CMC Ezine

First Round of 5500s Filed Electronically

The first round of electronically filled 5500s is over. The process was interesting and not without some hiccups.

  • Some software vendors found mass rejection of 5550s as volume picked up toward the deadline.

  • Some plan sponsors didn't understand that the name they entered with DOL had to match perfectly with the name registered on the websiteeven down to spaces and periods.

  • Some firms gave up and had clients sign paper copies (and an authorization form and sent them back to be filed.  Unfortunately, this means that the plan sponsors' signatures are available on the DOL website for use identity theft scams.

CMC walked clients (if necessary) through the filing process--and not one of our clients filed late.

With the 2010 forms available earlier next year, we anticipate the process moving more smoothly.

Broader Definition of Fiduciary Coming Soon

Nearly anyone selling any type of investment or insurance product to a retirement plan will be considered a fiduciary under proposed regulations issued by DOL. 

Here's the definition: If the participant or plan sponsor believes that what is being sold is a recommendation, then the person making the sale will be considered a fiduciary. 

One way to avoid being a fiduciary while selling something to a plan. Tell the person (probably have the client sign) that you are selling something that may be contrary to the best interest of the plan! Frankly this is a bad way to approach product sales.

What's the Big Deal?

Fiduciaries must act in the best interest of the plan/participants.  This is the same standard that Registered Investment Advisors (RIAs) are held to under with the Securities and Exchange Commission (SEC).  Fees and commissions must be structured in the best interest of the participants.  If one product pays more commissions, there has to be a good reason to recommend it over a product with a lower commission. 

It is expected that this will be effective towards the end of 2011.


Pension Limits Unchanged for 2011

Just like Social Security, there will not be any increase in the pension related limits for 2011.  So we will still have the same limits as 2009 and 2010:

Maximum deferral


Maximum Catch Up (over age 50)


Maximum Allocation (before catch up)


Highly Compensated


Maximum wages considered


Roth Conversion Information

Key Administrative Aspects of In-Plan Roth Rollovers

From an administrative perspective, the notable aspects of in-plan Roth rollovers include the following:

  • Treatment as a Distribution. An in-plan Roth rollover is not treated as a distribution for purposes of:
    • Plan loans. Loans that are transferred in an in-plan Roth rollover are not considered to be new loans if the payment schedule remains the same. As a result, the restrictions applicable to loan refinancing under Code � 72(p) do not apply.
    • Spousal consent. Married participants are not required under Code � 411(a)(11) to obtain spousal consent for an in-plan Roth rollover.
    • Right to defer. The amount rolled over continues to be taken into account in determining whether a participant's accrued benefit exceeds $5,000 under Code � 411(a)(11), and notice of the right to defer distribution is not required for the rollover.
    • Optional forms. Distribution rights (e.g., the right to an immediate distribution of the amount rolled over) cannot be eliminated by an in-plan Roth rollover.
  • Unwinding the Rollover. Unlike rollovers to Roth IRAs, participants who elect an in-plan Roth rollover cannot later elect to unwind or recharacterize the rollover.
  • Tax Treatment. In-plan Roth rollovers are not subject to the 20% mandatory withholding. The taxable amount of the rollover is includible in the participant's income in the taxable year in which the distribution occurs. However, an exception applies for rollovers in 2010, by which half of the taxable amount is included in income in 2011 and half in 2012 unless the participant elects to include it all in income in 2010. That election applies to all in-plan Roth rollovers made by the individual in 2010, and cannot be changed after the due date (including extensions) for filing the individual's tax return. (Notably, the election is independent of the participant's election regarding rollovers he or she made to a Roth IRA in 2010.) If a participant does defer income inclusion to 2011 and 2012 and takes distribution in 2010 or 2011 of an amount that would otherwise not be included until a later year, income acceleration will apply. Income acceleration would not apply if the amount is rolled over to another designated Roth account or to a Roth IRA, however. In-plan Roth rollovers are separately accounted for within the plan's designated Roth account. The basis recovery rules under Code � 72 and Treasury Regulation � 1.402A-1, Q&A-9 apply in determining how an amount distributed from the plan is allocated to the taxable portion of an in-plan Roth rollover for purposes of applying the income acceleration and 5-year recapture rules.
  • 5-Year Recapture and 10% Penalty. Similar to the 5-year recapture rule applicable to Roth IRAs, if an amount allocable to the taxable portion of an in-plan Roth rollover is distributed within five years following the rollover (i.e., within the five-taxable year period beginning with the first day of the participant's taxable year in which the rollover is made), the distribution is includible in income. In that case, the 10% early distribution penalty under Code � 72(t) will also apply to the taxable portion unless an exception under Code � 72(t)(2) pertains - such as where distribution is made after the attainment of age 59�, or after separation from service after the attainment of age 55.


November 1, 2010








647 West Broadway

Glendale, CA 91204


Cathy Green, CPC, ERPA

Mike Bain, ASA, EA, MSPA




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