Chapter Eight Provisions and Requirements

Transcription

1 Chapter Eight Provisions and Requirements Chapter Eight Highlights This chapter provides basic information about plan provisions, reporting requirements, disclosure requirements, compliance testing, contribution and deduction limits, and corrective measures. You should familiarize yourself with this information because it is essential to maintaining the tax-qualified status of your company's plan. Remember that while you have the responsibility to monitor certain aspects of your plan, Transamerica Retirement Services has services designed to help you with plan maintenance. Contents Page Sample Plan Year Timeline Federal Provisions (k) Provisions ERISA Provisions Eligibility, Vesting, Bond Requirements 8.2 Timing of Distributions Contribution Limits and Deductions Year-end Census Data and Information Sample Documents 8.5 Compliance Testing Coverage Tests Compensation Ratio Test ADP/ACP Testing Cross Testing Top-Heavy Testing Maximum Annual Additions Tests (415 Test) 8.6 Corrective Distributions Excess Deferrals Excess Contributions Excess Aggregate Contributions Excess Annual Additions 8.7 Government Reporting Forms IRS Form 5500 Series and Schedules Schedules and Attachments Other Government Returns 8.8 Accountant's Opinion Purpose/Scope of Audit The Opinion Required Documentation 8.9 Disclosure Requirements Correcting Plan Defects Plan Year Timeline Transamerica Signature Service

2 SAMPLE PLAN YEAR TIMELINE This is a sample timeline for a calendar year plan. 12/20 Transamerica sends annual census data request. 02/15 Completed annual data due at Transamerica. We guarantee testing will be completed by 3/15. 03/15 ADP/ACP testing must be completed and corrective distributions, if applicable must be completed in order to avoid 10% penalty. 03/15 All contributions for the prior plan year must be deposited into the plan in order to be deductible if corporate tax return is due 3/15. 07/31 Form 5500 and related schedules are due to the IRS, if Form 5558 has not been filed. 07/31 Form 5558 must be filed with the IRS if an extension of time is needed to complete the Form /15 All contributions for the prior plan year must be deposited if an extension of time to file the corporate tax return was requested. 10/15 Form 5500 is due to the IRS if Form 5558 was filed with the IRS 12/31 Generally, all corrective measures for ADP/ACP the prior plan year must be completed to avoid plan disqualification. 2 Transamerica Signature Service

3 8.1 FEDERAL PROVISIONS 401(k) Provisions Section 401(a) of the Internal Revenue Code (the "Code") allows you to establish retirement plans that qualify for special tax treatment. These plans are commonly referred to as "qualified." A 401(k) plan is a qualified profit sharing plan with a Code section 401(k) arrangement. It allows eligible employees defer income taxes on their current compensation by electing to defer a portion as a contribution to the plan instead of receiving it as cash. (Refer to your plan document for the definition of "compensation" specific to your plan.) Refer to your plan document for the definition of "compensation" specific to your plan. Elective deferrals are subject to FICA and FUTA. Not all distributions are "eligible" to be treated as a rollover. Elective Deferrals The contributions your employees elect to make to your plan are called elective deferrals. Elective deferrals are deducted from eligible employees' compensation before they are earned and before income taxes are calculated and withheld. Therefore, this deduction is made on a "pre-tax" basis. Income taxes on elective deferrals are "deferred" until the money is withdrawn from the plan. It is important toremember that elective deferrals are subject to FICA and FUTA. In addition, your plan may accept transfers or rollovers of distributions from another plan to allow the Participant to defer the taxation on the amount rolled over. Not all distributions are "eligible" to be treated as a rollover. Be sure to read Section 5 which discusses distributions in more detail. A rollover can be made by the Participant or directly by the plan trustee. Your plan may also allow Participants to contribute "aftertax" contributions. These contributions are made "after" withholding for current income taxes. Matching Contributions are a Tax Benefit Your company may decide to contribute to the plan by matching all or some percentage of employee elective deferrals. Since contributions to a 401(k) plan are tax deductible, your company enjoys a tax benefit as well. The gains earned by the Participants on the company s contributions to the plan are also tax-deferred. 3 Transamerica Signature Service

4 8.1 FEDERAL PROVISIONS CONT. ERISA Provisions One of the confusing aspects of qualified plans is that there are two overlapping sources of primary legal requirements: the Code and the Employee Retirement Income Security Act of 1974 ( ERISA ). Other various federal and state laws affect certain aspects of qualified plans. Documentation Your plan is comprised of a written plan agreement and written trust agreement. In addition to these documents, your Transamerica Life Insurance and Annuity Contract, the Service Agreement, and other documents facilitate the operation of your plan. Other documents may include: Plan Amendments Summary Plan Description Enrollment and Salary Reduction Agreements Beneficiary Designation Forms Enrollment/Changes Forms Hardship Withdrawal Forms Distribution Request Forms Loan Policy and Forms (if applicable) QDRO Procedures/Forms Investment Communications to Participants Compliance Testing and Annual Reporting/Disclosures should all be kept as part of the plan s permanent records. These records may be necessary in the event of a plan audit. Each year you will receive notification of various testing results, as well as any actions required as a result of the tests. Because of the many new issues created by the use of paperless technologies, you should contact experienced legal counsel before relying solely on electronic media for documentation. Each year you will receive notification of various testing results, as well as any actions required as a result of the tests. Because of the many new issues created by the use of paperless technologies, you should contact experienced legal counsel before relying solely on electronic media for documentation 4 Transamerica Signature Service

