Even though the Pension Protection Act of 2006 added non-spouse direct rollover benefits to beneficiary IRA accounts, it does not specifically address the issue of permitting QRP spouse beneficiaries this same option and a technical correction is expected. However, in Notice 2008-30, Q&A-7, it states, "A surviving spouse who makes a rollover to a Roth IRA may elect either to treat the Roth IRA as his or her own or to establish the Roth IRA in the name of the decedent with the surviving spouse as the beneficiary." In other words, a QRP spouse beneficiary will also be permitted to roll (convert) the QRP assets into a Roth inherited beneficiary IRA.

Note: A non-spouse beneficiary cannot elect to treat the Roth IRA as his or her own.

If a Traditional IRA owner wishes to take a distribution from an IRA before reaching age 59 1/2, a 10 percent premature withdrawal penalty will be charged on the untaxed portion of that distribution. However, several exceptions to the general rule exist, and one such exception is found under IRC Sec. 72(t)(2)(A)(iv), commonly referred to as "the 72(t) exception." This rule allows an individual to receive substantially equal periodic payments penalty-free before reaching age 59 1/2, as long as the payments are calculated in one of the three IRS-approved methods and continue, without modification, until the later of five years or age 59 1/2.

NOTE: Qualified retirement plan (QRP) participants have this option, but may not begin until they separate from service.

The following terminology and conditions in regard to establishment and maintenance must be followed:

� Account balance � The account balance that is used to determine payments must be "determined in a reasonable manner based on the facts and circumstances." For the first year, any valuation date between the prior year-end balance and the date of the first distribution may be used. For subsequent years, under the Required Minimum Distribution method, it would be reasonable to use the prior year-end balance or an account balance that is "within a reasonable period before that year�s distribution."

� Life expectancy tables � An individual may determine payments using the uniform lifetime table, single life expectancy table in IRC Reg. 1.401(a)(9)-9, Q&A-1, or the joint and last survivor table in IRC Reg. 1.401(a)(9)-9, Q&A-3.

� Interest rates � The definition of the "rate of return" is any interest rate that is not more than 120 percent of the federal mid-term rate for either of the two months immediately preceding the month in which the distribution begins.

Under Revenue Ruling 2002-62, if substantially equal periodic payments are no longer supported by a depreciating account balance, individuals are offered relief by:

2. Allowing that a complete depletion of the IRA assets will not be treated as a "modification" of payments.

An individual who began distributions based on the amortization or annuitization method will be allowed in any subsequent year to switch to the Required Minimum Distribution (RMD) calculation method for the year of the switch and for all subsequent years.

There are specific IRS guidelines that govern the "substantially equal periodic payment" program, and once the program is initiated by an individual, it cannot stop (or be modified) until the conclusion of the program. It is always recommended that individuals who are considering this program seek the aid of a competent tax advisor or attorney before making any decisions.

The Form 5500 is generally due by the last day of the seventh month after the end of the plan year. Thus, the deadline for 2007 calendar year plans is July 31, 2008. One of the most serious offenses that a plan sponsor or plan administrator can commit is failure to file Form 5500. The IRS can impose a penalty of $25 per day up to $15,000, and the Department of Labor and the PBGC can each charge up to $1,100 per day. Also, any incorrect or inconsistent data could trigger an audit of the plan and could ultimately disqualify the tax-deferred status of the plan.

Owner-only plans with less than $250,000 in plan assets are exempt from filing IRS Form 5500.

For more information about the Form 5500 filing, go to the EBSA web site at www.dol.gov/ebsa or call (866) 444-3272.

The IRS and Department of Labor (DOL) have compiled a list of the most frequent Form 5500 filing errors.

� Failure to sign and date the form and any schedules that require a signature.

� Failure to provide the proper Employee Identification Number (EIN) and Plan Number.

� Filing for a period of more than 12 months.

� Filing a Form 5500 as a "Final Return/Report" if the plan has assets, liabilities, or participants at the end of the plan year.

� Failure to provide a proper business code � a listing of business codes is provided in the Form 5500 Instructions booklet.

� Failure to provide the correct plan characteristic codes � a listing of characteristic codes is provided in the Form 5500 Instructions booklet.

� Failure to file all applicable schedules and attachments.

� Failure to file the appropriate Financial Information schedule. Schedule I is generally for plans with 100 or fewer participants, while Schedule H is for plans with more than 100 participants.

� Incomplete Form 5500.

Additional information can be found in the DOL�s Trouble Shooter�s Guide to Filing the ERISA Annual Report (Form 5500), which is available on the DOL website at www.dol.gov/ebsa.

