What is Financial Planning?
This is a service offers by a licensed individual, that will assist you and guide you through any financial decisions you face. The service includes setting goals for the future, planning for your financial future, allotting your portfolio into investments as required and exploring different investment options.
Is Financial Planning really necessary?
This service will allow you to organise your financial situation, in such a manner that you plan for your future, maximize the return you are getting for your money, spread your portfolio to spread the risks, reduce tax liability and therefore achieve financial peace of mind.
Can’t I do this alone?
Some people probably could. But will you? Most professionals find it difficult to sit down and realistically think about their financial future. They claim that they do not have the time, or that there are so many options available that they don’t know where to start. Also frequent tax legislation changes make it difficult to keep abreast.
What would this plan include?
It will analyze your cash flow; assess your portfolio and debts; analyse your estate planning; make income tax projections; plan for your retirement; evaluate insurance needs; analyze educational funding; and analyze your business if applicable.
What is my function in the process?
You just need to provide the most accurate information you can. Your planner has to understand your goals, dreams and your attitude.
Are fees for Financial Planning tax deductable?
Yes, but subject to limitations.
How can I measure the worth of this service?
After the planner provides you with his recommendations, you can compare the plan’s costs, to the projected gains. Over the long term, the gains should exceed by far the cost of preparing the plan.
Will this plan make me rich?
This plan can’t make you rich quickly. What is can do is help you save more of the money you earn, and make your funds work harder for you.
Reference: http://www.dmozonline.com/free-articles/eight-questions-about-financial-planning.html
Wednesday, April 8, 2009
Are You Missing a Plan Participant?
Employers will learn that sometimes, finding a missing 401k plan participant is a very difficult task.
The IRS has come out with a statement P-1-187, which gives information on how to make use of its letter forwarding program, which is for companies, individuals and federal agencies who need to locate missing persons.
The steps are as follows:
1. Write a covering letter addressed to the IRS disclosure office found in the area where the petitioner is located. This should include the reason why assistance is required, a list with the details of the persons who need to be located, and the details of the person to whom the IRS is to send the acknowledgement letter.
2. With the covering letter you must attach letter addressed to the individuals who cannot be located, that includes instructions for the receiver to voluntary contact the sender. It’s important to include disclaimer statement as per IRS guidelines.
3. The IRS office, upon receiving a valid request, will then look through its records, and if an address for the missing person is found, they will forward the letter in their own envelope. If the letter is returned as undeliverable, it will then be destroyed but the requestor will have no knowledge of this.
This program is free however for requests involving more that 50 missing persons, there is a program at a cost, from the Disclosure office at Washington DC.
Another option would be the National Registry, where you will be able to register the names of any missing persons that have not claimed their retirement money.
Reference: http://www.401khelpcenter.com/401k/missing-plan-participant.html
The IRS has come out with a statement P-1-187, which gives information on how to make use of its letter forwarding program, which is for companies, individuals and federal agencies who need to locate missing persons.
The steps are as follows:
1. Write a covering letter addressed to the IRS disclosure office found in the area where the petitioner is located. This should include the reason why assistance is required, a list with the details of the persons who need to be located, and the details of the person to whom the IRS is to send the acknowledgement letter.
2. With the covering letter you must attach letter addressed to the individuals who cannot be located, that includes instructions for the receiver to voluntary contact the sender. It’s important to include disclaimer statement as per IRS guidelines.
3. The IRS office, upon receiving a valid request, will then look through its records, and if an address for the missing person is found, they will forward the letter in their own envelope. If the letter is returned as undeliverable, it will then be destroyed but the requestor will have no knowledge of this.
This program is free however for requests involving more that 50 missing persons, there is a program at a cost, from the Disclosure office at Washington DC.
Another option would be the National Registry, where you will be able to register the names of any missing persons that have not claimed their retirement money.
Reference: http://www.401khelpcenter.com/401k/missing-plan-participant.html
401k Plan Audit
DOL rules currently state that contributions made by employees into 401k plans, are converted to plan assets, from the earliest possible date in which these payments can be divided from the general assets, but not later than 15 days after date of receipt. This is a bit unclear and subject to interpretation.