5 8.1 FEDERAL PROVISIONS CONT. Eligibility, Vesting and Bond Requirements Eligibility There are three aspects of eligibility for participation in the plan: 1) Classes of Eligible Employees, 2) Service and Age Requirements, and 3) Plan Entry Dates. Classes of Eligible Employees Certain classes may be excluded from the plan so long as the plan can pass the Code s coverage and nondiscrimination tests. (Refer to Compliance Testing sub-section in this chapter.) Typical classes of employees may include union, nonresident aliens, salaried, hourly, leased, and commissioned employees. Service and Age Requirements The Code will not allow you to exclude part-time employees as such; however, you are permitted to require that an employee complete up to one year of service prior to participating in the 401(k) arrangement in the plan, or a minimum number of hours of service in a year (e.g hours). You may also require that an employee complete up to two years of service to participate in the non-401(k) portion of the plan (that portion that the employer contributes). You are also permitted to require that employees be at least age 21 to participate. Alternatively, you may allow employees to participate under less restrictive requirements or no requirements at all. Plan Entry Date The plan must specify the entry date, or the date an eligible employee actually commences participation. At that point, the eligible employee becomes a Participant, whether or not they choose to make elective deferrals. You should refer to your plan document to determine the eligibility provisions applicable under your plan. Eligibility provisions may be amended from time to time. Please consult with Transamerica Compliance Representative regarding any restrictions that may apply. Year of service is defined as a 12-month period during which the employee completes at least 1,000 hours. In order to get credit for a year of service for vesting purposes, a Participant usually must work 1,000 hours during the plan year. The Participant does not need to be employed all 12 months or be employed on the last day of the plan year to earn vesting credit. 5 Transamerica Signature Service

6 8.1 FEDERAL PROVISIONS CONT. Vesting Vesting is the process through which a Participant earns a right to all or a portion of the Participant s account balance. This portion of the Participant s account is also referred to as non-forfeitable or vested. Always 100% Vested A Participant s rollover contribution, elective deferrals, after-tax contributions, and employer account balances at normal retirement age. Vesting Schedule You may require a Participant to complete a certain number of years of service under a schedule in order to become 100% vested in their employer account balances prior to normal retirement age, and in most cases at early retirement. Vesting Limits You are not required to use a vesting schedule; the plan may provide for 100% immediate vesting. If, however, you choose to do so, the Code places limits on the number of years of service required to become 100% vested. Bonding Generally, every fiduciary (anyone who has some discretionary authority or control over the plan or its assets), and anyone who handles funds or other property of the plan, must be bonded. The requirements for bonds are as follows: Bond must cover at least 10% of the amount handled by the bonded individual. Bond must not be less than $1,000 and need not be greater than $500,000. Requirements are subject to the Secretary of Labor imposing a higher limit. 6 Transamerica Signature Service

7 8.2 TIMING OF DISTRIBUTIONS Retirement plans were designed as long-term savings tools used to fund the later years of one's life. To support this intention, the IRS has set strict guidelines that apply to distributions and withdrawals from qualified plans. These guidelines include rules for when withdrawals can be made. Generally, distributions made before a Participant attains age 59 1/2 are subject to a 10% early distribution tax penalty in addition to regular income tax. Only the portion of the distribution that is included in income is subject to the penalty. Amounts rolled over to another qualified plan or IRA would not be included in income, and therefore, would not be subject to the penalty. The primary exceptions are for withdrawals made on account of death, disability, retirement, termination of employment after age 55, or medical expenses to the extent they are deductible for federal income tax purposes. Elective deferrals may not be distributed under this type of plan provision prior to age 59 1/2. Distributions for medical expenses are not subject to penalty. Defaulted loans are included in taxable income and may be subject to the early distribution penalty. The distributions/withdrawals allowable under a qualified plan that are subject to the early distribution penalty include: In-service distribution prior to age 59 1/2 but after attainment of a certain number of years of service, such as five years of participation, or for contributions that have been on deposit under the plan for at least two years. (Elective deferrals may not be distributed under this type of plan provision prior to age 59 1/2.) Review your plan document for more information. Employee Termination Hardships Other in-service withdrawals (excluding withdrawals made after age 59 1/2 and including defaulted loans and loans deemed to be a distribution) Termination of the plan 7 Transamerica Signature Service

