comprehensive instructions · 2009-12-07 · november 2009 c:18334-00 dear plan sponsor, this...

© 2009 Massachusetts Mutual Life Insurance Company. All rights reserved. www.massmutual.com. MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual) and its affiliated companies and sales representatives.

04012 1209 C: 18334-00

Comprehensive Instructions For Your Defined Benefit 2009 Plan Year-End Package

November 2009 C:18334-00

Dear Plan Sponsor, This Comprehensive Instructions For Your Defined Benefit 2009 Plan Year-End Package is your informational booklet for 2009. We are providing this plan year-end information as part of our ERISA Advisory ServicesSM. If you currently have a 401(k) or other defined contribution plan with MassMutual, you will receive information about that plan in a separate booklet or electronically on the TRC. The intent of this booklet is to provide you with information and instructions you will need to complete your 1) employee census and 2) the Plan Year-End Information Request Form for Defined Benefit Plan. Not all parts of the booklet will be applicable to all our clients. If MassMutual does funding and/or benefits calculations or if you are utilizing the Total Retirement Center (TRC), you will receive your employee census either through the TRC or on a diskette that you will need to update and return to MassMutual. Instructions needed to update your census information are on the diskette, further information is provided in Part 1 of this booklet. If MassMutual completes your annual IRS Form 5500 and applicable schedules, you will need to complete your Plan Year-End Information Request Form for Defined Benefit Plan that will be sent to you separately. Information you will need to complete the Plan Year-End Information Request Form for Defined Benefit Plan is provided in Part 2 of this booklet. If MassMutual provides testing services for your plan and your plan needs to be tested for the §401(a)(4) nondiscrimination tests, including the general test, the §410(b) minimum coverage test, the §401(a)(26) minimum participation test, the §414(s) compensation test, the 415(b) limitation test and/or the §416 top-heavy test, information about these tests is provided in Part 3 of this booklet. The Glossary is located in Part 4 of this booklet. The Glossary provides definitions for terms used throughout this booklet. We hope you find this booklet helpful. Sincerely, Defined Benefit Services

November 2009 Page 1 C:18334-00

Table of Contents Introduction .......................................................................................................................................1 Part 1 Employee Census for Defined Benefit Plans ..........................................................................2

• The Census Gathering Process ..............................................................................................2 • Entering Information on the Diskette ....................................................................................2 • Return of Data to MassMutual ..............................................................................................5 • The JourneySM .......................................................................................................................6 • Annual Benefit Statements ....................................................................................................6

Part 2 Plan Year-End Information Request Form For Defined Benefit Plan ..................................7 • Completing Your Questionnaire............................................................................................7 • Part A – Information Needed to Accurately Complete Your Form 5500 and Related Schedules...................................................................................................7

o Section I - Form 5500 General Information .............................................................7 o Section II - Schedule SB (Single Employer) or MB (Multiemployer) Information .....8 o Section III - Schedule C Information .......................................................................8 o Section IV – Schedule H or I Information................................................................12

• Part B – Information Needed to Complete Your Compliance Testing for 2009 ...................13 • Part C – Information Needed to Complete Your Annual Funding Notice for 2009..............13 • Posting Form 5500 Information on the Plan Sponsor’s Intranet Site....................................14 • Returning Your Completed Questionnaire to MassMutual ...................................................14

Part 3 Nondiscrimination Testing.....................................................................................................15 • Overview of the Testing Process...........................................................................................15 • Identifying the Plan to be Tested – Disaggregation ..............................................................15 • Identifying the Employees to be Tested ................................................................................15 • §401(a)(26) Minimum Participation Test..............................................................................17 • §410(b) Minimum Coverage Test .........................................................................................18 • §414(s) Compensation Test...................................................................................................20 • §401(a)(4) Nondiscrimination Test (General Test) ...............................................................21 • §415(b) Annual Benefit Limitation Test ...............................................................................22 • §416 Top-Heavy Test ............................................................................................................22

Part 4 Glossary ..................................................................................................................................24 The information provided in this booklet is for informational purposes only and should not be construed as legal or tax advice. Consult with your legal advisor regarding how it applies to your plan(s). Introduction As part of MassMutual’s ERISA Advisory ServicesSM, MassMutual can assist you with your plan year-end activities and help you meet your administrative, reporting and regulatory testing obligations. You will find it easier to complete your data gathering as you read these Instructions. Timely, accurate completion of your 2009 Plan Year-End Package is critical to plan administration. MassMutual uses your completed data for funding requirements, benefit calculations, benefit statements, accurately reflecting data on the Total Retirement Center (TRC), Form 5500 reporting and performing any required tests. You must complete the following and return the results to MassMutual:

• Employee census for defined benefit plan, and • Plan Year-End Information Request Form For Defined Benefit Plan.

Thank you for your time and effort completing the 2009 Plan Year-End Package.


Part 1 Employee Census for Defined Benefit Plans

Each year, just before the anniversary date of your defined benefit plan, the Retirement Services division of MassMutual (“MassMutual”) requests updated census information about your participants. This data gathering process is vital to ensure MassMutual can deliver quality and timely services to you and your participants. Once census data is updated, MassMutual can: • Prepare participant benefit statements

• Update data used to provide calculations through The JourneySM

• Prepare your plan’s annual valuation report

• Prepare plan year-end package and material

• Produce benefit calculations for your participants based on the most recent information

The Census Gathering Process

There are several ways you can supply census data to MassMutual: • Enter the required data into the Excel worksheet

provided • Copy and paste from your own Microsoft Excel

workbook files (.xls), or

• Import the information from an existing text (.txt) file.

By submitting this information to MassMutual, you are certifying that it is “benefit quality data” and has been verified against your records. “Benefit quality data” is complete and accurate data that can be used to calculate benefits in accordance with the provisions of your plan. It is important you provide complete census information, which may include salary and hours for all employees – including employees who have terminated or retired. MassMutual will process terminations based on this information. Once

MassMutual receives your updated census file, we will perform a quality review. If there are any questions or additional data is needed, we will contact you. In addition, we may contact you during the update process if additional clarification is required. Some portions of the workbook are password protected. Please maintain this protection to preserve the integrity as well as privacy of the data on the file.

Entering Information on the Diskette Getting Started is Easy 1. Insert the diskette and copy it to your hard drive.

Please do not change the name of the Excel workbook file.

2. Remove the diskette and put it back into the census envelope.

3. Double click on the file and your Excel workbook will open.

4. If the screen indicates the workbook contains macros, choose “Enable Macros”. If you did not receive a message asking you to enable macros, close the workbook and change security options.

Welcome Screen The workbook contains Excel worksheets and other screens to assist you in completing the census. Please read the “Welcome” screen and choose the blue button labeled “Click here to begin.” Decision Maker Screen This screen provides information on the different methods of importing information to the defined benefit employee census. You can try any or all methods at any time. The following is a description of the three methods. Please review each method and choose the one that best suits your needs.

Questions? E-mail us at [email protected]


• Copy and Paste – You can copy and paste from

any windows-based application into “Your Initial Workbook.” Then follow the instructions.

• Direct Data Entry – This option allows you to

enter the data manually. It can also be used to manually insert missing or incorrect information.

• Text File Import – The text file import option

allows you to import multiple text files from a database or spreadsheet program. In addition, you may selectively import data. If you choose to use the text file import function to import group names, you must use the group names that appear in the workbook. Double click on any cell under the group identification column(s) on the Active sheet to view the valid group names. A drop-down box showing all group options will appear. You choose one of the options.

