How a Required Minimum Distribution (RMD) Works

There comes a point where the IRS requires that a participant or beneficiary must take funds out of a retirement plan or risk significant excise taxes.  This is referred to as a Required Minimum Distribution (RMD) and is required within a certain period following the participant’s attainment of age 70 ½, or if later, the year in which the participant retires.  However, if the participant is a 5% owner of the business sponsoring the retirement plan, the RMDs must begin once the participant is age 70 ½, regardless of whether the participant is retired.  This affects participants in qualified plans, 403(b) plans, 457 plans, and IRA owners (including SEPs, SARSEPs and SIMPLE IRAs).

The first RMD must be taken for the year in which the participant turns age 70 ½.  RMDs are required to be taken by December 31^st, however, the first payment can be delayed until April 1^st of the year following the year that a participant attains age 70 ½.   Of note, if a participant delays his or her first payment to April 1^st, there will be two payments required in that year – the second payment will be required by December 31^st that same year.  

RMDs are calculated by dividing the prior December 31^st account balance by the life expectancy factor in the IRS published Tables.  A participant can request a distribution that is higher than the RMD amount, however, if the participant fails to withdraw a RMD, fails to withdraw the full required amount, or misses the deadline for withdrawal, the amount not withdrawn is taxed at 50%.

Although the IRA custodian or retirement plan administrator may calculate the RMD amount, the participant is ultimately responsible for calculating the amount of the RMD.  Required Minimum Distribution amounts cannot be rolled over into another tax-deferred account. 

Please consult your tax advisor with questions surrounding RMDs or visit the IRS website and other useful industry resources via http://www.abgncs.com/RetirementIndustryLinks.aspx. 

The Author: Patty Richeson, QKA

Wholesale Retirement Plan Consultant

www.abgncs.com/RetirementAdministration.aspx

pricheson@abg-mn.com

Retirement Autopilot

To do more to help employees save for their future, many employers are incorporating automatic features into their retirement plans. These features can help employees start saving earlier, save in greater amounts and manage their savings more wisely, while also allowing employees to manage their own investments. Studies suggest that automating retirement plans significantly increase the percent of eligible workers who participate in such plans, which increases employees’ retirement savings and financial security.

So what are these automatic features?  And how do they work?

Automatic Enrollment is an automatic contribution arrangement (ACA) that can be used as a feature in a retirement plan to allow employers to enroll employees in the company’s plan automatically upon meeting eligibility requirements. Approximately 30% of eligible workers do not participate in their employer’s retirement plan. Studies suggest that automatic enrollment could reduce this rate to less than 15 percent, significantly increasing retirement savings.

Automatic Escalation is another plan design option which may be added to a retirement plan in conjunction with automatic enrollment.  Automatic escalation allows a plan sponsor to increase participant deferrals annually by a set increment, most commonly 1%. Plan sponsors electing this design feature typically do so to assist their employees with retirement readiness.

Whether you already have a retirement plan or are considering starting one, automatic features offer many advantages.  Learn more about these automation options here: http://www.abgncs.com/AutoFeatures.aspx.

The Author: Abby Murray

Interactive Media Coordinator

www.abgncs.com

info@abg-mn.com

Tax-Favored Accounts Aren’t Ageists; I Promise.

Having worked with tax favored accounts since the mid-80s, I have always enjoyed the education of young people newly coming into the workforce. I love explaining how utilizing a flexible spending account (FSA) or health savings account (HSA) actually puts money in their pocket for Starbucks, dinner out, gifts, etc. I get great satisfaction when their eyes light up and they get it.

Imagine my horror when I am told by my wife that our 24 year old son is not paying for his bus pass with pre-tax dollars. Imagine my irritation when he tells me it really isn’t my concern. Ugh! Are you serious?! This is what I do! Imagine a knee surgeon being told by his son that his ruptured ACL is none of his dad’s concern.