The regulations provide however no assistance regarding how the employer should establish whether he is in compliance to the rule or not. The fact is that small employers will think that they are in compliance with the general rule, since they transfer the funds by not later than the 15th day. In reality however the DOL may determine that under the general rule, since the business is small and has only a single payroll system, he is able to separate the funds at a much sooner date.
DOL investigators normally assume that 401k plan contributions for small employers should be segregated within just 7 days from the payment date. If the employer is found in breach of this 7 day presumption, he should in this case contest the interest earnings that are to be assessed against him, and try to press as much as he can the time line forward. We must not forget that this is not the general rule but only a presumption and you may contest also that the general rule states that every business has to be taken separately.
An employer may want to place out a time line that documents the concrete steps to segregate the contributions, and also the time required for each step, and this might include:
• The time needed to calculate the contributions
• Manually processing loans for each payroll
• Verifying the calculations
• Communicating the amounts to the payables dept.
• Time required for financial institution to receive the check and process the transaction
• Time needed to provide investment firm with allocation instructions to participants.
Late deposits will be subject to interest rates which vary. They also have to deliberate reimbursing the participants for any lost earnings and where there is a breach, a penalty of 20% will also be charged to the employer. Since DOL investigations are under way, it might be a good idea for employers to review their procedures and compliance.
Reference: http://www.401khelpcenter.com/401k/perdue_401k_deposits.html
The regulations provide however no assistance regarding how the employer should establish whether he is in compliance to the rule or not. The fact is that small employers will think that they are in compliance with the general rule, since they transfer the funds by not later than the 15th day. In reality however the DOL may determine that under the general rule, since the business is small and has only a single payroll system, he is able to separate the funds at a much sooner date.
DOL investigators normally assume that 401k plan contributions for small employers should be segregated within just 7 days from the payment date. If the employer is found in breach of this 7 day presumption, he should in this case contest the interest earnings that are to be assessed against him, and try to press as much as he can the time line forward. We must not forget that this is not the general rule but only a presumption and you may contest also that the general rule states that every business has to be taken separately.
An employer may want to place out a time line that documents the concrete steps to segregate the contributions, and also the time required for each step, and this might include:
• The time needed to calculate the contributions
• Manually processing loans for each payroll
• Verifying the calculations
• Communicating the amounts to the payables dept.
• Time required for financial institution to receive the check and process the transaction
• Time needed to provide investment firm with allocation instructions to participants.
Late deposits will be subject to interest rates which vary. They also have to deliberate reimbursing the participants for any lost earnings and where there is a breach, a penalty of 20% will also be charged to the employer. Since DOL investigations are under way, it might be a good idea for employers to review their procedures and compliance.
Reference: http://www.401khelpcenter.com/401k/perdue_401k_deposits.html
Tuesday, April 7, 2009
401k Plan Audit Papers
If you’re up for an audit on your 401k plan, then the Department of Labour or the Internal Revenue Service will be asking you for a list of items, that should be available at all times.
Items requested both by DOL and IRS:
• The 401k plan document and any amendment that have been made; trust agreement
• A duplicate of the most current determination letter
• Duplicates of the Form 5500/5500-C; the annual report of the Employee Benefit plan; copies of schedules including schedule A,B and schedule SSA if pertinent; copies of all attachments such as notes to the financial statements.
• Any existing endorsements and fidelity bonds
• Reports from the administrators, and trustees including journals and minutes to investment committee meetings.
The IRS will require:
• Duplicates of the Form 5500/5500-C and the Annual Report of the Employee Benefit Plan for the year successive to the years under present scrutiny.
• Duplicates of the Form 1120, the minutes to the activities that take place with the trust as well as the plan; a copy of the 7004 form.
