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Witt Mares Pension Designs

FREQUENTLY ASKED QUESTIONS

1. Do I need a Fidelity Bond?
   

   Yes, the IRS required that all fiduciaries be bonded for 10% of the assets up to $500,000.
   
   

2. Should I deduct 401(k) from severance pay or vacation pay after the employee has terminated?
   

   No, this is not considered pay for services rendered as an employee.
   
   

3. When is the Form 5500 due?
   

   Seven months after the close of the plan year, with the ability for one extension for 2 1/2 months.
   
   

4. Who must file a Form 945?
   

   Only plans that withheld taxes on distributions.
   
   

5. Is there state withholding on pension plan distributions?
   

   Yes. Virginia and North Carolina have a mandatory 4% tax withholding on all lump sum distributions paid directly to the participant.
   
   

6. When can a participant elect to stop making 401(k) deferrals?
   

   Anytime.
   
   

7. Can a participant in a cafeteria plan change his/her elections during the plan year?
   

Not unless it qualifies as a change in family status.

 

BENEFIT LIMITS:

 

LIMIT	2006	2007
401(k)	Lesser of $15,000 or 100% of pay	Lesser of $15,500 or 100% of pay
Defined Contribution Plan (e.g. Profit Sharing Plan)	$44,000	$45,000
Social Security Wage Base	$94,200	$97,500
Compensation	$220,000	$225,000
SIMPLE	Lesser of $10,000 or 100% of pay	Lesser of $10,500 or 100% of pay
Catch-up 401(k)	$5,000	$5,000
Catch-up SIMPLE	$2,500	$2,500

 

PLAN COMPARISON

 

PLAN SPECIFICATIONS	401(k)	SIMPLE-IRA
Dollar Limit	$15,500 Maximum	$10,000 Maximum
Vesting on Company Contributions	Yes	100% immediate vesting
Employer Funding	Discretionary	Mandatory
Ongoing Administration	Complex	Minimal
Plan Design	Flexible	Restricted
Plan Document	Legal Document	Form 5305 - SIMPLE
Plan Reporting to Department of Labor and IRS	Form 5500	None
Obligatory Employer Contribution	No	Yes
Employer Eligibility	No Restrictions	Less than 100 employees
Fiduciary Responsibility	Regular rules of 404(c)	Only for one year after the employee establishes an account

 

PLAN	CONTRIBUTIONS	FUNDING
Defined Benefit	Employer Only	Required
Profit Sharing	Employer Only	Discretionary
ESOP	Employer Only	Discretionary
401(k)	Employee Pre-Tax	Discretionary
Matching	Employer Only	Discretionary
SIMPLE	Employee Pre-Tax and Employer	Required