I told my son that the $30 he is giving Uncle Sam (bus pass is $100) could by a few burgers, beers or flowers for his Mom!  It’s half of a video game; x12 it is $360. He told me it is a hassle to stop the pre-tax deduction. Advice from another learned 20-something, no doubt. But I’m not taking it personal. I remember my Dad telling me that I should max out my 401(k). I probably should have listened to him back then.  My son will learn. He’ll meet some gal - she’ll explain how he can be smarter with his money.

In the meantime, I’m stepping up my education efforts. That gal may be in one of the groups to whom I explain pre-tax deductions. She’ll love our new smart app that can take pictures of receipts and submit via phone. She’ll see the value in a dollar and will eventually convince him.  Yup...I’m going to be out there trolling for the newbies explaining how they can save money even though some people “JUST DON’T GET IT!”

The Author: Roger Jorgensen, RHU, REBC

Director of Marketing - HSA, FSA, HRA & COBRA

http://www.abgncs.com/HSAFSAHRA.aspx

rjorgensen@abg-mn.com

What Makes an Exempt Employee, Exempt?

An exempt employee is an employee that is exempt from both minimum wage and overtime pay. In order to qualify as an exempt employee, the FLSA has created regulations for both the job duties and weekly salary amounts that must be met.  An exempt employee cannot be deemed exempt based on their job title; it must be based on the duties of their position.  There are several types of exempt employee categories that the employee’s job duties may fall under:  executive, administrative, professional, computer and outside sales employees. 

In addition to the job duties, the employees must meet certain salary requirements. The employee must be paid a salary of no less than $455.00 per week or an hourly rate of $27.63, but these salary requirements do not apply to outside sales employees, teachers or doctors.  They must also be paid for the entire salary for any week in which the employee performs any work.  This is regardless of how many days or hours are worked.   There are only a couple circumstances in which an employer may make a deduction from pay, but in order to do so, the employee must be absent from work for one or more full days for personal reason other than sickness or disability. 

The Department of Labor (DOL) has several tools and resources available to assist employers in making this determination.  For more facts on the different types of exempt employees and the salary requirements, visit the link below.  This DOL site also includes a test to help you decide if your employees meet the qualifications of “exempt.”

http://www.dol.gov/whd/regs/compliance/fairpay/fs17g_salary.pdf

The Author: Alysha Frie, FPC

Payroll Sales Consultant

http://www.abgncs.com/payroll.aspx

afrie@abg-mn.com

What is the Difference Between Retirement Plan Administration and Recordkeeping?

In the world of retirement plans, oftentimes, plan administration and recordkeeping are two words used interchangeably.  However, they represent separate and distinct services.

Third party administration (TPA) is the actual testing and compliance services provided on a retirement plan (legal document work can be included in TPA services, as well).

Recordkeeping services, on the other hand, are the accounting functions on a retirement plan at the group level all the way down to the participant level.  Recordkeeping also involves the services associated with the plan sponsor/participant website and voice response unit (VRU) access.

As a service provider in the retirement plan industry, TPA and recordkeeping services can be provided by the same organization.  In addition, there are providers that specialize in only TPA services and others specializing in recordkeeping-only services.  

Ultimately, the plan sponsor must to determine the best fit provider to help maximize the success of their retirement program.

The Author: Tim Struck, CRPS

Wholesale Retirement Plan Consultant

http://www.abgncs.com/RetirementAdministration.aspx

tstruck@abg-mn.com

COBRA Pricing Options

In order to price COBRA administration services on a per benefit eligible employee basis, there are a number of variables that need to be collected. These variables can fluctuate significantly among companies. They can also vary significantly from year to year. COBRA administrators will typically load those rates to accommodate those fluctuations.

An alternative to pricing on a per-benefit-eligible basis is to price on a per-event basis. The expense of each event can be calculated accurately and then a reasonable profit margin can be added to it. Employers purchasing on a per-event basis only pay for services they use. No load has to be applied to these rates because fluctuations are easily accommodated. 

Therefore, employers that purchase COBRA administration on a per-event basis typically pay less than half of what employers pay on a per-benefit-eligible basis. 

The Author: Roger Jorgensen, RHU, REBC

Director of Marketing - HSA, FSA, HRA & COBRA

http://www.abgncs.com/COBRA.aspx

rjorgensen@abg-mn.com