• A duplicate of the employer’s Form W2P, a statement for the receivers of any annuities, retirement payments, pension payments or IRA payments; a duplicate of the Form 1099R; a record of the total amount distributed from profit sharing, Individual Retirement Arrangements and Retirement Plans, for the years under scrutiny.
• Any cancelled checks that verify the contributions of the years under study.
• Any schedules that demonstrate whether the 401k plan met the ADP and also the ACP tests.
• Employees’ records that specify employees’ details.
• Payroll records
• Allocation schedules of participants
• When applicable a copy of the consent declarations from spouses.
The DOL will ask for:
• A summary of the plan description
• A summary of the plan’s annual reports
• Insurance policy if held
• A list of the service providers and plan managers and their contracts
• Any correspondence that relates to the plan
• Account statements that have been recently provided for the participants
• Papers that show the contributions for the employee that are due from each payroll
• A statement of the investment policy
• All the documents relating to loans if any such as application and promissory notes
• Details and documents about all property held including vehicles, equipment, land and buildings.
• Documents that relate to any other real estate investment.
Reference: http://www.hollandhart.com/newsitem.cfm?ID=521
Items requested both by DOL and IRS:
• The 401k plan document and any amendment that have been made; trust agreement
• A duplicate of the most current determination letter
• Duplicates of the Form 5500/5500-C; the annual report of the Employee Benefit plan; copies of schedules including schedule A,B and schedule SSA if pertinent; copies of all attachments such as notes to the financial statements.
• Any existing endorsements and fidelity bonds
• Reports from the administrators, and trustees including journals and minutes to investment committee meetings.
The IRS will require:
• Duplicates of the Form 5500/5500-C and the Annual Report of the Employee Benefit Plan for the year successive to the years under present scrutiny.
• Duplicates of the Form 1120, the minutes to the activities that take place with the trust as well as the plan; a copy of the 7004 form.
• A duplicate of the employer’s Form W2P, a statement for the receivers of any annuities, retirement payments, pension payments or IRA payments; a duplicate of the Form 1099R; a record of the total amount distributed from profit sharing, Individual Retirement Arrangements and Retirement Plans, for the years under scrutiny.
• Any cancelled checks that verify the contributions of the years under study.
• Any schedules that demonstrate whether the 401k plan met the ADP and also the ACP tests.
• Employees’ records that specify employees’ details.
• Payroll records
• Allocation schedules of participants
• When applicable a copy of the consent declarations from spouses.
The DOL will ask for:
• A summary of the plan description
• A summary of the plan’s annual reports
• Insurance policy if held
• A list of the service providers and plan managers and their contracts
• Any correspondence that relates to the plan
• Account statements that have been recently provided for the participants
• Papers that show the contributions for the employee that are due from each payroll
• A statement of the investment policy
• All the documents relating to loans if any such as application and promissory notes
• Details and documents about all property held including vehicles, equipment, land and buildings.
• Documents that relate to any other real estate investment.
Reference: http://www.hollandhart.com/newsitem.cfm?ID=521
Questions to Ask Plan Vendors
If you are considering changing your 401k plan vendor, then there are a number of questions you should ask, and also a number of areas you should cover before going ahead.
The key areas you should consider are the following:
Service:
• Make sure that your account representative operates from an office close by, and not some 3 states away. Don’t forget that it is easier to arrange for participant educational seminars when the provider is close by.
• Ask about call centre hours, and what service they will be able to offer you
• Is there any web support and how user friendly is it?
• Make sure that the paperwork such as the statements that participants get, as well as your reports suit your needs and are easy to go through
• Confirm the regularity of retirement distributions
• Confirm the efficiency with which contributions, as well as transfers are recorded.
Compatibility:
Ask for references for plan sponsors of similarly sized plans, who have had positive and negative experiences with the provider you are looking at. Remember that not all the providers are suitable for a small plan, where the sponsor might need more service.
Fees:
401k plan fees may be calculated in various ways such as the number of participants, the amount of plan assets, execution of transactions and you may also have fixed charges. See what works best for you and your participants.
