Contributions to Roth IRAs are always non-deductible, and active participation status in a QRP is not a consideration. The following income levels apply for contribution eligibility:

The aggregate total of all contributions to both Traditional and Roth IRAs for 2006 and 2007 may not exceed $4,000 per individual per year, or $8,000 per married couple, plus catch-up contributions if applicable.

Contributions must be made either during the calendar year for which the contribution is desired or by the tax return due date of that year, not including extensions (IRC Sec. 219(f)(3) and 408A(c)(7)). The tax return deadline for the 2006 tax year is Tuesday, April 17, 2007.

An employer must establish a Qualified Retirement Plan (QRP) by the end of the tax year for which a tax deduction is taken (Rev. Rul. 76-28). If an employer�s tax year is based upon the calendar year, December 31, 2006 was the last day a QRP could be established for 2006. However, employers have until the due date of their federal income tax return for the business, including extensions, to establish a Simplified Employee Pension Plan (SEP) and make SEP contributions (Prop. Treas. Reg. 1.408-7(b): IRC Sec. 404(h)).

Most types of employers are eligible to establish SEP IRAs, including sole proprietorships, partnerships, S or C corporations, and certain other non-profit and tax-exempt entities. The SEP may be an attractive alternative to the Profit Sharing Plan for small business owners.

The maximum amount that can be contributed annually on behalf of SEP participants is the lesser of:

It�s not too late for small business owners to take advantage of a new SEP plan for 2006.

to ensure that fees and compensation paid to fiduciary advisers, at both the entity and individual level, do not vary on the basis of any investment option selected. Moreover, it is anticipated that compliance with such policies will be reviewed as part of the annual audit required by section 408(g)(5)(A) and addressed in the report referred to in section 408(g)(5)(B)."

This guidance will help plan sponsors clearly understand their duty to monitor fiduciary advisers to ensure that fiduciary advisers are operating within the confines of the "eligible investment advice arrangement."

On January 10, 2007, the IRS released Notice 2007-7, which generally clarifies an assortment of distribution provisions under the Pension Protection Act (PPA).

Non-spouse Beneficiary Rollover. PPA includes a provision that now allows non-spouse beneficiaries the option to directly roll over any portion of a Qualified Plan distribution from an eligible retirement plan, which includes 401Ks, 403(b)s, and 457(b)s, to an "inherited IRA." The IRA must be registered in a manner that identifies the decedent and the beneficiary. The provision applies to distributions made after December 31, 2006, regardless of the date of the participant�s death. The Notice indicates that a plan is not required to offer the non-spouse rollover option. According to the Notice, however, the non-spouse rollover option is a right or feature, which if offered, must be available on a nondiscriminatory basis.

Hardship Distributions. PPA modified the hardship distribution rules such that a 401K or 403(b) plan using the "safe harbor" hardship provision may, but is not required to, provide a distribution to a participant based on the hardship of the participant�s primary benefi ciary, in addition to the participant, participant�s spouse, or dependent of the participant. The hardship events which qualify for the beneficiary hardship provision include medical, educational, and funeral expenses. The primary beneficiary is defined as the beneficiary named under the plan and who has an unconditional right to some or all of the participant�s account upon the participant�s death. A contingent or secondary beneficiary does not qualify under the provision.

Distribution Notices. PPA extended the timing requirements for distribution notices from 90 days to no less than 30 days and no more than 180 days before the commencement of annuity distributions. The change means that a distribution notice may remain in effect for up to 180 days. The notice must include a statement of the participant�s right to defer a distribution and a description of the consequences of failing to defer receipt of a distribution. The IRS Notice has provided a safe harbor if the "description of

the consequences" is written in a manner reasonably calculated to be understood by the average participant.

Distributions From IRAs to Charitable Organizations. PPA permits an IRA owner who is 70 � or older to directly transfer tax-free, up to $100,000 per year (2006 and 2007 only) to a qualified charity. The Notice clarified a few issues regarding qualified charitable contributions. First, a qualified charitable contribution may be taken from any type of IRA (except from a SEP or SIMPLE IRA in which an employer contributes for the taxable year of the qualified charitable contribution) and will not be subject to withholding.

Vesting of Nonelective Contributions. PPA provides for accelerated vesting requirements for employer nonelective contributions to defined contribution plans. Under the new rules, a defined contribution plan satisfies the minimum vesting requirements for a nonelective contribution if it has a three-year cliff or six-year graded vesting schedule. The Notice makes it clear that the accelerated vesting schedule applies only to nonelective contributions made for plan years after December 31, 2006. A plan can use a "bifurcated" vesting schedule that applies the new vesting rules to post-2006 contributions or a single schedule that applies to all contributions.

Given that the 401K has become the largest source of retirement savings in America, Congress and government regulators are planning to strengthen oversight of these accounts, specifically with regard to fees.

"All of these fees and commissions, all of these charges at some point end up coming out of the 401K owner�s account," said Miller. "I think we have an obligation to make sure that those costs are proper."

Rep. Miller isn�t the only one focusing on 401K fees. The Department of Labor (DOL) is planning three initiatives to make 401K fees more transparent. The DOL initiatives are in different planning stages, but proposals to improve transparency are expected in the spring.

As a fiduciary, employers should have a prudent process in place for reviewing plan expenses. Unfortunately, many employers find it difficult to identify all of the fees charged to their 401K plan even if the information is publicly available.

And it isn�t just Congress and government regulators who are eyeing 401K fees, litigators are filing class action complaints against 401K plans and the fiduciaries who administer those plans. The plaintiffs in the cases allege that the plans� fiduciaries breached their ERISA duties by allowing their plans to pay excessive fees and expenses to service providers. Specifically, the majority of the suits claim that the plans� fiduciaries had a duty to know about the revenue sharing arrangements that their plan providers were entering into with investment managers, and should have used that knowledge to negotiate lower plan fees.

All of this will likely increase fiduciary due diligence and scrutiny of fees, expenses, and revenue sharing arrangements.

The Department of Labor (DOL) has made electronic filing of Form 5500 mandatory for plan years beginning on or after January 1, 2008. The DOL believes that e-filing will lead to fewer errors on the returns and decrease the potential for penalties to filers. In addition, e-filing will allow for information to be disclosed to the public in a timelier manner.

The information contained in this newsletter has been carefully compiled from sources believed to be reliable, but the accuracy of the information is not guaranteed. This newsletter is distributed with the understanding that the publisher is not engaging in any legal or accounting type of work such as practicing law or CPA services.

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