8 8.3 CONTRIBUTION LIMITS AND DEDUCTIONS There are a number of limits placed on the amount a Participant may contribute to qualified retirement plans. Some limits apply to the amount of elective deferrals or others to the total amount of all contributions. The limits may be applied individually or may overlap. Generally, you are responsible for monitoring these limits. Transamerica Retirement Services administers this process. Code Limit on Compensation (Compensation Limit) Code section 401(a)(17) limits, for all plan purposes, an individual s compensation that can be counted in applying other plan limits to a specified dollar amount. The dollar amount is indexed periodically in $5,000 increments based on cost of living increases. For limitation years beginning in 2004, the compensation limit is $204,000. Plan Definition of Compensation (Plan Compensation) You can further establish your own definition of compensation designed to suit your specific circumstances. This will affect the amount of contributions provided, but the definition of compensation must be nondiscriminatory or otherwise satisfy a nondiscrimination test. Code Limit on Elective Deferrals Code section 402(g) limits elective deferrals for each Participant to a specific dollar amount each calendar year. The dollar amount is indexed $1,000 per year until 2006, then periodically in $500 increments based on cost of living increases. For the calendar year 2005, the limit is $14,000. This limit applies to a Participant s total elective deferrals under all plans within a calendar year. Since the Participant may have participated in multiple plans, they are ultimately responsible for monitoring the limit. Catch-Up Contributions Employers can allow plan Participants age 50 and older to contribute an additional $3,000 per year on a pre-tax basis. Please refer to your Plan Document to verify that this provision has been updated. The amount will increase annually, reaching $5,000 in After 2006, the $5,000 limit is subject to cost of living increases. Catch-up contributions will not be subject to discrimination testing or other contribution limits. Participants are ultimately responsible for monitoring their annual elective deferral limit, as the rule applies to total contribution for all 401(k)s, and Participants may participate in multiple plans. 8 Transamerica Signature Service

9 8.3 CONTRIBUTION LIMITS AND DEDUCTIONS CONT. Testing Limits on Elective Deferrals (ADP Test) Code section 401(k) limits the elective deferrals of highly compensated employees (HCEs) to a certain percentage above the contributions made by the nonhighly compensated employees (NHCEs). Consult your Plan Document for a definition of HCEs and NHCEs. Testing Limits on Matching and After-Tax Contributions (ACP Test) Code section 401(m) limits the matching and after-tax contributions of the HCEs to a certain percentage above the contributions made by the non-highly compensated employees. Your plan may limit employer matching contributions, if any, to a specific percentage of the Participant s compensation. (i.e., 50% up to 6% of compensation). Limits on Annual Additions (415 Test) Code section 415 limits the annual additions made to a Participant s plan account. For plan years ending in 2005, this limit is the lesser of 100% of employee compensation or $42,000. Annual additions include the sum of all employer contributions, employee contributions, forfeitures, and contributions that an employee may receive through all other qualified defined contribution plans sponsored by the same employer. Limits on Deductibility of Contributions Code section 404(a) limits the maximum amount of employer and employee plan contributions that an employer can deduct in any tax year. (For tax years beginning on or after January 1, 2002, the deduction limit will be 25% and is not reduced by deferrals). Consult your Plan Document for a definition of highly compensated employee. Annual additions include the sum of all employer contributions, employee contributions, forfeitures, and contributions that an employee may receive through all other qualified plans sponsored by the same employer. 9 Transamerica Signature Service

10 8.4 YEAR-END CENSUS DATA AND INFORMATION Approximately 10 days before your plan year-end, Transamerica will send a request to you for information. This information is needed to conduct all required annual testing, update vesting, and complete the Form 5500, including any Schedules for filing. All of the requested information is essential to keeping your plan compliant with the various regulations that govern qualified retirement plans. To ensure plan compliance, complete the information request promptly and forward it to Transamerica. Alternatively, the Annual Administration Notice and Census may be updated via the website. We need to receive this information as soon after the plan year-end as possible. If your ADP/ACP discrimination tests require corrections, and the corrections require contribution returns to Participants, it is extremely important to return this information quickly. If you have not received a request for year-end information by the last day of your plan year, you should immediately contact Transamerica for a duplicate. Year-End Census Request Information includes: 1. Cover Letter Explains the importance of providing the information requested on a timely basis. 2. Census Data Instructions Instructions for completing the employee census disk, with descriptions of each data field. 3. Census Data Submission Requirements Instructions for the file layout for providing employee census information electronically. 4. Census If Transamerica did testing last year, the census will include a listing of all employees from the prior year and all employees who were added to the plan during the current year by an employee data/enrollment form. You will need to add any employees who were hired during the plan year for which you are providing information. 5. Additional Plan Data Necessary to complete all compliance testing and the Form This information must be updated each year. 6. New Comparability Job Classification Attachment Allocates your employer contributions, if applicable. Samples of these documents are provided on the following pages. To ensure plan compliance, complete all requested information as soon as possible. 10 Transamerica Signature Service

