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Business Continuity Plan Disclosure Checklist

Defined Contribution Plans

National Financial Services LLC sponsors a Prototype Defined Contribution Plan with both Money Purchase Plan and Profit Sharing Plans available. Individual participant accounts are set up on the system to allow for true participant self direction, thereby reducing the employer's fiduciary responsibilities. NFS does not provide plan administrative services for qualified plans (discrimination testing, 5500 reporting etc.), but does provide support for plan administration through specialized reports which summarize contributions and distributions made on both an individual account basis and on a plan basis.

ELIGIBILITY

Employer Eligibility

Eligible employers include corporations, partnerships, non-profit organizations, "S" corporations, and sole proprietors (self employed).

Employee Eligibility An employer can always choose to make all employees eligible to participate in a defined contribution plan, however the employer is permitted to adopt the following eligibility requirements:

  • Employee must have attained the age of 21

Employee must have completed two years of service if 100% vesting is elected, or one year of service if a vesting schedule is elected:
  • Employer can require up to 1000 hours of service to qualify as a year of service.

ESTABLISHING A QUALIFIED PLAN

1. Provide the employer with a copy of the Prototype Defined Contribution Plan and Trust document along with the applicable (money purchase or profit sharing) Employer Adoption Agreement.

2. To adopt the plan, the employer must complete the entire employer adoption agreement, and in the case of a corporation, prepare a corporate resolution.

3. The employer should return the executed adoption agreement to the Introducing Broker, and in turn the IB should forward the completed document to NFS for review and signature. The employer should retain the Plan and Trust document and keep a copy of the executed adoption agreement which constitutes the employer's plan.

4. The employer should distribute an announcement letter to employees, announcing in general terms information on the plan being adopted.

5. Advise the employer to apply for a Federal Tax Identification Number for the plan.

6. Have each plan participant complete an account application prior to making contributions to the individual accounts.

7. Employer must provide a Summary Plan Description (SPD) to each eligible participant. The SPD document describes the benefits offered under the plan, the rights of the participants, the eligibility requirement, and other important provisions such as the plan's vesting schedule. The SPD must be written so that it is easily understood by the plan participants. A copy of the SPD must be given to each participant by the later of (1) 90 days after the employee becomes a plan participant, or (2) 120 days after the later of the plan's effective date or the plan adoption date.

8. A defined contribution plan must be established by 12/31 of a calendar year in order to make a contribution for that year. The plan can be funded up until the employer's tax filing deadline including extensions.

QUALIFIED PLAN CONTRIBUTIONS

Profit Sharing Plans
  • The maximum deductible amount that an employer may contribute to a profit sharing plan is 25% of total eligible plan compensation.
  • For 2002, eligible compensation is capped at $200,000. This limit will be increased for COLA's in $1,000 increments.
  • The annual contribution limit per participant is $40,000, subject to COLA's in $1,000 increments
  • Employer contributions are discretionary and can be based on profits. Contributions may not discriminate in favor of key employees.
  • Employer will be required to make a contribution of 3% of compensation for all non-key employees if the plan is top heavy. A plan is top heavy if more than 60% of the assets held in the plan are for the benefit of key employees.
  • IRS regulations indicate that it is not necessary for the employer to contribute every year to a profit sharing plan, however they must make substantial and recurring contributions to the participants.
Money Purchase Plans
  • The maximum deductible amount that an employer can contribute to a money purchase plan is the lesser of 25% of compensation or $40,000.
  • The employer must contribute the amount defined in the adoption agreement. The contribution is mandatory regardless of profits.

QUALIFIED PLAN REPORTING REQUIREMENTS

Since a qualified plan is an employer sponsored plan, it is covered by ERISA, and is subject to reporting to both the Internal Revenue Service and the Department of Labor. Generally it is the role of the plan administrator to handle the plan reporting requirements. 5500 Series Reporting Each year in which the plan is maintained, including the year of adoption, the employer must submit an Annual Return/Report to the IRS and the Department of Labor. In the case of an owner-only plan, the Annual Report is filed solely with the IRS. To determine which form to file, refer to the following:

Form 5500 - Plan with 100 or more participants (Annual Return/Report)
Form 5500 C/R - Plan with fewer than 100 participants (Annual Return/Report)
Form 5500EZ - Owner only plans (Annual Return)


The appropriate annual Return/Report must be filed with the IRS/DOL not later than 7 ½ months after the close of the plan year. For calendar year plans this means that such reports must be filed not later than July 31.

Summary Plan Description
The employer is required to prepare an SPD with respect to the plan. The SPD is initially prepared and filed with the DOL for the plan's first year (the year of adoption). The initial SPD must be filed not later than 120 days after the adoption of the plan. Thereafter an SPD is required to be prepared and filed with the DOL every five years.

Summary of Material Modifications
In the event the employer amends the plan, or is required to restate the plan for purposes of compliance, a Summary of Material Modifications (SMM) must be prepared. The SMM contains information concerning the modification that was made to the plan, e.g. an amendment. A copy of the SMM must be filed with the DOL not later than 210 days after the close of the plan year in which the modification took place.

EMPLOYER DISCLOSURES

The employer is required to provide to all eligible participants the following disclosures concerning the plan.

Summary Plan Description
Each participating employee (including beneficiaries receiving benefits under the plan) must be given a copy of the SPD filed with the DOL. A copy of the initial SPD prepared for the plan's first year (the year of adoption) must be distributed to all participating employees not later than 120 days after the initial adoption of the plan. After the initial adoption of the plan, new participants must receive a copy of the SPD not later than 90 days after they become eligible to participate.

Summary of Material Modifications
Each participating employee (including beneficiaries receiving benefits under the plan) must be given a copy of the Summary of Material Modifications (SMM) filed with the DOL. A copy of the SMM must be distributed to all participating employees not later than 210 days after the close of the plan year in which the employer amended the plan.

WHY DEFINED CONTRIBUTION PLANS?

Maximum contribution up to 25% of compensation (compensation limit of $200,000 for 2002).

Flexibility in funding for profit sharing plans.

Can fund the plan up to tax filing deadline with extensions, but plan must be established by year end.

Loans are available to participants in a profit sharing plan.

Can exclude part time employees (< 1000 hours of service/year) or require up to 2 years of service to participate.

Can have a vesting schedule.