Read about Bonding Requirement and more Retirement issues read below. Retirement # 3

 

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Bonding Requirement
All fiduciaries, except certain banks, must be bonded. The amount of the bond must not be less than 10% of the number of funds handled or $1,000, whichever is greater, or generally, not more than $500,000. Plans covering only partners and their spouses, or a sole shareholder, or a sole proprietor and spouse, are not subject to the bonding requirements.

IRS allows higher retirement savings account limits for 2018

For many Americans, retirement may look different in 2021 than it has in years past. The severe economic impact of the Covid-19 pandemic could push many people to consider retiring early, with less saved than they may need.

Whether or not your retirement plans are looking secure, the new year is a great time to review where you stand. Regardless of your particular financial situation, the same retirement principles apply this year as always: reduce spending, plan for surprises, make conservative decisions on retirement savings and Social Security, and keep earning income if you can.

Here are 10 tips to help you tune up your retirement planning in the new year. Some might sound familiar; some will sound brand-new, thanks to Covid-19. All of them are essential—as is getting started on them as soon as possible.

Top 10 Retirement Tips For 2021

Prohibited Transactions

There are also several prohibited transactions in which fiduciaries are forbidden to engage with party-in-interest. However, the Department of Labor may grant a specific exemption to any of these prohibited transactions based upon disclosure and proof of the benefit to the plan. These prohibited transactions are as follows:

(1) A sale, exchange, or lease of property between the plan and a party-in-interest;

(2) A loan or other extension of credit between the plan and a party in interest;

(3) The furnishing of goods, services, or facilities between the plan and a party-in-interest;

(4) A transfer of plan assets to a party-in-interest or a transfer that is for the use and benefit of a party-in-interest; and

(5) An acquisition by the plan of employer securities or real estate that is in violation of ERISA §407(a).

Additional Restrictions

The following actions by plan fiduciaries are also prohibited:

(a) Dealing with the assets of the plan for their own account;

(b) Receiving any consideration for his own account from any party dealing with the plan in connection with a transaction involving plan assets; or

(c) Acting in any capacity in any transaction involving a plan on behalf of a party, or in the representation of a party, whose interests are adverse to the interests of the plan, its participants, or beneficiaries.

Early Retirement Distributions and Your Taxes | Internal Revenue

Fiduciary Exceptions

There are, however, some exceptions to these prohibited transactions that do not prevent a fiduciary from doing any of the following:

(a) Receiving benefits from the plan as a participant or beneficiary so long as the benefits so received are consistent with the terms of the plan as applied to all other participants and beneficiaries;

(b) Receiving reasonable compensation for services to the plan unless the fiduciary receives full-time pay from the employer or employee organization;

(c) Receiving reimbursements for expenses actually incurred in the course of his duties to the plan; and/or

(d) Serving as an officer, employee, agent, etc., of a party-in-interest. Loans must be made available on a nondiscriminatory basis. That is to say, they must be made available to all plan participants on a reasonably equivalent basis. A loan from a qualified plan to a plan participant or beneficiary is treated as a taxable distribution unless:

(1) The loan must be repaid within 5 years (except for certain home loans), and

(2) The loan does not exceed the less of (a) $50,000, or (b) the greatest of $10,000 or 1/2 of the participant’s accrued benefit under the plan. The $50,000 limit for qualified plan loans is reduced where the participant has an outstanding loan balance during the 1-year period ending on the day before the date of any new loan (§72(p)(2)(A)(i)). In addition, except as provided in regulations, a plan loan must be amortized in substantially level payments, made not less frequently than quarterly, over the term of the loan (§72(p)(2)(C)). Formerly, the above exceptions to the prohibited transaction rules did not apply to plan loans to owner-employees.

Note: For purposes of the prohibited transaction rules, an owner-employee means (1) a sole proprietor, (2) a partner who owns more than 10% of either the capital interest or the profits interest in the partnership, (3) an employee or officer of a Subchapter S corporation
who owns more than 5% of the outstanding stock of the corporation, and (4) the owner of an IRA.
However, since 2002, the rules relating to plan loans made to owner-employees
(other than the owner of an IRA) were eliminated. Thus, the general statutory exception applies to such transactions.

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IRS Announces 2018 Pension Plan Limitations Not Affected by Tax Cuts and Jobs Act of 2017

Employer Securities
Except for profit sharing and pre-ERISA money purchase pension plans, pension plans may not acquire or hold qualifying employer securities or real property in the plan in excess of 10% of the fair market value of all the plan’s assets. In addition, ERISA imposes restrictions on the investment of retirement plan assets in employer stock or employer real property (ERISA §407).
Under these restrictions, a retirement plan may hold only a “qualifying” employer security. Under the Pension Act, in order to satisfy the plan qualification requirements of the Code and the vesting requirements of ERISA certainly defined contribution plans are required to provide diversification rights with respect to amounts invested in {employer securities. Such a plan is required to permit applicable individuals to direct that the portion of the individual’s account held in employer securities be invested in alternative investments. An applicable individual includes:
(1) any plan participant, and
(2) any beneficiary who has an account under the plan with respect to
which the beneficiary is entitled to exercise the rights of a participant. Thus, participants must now be allowed to immediately diversify* any
employee contributions or elective contributions invested in employer securities. For employer contributions, participants must be able to diversify out of employer stock after they have been in the plan for three years.

Excise Penalty Tax
Where a disqualified person participates in a prohibited transaction, an
initial non-deductible excise tax equal to 5% of the amount of the transaction is imposed on such person. An additional tax equal to 100% of the transaction amount is imposed if the transaction is not corrected within the correction period that is 90 days from the notice of deficiency, plus any extensions.

Pre-Approved Plans Opinion Letter Program (Revenue Procedure 2017-41) IRS

Sixty-Month Requirement
The PBGC guarantees the plan benefits to the extent that a plan has
been in existence for 60 months at the time of plan termination. This
The 60-month requirement allows for a phase-in of 20% per year for plans
that have not been in existence for 5 years. The funds to be accumulated by the PBGC are derived from an annual premium to be paid for each active participant and retiree. Even fully insured plans are required to obtain PBGC coverage.

Recovery Against Employer
Where the PBGC is required to pay benefits to participants, it may recover such amounts from the employer up to 30% of the employer’s net worth plus additional sums. Although this contingent employer liability may be covered by special risk insurance, the premiums are substantial.

Termination Proceedings
The PBGC can also be thoroughly involved in the operations of defined benefit pension plans. For example, the PBGC may institute proceedings to terminate a plan if it finds that:
(1) The plan failed to comply with the minimum funding standards;
(2) The plan is unable to pay benefits when they become due;
(3) A distribution is made to an owner-employee of $10,000 in a 24
month period, unless the payment is made due to the death of the owner-employee if, after the distribution, there are unfunded vested liabilities; or
(4) The possible long-term liability of the plan to the PBGC will increase unreasonably if the plan is not terminated. (7-10)

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