11 Transamerica 8488 Shepherd Farm Drive, West Chester, Ohio (800) FAX (877) (k) - ANNUAL ADMINISTRATION NOTICE Time-Sensitive Information Enclosed Dear Plan Sponsor: Helping you keep your plan in compliance is one of our highest priorities. The Internal Revenue Service (IRS) and the Department of Labor (DOL) require that your retirement plan complete compliance testing, 5500 filings, and updates to employee files for vesting service each year. The non-discrimination testing and corrections, if necessary, must be completed within 45 days following your plan year end. Failure to meet the 45 day deadline may require that your company pay a 10% excise tax to the IRS. Important First Year of Plan: If this Plan Year End was your plan s first Plan Year End and no contributions either employee 401(k) or employer were made or will be made for this Plan Year End you MUST still complete and return each of the following requested items: General Plan Data Please complete even if there is no change in your status. Highly Compensated / Key Employee Data Discretionary Contribution Form Census Data Listing See instructions on pages of this notice. Trust Asset Information (if applicable) You must provide investment reports for all assets not held by Transamerica Retirement Services at any point during the plan year. If assets transferred to Transamerica Retirement Services during the plan year, provide a detailed activity statement of the asset transaction history prior to the transfer to Transamerica. If all assets were with Transamerica the entire plan year, disregard this item. Please do not hesitate to contact your compliance manager listed below if you have any questions or would like further information. Please forward your completed data to: Compliance Manager: <name & ext> < address> Transamerica 8488 Shepherd Farm Drive West Chester, OH Important Dates: The following dates will be referenced throughout this Annual Administration Notice. Plan Year End (Anniversary) < > First Day of Current Plan Year < > Last Day of Current Plan Year < > Sincerely, Transamerica 11 Transamerica Signature Service

12 General Plan Data: Please complete this questionnaire and return to PENCO with your employe census data. 1) What type General of business Plan entity Data: is Please the employer? complete this questionnaire and return to PENCO with your employe census data. C Corporation ( ) S Corporation ( ) PSC ( ) Partnership ( ) LLC * ( ) LLP* 1) What ( ) Sole type Proprietor of business ( ) entity Other is ( the ) employer? * If the entity C Corporation is an LLC or ( ) LLP, S Corporation is it taxed as ( ) PSC a: (check ( ) Partnership the appropriate ( ) box.) Partnership LLC * ( ) LLP* (K-1 income) ( ) Sole Proprietor Sole( ) Proprietorship Other ( ) (Sch C. income) Corporation? If your company * If the entity is a sole-proprietorship is an LLC or LLP, is you it taxed will need as a: to (check supply the appropriate owner's earned box.) income (Schedule C Income) on the employee census in the compensation column. Partnership (K-1 income) Sole Proprietorship (Sch C. income) Corporation? If your company is a partnership, LLC or LLP being taxed as a partnership or sole If your company is a sole-proprietorship you will need to supply the owner's earned income proprietorship you will need to supply the partner s or the sole proprietor s earned income on (Schedule C Income) on the employee census in the compensation column. the employee census in the compensation column. Contact your CPA as needed. If your company is a partnership, LLC or LLP being taxed as a partnership or sole 1a) Yes No Has the business entity changed from last year or during this plan year? proprietorship you will need to supply the partner s or the sole proprietor s earned income on If yes please the list employee what type census of entity in the you compensation previously were column. and your Contact new your Employer CPA as Identification needed. Number: 1a) Yes No Has the business entity changed from last year or during this plan year? 1b) If the tax If yes filing please period list of what the employer type of entity (fiscal you year) previously is different were than and the your plan new year Employer end outlined Identification page Number: one of this report, what is your company s fiscal year for filing your company tax return? 1b) If the tax filing period of the employer (fiscal year) is different than the plan year end outlined on page 2) Yes one of No this report, During what the is your past company s plan year, did fiscal you year acquire for filing any your other company companies? tax return? 2a) If yes, please list the company name and Employer Identification number below: 2) Yes No During the past plan year, did you acquire any other companies? 3) Yes 2a) If No yes, please Is your list the company a member name and of Employer a controlled Identification group or affiliated number service below: group of employers? If you are not sure you should consult your legal counsel to assist you in this determination. 4) Do you have any of the following categories of employees? 3) Yes No Is your company a member of a controlled group or affiliated service group of employers? If you Yes are not No sure you N/Ashould consult your legal counsel to assist you in this determination. 4a) Union 4) Do you have any of the following categories If yes please of employees? supply an alphabetical listing. Yes No (If your N/A census includes only union employees do not provide a list.) 4a) Union If yes please If yes indicate please if supply they participate an alphabetical in the plan. listing. If yes, are (If these your employees census includes subject only to a union collective employees bargaining do not agreement? provide a list.) 4b) Leased If yes please supply an alphabetical listing. If yes please indicate if they participate in the plan. If yes please indicate if they participate in the plan. If yes, are these employees subject to a collective 4c) Non-Resident If yes please supply an alphabetical listing. bargaining agreement? Aliens If yes please indicate if they participate in the plan. 4b) Leased If yes please supply an alphabetical listing. 4d) Employees on If yes please supply a list of the employee(s) If yes please indicate if they participate in the plan. Military Leave who left on military leave and how long they have been gone. 4c) Non-Resident If yes please supply an alphabetical listing. Aliens If yes please indicate if they participate in the plan. 4d) Employees on If yes please supply a list of the employee(s) Military Leave who left on military leave and how long they have been gone. 12 Transamerica Signature Service

