Castle Rock Investment Company

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Auditor

In-plan Roth Rollovers: the latest topic

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Get out your red pen, folks: serious revisions to the rollover options for your plan. Today we’re looking at how you will need to revise your Plan Document in order to offer in-plan Roth rollovers and a few highlights.

In-plan Roth rollovers of otherwise non-distributable amounts are treated as eligible rollovers, meaning that no withholding applies. Since this amount is not distributable, no part of the rollover may be withheld for voluntary withholding. An employee making an in-plan Roth rollover may need to increase his or her withholding or make estimated tax payments to avoid an underpayment penalty. Concerning the rollover process, here is a critical section to know from IRS Notice 2014-74:

 

If you do a rollover to a designated Roth account in the Plan

You cannot roll over a distribution to a designated Roth account in another employer’s plan. However, you can roll the distribution over into a designated Roth account in the distributing Plan. If you roll over a payment from the Plan to a designated Roth account in the Plan, the amount of the payment rolled over (reduced by any after-tax amounts directly rolled over) will be taxed. However, the 10% additional tax on early distributions will not apply (unless you take the amount rolled over out of the designated Roth account within the 5-year period that begins on January 1 of the year of the rollover).

If you roll over the payment to a designated Roth account in the Plan, later payments from the designated Roth account that are qualified distributions will not be taxed (including earnings after the rollover)…

Remember, if you’re making revisions to your Plan Document, then Best Practices direct you to get an ERISA attorney, and make sure you’re fulfilling your fiduciary responsibility.

 

Katherine Brown is a Research Associate at Castle Rock Investment Company with a Master’s degree in Global Finance, Trade, and Economic Integration from the University of Denver. She can be reached at Katherine@castlerockinvesting.com.

How to Hire Your Plan’s Auditor

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Generally, Federal law requires employee benefit plans with 100 or more participants to have an audit as part of Form 5500.  Selection of your plan’s auditor is one of the most important duties of the plan administrator so the Department of Labor provides guidance to selecting an auditor at http://www.dol.gov/ebsa/publications/selectinganauditor.html.

In addition, the American Institute of Certified Public Accountants (AICPA) provides a sample RFP and Auditor Evaluation Process Checklist on their website at  http://ebpaqc.aicpa.org/ in the Employee Benefit Plan Audit Quality Center.  They recommend plan sponsors verify three items:
  1. The auditor is licensed or certified as a public accountant by a State regulatory authority.
  2. The auditor does not have any financial interests in the plan or the plan sponsor that would affect their ability to render and objective, unbiased option about the financial condition of the plan (having a Madoff flashback?).
  3. The auditor has the depth of experience needed to perform this service by checking their references.  The DOL and AICPA state that the most common reason for deficient accountants’ reports is the failure of the auditor to perform tests in areas unique to employee benefit plan audits.
You may want to start a search on AICPA’s website if you don’t have an auditor in mind.  Center members are required to adhere to strict management practices including the selection of its ERISA employee benefit plan audits as part of the firms peer review reviewed by individuals employed by another Center member firm.
Remember that this year the auditor’s report will attached to the Form 5500 as a PDF file and transmitted electronically using the EFAST2 system.  You can also find more information on EFAST2 on the DOL’s website at http://www.dol.gov/ebsa/faqs/faq-efast2.html.