Schwab RT SQL Recordkeeping Resource Library. Roth 401(k) Accounts. Schwab Retirement Technologies Recordkeeping Resource Library

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1 Schwab RT SQL Recordkeeping Resource Library Roth 401(k) Accounts Schwab Retirement Technologies Recordkeeping Resource Library

2 Schwab RT Recordkeeping Roth 401(k) Accounts Schwab RT Recordkeeping Resource Library Roth 401(k) Accounts January 3, 2006 Release 2.1 (patch) Phase One (December 31, 2005) Copyright 2005, 2006 by Schwab Retirement Technologies, Inc., a wholly-owned subsidiary of The Charles Schwab Corporation and an affiliate of Charles Schwab & Co., Inc. Information in this document is subject to change without notice. No part of this document can be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose without the express written permission of Schwab Retirement Technologies, Inc. For further information, contact Schwab Retirement Technologies, Inc. at Ballantyne Corporate Place, Suite 300, Charlotte, NC 28277, USA, Tel: (800) , Web site: schwabrt.com. Schwab RT Administration Solutions is the property of Schwab Retirement Technologies, Inc., a wholly-owned subsidiary of The Charles Schwab Corporation and affiliate of Charles Schwab & Co., Inc. SRT-Roth 401(k) Accounts 1/2006 Schwab Retirement Technologies Page 2 of 10

3 Table of Contents The Recordkeeping Operator s Resource Library... 4 Roth 401(k) Accounts... 5 C001/Plan Maintenance and C070/Plan Inquiry... 7 C004/Participant Maintenance and C071/Participant Inquiry... 8 C029/Recompute Aggregates...9 Page 3 of 10

4 The Recordkeeping Operator s Resource Library The Schwab RT SQL Recordkeeping Operators Resource Library provides you with topic-specific documents available for recordkeeping system processes. Collectively, these documents comprise Schwab RT s Recordkeeping System Manual of modular individual topics that can be individually maintained with current information, for on-demand downloading and printing. Topic-specific documents coordinate with the Recordkeeping online Help system, and overcomes printing limitations with on-line html Help pages. Additional technical setup procedures and tips might be included in topic-specifics documentation that is not pertinent to the on-line Help. If you are new to Schwab RT you may also want to refer to our Recordkeeping Setup, Options, and Maintenance Reference Guide for overviews of many key SQL Recordkeeping concepts and setup options. Page 4 of 10

5 Roth 401(k) Accounts Note: Roth 401(k) functionality is implemented for SQL-mode plans only. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) added the ability to make Roth 401(k) contributions to a retirement plan. These rules are effective for plan years beginning on or after January 1, A Roth contribution to a retirement plan is an after-tax contribution, and a withdrawal of Roth money is a tax-free withdrawal of the contribution amount plus the earnings if certain conditions are met. If the plan permits Roth 401(k) contributions, participants can designate that all or a portion of their elective deferrals be treated as Roth deferrals. There are no compensation requirements to contribute to a Roth 401(k) that is part of a retirement plan. On March 2, 2005, the U.S. Treasury issued proposed regulations that would affect plans that elect to accommodate Roth contributions. These contributions are subject to all of the same requirements that pertain to regular pre-tax 401(k) contributions, including the following: Distribution restrictions Vesting Restrictions Required Minimum Distribution rules ADP testing (unless the plan is a Safe Harbor plan) Subject to a matching formula if the plan provides one The combined deferral amount (401(k)/403(b) plus Roth) may not exceed the 402(g) limit The following Recordkeeping applications are modified for Roth 401(k) functionality for Release 2.1: C000/Start a New Day C001/Plan Maintenance C004/Participant Maintenance C023/Release C029/Recompute Aggregates C036m/Transfers and Exchange C070/Plan Inquiry C071/Participant Inquiry C076/Activity Tracking C150/Automated Data Translation C552/VRS/OPI Update CP17/Eligibility Reporting CP23/Utility Reporting/Participant Master ADTSYN.dll The plan-level source indicator for Roth money and the participant-level fields for the basis (Phase One) were completed in December, 2005 as an enhancement to Schwab RT SQL Recordkeeping Release 2.1. The remaining changes for Roth 401(k) administration (Phase Two) will be implemented in Schwab RT SQL Recordkeeping Release 2.2. Page 5 of 10