13 5) Please indicate the total number of employees who received W-2 s and or K-1 s (partners) / Schedule C (sole proprietor) from the company during the plan year. Please do not include subcontractors receiving 1099 income. This number should agree to the total employees included on the final census: 6) Please describe the nature of your business, or if known, please list the six digit business code which best describes the nature of your business services: Nature of Business Service: Six digit business code: (Six digit business codes for form 5500 can be found near the end of the 5500 instructions located at ) 7) Yes No Did the employer fail to transmit to the plan any participant contributions within the time period prescribed by the Department of Labor? Department of Labor (DOL) regulation (b)(1), dictates that participant contributions should be deposited into the trust on the earlier of: 1. The 15th business day of the month following the month in which the contribution is withheld by the employer, or 2. The earliest date on which the contributions can be reasonably segregated from the employer s general assets. Please note that the date in (1) is the maximum deadline which applies only if the date in (2) does not come sooner. A business day is defined as any day other than Saturday, Sunday or any day designated a holiday by the federal government. Failure to submit participant contributions payments in a timely fashion is considered a prohibited transaction and is subject to an IRS excise tax and earnings due on the late deposit. If you answered yes, you may need to contact your legal counsel to determine what steps may be taken to correct the plan. PENCO, Inc. can assist you or your legal counsel in the calculation of earnings if we are provided with the date and dollar amount of the payments which were late. 8) What is the company s payroll frequency?.i.e. weekly, bi-weekly: Yes No Are any employees paid on a different frequency? 9) Yes No (UNKNOWN) Does your retirement plan have a Fidelity bond? A fidelity bond is required by the Department of Labor in an amount equal to a minimum of $1,000 or 10 percent of plan assets up to $500,000. Plan assets are determined as of the beginning of the plan year. A bond insuring the employer is not an appropriate fidelity bond for the plan; however, an employer may arrange for a rider on his or her employer bond that names the plan separately as long as the coverage is an adequate amount. If yes, please indicate the coverage amount of your bond $ What is the expiration date of the fidelity bond? Please do not hold up submission of the Annual Administration Notice and census to PENCO if you are not certain about the bond coverage. Check UNKNOWN and PENCO will review prior to doing the ) Yes No Does your company have other retirement plans for which PENCO does not do the recordkeeping? 11) Yes No Was there an employer-level event (i.e. layoff, closure or sale) during the plan year under which a significant number of employees were terminated? If yes, it is possible the IRS could deem such an event as a partial plan termination. Questions regarding a partial plan termination is considered a legal determination and we recommend you contact legal counsel for an opinion. 13 Transamerica Signature Service

14 If your 401(k) plan was operational in the prior plan year, and Transamerica DID NOT prepare the compliance testing i.e. 401(k), 401(m), or Top-heavy, you must forward a copy of: Prior plan year 401(k) & 401(m) non-discrimination tests & 416 top-heavy determination An alphabetical listing of employees who earned in excess of $90,000 from the employer in the year prior to the Current Plan Year. Please supply an alphabetical listing of the employees and their employee 401(k) salary deferral contributions and the match (if applicable) for the current plan year under separate cover. We are requesting this information in order to confirm the contributions reported on the W-2 s for purposes of doing compliance testing. Please do NOT send copies of the W-2's. Please contact our office with any questions regarding the prior plan year test results. If this is the first year for your plan you must provide Transamerica: An alphabetical listing of employees who earned in excess of $90,000 from the employer in the year prior to the Current Plan Year. This information is needed in order to determine which employees if any are considered Highly Compensated Employees for purposes of the compliance testing Transamerica prepares for your plan. Compensation Notes Please refer to the Compensation section of Completing the Employee Census which follows the signature page of this notice. If this box ( ) is marked with an ( X ), your plan does not recognize compensation as of the date of plan entry Please disregard the columns labeled COMP2_Date and COMP2 on the enclosed diskette. The following items are specifically excluded from compensation as outlined in your plan document: If no items are marked with an ( X ) then your plan has NO compensation exclusions. overtime ( ) bonuses ( ) commissions ( ) ( ) reimbursements or other expense allowances, fringe benefits (cash of non-cash), moving expenses, deferred compensation (other than deferrals), and welfare benefits. ( ) other If an item(s) above was marked ( X ) you must supply Transamerica with an alphabetical listing of the employees and indicate the type (i.e. overtime/bonus/commission) and dollar amount of excluded compensation earned during the plan year. You can supply a separate sheet or add a column to the diskette file and label it COMP EXCLUSION and type the excluded amounts in this column. Please note this should be a separate column and that the COMP and COMP2 columns should always list the gross compensation including the excluded amounts. This exclusion amount must be tested on a yearly basis to determine if it is considered discriminatory under Internal Revenue Code regulations. If this information is not supplied to Transamerica with the Annual Administration Notice, the plan sponsor is responsible for showing the definition of compensation chosen by the plan is non-discriminatory in the event the plan is audited. 14 Transamerica Signature Service