For more information, choose the “More Info on Text Files” option. DB Census Process Easy-to-follow Instructions If you choose to use the text file import function for status change information, you must use the following status codes. These are also provided in the drop-down boxes located within the workbook. Review this list before choosing the status code. Only these codes are acceptable.

List of Census Status Codes and Meanings

Adding New Employees If you choose the copy and paste function, you must position your cursor at the beginning of the first blank row on your census. Then paste the new employee information into the appropriate columns. If you choose direct data entry, enter the new employee information beginning with the first blank row on your census. If you choose the text file import method, the new employees will be added beginning with the first blank row on your census. Navigating the Census Use the navigator at the top of the screen to view different screens. Depending on the sheet you are viewing, you may have one or both of these navigation tools. If the navigator does not appear at the top of your screen, go back to the census menu. By clicking on any one of the tabs, you go to the worksheet. Please notice the arrows to the right of the tabs. Clicking on the arrows moves the tab to the left and the right. Click on some of the tabs and then use the arrow to maneuver to the “Welcome” screen. Now use the arrow and click back to where you started, the “Direct Data” Entry screen. Another way to maneuver is by using the navigator at the top of the screen. Not

Status Code Meaning HI Hired TE Terminated DE Died RT Retired DI Disabled LO Lay off LA Leave of absence TO Transfer out TI Transfer in RE Rehired RO Returned from layoff RL Return from leave RC Recovered from disability NP Refuse to participate AP Agree to participate AN Refused to contribute MC Returned to contributing EC Return to active, contributing


all worksheets may appear. For example, if your plan does not have any reclassified employees, that worksheet would not be part of your census workbook. Actives Worksheet The “Actives Worksheet” shows employee demographic data and specific data unique to your defined benefit pension plan according to our current records. This data includes group name (if applicable), Social Security number (SSN), name, birth date, sex, and original date of hire. You can update most fields by typing over the incorrect data with the adjusted information. If the SSN is incorrect, use the corrected SSN field to the far right of the worksheet. Other plan-specific employee data may need to be added to this section. Please refer to your plan definitions when completing this section, especially if your plan requires you to report the annualized salary. Be sure to enter all requested information for all employees listed on the “Actives Worksheet” regardless of their current status. At the far right-hand side of the screen are the changes in status columns. These columns must be completed for anyone who became inactive during the year. Double click in the status change code column and select the correct status change event code (e.g., terminated, you would choose TE). The program will automatically fill in the correct status change and will move the cursor over to the status change date column. Please enter the status change date – mm/dd/yyyy – (this field is required). If an employee has returned to active status, you must add the employee to the “Actives Worksheet” and complete all columns. Transferred Employees If an employee transfers to another group or location, the employee needs to be listed twice - once in the group he is transferring from and once in the group he is transferring to. In the row that shows his former group or location, enter the variable information

(salary, hours worked, etc.) from the requested date through the date the employee transferred out of this group or location. Choose transferred out (TO) from the status change drop-down box and enter the date of transfer under status change date. Add the employee on a new row at the end of the data on the census that contains his new group. Double click in the cell where the group name is to be entered. A drop down box will appear. These are the only valid group names. Choose the appropriate group name. Enter his census variables beginning from his transfer in date and ending at the end of the requested period. Move to the status change box, double click in the cell, choose transferred in (TI) from the status change drop down box and enter the date of transfer under status change date. Reclassified Employee Worksheet The “Reclassified Employee Worksheet” lists all employees who transferred out of this plan into another of your plans. Please review this list for accuracy and note any changes to the right. If an employee has returned to active status in this plan, you must add him to the “Actives Worksheet”. Additional Status Changes for Elapsed Time Cases If service in your plan is calculated using the elapsed time method, an extra worksheet called “Addt’l Status Changes” will be included. If any of your employees changed employment status more than once during the plan year, enter the employee’s SSN in the left-most column and his or her name will appear in the name column. Double click in the status change column and select the correct employment event code (e.g., TE). The program will automatically fill in the right status change and will move the cursor over to the status change date column. Under the status change date indicate the month, day, and four-digit year of activity (e.g., 11/15/2009). Repeat as necessary to report additional status changes. Other Worksheets • “Address Worksheet”


To enter address information manually, select Custom Views from the menu bar then click Address Info. Enter data manually or use the Text File Import function. To use the Text File Import function you must be on the Address Info page. From the Address Info page select Census from the menu bar then select Go To Decision Maker. Next select Text File Import and follow the on screen instructions for importing a file. If you are not on the Address Info page you will not be able to use the Import File function to import an address file. Once you’ve completed your import click on Custom Views and Actives to get back to the Active worksheet. Save your file while on this worksheet.

• “Spousal Worksheet”

To enter spousal information manually, select Custom Views from the menu bar then click Spousal Info. Enter data manually or use the Text File Import function. To use the Text File Import function you must be on the Spousal Info page. From the Spousal Info page select Census from the menu bar then select Go To Decision Maker. Next select Text File Import and follow the on-screen instructions for importing a file. If you are not on the Spousal Info page you will not be able to use the Import File function to import a spousal file. Once you’ve completed your import click on Custom Views and Actives to get back to the “Actives Worksheet”. Save your file while on this worksheet.

Verification When verification is complete, a message box will appear. Click “okay” to acknowledge the verification process. Then choose “MassMutual” on your toolbar. When the MassMutual menu appears at the top of your screen, choose Census, then select “Go to Submit.” If your original census was received via diskette save your completed census to that diskette. The next section will give you instructions on how to send your completed census to MassMutual.

Return of Data to MassMutual The timely receipt of census data is important. The updated census may be returned to MassMutual using one of the following methods:

• Transmit securely through the File Transfer page available through MassMutual’s TRC, our plan sponsor web site;

• Mail through the U.S. Post Office to MassMutual’s Data Management Team, B215, or

• Transmit through independent Internet sites, which offer a password-protected, encrypted transmission method.

Please keep a copy of the workbook (census data) you return for your files. Information should not be returned via standard e-mail, as this transmission method does not protect confidential data. Good Order MassMutual will deliver timely service upon receipt of census information in good order (complete worksheets in an Excel defined benefit employee census workbook).


Potential Delays Incomplete or illegible information (census information not in good order) may result in a delay in the completion of your annual census update. This update is necessary to deliver many of the services MassMutual provides to you and your participants. The JourneySM Your participants may have online access to benefit modeling through The JourneySM, MassMutual’s retirement planning Web site. Participants can enter their expected retirement date or alternate dates to view monthly benefit estimates. With an unlimited number of scenarios available, these modeling tools make your defined benefit plan come alive to your participants.

Annual Benefit Statements Annually, your participants who have a vested accrued benefit and who are employed by the employer at the time benefits statements are furnished will receive a personalized statement with information about their current and projected benefits. Illustrated with colorful charts, participants see estimates on how much of their current income could be replaced at retirement with their projected monthly benefit and Social Security. By showing a more complete picture, the statement helps participants recognize the value of their benefit and plan more effectively. Updated census information must be received before MassMutual can begin the process of producing annual statements. Generally, statements are delivered according to the following schedule: Census* Benefit statements received by delivery date December 1 February 15 January 1 March 15 March 1 May 15 April 1 June 15 June 1 August 15 July 1 September 15 September 1 November 15 October 1 December 15 *Received in good order.

Things to Remember

• Use the status code definitions provided earlier in this document and in the Excel workbook.

• This workbook is password protected to maintain the integrity of the file. Removing the protection on the workbook may corrupt the file.