The Department of Labor (DOL) issued proposed regulations at the end of February that will provide retirement plans with fewer than 100 participants a safe harbor period of seven business days to deposit employee salary deferrals.

Under the current rules, employers of all sizes must transmit employee contributions to retirement plans as soon as they can reasonably be segregated from the general assets of the employer, but no later than the 15th business day of the month following the month in which contributions are received or withheld by the employer.

Before the effective date of the final regulation, the DOL will not assert a violation of the Employee Retirement Income Security Act regarding participant contributions where such contributions are deposited with small plans within the seven-business-day safe harbor period.

In addition, the DOL requests information and data regarding a possible safe harbor for plans with 100 or more participants to enable it to evaluate the current contribution practices of these large employers.

It is no surprise that the DOL is seeking to ensure that contributions are deposited in a timely manner. For the last couple of years, the DOL has been using seven days as a benchmark when auditing a plan�s contributions.

In 2005 the IRS formally issued new procedures for mandatory plan document restatements. Plan document restatements become necessary as various tax laws are passed, and those laws must be incorporated into the plan document.

Most plans use pre-approved documents (i.e., master, prototype, and volume-submitter plans) and are subject to a six-year restatement cycle, while individually designed plans are subject to a five-year restatement cycle.

Plan document providers were required to submit their plan documents to the IRS for the upcoming EGTRRA restatement by January 31, 2006. The procedure allows the IRS two years to review the submitted documents before opening the restatement window, which will generally last 24 months.

The IRS began issuing opinion letters to pre-approved plan document providers on March 31, 2008, which means that the mandatory restatement window has opened for pre-approved defined contribution plans. This means that plan sponsors must restate their pre-approved defined contribution plan documents prior to April 30, 2010.

The defined benefit restatement cycle will open in 2010.

Although the restatement window has opened, you should not expect to be contacted by your plan document provider until later this year. If you have any questions about your plan document restatement, please consult your plan document provider.

The 4th U.S. Circuit Court of Appeals upheld a lower court�s conviction of two retirement plan administrators for Employee

Retirement Income Security Act (ERISA) theft due to unpaid plan contributions.

John Alvis Jackson, Jr. was the President and CEO of The Burruss Company, and Larry Andrew Carey was it Chief Financial Officer. When the company fell into financial trouble, the two made false financial statements, became delinquent on vendor payments, and increasingly borrowed to pay expenses.

During this time, Jackson and Carey failed to submit contributions to two of the company�s pension plans for employees, but submitted IRS Form 5500s indicating the contributions had been made. When initially questioned, the two claimed that they had submitted the checks but they must have been misplaced.

Jackson and Carey would later admit that they stopped making contributions to the plans even though the plans were never officially terminated. The plans were still owed contributions for 1998 and 1999 of over $329,000.

In its opinion, the 4th Circuit Court said contributions become plan assets when they are due and payable. The defendants argued that employer contributions to the plans were not plan assets until they were paid, and thus they could not be guilty of theft of plan assets.

The 4th Circuit Court cited the prior opinion of the 10th Circuit Court, which stated that "when an ERISA employer has paid wages or salaries to its employees, it is contractually bound to contribute to any ERISA plan that it maintains" and "an employer must comply with it contractual obligations to make contributions to its ERISA plan, and such a contractual obligation constitutes an �asset� of the ERISA plan."

stealing from an ERISA plan shall be fined and/or imprisoned regardless of fiduciary status.

Jackson was sentenced by the lower courts to nine years in prison, while Carey was sentenced to seven years and three months in prison. The Burruss Company eventually filed bankruptcy.

Did your company have to refund excess contributions made to your 401K plan by Highly Compensated Employees (HCEs)? While most employees would be happy at the thought of a refund check from their employer, HCEs cringe at the thought of a refund check at the beginning of the year. Why? HCEs� maximum 401K contribution is dependent on the Non-HCEs� participation. The refund check represents an excess salary deferral made by HCEs to the 401K plan due to low participation by Non-HCEs. This "refund" is now considered taxable income. Corrected W-2s must be issued and 1040s amended. However, there is a solution that can allow HCEs to contribute up to the $15,500 (2008) salary deferral limit, even if non-HCEs� contributions are low.

Safe Harbor 401K plans are becoming an increasingly popular choice among retirement plan sponsors. By using the Safe Harbor provision, a 401K will automatically pass the non-discrimination tests and allow the HCEs to defer the maximum with no threat of refunds. In order to automatically pass the tests, the employer must make a mandatory, immediately vested employer contribution of either 3% to everybody that is eligible for the plan or a matching contribution which is 100% of the first 3% deferred and 50% of the next 2% deferred.

Please consult your plan�s third-party administrator to determine if the Safe Harbor provision would be appropriate for your 401K plan.

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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