15 Highly Compensated / Key Employee Information The following information MUST be supplied with this notice: Listing of owners: Please list all owners and their percentage of ownership below. Include any person who had any ownership interest on any one day during the plan year(s) in question. * Please refer to page one of this notice for the determination of Current Plan Year. Stockholders/Partners during Ownership Stockholders/Partners during Ownership Current Plan Year Percentage Look-Back Year * Percentage % % % % % % % % % % % % * Look-Back Year: The look-back year is the 12 months preceding the 1st day of the Current Plan Year. Family Attribution Family attribution rules of Section 318 of the Internal Revenue Code dictate family members are often considered to constructively own each other's stock. Please list the owners of the company in column 1, all family members in column 2, and the family member relationship in column 3. * Only list family members who are/were actively employed by the employer. (1) Owner (2) Family Member (3) Relationship Name Name to owner in #1 15 Transamerica Signature Service

16 Listing of officers Please list all officers of the corporation and their official capacity. (The determination of an officer is based on the facts and circumstances of the authority of the employee. Generally, an officer is an administrative executive who has the authority to bind the company.) Corporate Officers during Current Plan Year President: Vice President: Vice President: Secretary: Treasurer: Other: (List name and office) 16 Transamerica Signature Service

17 Discretionary Contribution Form A. Employer Discretionary Profit Sharing Contribution: This contribution would be allocated to every employee who met the age and service eligibility requirements, and satisfied the accrual requirements for the profit sharing contribution. This contribution would be allocated to a participant even if the participant did not contribute to the employee 401(k) contribution account. If your plan is topheavy, a minimum contribution may be required to be made to the eligible non-key employees even if they do not contribute to the 401(k) plan. Transamerica will notify you if the plan is top-heavy. If your plan utilizes a New Comparability or Age Neutral Profit Sharing allocation formula you must complete and return the ATTACHMENT FORM. Do you wish to make an employer discretionary profit sharing contribution? Yes No Unknown at this time If YES, check and complete one of the following: 1. We would like to contribute $. Indicate a specific dollar amount. 2. We would like to contribute %. Indicate a specific percent of compensation. B. Employer Discretionary 401(k) Matching Contribution: This contribution is for plans which do NOT contribute a matching contribution throughout the plan year (i.e. on a pay period basis). If your plan deposits matching contributions throughout the plan year please skip to section B2. B1 - This contribution would be allocated to an employee who met the age and service eligibility requirements, meets the accrual requirements for the matching contribution, and contributes to the employee 401(k) contribution account. Do you wish to make an employer discretionary 401(k) matching contribution? Yes No Unknown at this time If YES, check and complete one of the following: 1. We would like to contribute $. Indicate a specific dollar amount. 2. We would like to contribute %. Indicate a specific percent of compensation ( ) or contribution ( ) to be allocated. If you have a special allocation formula you wish to utilize please indicate this allocation formula here: B2 - If your plan makes its matching contribution throughout the year and the allocation of the contribution is calculated by some party other than Transamerica, Transamerica is only responsible for testing the matching contribution for purposes of the Actual Contribution Percentage test. Please indicate the formula used to allocate the match below: (e.g. 50% of employee contribution on the first 6% of salary deferrals i.e. up to 3% of compensation) Note: if your plan makes a 401(k) match contribution more frequently than at the end of the plan year (e.g. monthly/quarterly), Transamerica recommends the match formula remain constant throughout the plan year. 17 Transamerica Signature Service

18 Contribution Notes. If you choose to make a contribution for the plan year it will be allocated on the participant reports in the quarter in which it is deposited. Be careful to specify how much of a tax deductible contribution you wish to make. Depending on how forfeitures are treated in your plan, the actual dollar contribution you choose to deposit may be less than the amount of the profit sharing and or match contribution allocated to your participants. Section 404(a) of the Internal Revenue Code limits the employer deductible contribution to 25% of eligible participant s compensation. It is the responsibility of the employer to confirm with their tax advisor the timing of the deposit and the limit on the deductible contribution. Contributions to a qualified retirement plan are an employer, not a plan, deduction and should be confirmed by your tax advisor. Upon request, Transamerica can provide an illustration of the 404(a) limit, solely for review purposes, that you may forward to your tax advisor. Compliance Testing As a additional service to your plan, Transamerica is able to prepare mid-year: - 401(k) and 401(m) non-discrimination testing, - Preliminary profit sharing / match illustrations - Internal Revenue Code 416 top-heavy determinations It is the employer s responsibility to notify Transamerica of the desire to complete mid-year compliance testing. Transamerica will notify you of fees associated with mid-year compliance testing. 18 Transamerica Signature Service