• Please do not insert blank rows in the “Actives Worksheet” because the verification process will stop if a blank line is found.

• Provide the requested information for all employees currently listed on the “Actives Worksheet” regardless of their current status.

• If you saved the file to your hard drive, be sure to save the completed file to the disk provided.

• If you’re working with a large file, before you save it you may need to compress it using a zip utility.

• The Excel workbook census program uses a special MassMutual menu. This menu will remain open as long as the Excel application is open on your computer.

Census Questions? E-mail us at [email protected].

November 2009 Page 7 RS:18334-00

Part 2 Plan Year-End Information Request Form for Defined Benefit Plan Completing Your Questionnaire As part of the Plan Year-End Package, you will receive a Plan Year-End Information Request Form, which is a request for detailed plan information. The Plan Year-End Information Request Form is intended to be completed by plan sponsors who used MassMutual’s actuarial services for the 2009 plan year. This form is comprised of two parts. Part A pertains to the Form 5500 and related Schedules. Unless this Part A is filled out completely, MassMutual will not be able to provide you with a complete and accurate Form 5500 and related Schedules. Part B pertains to non-discrimination testing services. Unless this Part B is filled out completely, MassMutual will not be able to provide you with complete and accurate non-discrimination testing services. Part C information is needed so we can help you meet Annual Funding Notice requirements. If MassMutual did not prepare your 2008 Form 5500 and related schedules, but we did provide actuarial services for the 2009 plan year, and you have not done so already, please send a signed copy of your completed 2008 Form 5500 and related schedules to MassMutual including audited financial statements if applicable. Some information in Part A has been pre-filled based on information we have in our files. If any of the pre-filled information is incorrect, please change it. Please complete ALL sections of the Plan Year-End Information Request Form, even if no information changed since the last time you reported this information.

PART A – INFORMATION NEEDED TO ACCURATELY COMPLETE YOUR FORM 5500 AND RELATED SCHEDULES Section I. FORM 5500 GENERAL INFORMATION Some items may be pre-filled by MassMutual. Please confirm that all information is complete, accurate and make corrections as needed. Complete the questions that have been left blank. 2009 Plan Year – The information provided in the Plan Year-End Information Request Form must be based on your 2009 plan year. If your plan year has changed, and resulted in a plan year of less than 12 months (“short plan year”) for 2009, please complete the Plan Year-End Information Request Form based on the short plan year. Some of the following items may be pre-filled. 1. Plan entity – Please complete the field indicating

the type of plan sponsor – single employer, multiemployer, or multiple-employer. If plan mergers, transfers or acquisitions occurred during the plan year, you should confirm that the plan entity remained the same.

6. Plan ID (Plan Identification Number - PIN)

This three-digit identification number is the number assigned to your plan (e.g., 001 for a company’s first plan, or 002, 003, etc. for additional active or terminated plans of the company). The three-digit number, in conjunction with the sponsor’s EIN, is used by the Internal Revenue Service (IRS), Department of Labor (DOL), and PBGC as a unique 12-digit number to identify the plan. Review any pre-filled information. Make edits as needed.

8. Business code – This is the 6-digit number that

best describes your main business activity based on the North American Industry Classification System. If this item is pre-filled, it is based on the information you reported to MassMutual on last year’s Request Form. To determine this six-digit code, consult the Instructions for Form 5500 that the Department of Labor (DOL) releases


annually. These instructions can be found at www.dol.gov/ebsa/5500main.html.

14. If the plan holds assets outside of MassMutual,

the Form 5500 and related Schedules will not be complete and accurate unless MassMutual receives the requested information about these outside assets. Please be sure to complete questions 15 & 16.

Section II. SCHEDULE SB (SINGLE EMPLOYER) OR MB (MULTIEMPLOYER) INFORMATION. With the passage of the Pension Protection Act of 2006, the timing of contributions can have a significant impact on your plan’s funding status. Consult with the Plan’s actuary to determine the timing of any “after the end of the 2009 plan year” contributions.

Section III. SCHEDULE C INFORMATION. MassMutual has made a good faith effort to make all necessary recordkeeping and information system changes with respect to Schedule C in a timely manner, including securing and disclosing all reportable compensation and to properly classify services and fees. MassMutual, as a service provider, believes we have supplied all Schedule C reportable information relating to revenue it receives. Rules are different for “small plan filers” and “large plan filers”. For a definition of each, refer to the Glossary in Part 4 of this booklet. If your plan is a Small Plan Filer (plans with fewer than 100 participants at the beginning of the plan year) for Form 5500 reporting purposes and qualifies for an audit waiver, please leave this Section III blank and proceed to Section IV. If your plan is a Large Plan Filer (plans with 100 or more participants at the beginning of the 2009 plan year) for Form 5500 reporting purposes, complete Section III if any service providers (other than Mass-Mutual) paid plan related expenses from plan assets. Large plan sponsors will discover there are many changes - not only with the number of service

providers that are reported (no longer capped at the top 40), but also in the compensation that must be considered in meeting the Schedule C reporting threshold ($5,000 or more). The Form 5500 Schedule C always required a service provider to list both direct and indirect compensation if they met the requirements of disclosure. The definition of what constitutes indirect compensation has been greatly expanded. For example, let’s assume a service provider annually received $6,000 in direct and indirect compensation for services related to a plan’s 2008 and 2009 plan years. Based upon the types of compensation, it is possible that the service provider may not have reported this compensation on the 2008 Schedule C but because of the expanded definition of indirect compensation (e.g. 12-b1 fees) this must now be reported on the 2009 Schedule C due to the expanded definition of what constitutes reportable Schedule C compensation. The intent behind the Schedule C is to provide a snapshot of the costs for services related to a plan during a plan year, either directly or indirectly. The Department of Labor (“DOL”) sees the Form 5500 Schedule C playing a key role in helping plan sponsors obtain the information they need to assess the reasonableness of the compensation paid - directly and/or indirectly - with regard to their plan, taking into account revenue sharing and other financial relationships or arrangements and being in a better position to identify any potential conflicts of interest. Since the plan administrator is ultimately responsible for reporting complete and accurate information on the Schedule C, this may be a good time to modify your 5500-related procedures to better support this expanded Schedule C obligation. This can be done by putting together a list that identifies your plan’s service providers; noting when Schedule C information is received for a completed plan year (and whether it was timely provided); reviewing the information you have been sent (which may include written disclosures for eligible indirect compensation) and, finally, retaining these records for the required document retention period after the Form 5500 filing date for a given plan year.

Two Types of Compensation – Direct and Indirect Employee benefit plans are required to report all direct and indirect compensation received by service


providers, subject to de minimis thresholds (more on these later). Payments made directly by the plan for services rendered to the plan or because of a person’s position in relation to the plan are reportable as Direct Compensation (for example, direct payments by the plan out of plan assets,). In addition, when a plan sponsor has determined a fee is a reasonable plan expense that may be paid out of plan assets (e.g., the fees associated with the plan’s audited financial statements), a request may be made to the service provider holding the plan assets to pay this expense directly from plan assets. Sometimes a plan sponsor pays a third party service provider first and then seeks reimbursement from the plan for the reasonable plan expense. As the DOL’s Employee Benefits Security Administration (“EBSA”) has explained in its FAQs about the 2009 Form 5500 Schedule C, the Schedule C will reflect this as a direct payment from the plan to the service provider, not a payment to the employer. It is important to maintain copies of any reimbursement requests a sponsor makes during a plan year, in order to ensure Schedule C reporting is accurate. The concept of Direct Compensation and what is included is relatively straight-forward. As a sponsor, you may want to keep copies of your request(s) for payments made directly from your plan (or requests for reimbursements) for a given plan year in one location. (Payments to service providers made directly by the plan sponsor out the company’s general assets continue to not be reportable on the Schedule C.) As the instructions for Schedule C explain, the Internal Revenue Service (“IRS”) and Pension Benefit Guaranty Corporation (“PBGC”) should not be listed as service providers. This means a defined benefit plan’s direct payment of its PBGC premium would not be reported on the Schedule C. Indirect Compensation is that which is paid from a source other than directly by the plan or by the plan sponsor that is received by a service provider in connection with services rendered to the plan or the person’s position with the plan. Examples of reportable Indirect Compensation include:

Fees and expense reimbursement payments received. Money and any other thing of value (for example, gifts, awards, trips, meals, tickets).