6 Roth 401(k) money, which is always 100% vested, must be accounted for separately. This is accomplished in Recordkeeping by setting up the Roth 401(k) as a separate source. This requires new fields in Plan Maintenance, Plan Inquiry, Participant Maintenance, and Participant Inquiry, as detailed on the following pages. Page 6 of 10

7 C001/Plan Maintenance and C070/Plan Inquiry A new Roth Source checkbox is added to the Other Source Features window in Plan Maintenance and Plan Inquiry which allows one Roth source per plan. In addition, a Roth Source Position setting is located on the Source Level Settings/Match Provisions window. The settings are carried to the Plan Digest report and displayed in Activity Tracking. The Source Level Setting/Match Provisions/Source Position allows two sources to be chosen to base the match contribution on one 401(k) source and one Roth source. The settings can also be viewed in Plan Inquiry. The Roth Source Position field in the Match Provisions window (below) will be implemented during Phase II of the Roth enhancement project and appears in this window as a setup provision for future use. Page 7 of 10

8 C004/Participant Maintenance and C071/Participant Inquiry A new Establishment Date of Roth Acct field is added to the Census/Dates window in Participant Maintenance. This field is populated with the process date (release date) in the Release application whenever a contribution is processed that is designated in Plan Maintenance as a Roth Source. This allows the system to determine the 5-year rule for distributions. If the Establishment Date of Roth Acct already holds a date, then Release does not overwrite this with a current date. You can edit this field in Participant Maintenance or in the ADT application. The Establishment Date field will be added to the participant site on the SchwabRT Web on the Source Summary page for the Roth source. This is the only change on Web for Roth in 2.1. Page 8 of 10

9 Additional fields for Roth Basis, Roth Basis Returned, and Roth Basis Available are added to the Tax Data window. These fields are reflected in the Participant Inquiry applications as well as CP23/Utility Reporting/ Participant Master, C076/Activity Tracking, allowing these fields (Establishment Date, Roth Basis, and Roth Basis Returned) to be read into and updated in C150/ADT. Roth 401(k) contributions are submitted separately from other types of employee contributions. These are processed in the appropriate source upon remittance. When a Roth contribution is processed, the amount of the contribution is added to the Roth Basis field. Contributions that are processed for the Roth Source updates the Roth Basis field during the release process. Distributions that are processed for the Roth source update the Roth Basis Returned field during the release process. Also note that the balance of a Roth source is not included in the Basis Recovery even though the Roth Source is an After-Tax Source. Page 9 of 10

10 C029/Recompute Aggregates Three new options are added to the C029/Recompute Aggregates application that allow manual calculations for plans offering Roth 401(k)s. Using these Roth checkbox options allows you to add a participant s Date of Establishment, and manually calculate and group Roth Contributions and Roth Returns. The 2.1 update allows the system to perform these calculations automatically. Note: The Date of Establishment is not overridden by an entry in this field if a participant already has a date on file. New Field Definitions: Date of Establishment: Determines the participant s Date of Establishment based on transactions within the specified date range. If a Date of Establishment exists, it is not overridden. Roth Contributions and Roth Returns: Determines the participant s amounts for these fields (replaces or adds to them) based on the transactions for the specified cycle. All settings refer to the Roth Source checkbox in Plan Maintenance (refer to page 7) at the Plan/Source level to determine whether these fields changed. Note: If you are running Release 2.0 and wish to create a new source to be used as the Roth source once you are on Release 2.1, using C029/Recompute Aggregates allows you to update the participant fields once you update to Release 2.1. Page 10 of 10