As 2009 drew to a close, Mike Montgomery, Managing Principal of Montgomery Retirement Plan Advisors, was recognized in two national surveys of defined contribution industry professionals:

• 100 Most Influential People:  This survey, published annually by The 401kWire, recognizes thought leaders in the defined contribution plan industry.
• Top Ten Advisor:  Over 2,500 advisors were nominated and more than 75,000 votes cast by peers, plan sponsors and industry leaders.  Ten advisors were recognized in each of four market segments.  Montgomery Retirement Plan Advisors offers consulting services to plans of all sizes and Mr. Montgomery was named to the top ten in the $5M to $15M plan segment.  This national ranking is sponsored by 401kWire, Boston Research Group and 401kExchange.

Where Are Participants in Their Retirement Account Recovery?

Both the mainstream press and reports from retirement plan vendors lead us to conclude that participants’ retirement plan accounts either have, or are nearing, pre-recession levels. That said, the mixture of both relief and disbelief that plan sponsors are experiencing needs be somewhat tempered. As with most issues, the “devil is in the details.”

The Vanguard Group recently reported that 60% of their plan participants had the same, or higher, account balances in September 2009 as they did in September of 2007 (near the market peak). Of the remaining 40% with lower balances, most were less than 20% below their peak value. Both Fidelity and Prudential (among other vendors) reported similar findings. On the surface this information may be difficult to believe. While true that the “market” has rebounded substantially since its low point in Q1 2009 (the S&P 500 rebounded approximately 68% between March 9th and December 31st of 2009), it is still down roughly 25% from its peak in October of 2007.

However, the reports of participant account recovery are in fact accurate. First, the reality is that many retirement plan accounts are relatively small. The national average account balance, prior to the market downturn, was estimated at around $50,000. The smaller the account balance the greater the impact of new contributions (employee and employer) on the recovery of the account balance. EXAMPLE: Assume an “average” participant with an account balance of $50,000. The participant contributes $8,000 and receives an employer match of $4,000. Those amounts, in addition to investment growth experienced in 2009, serve to come very close to compensating for the losses experienced during the recent recession.

That said, plan sponsors should recognize that all participants will not have had similar experiences. Participants with higher account balances are likely still looking to recover losses incurred during the downturn of the market. Ultimately deferrals drive the success of the participant's drive towards a healthy retirement. If you wish to discuss additional strategies for furthering your average deferral percentage, please contact Montgomery Retirement Plan Advisors or email info@m-rpa.com.

NEW DOL REGULATIONS ON TIMELY DEPOSIT OF EMPLOYEE CONTRIBUTIONS

Employers sponsoring retirement plans with fewer than 100 eligible participants have been given specific Department of Labor guidance on how quickly they must deposit salary deferral contributions. On January 14, 2010, the Department of Labor issued final regulations that require sponsors of small plans (fewer than 100 eligible participants) to deposit employee contributions and loan repayments to their plan no later than the seventh business day following the date they are withheld from paychecks. The new seven day rule provides safe harbor protection for smaller plan sponsors that have previously been held to the less specific “earliest possible date” deposit guidelines previously applied to all plans.

Plans having 100 or more participants must continue to follow the existing Department of Labor regulations, which require that plan contributions and loan payments must be made on “the earliest possible date on which contributions can reasonably be segregated from the employer’s general assets”, but in no event later than the 15th business day of the month following the date on which contributions were deducted from employee pay. As payroll technology has improved in the last two decades, the latter guideline, allowing for deposits well into the month following deduction, has effectively been rendered obsolete as employers can rarely defend this extended time frame as being the earliest practical deposit date. When deposits are determined to be late, a potential prohibited transaction may occur due to the fact that employee retirement plan dollars are considered “commingled” with general employer assets.

Form 5500 Electronic Filing Requirement
The U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) converted to a total electronic system of online filing for the Forms 5500 and new the Form 5500-SF on December 31, 2009. Now the all-electronic EFAST2 system allows the public to submit and access filings online at www.efast.dol.gov.
The revised EFAST Web site has been updated to provide filers with a variety of tools and guidance, including the 2009 and 2010 Form 5500 and new Form 5500-SF schedules and instructions, Frequently Asked Questions, user guides, and a tutorial. Filers and preparers can register for an account, complete the required forms and schedules online in multiple sessions, print a copy for their records, and submit it at no cost.

Important changes for the 2009 and 2010 forms include:

• Mandatory electronic filing;
• Introduction of the new, two-page Form 5500-SF for eligible small plan filers;
• Expanded disclosure on Schedule C of indirect service provider compensation; and
• Removal of IRS Schedules E and SSA.

Information on participants with deferred vested benefits who separated from the service covered by the plan now must be filed directly with the IRS.

Communication Corner: Highly Compensated Employee Refund Notice
This month’s sample participant communication memo is intended for the highly compensated employees (HCEs) in your plan who may be subject to a refund in 2010 due to failed ADP or ACP tests. Email info@m-rpa.com for copy that you can print and distribute to employees.

This material is intended for informational purposes only and should not be construed as legal advice and is not intended to replace the advice of a qualified attorney, tax adviser, investment professional or insurance agent. Montgomery Retirement Plan Advisors does not warrant and is not responsible for errors or omissions in the content of this newsletter.

Securities and investment advisory services offered through Financial Telesis Inc. Member FINRA / SIPC. Montgomery Retirement Plan Advisors and Financial Telesis Inc. are not affiliated.