Compliance:
Confirm that the charges relating to compliance with the IRS regulations are built into the base of the new plan. In the case that there are no extra costs, you are better off asking your accountant to handle the situation.
Blackout Periods
We all know that balancing all the accounts takes its fair share of time. However you should always ask for a reasonable estimate of how long the blackout period will last.
Reference: http://www.401khelpcenter.com/changing_vendors.html
The key areas you should consider are the following:
Service:
• Make sure that your account representative operates from an office close by, and not some 3 states away. Don’t forget that it is easier to arrange for participant educational seminars when the provider is close by.
• Ask about call centre hours, and what service they will be able to offer you
• Is there any web support and how user friendly is it?
• Make sure that the paperwork such as the statements that participants get, as well as your reports suit your needs and are easy to go through
• Confirm the regularity of retirement distributions
• Confirm the efficiency with which contributions, as well as transfers are recorded.
Compatibility:
Ask for references for plan sponsors of similarly sized plans, who have had positive and negative experiences with the provider you are looking at. Remember that not all the providers are suitable for a small plan, where the sponsor might need more service.
Fees:
401k plan fees may be calculated in various ways such as the number of participants, the amount of plan assets, execution of transactions and you may also have fixed charges. See what works best for you and your participants.
Compliance:
Confirm that the charges relating to compliance with the IRS regulations are built into the base of the new plan. In the case that there are no extra costs, you are better off asking your accountant to handle the situation.
Blackout Periods
We all know that balancing all the accounts takes its fair share of time. However you should always ask for a reasonable estimate of how long the blackout period will last.
Reference: http://www.401khelpcenter.com/changing_vendors.html
Monday, April 6, 2009
When to hire an attorney
401k plan participants are nowadays demanding more information; employers and company officers as well as the government are all demanding clarity and there is a general awareness in the retirement plan market.
As awareness rises from all the parties involved, it is important to compliant with the legal regulations. Appointing an advisor to assist you in complying with the ERISA is a very crucial choice. The advisor should have the correct knowledge and expertise, to help you in navigating though certain particulars of your position. It is of the utmost importance to find an advisor that provides you with the necessary attention and best solutions.
ERISA/employee benefits attorneys, offer their clients a very beneficial service that limits the extent of possible liability and also protects the employees’ rights. An employee benefits attorney should be involved in the following situations:
• In any area of merger, purchase or dispossession
• When a company reviews its employee benefit plan
• To reassess all the features of fiduciary decisions, or decisions which may affect the qualification of a plan
• To design plan documents
• To discuss the impact of any new legislation
• When the work force is substantially reduced
An experienced ERISA attorney should be involved in the following situations:
• During a merger of a present Money Purchase Plan with an already active 401k plan
• For compliance and planning related to PPA
• To determine what the fiduciary liability problems are
• Planning for blackout periods and any oversights that occur during auditing or stock taking
• To provide advice to the plan participants
• To explain the 401k plan fees
• When there are possible withdrawal liabilities arising from pension plans with multi employers.
Reference: http://www.401khelpcenter.com/when_to_hire_attorney.html
As awareness rises from all the parties involved, it is important to compliant with the legal regulations. Appointing an advisor to assist you in complying with the ERISA is a very crucial choice. The advisor should have the correct knowledge and expertise, to help you in navigating though certain particulars of your position. It is of the utmost importance to find an advisor that provides you with the necessary attention and best solutions.
ERISA/employee benefits attorneys, offer their clients a very beneficial service that limits the extent of possible liability and also protects the employees’ rights. An employee benefits attorney should be involved in the following situations:
• In any area of merger, purchase or dispossession
• When a company reviews its employee benefit plan
• To reassess all the features of fiduciary decisions, or decisions which may affect the qualification of a plan
• To design plan documents
• To discuss the impact of any new legislation
• When the work force is substantially reduced
An experienced ERISA attorney should be involved in the following situations:
• During a merger of a present Money Purchase Plan with an already active 401k plan
• For compliance and planning related to PPA
• To determine what the fiduciary liability problems are
• Planning for blackout periods and any oversights that occur during auditing or stock taking
• To provide advice to the plan participants
• To explain the 401k plan fees
• When there are possible withdrawal liabilities arising from pension plans with multi employers.
