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Qualified Plans: How NOT to Terminate Them to Avoid Mistakes

Qualified Plans Should Be Terminated Properly

More than 75 percent of the plan sponsors who participated in the Employee Plans Compliance Unit (EPCU) Termination Project failed to take all the steps necessary to complete the process of terminating their qualified plans.  Among the mistakes catalogued by the EPCU were the following:

 

  • Distributing all plan assets, but not marking Form 5500 as final.

 

  • Failing to distribute all plan assets as soon as administratively feasible after the plan termination.

 

  • Ignoring the requirements for locating missing participants and beneficiaries.

 

  • Confusing frozen and terminated plans.

 

  • Using the wrong plan number.

 

Although terminating a plan is both time-consuming and complex, plan sponsors can avoid making mistakes by careful and methodical planning.

 

Permissible Rollovers as Identified by the Internal Revenue Service’s Chart

What are Permissible Rollovers?

The IRS has published a one-page chart identifying the circumstances in which a rollover may take place between different types of plans.  In addition to this handy tool, the IRS website provides guidance on rollovers here.

Self-Help for Employers with Worker Misclassification Issues

Employers often struggle with the question of whether an individual worker is an employee or an independent contractor.  This issue is sometimes brought to the employer’s attention by the Department of Labor or Internal Revenue Service.  There are, however, many instances in which the employer becomes aware that a worker has been misclassified as an independent contractor and really should be treated as an employee.

Under the Internal Revenue Service’s Voluntary Classification Settlement Program (VCSP), an eligible employer may voluntarily reclassify workers as employees and agree to comply with requirements for withholding federal income tax and making appropriate contributions under the Federal Insurance Contributions Act (FICA) and the Federal Unemployment Tax Act (FUTA) during future tax periods.  In addition, the employer must pay ten percent of the employment tax liability that would have been due on the compensation paid to the reclassified workers during the most recent tax year if they had been properly classified as employees.  In exchange, the employer is relieved of liability for interest and penalties and will not be subject to an employment tax audit for prior years. Read More →