Waiver of any conference registration fee, if the conference was offered in connection with services rendered to the plan.

Fees and expense reimbursement payments received by a person from a mutual fund, bank commingled trusts, insurance company pooled separate accounts and other separately managed accounts and pooled investment funds in which the plan invests that are charged against the fund or account and reflected in the value of the plan’s investment.

The DOL allows for a reasonable method to be used in allocating compensation among plans. In reporting compensation, if the amount, or purpose of the gift, is based on a book of business, MassMutual would apply a pro rata share of the value of the gift as indirect compensation for the ERISA plans involved. For example, a service provider extends an invitation to a sporting event to an advisor as a result of their existing business relationship. This would be reportable compensation for purposes of the Schedule C. If the invitation to the advisor was based on ten existing plans the advisor had brought to the service provider, then the cost allocable to the advisor would be divided pro rata across the existing book of business (that is, 1/10th of the cost would be shown on each plan’s schedule C). Plan Administrators are allowed to exclude non-monetary compensation (indirect compensation) of insubstantial value (such as gifts or meals of insubstantial value). The gift or gratuity must be valued at less than $50 and the aggregate value of gifts from one source in a calendar year must be valued at less than $100. If this $100 aggregate limit is exceeded, then the value of all the gifts is considered reportable compensation. Gifts of less than $10 do not need to be included in calculating the aggregate value of all gifts. Simplified/Alternative Reporting Eligible Indirect Compensation: Eligible Indirect Compensation (EIC) is a type of indirect compensation that is defined as fees or expense reimbursement payments charged to the investment funds and reflected in the value of the


investment or return on investment of the participating plan or its participants. Examples include: finder fees, “soft dollar” revenue, float revenue, 12b-1 fees, management fees, and/or brokerage commissions or other transaction-based fees for transactions or services involving the plan that were not paid directly by the plan or plan sponsor. In order to be EIC, certain requirements must be satisfied by the person receiving the compensation, i.e., the recordkeeper(s). To be considered EIC, the plan sponsor must have received written materials that disclosed and described the existence of the indirect compensation; the services provided for the indirection compensation or the purpose for payment of the indirect compensation; the amount (or estimate) of the compensation or a description of the formula used to calculate or determine the compensation; and, the identity of the party or parties paying and receiving the compensation. If all of the EIC requirements are satisfied then the plan sponsor would report the name and Employer Identification Number (EIN) or address of the person/entity that provided the EIC-related disclosure; however, the sponsor would not need to report the amount of compensation. Examples of Indirect Compensation that qualify as EIC when the written disclosure requirements are met include:

finder’s fees, float revenue, commissions paid to an agent, advisor or

broker dealer, research or other products and services, received from a broker dealer or other third party in connection with securities transactions (soft dollars), and

other transaction-based fees received in connection with transactions or services involving the plan.

While there is no specific requirement that the disclosures be provided annually, the plan administrator must review the disclosures at least annually in connection with the Form 5500 preparation and confirm that the information continues to be correct.

Bundled Services Arrangement:

A bundled service arrangement includes any service arrangement where the plan hires one company to provide a range of services, either directly from the company, through affiliates or subcontractors, or through a combination, which are priced to the plan as a single package rather than a service-by-service basis. Direct payments by the plan to the bundled service provider (e.g., MassMutual for clients electing full-services) will be reported as Direct Compensation to the service provider. These direct payments do not need to be separately allocated among affiliates or subcontractors, nor reported as Indirect Compensation received by these affiliates or subcontractors, subject to certain exceptions. There are two exceptions that apply to fees that are required to be broken out on the Schedule C regardless of whether they are part of a bundle: (1) the compensation is charged to the investment fund and reflected in net asset value (such as investment management fees, and other asset-based fees such as shareholder servicing fees, 12b-1 fees and float revenue, wrap fees, if charged in addition to the investment management fee; and (2) compensation is received by a service provider who is reported on Schedule C, Part I, line 3 and is commission or other transaction-based fees, finders’ fees, float revenue, soft dollar and other non-monetary compensation. Examples of separate fees charged against a plan’s investment for purposes of this exception are revenue sharing payments, recordkeeping or compliance services that are paid by an investment provider to a Third Party Administrator. Schedule C Thresholds Unchanged from prior years is the requirement that a large plan must complete a Schedule C to report information for each person/entity who received $5,000 or more in total compensation (that is cash or non-cash compensation) in connection with services rendered to the plan or the person’s position for the plan.


While compensation reported on the Schedule A (Insurance Information) is not required to be reported again on the Schedule C, Schedule A compensation is taken into account in determining if the plan’s Schedule C threshold is $5,000 or more. For example, if a broker received $4,000 in insurance commissions from an insurance company in connection with the plan and $2,000 from the plan for providing consulting services, the plan’s 5500 filing would include a Schedule A identifying the $4,000 in commissions and a Schedule C entry for the broker reporting the $2,000 for the consulting services provided the plan. Schedule C - Three Parts for Service Provider Information There are three lines (sections) to Schedule C, Part I. Line 1 can be used to report a person/entity if the only compensation received was EIC for which the plan received the required disclosures. If a person/entity received direct and/or indirect compensation and cannot be reported on Line 1, then Line 2 is completed, with more details provided, including the applicable service codes (expanded for 2009) and whether the information provided is a formula or estimated amount. If EIC was reported as well as Indirect Compensation, that is also reported. Line 3 is used to report a “key” service provider who received $1,000 or more in indirect compensation, excluding EIC. A key service provider is a fiduciary or provides contract administrator, consulting, custodial, investment advisory, investment management, broker, or recordkeeping services. Finally, there is a new Part II on the Schedule C, which asks the plan sponsors to list any service provider who failed to timely provide you, the plan sponsor, with Schedule C information. Given all these significant changes, it is nice to report that the requirement to report termination information for any independent qualified public accountants and/or actuaries remains unchanged with the 2009 Schedule C.

