| Test Your Human Resources Knowledge | ||
|
| Labor Law Journal Submissions | ||
|
| Labor Arbitrators' Awards and Biographies | ||
5500 Preparer's Manual for 2012 Plan Years
The premier resource in the field of Form 5500 preparation, 5500 Preparer's Manual will help you handle the required annual Form 5500 filings for both pension benefits and welfare benefit plans.
The President’s Advisory Panel on Federal Tax Reform, tasked with identifying problems in the federal tax Code and with creating options for reform, is recommending two potential solutions for simplifying the Code and making it more fair and conducive to economic growth. One option, the "Simplified Income Tax Plan," does away with the Alternative Minimum Tax, and simplifies the current system of benefits for home ownership, charitable giving, and health care. The second option, the "Growth and Investment Tax Plan," builds on the first option, but moves the Code closer to a system that would tax neither families nor businesses on savings and investments. It would also let businesses immediately write off investments, and is designed to lower tax rates by imposing a single, low tax rate on dividends, interest, and capital gains. The panel states that, in compliance with directions from President Bush, it came up with options that raise neither more nor less money than the current system.
Plan administrators, participants, and beneficiaries will be interested to note that the panel has recommended a number of reforms with regard to retirement plans. For example, 401(k), 403(b), 457, and other types of defined contribution plans would be consolidated into the panel’s recommended "Save at Work" plans, designed to be easily and less expensively established by any employer. The new plans would replace nondiscrimination requirements, which ensure that highly compensated employees do not receive disproportionately high benefits relative to other employees, with a single nondiscrimination test. Nondiscrimination testing could be avoided altogether if any employer’s Save at Work plan provides consistent employer contributions to each plan participant, regardless of the participant’s compensation.
To help reduce costs for small businesses, employers with 10 or fewer employees could contribute to a Save at Work account that would be similar to a SIMPLE IRA, and would be largely controlled by the employee. Annual returns would not have to be filed for these small business plans, and small employers would be subject to fewer liability rules than those applicable to larger employer-sponsored plans.
To encourage workers to make sound investment decisions in their Save at Work plans, the panel recommends implementing an “Auto Save” set of features, through which employees would automatically become participants in their employer’s Save at Work plans, unless they specifically decline to participate. To increase the amount of money employees set aside for retirement, one Auto Save feature recommended by the panel would automatically increase each employee’s contribution percentage over time. Through another Auto Save feature, unless an employee decides otherwise, plan contributions would be invested in balanced diversified alternatives with low fees, such as broad index or life-cycle funds. When an employee leaves his or her job, a final Auto Save feature would require an employee’s plan balance to either remain in the existing plan, be automatically transferred to a new Save at Work account with a new employer, or roll over to a Save for Retirement account, which is another type of retirement account recommended by the panel.
Save for Retirement accounts would be designed to replace IRAs, Roth IRAs, nondeductible IRAs, deferred executive compensation plans, and tax-free “inside buildup” of the cash value of life insurance and annuities. No income limits would apply to these Save for Retirement accounts, which would allow taxpayers to supplement their Save at Work plans with an additional $10,000 in tax-free accounts. Annual contributions would be indexed for inflation. Distributions prior to age 58, absent death or disability, would be subject to an additional 10% tax, similar to current penalties on early withdrawals from Roth IRAs.
The panel also proposes the replacement of such education and medical savings accounts as Coverdell Education Savings Accounts, Section 529 Qualified Tuition Plans, Health Savings Accounts, Archer Medical Savings Accounts, and employer-provided Flexible Spending Accounts with a single "Save for Family" account. Any taxpayer, regardless of family status, age, or income, could have such an account. The annual contribution limit for a Save for Family plan would be $10,000, and, as with current Roth IRAs, contributions would be made on an after-tax basis. For qualified health or education costs, or for the purchase of a primary residence, tax-free withdrawals could be made at any time. Furthermore, $1,000 could be withdrawn tax-free from a Save for Family plan, every year, for any reason.
According to the panel, the current saver’s credit, which provides a credit for 10, 20, or 50 percent of contributions of up to $2,000 made to either an IRA or an employer-sponsored defined contribution plan, ineffectively encourages saving by low-income taxpayers. The credit will expire after 2006, and the panel recommends replacing it with a new, 25 percent refundable saver’s credit. Under the new credit, the maximum annual contribution would be $2,000, making the maximum credit amount $500. The new Saver’s Credit would be calculated on a per-person basis, and would be gradually reduced as taxpayers earn more than $30,000 if married, or more than $15,000 if single.
For more information on this and related topics, consult the CCH Pension Plan Guide.
Visit our News Library to read more news stories.
©2005-2024 CCH Incorporated or its affiliates
