For more information about
PenChecks, Inc. Benefit Distribution Services,
Call
1-800-541-3938 to speak to a Representative or email us at info@penchecks.com
THE DISTRIBUTION CONTINUUM
The
following continuum demonstrates the level of involvement and
complexity that is required in order to ensure that a benefit
payment is properly and accurately processed.
A trust I.D.# is needed in addition to the employer
tax I.D.#.
3.
The Plan must continue to file IRS Form 945 whether
or not distributions are made.
4.
In California, you must file quarterly State Form
DE-6 with the Employment Development Department. If
a deposit is to be made, you must file the DE-88 Coupons
with it. Many other states have similar requirements.
5.
There are fines for late filing of Federal and State
Forms.
6.
The trustee is personally liable if the appropriate
tax is not withheld.
7.
Depository Banks receiving withholding deposits do
not accept checks not drawn on their bank, unless you
file directly with the Federal Reserve.
Notice to Participants Regarding Distribution Options
of Cash, Withholding, IRA and other Qualified Plans
1.
Notices must be clearly and easily understood by
all. If not, the trustee/plan sponsors may be subject
to penalties, sanctions or both.
2.
Different forms are needed depending upon the amount
of the distribution and benefit options under the Plan.
3.
If mishandled, the Plan could be disqualified, resulting
in disastrous tax consequences.
State Withholding Requirements
1.
Participants must be given the opportunity to elect
whether or not to withhold State Taxes.
2.
Many states tie their withholding to Federal withholding.
3.
Quarterly filing is required in certain States.
4.
In California, withholding deposits must be paid
to the Employment Development Department, not the Franchise
Tax Board.
5.
Penalties for late filing.
6.
In certain states, once state taxes are withheld,
reporting to the state must continue on an ongoing
basis, regardless of whether or not a distribution
has been made.
Terminated Participants Must Receive
1.
Notice of Benefit Options.
2.
30 day Waiver Notice.
3.
An explanation of tax implications and benefit options.
4.
If the plan contains Joint and Survivor Annuity Languguage,
as many do, terminated participants must obtain a witnessed
or notarized spousal consent on all distributions valued
over $5,000.
5.
1099R.
Federal and State Forms
1.
Plan must file IRS Form 1096 annually and many states
have similar requirements.
2.
Penalties are assessed for not filing an IRS Form
1099 on a timely basis.
Joint and Survivor Annuity requirements are mandated
for married participants covered under a pension
plan. In community property states some of these
rules generally carry over to defined contribution
plans.
a. There are different requirements and notices depending upon
the amount of the distribution.
b. Annuity options and projections must be provided to former participants
in order to make a valid election.
c. There is a 30 to 90 day window. If missed, the process starts
all over again.
Trustee must make a diligent effort to locate missing
participant
1.
Receipt requested mail.
2.
Reliance on IRS or Social Security Administration
to locate a missing participant has limited success.
3.
Potential solutions are to buy annuities or deposit
unclaimed money into an IRA savings account, hire a
Private Investigator,_use a Credit Bureau or retain
PenChecks, Inc.
The benefit distribution continuum doesn't end here. The processing
of benefits has become so complex that the IRS is now aggressively
pursuing plan audits targeted at the distribution process. Failure
to process a benefit distribution properly could result in IRS
disqualification of a plan's tax exempt status. Do you want to
continue being liable for all these compliance issues, or would
you prefer to reduce your liability and let PenChecks, Inc. become
part of your team?
Let PenChecks, Inc. reduce your costs,
increase your time available for other income-producing business
and give you the peace of mind of knowing that your distributions
are being handled right.
The
following continuum demonstrates the level of involvement and
complexity that is required in order to ensure that a benefit
payment is properly and accurately processed.