Service Codes 10 Accounting (including auditing) 11 Actuarial 12 Claims processing 13 Contract Administrator 14 Plan Administrator 15 Recordkeeping, information management 16 Consulting (general) 17 Consulting (pension) 18 Custodial (other than securities) 19 Custodial (securities) 20 Trustee (individual) 21 Trustee (corporate) 22 Insurance agents and brokers 23 Insurance services 24 Trustee (discretionary) 25 Trustee (directed) 27 Investment advisory (plan) 28 Investment management 29 Legal 30 Employee (plan) 31 Named fiduciary 32 Real estate brokerage 33 Securities brokerage 34 Valuation (appraisals, etc.) 35 Employee (plan sponsor) 38 Participant communication 40 Foreign entity 49 Other services 50 Direct payment from the plan 51 Investment mgmt fees paid directly 52 Investment mgmt fees paid indirectly 53 Insurance brokerage commissions/fees 54 Sales loads (front end and deferred) 55 Other commissions 56 Non-monetary compensation 57 Redemption fees 58 Product termination fees 59 Shareholder servicing fees 60 Sub-transfer agency fees 61 Finders’ fees/placement fees 62 Float revenue 63 Distribution (12b-1) fees 64 Recordkeeping fees 65 Account maintenance fees 67 Other insurance wrap fees 68 “Soft dollar” commissions 70 Consulting fees 72 Other investment fees and expenses 99 Other fees


3. Information needed for each service provider includes: • Name of the person, trade or business (including

corporation or partnership) providing the service

• EIN (if service provider is an individual, enter the nine-digit EIN of his or her employer)

• Address and Phone # • Service code (from the list above, enter the two-

digit number of the code best describing the nature of services provided to the plan); a complete listing of service codes can be found in the Form 5500 instructions at www.dol.gov/ebsa/5500main.html

• Relationship to your company (e.g., employee, vice president, union president or record keeper)

• Fees and commissions paid by the plan (enter total dollar amount)

• Source of Indirect Compensation • Source of Eligible Indirect Disclosures

4. Was your enrolled actuary terminated during the 2008 plan year? If “YES”, enter his/her name, address, telephone number, EIN number and an explanation for the termination.

Was your independent qualified public

accountant terminated since your plan’s 2008 Form 5500 audit? If “YES”, enter his/her name, address, telephone number, EIN number and an explanation for the termination.

Include a description of any material disputes or

matters of disagreement concerning the termination (even if resolved prior to the termination).

Any terminated accountant or enrolled actuary will be reported in Part III of Schedule C of the Form 5500. You must also provide the terminated accountant or enrolled actuary with a copy of the explanation for terminating the services that will be reported in Part III of Schedule C, along with a completed copy of the Notice found in the Instructions for Form 5500. Note: The terminated accountant and/or actuary must be sent a notice advising him or her of the explanation concerning the termination of his or her services that will be reported on the 2009 Form 5500 Schedule C (Service Provider Information). Below is a sample of the notice that must be completed and filed with the Form 5500. For additional information,

consult the 2009 Form 5500 Instructions for Schedule C.

Notice To Terminated Accountant Or Enrolled Actuary

I, as plan administrator, verify that the explanation that is reproduced below or attached to this notice is the explanation concerning your termination reported on the Schedule C (Form 5500) attached to the 2009 Annual Return/Report Form 5500 for the __________________ (enter name of plan). This Form 5500 is identified in line 2b by the nine-digit EIN _______-___________ (enter sponsor’s EIN), and in line 1b by the three-digit PN _____ (enter plan number). You have the opportunity to comment to the Department of Labor concerning any aspect of this explanation. Comments should include the name, EIN, and PN of the plan and be submitted to: Office of Enforcement, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, DC 20210. Signed Dated

Section IV. SCHEDULE H or I INFORMATION. The questions asked in this section appear on the Schedules H and I and pertain to Transactions During Plan Year (Part IV of Schedule H and Part II of Schedule I). In prior years, MassMutual has asked you to answer some of these questions. However, to provide you with an accurate Schedule H or I, you will need to complete this Section IV of the Request Form. 1. Did the employer fail to transmit to the plan

any participant contributions within the timeframe described in 29 CFR 2510.3-102? This question pertains to plans that require Employee Contributions. If your plan does not allow Employee contributions, answer “NO”.

4. Were there any nonexempt transactions with

any party-in-interest? In general, ERISA prohibits business and investment transactions between the Plan and parties-in-interest unless a prohibited transaction exemption exists. Review the 2009 Instructions for Form 5500, Part III of the Schedule G (Form 5500) for a description of non-exempt transactions and party-in-interest. If you answer “Yes,” consult with your legal counsel and then contact MassMutual concerning the amount of the transaction.


5. Was this plan covered by a fidelity bond?

Please answer Yes if your plan is covered by a Fidelity Bond. Retirement plans subject to ERISA must be bonded.

Enter the amount of the fidelity bond – The amount is the aggregate amount of coverage available for all claims; rounded to the nearest dollar. The amount determined at the beginning of the plan year must not be less than 10% of the plan assets being handled during the preceding plan year. It is generally not required to exceed $500,000 (however, for plan years beginning after December 31, 2007, the Pension Protection Act increased the maximum bond amount to $1 million in the case of a plan that holds employer securities).

6. Did the plan have a loss, whether or not

reimbursed by the plan’s Fidelity Bond that was caused by fraud or dishonesty? Answer “Yes” or “No” to indicate if your plan suffered or discovered any loss as a result of a fraudulent or dishonest act. If you answer Yes, we will contact you for additional information.

If you answered “Yes”, enter the amount of the loss.

14. See the Glossary of this booklet for the definition

of “Small Plan Filer” and “Large Plan Filer”. 16. Non-Qualifying assets are other than:

• Mutual fund shares • Investment contracts with insurance

companies or banks that provide the plan with valuation information at least annually

• Publicly traded stock held by a registered broker dealer

• Cash and cash equivalents held by a bank 20, 21. and 22. You will need to contact your

independent public accountant (auditor) to get the responses to these questions.

Auditors Package –If you are a Large Plan Filer for Form 5500 purposes, please provide the auditor’s name, EIN, and address. We will prepare a separate package for your auditor explaining the financial information on the Form 5500, our financial reports, and our funds in accordance with the American

Institute of Certified Public Accounts (AICPA) Audit and Accounting Guide. We will send the package directly to your auditor. If you are a Small Plan Filer for Form 5500 purposes, complete this section if your plan requires an audit or if you have not elected to waive the small plan audit rule.

PART B – INFORMATION NEEDED TO COMPLETE YOUR COMPLIANCE TESTING FOR 2009

The questions in this Part B need to be answered to accurately complete any required testing. Please follow the instructions in Part B and review the supporting information in Part 3 (Nondiscrimination Testing) and Part 4 (Glossary) of this booklet. PART C – INFORMATION NEEDED TO COMPLETE YOUR ANNUAL FUNDING NOTICE FOR 2009 With the passage of the Pension Protection Act (PPA) of 2006, plan sponsors are now required to provide an Annual Funding Notice to each participant in the plan. If MassMutual provided your actuarial services for 2009, we will prepare an Annual Funding Notice for your 2009 Plan Year. We will need the information below to provide the Annual Funding Notice. The Annual Funding Notice MUST be provided to the Pension Benefit Guarantee Corporation (PBGC), plan participants which includes former employees with a vested right to benefits, beneficiaries [labor organizations representing such participants or beneficiaries] [and in the case of a multiemployer plan, to each employer that has an obligation to contribute to the plan] no later than 120 days after the end of the 2009 plan year.* For a plan whose plan year ends on December 31, 2009, the Annual Funding Notice must be given to each recipient by Friday, April 30, 2010.


Please provide the following information and return this PART C to your Account Manger within 45 days (6 weeks) after the close of the Plan’s 2009 Plan Year so that we can prepare your Annual Funding Notice. (If we do not receive the required information in the timeframe stated above, we may not be able to fully complete the Annual Funding Notice; therefore, you will need to complete the notice prior to distributing to participants.) If you have any questions, please do not hesitate to contact your Account Manager.

• For plans that have 100 or fewer participants on each day of the 2009 plan year, the Annual Funding Notice must be distributed by the earlier of the date the annual Form 5500 is filed or the latest date the annual Form 5500 must be filed (including extensions). For 01/01 anniversary plans, the due date for filing Form 5500 is July 31, 2010 or if an extension is filed, October 15, 2010.