19 The compliance testing and Form 5500 are prepared based upon information and data supplied by the employer. If you have any questions or need any assistance in completing our request for information, please contact the year end account manager listed on the introduction page of this notice. To the best of my knowledge the information submitted above is true and correct. (Trustee Name Printed) (Phone number & ext.) (Trustee Name Signature ) is an important communication channel between you and us. The ability to send plan, employer and employee data to your office electronically greatly enhances the timing and accuracy of issuing reports and testing results. By signing below you consent to have Transamerica send future information and requests to the plan sponsor via to the authorized address provided below. The plan sponsor understands that there are certain risks involved in communications, including but not limited to the possibility of misdirected or unauthorized access to by outside persons or entities, and as plan sponsor you agree that Transamerica is not liable for any problems that may arise in the course of these communications. (Plan sponsor authorized address) (Company / Employer Name Printed) (Trustee signature ) DATE: - - Employer Mailing Address: (If your company s mailing address is a Post Office Box please supply the street address of the employer: Street Address: Suite Number: City, State Zip: THE FOLLOWING PAGES ARE INCLUDED TO ASSIST YOU IN COMPLETING THE EMPLOYEE CENSUS. YOU DO NOT NEED TO RETURN THE PAGES TO TRANSAMERICA. HOWEVER, CERTAIN SECTIONS MAY REQUIRE YOU TO SUBMIT ADDITIONAL ITEMS ON A SEPARATE SHEET. PLEASE REVIEW THESE PAGES CAREFULLY AND CONTACT YOUR YEAR END ACCOUNT MANAGER WITH QUESTIONS. 19 Transamerica Signature Service

20 Completing the Employee Census The enclosed diskette contains a spreadsheet file which is designed to be read by either Microsoft Excel, Microsoft Works or Lotus 123. The census must be submitted to Transamerica in an electronic format. Retrieving the File The label on the diskette provides the filename CEN followed by a five digit plan number and the file type.wks - i.e. CEN03001.WKS File type.wks was chosen because it may be read universally by Microsoft Excel, Works, or Lotus. Formatting Additions and Changes The following is the format schedule you may use to complete the diskette: CHARACTER ( C ) COLUMN REQUIRED ( R ) COLUMN DESCRIPTION NUMERIC ( N ) WIDTH OPTIONAL ( O ) A LAST NAME C 25 R B FIRST NAME C 15 R C MIDDLE INITIAL C 1 R D SOCIAL SECURITY # C 11 R * See Review the Data below E BIRTHDATE C 10 R F HIREDATE C 10 R ORIGINAL HIREDATE G TERMDATE C 10 R * See Review the Data & Adding New Employees below H HOURS N 5 R ROUND TO NEAREST HOUR * See Hours below I COMP N 10 R CURRENT YEAR GROSS COMPENSATION J COMP2_DATE N/A N/A N/A MID-YEAR DATE K COMP2 N 10 R COMP MID YEAR DATE TO PLAN YEAR END DATE * See Compensation below L DEPT C 12 O DEPT CODE IF APPLICABLE M ADDRESS C 40 O N CITY C 25 O O STATE C 15 O P ZIP C 10 O Q NEW COMP CODE C 10 R REQUIRED FOR PLANS USING NEW COMP OR AGE NEUTRAL PROFIT SHARING * See Attachment to Annual Administration Notice * R DATA MODIFICATION C 5 R IF YOU MODIFIED ANY PRE-EXISTING DATA PLEASE INDICATE WITH M ** * If you modify any pre-existing data in a cell i.e. SS # or date of hire etc. please type a M in column R and indicate the field you ve changed. ** ie. If you change the SS# or fill in a SS# where none existed before Type M SS# Hire date Type - M Hire 20 Transamerica Signature Service The diskette fields have been formatted in the manner necessary for Transamerica to easily download your plan s employee information into our database.

21 C = CHARACTER Field must be set up as a character not a numeric value N = NUMERIC Field must be set up as a numeral not a character field. Dates must be in character format they CANNOT be numeric, formatted as a date ALL LETTERS MUST BE CAPS i.e. SMITH JOHN A 1234 BROADWAY STREET etc. All columns included on the disk are classified as either REQUIRED or OPTIONAL If a column is labeled REQUIRED this information must be supplied to Transamerica to complete the testing and allocate any employer contribution. If a column is labeled Optional this information is not critical to the plan for completing testing and contribution allocations; however, providing this data to Transamerica may simplify employee communications in the future. Review the Data Review the attached census. Add any missing data and correct any data errors including: Name change due to marriage, divorce, etc. Spelling errors Date of birth Date of hire * Date of termination * Social security number ** * The date of hire required is the ORIGINAL date of hire. The original date of hire should always be listed. If an employee(s) terminated and has been rehired, make certain their original hire date is included on the census, and on a separate page, please indicate the respective dates of termination and rehire. Simply modifying the date of hire without notification to Transamerica may result in erroneous eligibility and vesting for plan participants. ** All data is read in via an employee s Social Security Number. If a social security number is incorrect or not listed on the disk, you must notify Transamerica on the census diskette in column R or supply a separate page of the employee name and social security number you have corrected or added. If you simply modify the Social Security Number on the disk, the employee may end up with duplicate records. Adding New Employees If an employee is not listed on the census, but worked at any time during the plan year, you should add their data in the row following the last employee listed. There are ten (10) additional pre-formatted rows to add employees after the last name listed in the file. If additional rows are needed please copy the pre-formatted rows as needed. A complete census will include EVERY EMPLOYEE WHO RECEIVED COMPENSATION ** from the plan sponsor during the plan year. This includes any employee hired and/or terminated during the plan year. This information is necessary in order for Transamerica to complete all the testing required under the minimum coverage and non-discrimination rules of the Internal Revenue Code. ** If an employee separated from service in the prior year, but received a paycheck in the current year, (due to the timing of your payroll) this employee will not appear on the census. Please provide Transamerica with a list of these employees and their compensation for the year. In order to avoid adding numerous employees at the end of each plan year, Transamerica recommends you have each new employee complete the "EMPLOYEE INFORMATION section of the enrollment forms when 21 Transamerica Signature Service