Reference: http://www.401khelpcenter.com/when_to_hire_attorney.html
The Basic Facts on Catch-Up Contributions
Catch-up contributions are extra payments that people aged 50 or over can make into their retirement plans. Before a participant can make catch-up contributions however, certain limits must be met:
• The annual deferral limit
• The plan’s deferral limit
• Or the annual ADP limit
Studies show that a majority of the present 401k plan options, offer the facility of paying catch-up contributions; the figure is about 93% of plans. Legally however, a plan does not necessarily need to offer catch-up contributions.
If as a provider, you would like to make provisions for catch-up contributions, than probably your plan has to be amended. It is best to confirm with your legal counsel or your record keeper, to ascertain what exactly your particular plan needs.
Catch-up contributions like normal contributions are to be made out of payroll deductions, and as an employer you don’t need to match your employees’ contributions. It would be wise to inform them of your decision, if you’re not going to match.
As regards to paperwork, catch-up contributions are to be shown together with the normal contributions, on the same W2 form. When conducting ADT testing, catch-up contributions are not to be included. Same goes for tests determining the minimum amount of contribution that is needed for a top-heavy plan.
When determining balances available for loans, catch-up contributions should be treated like the normal contributions.
Finally if as an employer, you allow catch-up contributions on one plan, then the same option needs so be offered on all the other plans that permit elective deferrals.
Apart from this you should also consider issues that regard the implementation of catch-up contributions on your system.
Reference: http://www.401khelpcenter.com/catch-up_contributions.html
• The annual deferral limit
• The plan’s deferral limit
• Or the annual ADP limit
Studies show that a majority of the present 401k plan options, offer the facility of paying catch-up contributions; the figure is about 93% of plans. Legally however, a plan does not necessarily need to offer catch-up contributions.
If as a provider, you would like to make provisions for catch-up contributions, than probably your plan has to be amended. It is best to confirm with your legal counsel or your record keeper, to ascertain what exactly your particular plan needs.
Catch-up contributions like normal contributions are to be made out of payroll deductions, and as an employer you don’t need to match your employees’ contributions. It would be wise to inform them of your decision, if you’re not going to match.
As regards to paperwork, catch-up contributions are to be shown together with the normal contributions, on the same W2 form. When conducting ADT testing, catch-up contributions are not to be included. Same goes for tests determining the minimum amount of contribution that is needed for a top-heavy plan.
When determining balances available for loans, catch-up contributions should be treated like the normal contributions.
Finally if as an employer, you allow catch-up contributions on one plan, then the same option needs so be offered on all the other plans that permit elective deferrals.
Apart from this you should also consider issues that regard the implementation of catch-up contributions on your system.
Reference: http://www.401khelpcenter.com/catch-up_contributions.html
Sunday, April 5, 2009
401K Plans – The Details
A 401k plan is an arrangement where an employee can decided to have a part of his or her salary, deposited into a retirement plan. The contribution is taken from the employee’s pre-tax income (some plans do however accept after-tax contributions).
The contributions made are then invested in a wide range of investments like stocks and shares, bonds and government stocks. Employers may, at their discretion and without legal obligations, match their employees’ contributions. The 2005 maximum annual contribution that may be done by an employee was $14,000. An employee aged 50 or over, has the option of making additional contributions, to catch up.
This amendment was made by the EGTRRA in 2001, and allowed catch-up contributions of up to $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, $5,000 in 2006, and indexed thereafter.
All the above mentioned pre-tax contributions, and also the gains that are made on the 401k plan account, are only liable to tax when the funds are withdrawn. Also, according to the Growth and Tax Relief Reconciliation Act of 2001, an individual may contribute up to a maximum of $15,000 up to the year 2006, and from that point onwards the contributions
401k plans apply to employees who work in the private sector. There are other plans similar to the 401k plans, that in turn applies to employees who work in the public sector (457 plans), and for those who are employed in the nonprofit sector of the industry(403b plans).