If you need a file containing Participant addresses or you would like MassMutual to do the Annual Funding Notice mailing for your plan, please contact your Account Manger for information, timing and costs as soon as possible.

Posting Form 5500 Information and Actuarial Information on the Plan Sponsor’s Intranet Site Defined benefit plan sponsors with intranet sites that are maintained for communication with employees must post certain plan and actuarial information from Form 5500 on their intranet sites. A plan sponsor should post Parts I and II of the 2009 Form 5500 (as it includes identification and basic plan information) along with the 2009 Form 5500’s Schedule SB (or Schedule MB). This information must be posted within 90 days after submitting the Form 5500 package to the Department of Labor’s Employee Benefits Security Administration (EBSA). If the plan sponsor does not maintain an intranet site, it is exempt from this posting requirement.

Returning Your Completed Questionnaire to MassMutual Please be sure to sign, date and return your completed Plan Year-End Information Request Form. Please return your completed Plan Year-End Information Request Form to MassMutual in one of the following methods:

• Mail it to: Massachusetts Mutual Life Insurance Company Defined Benefit – Form 5500 Team, B215 Retirement Services 1295 State Street Springfield, MA 01111-0001

• Fax it to: 413-744-8445 • E-mail it to your Account Manager

Note: Please retain a copy your own records.

Form 5500 Questions? Please contact your Account Manager.


Part 3 Nondiscrimination Testing Overview of the Testing Process In addition to Form 5500 reporting, MassMutual uses the data it gathers from your completed Plan Year-End Information Request Form and your completed employee census to perform any required nondiscrimination tests. Note: Not all plans need all of these tests. MassMutual will help you determine what tests are needed and when they are needed. Possible nondiscrimination tests your plan may be required to satisfy include:

1. minimum participation test

2. minimum coverage test

3. compensation test

4. nondiscrimination tests, including the general test

5. annual benefit limitation test

6. top-heavy test MassMutual may be contacting you following the completion of certain tests. If your plan does not pass a test, we will provide correction options. Your timely response is important. MassMutual may not be able to perform the next test until any necessary corrections for previously performed tests are made. Before any testing can be performed by MassMutual on behalf of your plan, it is critical to determine what retirement plans are being tested, which of your employees must be included in the group(s) to be tested, and when such tests must be performed. The following provides a brief overview of these issues. Any capitalized terms are defined in Part 4 (Glossary) of this booklet. Identifying the Plan to be Tested – Disaggregation

If you are an employer that maintains more than one plan, your plans are, generally, tested separately.

Usually, separate plans cannot be aggregated for minimum participation testing purposes. However, the mandatory disaggregation rules will vary depending upon whether the same plan (as opposed to separate plans) covers collectively bargained and non-collectively bargained employees. The disaggregation rules for minimum participation are more limited than for coverage testing. If a plan covers both collectively bargained and non-collectively bargained employees, disaggregation of union employees is permissive, but not mandatory, for minimum participation testing. For minimum coverage testing, if a plan covers both collectively bargained and non-collectively bargained employees, disaggregation is mandatory. For the sake of consistency and ease of testing, you may want to consider disaggregating your plan for both minimum participation and minimum coverage testing purposes to avoid providing two sets of employee information. Accordingly, the plan will be treated as two separate components: one that covers the collectively bargained employees and one that covers the non-collectively bargained employees. If tested separately, union employees are excludable employees, as described below. If the plan benefits employees covered by different collective bargaining agreements, the plan must be considered a separate plan for each bargaining agreement. For QSLOBs, if the employer elects to perform the minimum coverage tests on a QSLOB basis, the employer must separately test each plan, or portion of the plan, that covers employees of each particular QSLOB; employees assigned to another QSLOB are excluded. See the Glossary for a more detailed definition of QSLOB. If the plan covers employees of more than one employer, the plan must be disaggregated into separate plans, one for each employer. Each component is treated as if it was maintained by a single employer with respect to that employer’s employees only. Identifying the Employees to be Tested Excludable Employees To perform the minimum participation and coverage testing, determine which employees are benefiting under the plan. “Benefiting” occurs when an


employee’s accrued benefit under the plan increases in the plan year. Employers may disregard certain employees (excludable employees) for purposes of both the minimum participation and minimum coverage tests, including the following: • employees who fail to meet the plan’s minimum

age and service requirements;

• non-resident aliens who received no earned income from U.S. sources;

• collectively bargained employees not covered by the plan;

• employees who terminate with less than 500 hours of service for the year; and

• employees who are part of another QSLOB (discussed in further detail below).

Certain categories of employees, such as leased employees and those grandfathered employees of plans that contain offset provisions (under which benefits are reduced by benefits or allocations under another plan maintained by the employer) may be treated as employees of the employer for certain purposes. Non-Excludable Employees All non-excludable employees are included for testing purposes. Employees who are excluded from the plan due to a job classification (e.g., hourly employees and your plan covers only salaried employees) but do not fall into the excludable employees group outlined above, would need to be counted for testing purposes. Thus, an excluded employee is not necessarily an excludable employee. There are a few things to bear in mind when determining the total number of employees to be considered for testing purposes: Former Employees An employee is a current employee if he is part of the work force at any time during the plan year (or, as of the snapshot testing date, if used). Former employees currently benefiting under a defined benefit plan in the plan year (e.g., if benefits are increased by a plan amendment to the benefit formula and the increase is granted to terminated vested participants) must be tested separately. In

addition, a plan may generally exclude former employees if: (a) Such employee terminated prior to January 1,

1984 or the tenth calendar year preceding the calendar year in which the current plan year begins, or,

(b) The former employee was an excludable

employee in the year he/she terminated. The ratio test and the average benefit test (see §410 Minimum Coverage Test section, below) do not apply to the benefits accrued for former employees. Rather, the accruals of former employees are determined to satisfy coverage based upon a facts and circumstances analysis. Terminating Employees A terminating employee may be treated as an excludable employee for the Plan Year if all of the following conditions are met and the conditions are applied on a uniform basis: 1. The employee did not receive a benefit accrual

under the plan for the plan year; 2. The employee has met the eligibility

requirements under the plan; 3. The plan has a minimum service requirement

and/or a requirement that an employee be employed on the last day of the plan year in order to accrue a benefit;

4. The employee fails to accrue a benefit solely

because of his/her failure to satisfy the minimum service requirement or “last day” requirement to accrue a benefit; and

5. The employee terminates employment during

the plan year without accruing at least 500 hours of service and is not an employee on the last day of the plan year.

