Plan loans now subject to more restrictions on employer as well as participants

Article Abstract:

New Department of Labor (DOL) regulations have restricted the availability of loans from qualified employee benefit plans and made the plans more complex and less flexible. These restrictions, combined with regulations imposed by the Employee Retirement Income Security Act and the Tax Reform Act of 1986 have created many planning issues that merit the consideration on whether to continue a loan program for a retirement program as there may be negative financial and tax consequences. Allowing a plan to continue disbursing loans can require substantial commitment of time and resources that is not cost effective. Employers who continue to allow loans from qualified plans must monitor prior borrowing, interest rate changes, and repayments. In the planning process, the employer must decide which types of collateral will be accepted by the plan and procedures to be implemented in case of default. Sponsors and participants may find that loans from qualified plans are no longer to their benefit financially.

Qualified benefit plans, United States. Department of Labor

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Age-weighted profit sharing reduces plan costs

Article Abstract:

Age-weighted profit-sharing plans provide employers with an efficient and cost-effective alternative to the popular 'comparable plans,' many of which were terminated upon the enactment of the Tax Reform Act of 1986. One of the most notable advantages of adopting the age-weighted profit sharing plan is that it provides most of the benefits of a defined benefit plan but avoids most of its burdens. This plan enables sponsors to lessen their costs for younger employees, while also offering a way for employers to shift from the traditional defined benefit plan to a defined contribution plan without creating too many problems. Two of the most important issues that must be addressed when adopting the age-weighted profit sharing plan are compliance with nondiscrimination rules under Section 401(a)(4) and communication of the plan's design to employees.

Pension, health, and welfare funds, Methods, Management, Compensation management, Pension funds

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Comparable plans still effective when enough employees are under the respective plans

Article Abstract:

Employers may maintain two or more benefit plans, providing they adhere to minimum participation standards and the plans are comparable under nondiscrimination requirements of federal tax regulations Section 401. The minimum participation requirements for a plan are the lesser of 50 employees or 40% of all employees. Nondiscrimination requirements currently require a fair cross section test to be applied to all plans in one company or an affiliated group of companies. The benefits and contributions of each plan must be summed and normalized, and non-members must receive compensation equivalent to those received in the benefit groups. Benefits of evaluated plans may be calculated as flat or unit benefits.

Interpretation and construction, Taxation, Tax law, Human resource management

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