In 1986, Congress had passed some amendments, and encouraged the employers of the private sector, to have more confidence in the 401k plans which have been a matter of regulatory and legal disagreements for years.
Since this time, the 401k plans have becoming the most popular and the most expanding type of retirement plan.
Reference: http://www.401khelpcenter.com/tracking/history_of_401k.html
The contributions made are then invested in a wide range of investments like stocks and shares, bonds and government stocks. Employers may, at their discretion and without legal obligations, match their employees’ contributions. The 2005 maximum annual contribution that may be done by an employee was $14,000. An employee aged 50 or over, has the option of making additional contributions, to catch up.
This amendment was made by the EGTRRA in 2001, and allowed catch-up contributions of up to $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, $5,000 in 2006, and indexed thereafter.
All the above mentioned pre-tax contributions, and also the gains that are made on the 401k plan account, are only liable to tax when the funds are withdrawn. Also, according to the Growth and Tax Relief Reconciliation Act of 2001, an individual may contribute up to a maximum of $15,000 up to the year 2006, and from that point onwards the contributions
401k plans apply to employees who work in the private sector. There are other plans similar to the 401k plans, that in turn applies to employees who work in the public sector (457 plans), and for those who are employed in the nonprofit sector of the industry(403b plans).
In 1986, Congress had passed some amendments, and encouraged the employers of the private sector, to have more confidence in the 401k plans which have been a matter of regulatory and legal disagreements for years.
Since this time, the 401k plans have becoming the most popular and the most expanding type of retirement plan.
Reference: http://www.401khelpcenter.com/tracking/history_of_401k.html
Collective Trust Funds
The Collective Trust Funds have been around since 1927 and at this time, they were already an esteemed investment, inside the retirement plan society. CTFs are investments which provide various positive benefits since they are not subject to tax, and they are a mutual investment that is composed of assets of stock bonuses, retirement assets and trusts that are not subject to income tax.
The story wasn’t however so plain sailing since in the 1980s, the retirement plan sector began to change. CTFs have been used as investment vehicles in the first 401k plans. When the new plans came around in the 1980’s these began investing in mutual funds, since the latter offered expedient answers and also features that were more appealing for retirement plans.
Until the late 1990s mutual funds were doing much better than CTFs, and the majority of CTFs stayed in the defined contribution market, which was made up of funds that offered stable values and slow moving indexes.
CTFs have however made a comeback a few years ago; when in 2003 the market began again to change. The recovery occurred when plan sponsors began looking for funds that carried a lower fee. The flexible qualities of CTFs also helped in their revival.
Lately CTFs are also being used in retirement plans that can be defined as less traditional. The CTFs expansion possibilities are more promising that those for mutual funds, within the market for retirement plans. As we move along, more and more investment management firms are looking at CTFs, and re including them in their portfolios.
Reference: http://www.401khelpcenter.com/401k/ctf_overview.html
The story wasn’t however so plain sailing since in the 1980s, the retirement plan sector began to change. CTFs have been used as investment vehicles in the first 401k plans. When the new plans came around in the 1980’s these began investing in mutual funds, since the latter offered expedient answers and also features that were more appealing for retirement plans.
Until the late 1990s mutual funds were doing much better than CTFs, and the majority of CTFs stayed in the defined contribution market, which was made up of funds that offered stable values and slow moving indexes.
CTFs have however made a comeback a few years ago; when in 2003 the market began again to change. The recovery occurred when plan sponsors began looking for funds that carried a lower fee. The flexible qualities of CTFs also helped in their revival.
Lately CTFs are also being used in retirement plans that can be defined as less traditional. The CTFs expansion possibilities are more promising that those for mutual funds, within the market for retirement plans. As we move along, more and more investment management firms are looking at CTFs, and re including them in their portfolios.
Reference: http://www.401khelpcenter.com/401k/ctf_overview.html
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