Controlled Group/Affiliated Service Group If your company is a member of a Controlled Group of corporations or an Affiliated Service Group, the


entire Controlled Group of corporations or Affiliated Service Group must be considered as one employer. In this situation, all of the employees of the Controlled Group or Affiliated Service Group are treated as if they were employees of that single employer. Employees of a QSLOB While employees of QSLOBs must be included for testing, such inclusion is limited to the QSLOB being tested. For example, if you maintain QSLOBs A, B, and C, you may exclude the employees of QSLOBs A and B when testing a plan that benefits the employees of QSLOB C. In addition, for purposes of minimum participation testing, for post-1996 plan years, you are permitted to perform the minimum participation test on a QSLOB basis without regard to the 50-employee requirement. This exception allows for the funding of a defined benefit plan, even though the plan has fewer than 50 participants and cannot pass the 40% test on an employer-wide basis (as discussed in further detail in the minimum participation section), so long as the plan covers a QSLOB that would meet the QSLOB definition were it not for the 50-employee requirement. Testing Dates A “snapshot” testing date is allowed under Internal Revenue Service (IRS) Revenue Procedure 93-42 and can be applied for minimum participation, minimum coverage, compensation and general nondiscrimination testing. Generally, MassMutual uses the “snapshot” date approach for its defined benefit plans. If the “annual testing” option is elected, you must account for all employees employed at any point during the plan year. All employees, even if they terminated during the year, are included as part of the workforce when determining the testing group. The “snapshot testing approach” uses a snapshot of a day that is reasonably representative of the workforce for testing purposes. Under the snapshot approach, you may choose any day during the plan year that is reasonably representative of your workforce and the plan’s coverage throughout the year. You only have to take into account the employees who were employees on that day. When this approach is used, the “70%” standard increases to 73.5% if your plan has a 1,000 hours service rule. The testing date used must be the

same for all nondiscrimination tests. For example, if December 31 is the snapshot testing date for your calendar plan year, minimum participation, minimum coverage and any compensation and/or general test must be performed as of December 31. The snapshot testing date for a plan generally must be consistent from year to year. §401(a)(26) Minimum Participation Test MassMutual Service: If we provide actuarial services for your plan and you completed Part B of the Plan Year-End Information Request Form, we will perform this test, if necessary. Description of the Test The minimum participation requirements outlined in IRC §401(a)(26) require that a defined benefit plan benefit a minimum number of non-excludable employees. The minimum participation test is a threshold test that must be satisfied on an annual basis and is performed before the plan is tested for minimum coverage. Generally, the minimum participation rules require that a plan benefit (on each day of the plan year) be the lesser of: (i) 50 employees; or (ii) the greater of (a) 40% of the employees of the employer or (b) two employees, unless a plan only has one employee. “Employer” in this circumstance would include all members of a Controlled Group of corporations or an Affiliated Service Group. The determination of HCE versus non-highly compensated employees (NHCE) is unnecessary for minimum participation purposes. All governmental plans and multiemployer plans benefiting only employees covered by a collectively bargained agreement are deemed to satisfy the minimum participation requirements. Defined benefit plans that only benefit NHCEs will be deemed to satisfy the minimum participation test as long as it is not top heavy and is not aggregated with another plan to satisfy other nondiscrimination tests. Defined benefit plans must also satisfy the minimum participation requirement with respect to a prior benefit structure. If a former employee “benefits” in the plan year being tested (e.g., retirees receive an ad hoc COLA), then they must be tested separately. Conversely, if former employees do not “benefit” in the testing year (e.g., terminated vested participants


do not receive a benefit increase, retirees do not receive an ad hoc COLA), then no testing is needed for former employees for that plan year. Generally, either 50 former employees or 40% of the non-excludable former employees must benefit from current accruals. Under an alternative test, minimum participation is considered satisfied with respect to former employees if at least five former employees are benefiting, and: (i) more than 95% of all former employees with vested accrued benefits are benefiting; or (ii) at least 60% of the benefiting former employees are non-highly compensated employees. Frozen Plans A frozen plan (i.e., no benefit accruals) is deemed to pass the minimum participation test so long as it passes the prior benefit structure test on the basis of accrued benefits. In order to satisfy the prior benefit structure test, the number of former and current employees who have meaningful accrued benefits (generally considered by the IRS to be at least a 0.5% benefit accrual rate) as of the beginning of the plan year must be equal to the lesser of 50 or at least 40% of the number of all non-excludable former and current employees. If the plan does not freeze benefit accruals (e.g., freezes participation only) the minimum participation test must be satisfied. Failure of the Minimum Participation Test If your plan fails the minimum participation test for a plan year, corrective measures must be taken before a minimum coverage analysis can be performed. You may retroactively amend the plan to correct for the plan’s failure by granting benefit accruals to employees who were not originally receiving any benefits. Plans that fail the minimum participation test and subsequently fail to perform any remedial measures are subject to disqualification. The retroactive corrective period for passing and adopting any amendments is within 91⁄2 months following the plan year end. §410(b) Minimum Coverage Test MassMutual Service: If you are not operating a QSLOB and/or you are not a member of a Controlled Group or an Affiliated Service Group, we provide your actuarial services and you completed Part B of the Plan Year-End

Information Request Form, we will perform this test if necessary (and depending on the provisions of your administrative services agreement). Plans must satisfy the minimum coverage requirements outlined in IRC §410(b) each plan year to retain their tax-qualified status. Satisfying the minimum coverage testing requirements ensures that a sufficient number of non-highly compensated employees eligible to participate in your plan are covered and benefiting under the plan. Failure to satisfy minimum coverage jeopardizes plan qualification. If you do not meet the ratio percentage test, additional testing is required and you may need to consider plan design changes. Note: There are a few situations in which an employee may be considered to “benefit” under the plan even though he/she does not accrue an additional benefit for the plan year including: • The employee is prohibited under IRC §415

from accruing additional benefits (i.e., above the statutory annual limit equal to the lesser of: (i) $185,000; or (iii) 100% of the participant’s average compensation for his/her high three consecutive calendar years of employment);

• The employee is prohibited from accruing any additional benefit for the plan year due to plan limits that apply on a uniform basis (e.g., benefit service under a plan’s benefit formula is limited to 25 years of service; employees with more than 25 years of service are still treated as benefiting under the plan);

• The employee has a minimum benefit already accrued under the plan, which is greater than the benefit that would have accrued under current plan provisions (e.g., a minimum frozen benefit);

• The plan is part of a benefit offset arrangement and the participant’s current accrual is offset by benefits under another plan; or

• The employee works past the plan’s normal retirement age and receives actuarial increases to his accrued benefit, rather than continuing to accrue additional benefits.

• A non-key employee accrues a benefit to satisfy the top heavy minimum benefit requirements.


Frozen Plans If the plan freezes benefit accruals, the coverage test is satisfied. Under a soft freeze (e.g., benefits continue to accrue, but the plan is frozen to new participants) the plan must still pass the minimum coverage test. If you also maintain a defined contribution plan, both plans may be aggregated in order to pass coverage testing. Terminating Plans Often, employees will accrue a benefit in the plan year in which the plan terminates. The coverage test applies to the normal plan year cycle, unless all plan assets are distributed before the end of the plan year. For plan years that begin after the termination date, no coverage testing is performed because no employees will accrue a benefit under the plan. Automatic Satisfaction of Coverage Test A plan is deemed to satisfy the minimum coverage rules for the plan year if:

• The employer does not employ any NHCEs; or

• The plan does not benefit any HCEs; or

• The plan benefits only collectively bargained employees.

Note: as mentioned previously, governmental plans and non-electing church plans are exempt from the minimum coverage testing rules. Ratio Percentage Test Description of the Test: The information gathered from you is used to perform the ratio percentage test. The ratio percentage test is the first, and more simple, of the two coverage tests. The ratio percentage is determined by dividing the NHCE ratio by the HCE ratio. Generally, the plan passes the ratio percentage test if the percentage of NHCEs benefiting under the plan is at least 70% of HCEs benefiting under the plan. The NHCE ratio is determined by dividing the number of NHCEs benefiting by the total number of non-excludable NHCEs. The HCE ratio is determined by dividing the number of HCEs benefiting by the total number of non-excludable HCEs.

