k) plan sponsors must test whether the contributions made to their plan during the previous year disproportionately benefit or discriminate in favor of highly compensated employees (HCEs). For this purpose, the Internal Revenue Code requires plans to use the Actual Deferral Percentage (ADP) test and the Actual Contribution Percentage (ACP) test to demonstrate that a plan is not discriminatory. If you have a calendar year plan, you will soon be receiving your ADP/ACP testing results. If your plan s testing results indicate that your plan has failed either the ADP or ACP test, you must correct the failure using the methods described in your plan document. ADP/ACP Testing Refresher The ADP test limits the percentage of compensation the HCE group can defer into the 401(k) plan to a percentage of the deferral rate of the nonhighly compensated employee (non-hce) group. 1 The ACP test ensures that the employer matching contributions and after-tax employee contributions contributed for HCEs are not disproportionately higher than those for non-hces. 2 The ADP and ACP tests follow parallel structures and define HCEs in the same way. An HCE is generally an employee who: Owns more than 5% of the employer at any time during the year or preceding year (regardless of compensation), or P a g e 2

3 For the preceding year, earned more than $120,000 from the employer (if the preceding year is 2015 or 2016) and, if the employer elects, had compensation that ranked the employee in the top 20% of all employees. 3 A non-hce is an eligible employee who is not an HCE. To pass either of these tests, the average deferral or contribution percentage (ADP or ACP) of the HCE group cannot exceed the greater of: 1.25% of the non-hce group s ADP/ACP or The lesser of 2 times the ADP/ACP for the non-hce group or The ADP/ACP for the non-hce group plus 2%. 1, 2 EXAMPLE If the non-hce group s ADP is 4%, the HCE group s ADP cannot exceed 6%. This is the greater of: 1.25% 4% = 5% or The lesser of 2 x 4% = 8% 4% + 2% = 6% The ACP test is run in the same way. If, in the example, the non-hce group ACP is 4%, the HCE goup s ACP cannot exceed 6%. The rules permit either the current year s contributions or the prior year s ADP/ACP for the non-hce group to be used to perform this testing. Refer to your plan document to identify the methodology that applies to your plan. Correction Options & Deadline If your plan fails the ADP or ACP test, you must take the corrective measures described in your plan document to maintain the tax qualification of your plan. Options for correcting failed tests include making additional contributions to raise the non-hce group s ADP or ACP enough to pass the applicable test, or distributing to HCEs excess contributions to lower the HCE group s ADP or ACP enough to pass the applicable test. Making distributions to HCEs (and forfeiting any related matching contributions) is the most common method for correcting ADP/ACP testing failures. Correcting a testing failure is time-sensitive: 4 Plans must distribute ADP and ACP excesses to HCEs within 12 months following the close of the plan year. If the distribution is made more than 2½ months after the close of the plan year (after March 15 for calendar-year plans) the plan sponsor will be subject to a 10% nondeductible excise tax. Plans with an eligible automatic contribution arrangement (EACA) feature may have 6 months to make the corrective distributions. If testing excesses are not distributed within 12 months following the close of the plan year, the failure may result in the tax disqualification of your plan. To avoid plan disqualification, you may correct the failure using the IRS Employee Plans Compliance Resolution System (EPCRS). P a g e 3

4 ADP and ACP testing excesses, plus earnings, that are distributed to HCEs are taxable to the HCE in the year distributed (excluding designated Roth contributions). These distributions may not be rolled over to an IRA or other eligible arrangement. How to Avoid ADP/ACP Testing Failures As the plan sponsor, there are a number of things you can do to help your plan avoid ADP/ACP testing failures. Ensure that the payroll and census data you give to your provider is accurate Consider implementing employee education initiatives designed to encourage plan participation Discuss with your plan document expert plan design features that are intended to increase plan participation and/or contribution rates Another plan design approach for plans that have difficulty passing the ADP/ACP tests is a safe harbor 401(k) plan. Under this approach, the plan is deemed to satisfy the ADP/ACP requirements so long as the plan includes certain features including mandatory minimum employer contributions, immediate vesting, and restrictions on distribution. 5 Verisight Solution: Your Verisight Representative can provide assistance if you need help understanding your testing results or the correction options available under your plan. You may also want to contact your Verisight Representative to learn more about plan design options, including the safe harbor 401(k) option. Footnotes 1 IRC Sec. 401(k)(3) 2 IRC Sec. 401(m)(2) 3 IRC Sec. 414(q)(1)(B) 4 IRS 401(k) Plan Fix-It Guide, irs.gov/retirement-plans/401k-plan-fix-it-guide-the-plan-failed-the-401k-adp-and-acp-nondiscrimination-tests 5 IRC Sec. 401(k)(12), 401(m)(11) Each year, qualified retirement plans are required to meet various compliance deadlines. Meeting these deadlines is important to operating your plan consistent with its terms and the requirements under the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). Verisight and your other service providers will assist you with many of these tasks, but it s important for you to understand the requirements and be able to answer questions your plan participants may have about them. Plans that operate on a calendar-year basis have the following compliance deadlines in the first half of the plan year. P a g e 4

5 January June Deadlines For Calendar-Year Plans* January 31 Forms W-2, Wage and Tax Statement, delivered to participants Forms 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., delivered to participants Form 945, Annual Return of Withheld Federal Income Tax, filed with the IRS to report tax withholding on distributions (February 10 if distribution withholding has been deposited on time and in full throughout the year) February 14 4 th quarter 2015 benefit statement delivered to participants in a participant-directed plan February 28 Forms 1099-R filed with the IRS if filing on paper March ADP/ACP testing excesses distributed to highly compensated employees to avoid the 10% excise tax (additional time allowed for eligible automatic contribution arrangements (EACAs)) Deadline to make employer contributions eligible for a 2015 tax deduction for businesses filing as a C corporation (if no tax-filing extension) March 31 Forms 1099-R filed with the IRS if filing electronically (required if you file 250 or more information returns) April 1 Deadline to distribute 2015 required minimum distributions (RMD) to participants who turned age 70½ in 2015 April salary deferrals that exceed the 2015 IRC Sec. 402(g) limit ($18,000) distributed to participants Deadline to make employer contributions eligible for a 2015 tax deduction for businesses filing as a sole proprietorship or a partnership (if no tax-filing extension) April 30 Pre-approved plan document restatement deadline under the current 6-year cycle (the PPA restatement ) May 15 1 st quarter 2016 benefit statement delivered to participants in a participant-directed plan June ADP/ACP testing excesses with earnings distributed to highly compensated employees to avoid the 10% excise tax for EACA plans *If a tax-filing due date falls on a Saturday, Sunday, or legal holiday, generally the due date may be delayed until the next business day. Verisight Solution: If you have questions about how these deadlines apply to your plan, or about Verisight s plan services related to these compliance deadlines, please contact your Verisight Representative. Call us at or info@verisightgroup.com. P a g e 5 P a g e 6