December 2000 AHP Update:
        401(k) Participant Contributions
        GUST restatements
        Pension Limits and Thresholds

  AICPA SOP 99-3:

Accounting and Reporting of Certain Defined Contribution Plan Investments and Other Disclosure Matters

  DOL Regulations Affect Pension Plans with Fewer than 100 Participants (released 10/19/2000)

  Multi-Employer Welfare Arrangements

  Code of Federal Regulations pertaining to PBWA

401(k) Participant Contributions:

Based upon the Department of Labor (DOL) regulations, an employer must segregate participant contributions to a qualified pension plan from its general assets (i.e. deposit participant contributions into the underlying plan trust) as soon as reasonably possible, but no later that 15 business days following the month in which the contributions were paid by employees or withheld from their wages.  The 15-business-day period is the maximum period allowed—it is not a safe harbor.  Earlier segregation is required if reasonably possible under the employer’s payroll practices.

Based on audits of 401(k) plans, the DOL has become concerned that companies have incorrectly assumed they are automatically allowed the maximum period to segregate participant contributions.  The DOL is apparently taking a hard stance on any violations it finds.  There has also been discussion during DOL audits that 401(k) deposits be made in the same time frame that is required for payroll tax liabilities.  Considering that an employer that fails to deposit participant contributions in the plan trust as soon as reasonably possible has engaged in a prohibited transaction, the ramifications can be severe.

Based upon the above, we recommend that you review your payroll procedures to make sure you are transmitting participant contributions as soon as reasonably possible.  If your plan’s investment company limits the frequency of receipts to a time period beyond what your payroll practice would indicate that is as soon as reasonably possible, you could consider using an interest bearing trust bank account to deposit contributions that will be forwarded to mutual funds when allowed.

If you have any questions on how this may affect your plan, please contact Diane Defresne Thompson.

As reported to you in previous years, as a result of The Uruguay Round Agreements Act of the General Agreement on Tariffs and Trade (GAAT), The Uniformed Services Employment and Reemployment Rights Act of 1997, (USERRA), The Small Business Job Protection Act of 1996 (SBJPA), and the Tax Reform Act of 1997 (TRA ‘97)--collectively referred to as GUST -- all qualified plans will require modifications to remain in compliance with applicable laws and regulations.

During the year 2000, the Internal Revenue Service (IRS) opened the determination letter program for sponsors of tax qualified plans to obtain determination letters that take into account all of the changes in the qualification requirements made by GUST.  In opening this program, the IRS has once again extended the time period (remedial amendment period) that amendments will have to be adopted.

Generally, those sponsors who have not adopted a prototype document will have until the last day of the first plan year beginning on or after January 1, 2001 to adopt these amendments.  For calendar year plans, this means that the GUST amendments must be adopted by December 31, 2001.  For those sponsors who have adopted a prototype document, under Revenue Procedure 2000-20, your remedial amendment period will not expire before the end of the twelfth month beginning after the date on which a GUST opinion or advisory letter is issued to the prototype sponsor.

For those of you on the prototype document sponsored by Laine Appold & Co./Laco Consulting, you will have twelve months after the date in which we receive our opinion letter on the basic document from the IRS.  The best estimate of that date is the Spring of 2001.  In that case, you will have until the Spring of 2002 to amend you plan.  However, if pending pension legislation is passed late in 2000 or early in 2001, industry experts are suggesting that there is a good chance for further delay.

We will continue to monitor the progress made by the IRS and will update you as issues are resolved by them.  We will also keep you informed of our progress on obtaining an opinion letter on the prototype basic document sponsored by us.

If you have any questions on how this may affect your plan, please contact Diane Defresne Thompson.

The IRS has issued calendar year 2001 dollar pension limits and thresholds as follows (2000 and 1999 amounts are provided for your convenience):

The above limitations may be affected by pending legislation awaiting action by Congress. If this legislation is enacted before the end of the year, some of these limitations may be modified.   We will notify you of any modifications as soon as the Internal Revenue Service issues them.