22 they are hired. We suggest you include the retirement plan enrollment forms with the information you give all new employees even those who will not be eligible until a later date. If Transamerica can keep your employee history upto-date; it will ensure a more timely completion of your testing. Hours If an employee worked less than 1,000 hours during the plan year please enter the actual number of hours worked during the current plan year for each employee listed on the census in the column marked HOURS. Please round to the whole number i.e not If an employee listed on the census worked at least 1,000 hours during the plan year please list 1,000 in the column marked HOURS. ** If this is the first year of the plan and the plan year is less than 12 months, please list hours worked for the 12 month period ending on the last day of the plan year NOT the hours worked for the short plan year. If you have a short plan year (less than 12 months) it may be necessary to supply the hours worked during the short plan year in addition to the twelve month period. Please be certain that both sets of hours are available upon request. If you leave the HOURS column blank, we will assume the employee, active or terminated, worked at least 1,000 hours during the plan year. "Hour of Service" generally means each hour for which an employee is directly or indirectly compensated or entitled to compensation by the employer for the performance of duties during the plan year. Indirect hours of service include: vacation, holidays, sickness, jury duty, disability, lay-off, military duty, or leave of absence. No more than 501 hours of service are required to be credited to an employee on account of any single continuous period during which the employee performs no duties. Please refer to your plan document for a precise definition of Hour of Service. ** If your plan uses an equivalency method (days / weeks / semi-monthly / monthly) for determining hours worked during the plan year instead of actual hours Transamerica will require additional data to determine hours worked during the plan year if an employee worked less than 1000 hours. Compensation Enter the GROSS compensation for the plan year for each employee listed on the census, including those employees who terminated during the plan year, in the column marked "COMP". GROSS COMPENSATION INCLUDES ANY 401(k) SALARY DEFERRALS AND/OR SECTION 125 DEDUCTIONS Please review your plan document for the exact definition of compensation. This is the amount you will provide on the employee census. - Compensation for Employees with Mid-Year Entry Dates: In addition to the plan year compensation, please check the census for any employees who had mid-year entry dates. An employee who became eligible to participate in the plan on a date other than the first day of the plan year will have a mid-year entry date. Your plan document may dictate that if an employee enters the plan on a date other than the first day of the plan year, compensation will be recognized as of the date the employee became a participant. A participant with a mid-year entry date may be identified by looking in the COMP2_DATE field. The date the participant became eligible will be printed in this column. In the column labeled COMP2 you will need to enter this participant s compensation from the date listed in COMP2_DATE until the last day of this plan year. I.e. Your plan requires three months or service and has monthly entry dates. John Doe is hired on April 15, He completed three months of service on July 15, 2003 and is eligible for the plan on the August 1, 22 Transamerica Signature Service

23 2003. His gross compensation for the full plan year is $30,000. His gross compensation from his entry date (August 1, 2003) until the plan year end is $12,000. Provide gross compensation for the full plan year in the COMP column => $30,000 You will then see the date in the COMP2_DATE column. Do not enter anything in this column. This column is used to indicate that John Doe became eligible on and you are required to make an entry in the COMP2 column. Provide the employee s gross comp from August 1 to the end of the plan year in the COMP2 column => $12,000. Saving the File Upon completion of your update you should save the file. We recommend that you keep a copy of the updated file on your hard drive so it may be easily accessible. If you have any questions regarding the diskette please don t hesitate to contact our office. 23 Transamerica Signature Service

24 8.5 COMPLIANCE TESTING Plan Administrators are responsible for ensuring that their plan complies with the laws and regulations governing qualified plans. You should monitor these administrative areas of your plan: Coordination with all DOL and IRS governmental reporting, including Form 5500, non-discrimination tests, and other regulatory requirements. Compliance with ERISA, any new or existing tax legislation, regulations or IRS/DOL guidance that may affect your plan. Calculation of the vesting of matching and/or profit sharing employer contributions, if your plan contains a vesting schedule. Administration of Participant hardship withdrawals and loans, including calculating the amount available for a loan and the amortization schedule and tax reporting of defaulted loans. During the plan year you will be asked to provide census data to assist in identifying several classifications of employees including highly compensated employees,officers and key employees. This information will be used to perform the tests described within this section. Timely and accurate data must be provided to avoid possible disqualification of your plan or monetary penalties. Timely and accurate data must be provided to avoid possible disqualification of your plan or monetary penalties. Coverage Tests Code Section 410(b) sets standards on the percentage or number of employees that a plan must cover. A plan must pass one of the following tests: Ratio Percentage Test The percentage of non-highly compensated employees benefiting from the Plan must be at least 70% of the percentage of highly compensated employees benefiting from the Plan. Average Benefits Test the average benefit of the non-highly compensated employees must be at least 70% of the average benefit of the highly compensated employees. 24 Transamerica Signature Service