Generally MEWAs are arrangements which offer medical benefits to the employees of two or more employers, or to their beneficiaries. These arrangements may not include plans which are established or maintained under collective bargaining agreements, by a rural electric cooperative or by a rural telephone cooperative association.

On October 26, 2000, the U. S. Department of Labor published proposed rules for determining whether an employee welfare benefit plan is collectively bargained and therefore is exempt from state regulations governing multiple employer welfare arrangements (MEWAs). The text of the proposed rules are published in the October 27 Federal Register.

2000 Form M-1 in PDF format from the December 13, 2000 Federal Register.

The DOL has finalized amendments to the regulations governing the circumstances under which small pension plans are exempt from the requirements to engage an independent qualified public accountant and to include a report of the accountant as part of the annual report under Title I of the Employee Retirement Income Security Act of 1974, as amended (ERISA).

Background.  Regulation 29 CFR 2520.104-46 provides a waiver of the annual examination and report of an independent qualified public accountant for employee benefit plans with fewer than 100 participants at the beginning of the plan year.

Summary of Amendment. The proposed amendments are designed to increase the security of assets in small pension plans by conditioning the waiver of the requirements concerning the engagement of an accountant on enhanced disclosure of information to participants and beneficiaries and, in certain instances, improved bonding requirements. This regulatory action is being proposed as a way of enhancing the security and accountability of small pension plans because of recent cases involving embezzlement or other misappropriations of pension assets that have focused national attention on the potential vulnerability of small pension plans to fraud and abuse. The proposed amendments do not affect the exemption for small welfare plans (such as group health plans) under Sec. 2520.104-46. Conforming amendments are made to the simplified annual reporting requirements specified in 29 CFR 2520.104-41. If adopted, the proposal would affect participants and beneficiaries covered by small pension plans, sponsors and administrators of small pension plans, and service providers holding assets of small pension plans.

The new conditions in the final rule, which is largely unchanged from the proposed amendment, will apply to the first plan year starting after April 17, 2001. The final rule is scheduled to be published in the Oct. 19, 2000 Federal Register.

Read the full text of the DOL's proposed amendment.

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AICPA Statement of Position (SOP) 99-3 was approved by the Financial Accounting Standards Board on August 25, 1999. This approval paves the way for final issuance the SOP titled, Accounting and Reporting of Certain Defined Contribution Plan Investments and Other Disclosure Matters. The SOP was prepared by the AICPA's Employee Benefit Plans Committee and the Accounting Standards Executive Committee.

SOP 99-3 amends the AICPA Audit and Accounting Guide, Audits of Employee Benefit Plans, and SOP 94-4, Reporting of Investment Contracts Held by Health and Welfare Benefit Plans and Defined Contribution Plans, and SOP 92-6, Accounting and Reporting by Health & Welfare Benefit Plans. This SOP also simplifies disclosures for certain investments and would supersede AICPA Practice Bulletin 12, Reporting Separate Investment Fund Option Information of Defined Contribution Pension Plans (PB 12).

In summary, the new SOP:

• Amends paragraph 3.20 of the Guide to eliminate the previous requirement for a defined contribution plan to present plan investments by general type for participant-directed investments in the statement of net assets available for benefits.

• Amends paragraph 3.28(k) and supersedes paragraph 3.28(l) of the Guide and supersedes Practice Bulletin 12 to eliminate the requirement for a defined contribution plan to disclose participant-directed investment programs and to eliminate the requirement to disclose the total number of units and the net asset value per unit during the period, and at the end of the period, by defined contribution pension plans that assign units to participants.

• Amends paragraph 3.28(g) of the Guide to require a defined contribution plan to identify nonparticipant-directed investments that represent 5 percent or more of net assets available for benefits.

• Amends paragraphs 3.28(p) and 4.57 of the Guide, paragraph 53 of SOP 92-6, and paragraph 15 of SOP 94-4 to eliminate the requirement for defined contribution plans, including both health and welfare benefit plans and pension plans, to disclose benefit-responsive investment contracts by investment fund option.

The SOP is effective for financial statements for plan years ending after December 15, 1999. Earlier application is encouraged for fiscal years for which annual financial statements have not been issued.

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