If you do not meet the ratio percentage test, additional testing is required and you may need to consider plan design changes. For minimum coverage purposes only, if the “snapshot testing date” approach is used, the ratio percentage standard of 70% is adjusted to a higher standard of 73.5% if your plan has a minimum service requirement (e.g., 1,000 hours). If the snapshot testing date for minimum participation is the same as the snapshot testing date used for coverage testing, both testing groups must be the same. Determination of HCEs To perform the coverage test, you must determine which employees are HCEs and which are NHCEs. The following information can help you determine HCEs for the 2009 plan year. You will include this information in the census information provided to MassMutual (as discussed further in Part 1 of this booklet). Determining HCEs 1. Controlled Group Status – If you are a member

of a Controlled Group and/or Affiliated Service Group, you must consider all employees of the related employer group members when determining HCEs.

1. Employees Considered Highly Compensated

(Please see the Glossary for a detailed definition of HCEs):

• Employees who earned over $105,000 in the

2008 plan year (the Look Back Year);

• 5% Owners (see Glossary for a detailed definition of 5% Owner): in the current or Lookback Year; and

• Family Attribution (see Glossary for a detailed definition).

The Top 20% Paid Group Election As an alternative to determining HCEs based on Compensation, 5% ownership and Family Attribution, you may elect to determine HCEs using the Top 20% Paid Group election. Please refer to the


Glossary for a detailed description of the Top 20% Paid Group election. Average Benefits Test Description of the test: If a plan fails the ratio percentage test, the Average Benefits Test (ABT) may be performed in order to determine whether the coverage requirements are satisfied. The ABT is comprised of two tests: • The Nondiscriminatory Classification Test; and • The Average Benefit Ratio Test. Nondiscriminatory Classification Test This test has two parts. The classification of the employees benefiting under the plan must be reasonable and nondiscriminatory. • Reasonable: The classification by the employer

is reasonable if it is established under objective business criteria that identify the category of employees who benefit under the plan. This is a facts and circumstances determination. Reasonable classifications generally include specified job categories, nature of compensation (hourly versus salaried employees), and/or geographic locations.

• Nondiscriminatory: In determining whether a

classification is considered nondiscriminatory, the plan’s coverage ratio is compared to a table that is set forth in the minimum coverage regulations, which details safe versus unsafe harbor percentages. The applicable safe harbor percentage depends on the percentage of all employees of the employer(s) who are NHCEs. Based on this comparison, one of the three results is produced: (1) the plan is discriminatory if the plan’s ratio percentage falls below the unsafe harbor percentage; (2) the IRS must determine, based on all facts and circumstances, whether the classification is discriminatory if the plan’s ratio percentage falls between the safe harbor and unsafe harbor percentage; or (3) the plan is nondiscriminatory if its ratio percentage is greater than or equal to the safe harbor percentage. MassMutual will determine whether your plan falls within the safe harbor percentage. Further action may be needed if the results fall under (1) or (2) above.

Average Benefit Ratio Test The Average Benefit Ratio Test (ABRT) is similar to the IRC §401(a)(4) general non-discrimination test because the individual employee benefit percentages must be calculated to determine the actual benefit percentages and an average benefit percentage. Your plan must have an average benefit ratio of at least 70%. Remember, this 70% standard may increase to 73.5% if the “snapshot testing date” approach is used to perform coverage testing and your plan has a minimum service requirement for purposes of benefit accrual. The average benefit ratio is determined by dividing the NHCE benefit percentage (average of the individual NHCE benefit percentages) by the HCE benefit percentage (average of the individual HCE benefit percentages). All employees in the coverage testing group are taken into consideration in performing the ABRT, not just those employees benefiting under the plan. §414(s) Compensation Test MassMutual Service: If you completed the employee census and we provide your actuarial services, we will perform this test if necessary (and depending on the provisions of your administrative services agreement). Please be sure to update the HCE indicator on the employee census. Description of the Test Employee Compensation is used for several purposes in a defined benefit plan: • Determining an employee’s benefit accrual –

Using the definition of plan earnings to calculate the employee’s Compensation for use in the plan’s benefit formula.

• Calculating an employee’s maximum annual retirement benefit limitation under IRC §415 – The annual benefit limit may be limited by the employee’s average Compensation for his/her high three consecutive calendar years of employment.

• Determining an employee’s minimum benefit under the top heavy rules – Compensation is used to determine the value of Key and non-Key Employees’ accrued benefits.

• Performing nondiscrimination testing – Ensuring that the plan does not favor HCEs.


Different Definitions of Compensation For a detailed definition of Compensation, please refer to the Glossary. Compensation Ratio Test If your plan’s definition of compensation for purposes of the benefit formula falls outside the §414(s) safe harbor definition, MassMutual will perform the compensation ratio test, if necessary. The compensation ratio test examines the percentage of each employee’s total compensation included in your plan’s modified definition. The compensation ratio test is satisfied if the HCE compensation percentage is not more than a de minimus amount greater than the NHCE percentage. Defining “de minimus” is a facts and circumstances analysis. However, the IRS views this standard very narrowly. §401(a)(4) Nondiscrimination Test (General Test) MassMutual Service: If you completed the employee census and we provide your actuarial services, we will perform this test, if necessary (and depending on the provisions of your administrative services agreement). Description of the Test For defined benefit plans, there are two ways to show that the plan satisfies nondiscrimination rules under IRC §401(a)(4):

• Design Based Safe Harbor – If the requisite plan provisions are contained in the plan nondiscrimination testing is deemed satisfied.

• General Test – Calculate and compare actual benefit accrual rates under the general test.

Design-Based Safe Harbor A Design-Based Safe Harbor plan (DBSH) is a retirement plan that is structured to meet certain design requirements and, if achieved, eliminates the need for the general test. For your plan to be considered a design-based safe harbor plan, certain features must be available to employees on a uniform basis, including a normal retirement date or normal retirement age, normal retirement benefits,

subsidies, post normal retirement benefits and periods of benefit accrual. In addition, the plan cannot be a contributory plan and must determine benefits as either a dollar amount unrelated to an employee’s Compensation or as a percentage of average annual Compensation. For a more detailed description of a DBSH, please refer to the Glossary. There are variations on the safe-harbor plan design, including a non-design based safe harbor, which has a fixed benefit and satisfies accrual requirements. General Test If your plan does not satisfy the general nondiscrimination rules on a safe harbor basis, your plan must satisfy IRC §401(a)(4) nondiscrimination requirements under the more complex general test. To pass the general test, MassMutual will perform rate group testing. The rate group testing method treats your plan as a collection of small plans based on “rate groups” identified for groups of employees. Each rate group is categorized by each individual employee’s status as either an HCE or NHCE, and then as to each HCE and NHCE’s individual normal accrual rate and most valuable accrual rate. The normal accrual rate is the increase in the employee’s accrued benefit during the measurement period (typically the current plan year). The most valuable accrual rate is the increase in the employee’s most valuable optional form of payment of the accrued benefit during the measurement period. To pass nondiscrimination requirements, each rate group in your plan must satisfy the minimum coverage requirements of IRC §410(b) by passing either the ratio percentage test for each rate group or the average benefits test. For a detailed description of both the ratio percentage test and the average benefit test, please refer to the “§410(b) Minimum Coverage Test” section above. If your plan fails to pass the general test, corrective steps must be taken to maintain your plan’s qualified status. Frozen Plans If the plan was subject to the general test prior to the freeze, such rules continue to apply once the plan is frozen. A plan that is frozen to benefit accruals will automatically satisfy the general test when the current year measurement period is used. If other plans have been aggregated with this plan in order to pass nondiscrimination testing, those other plans may be negatively impacted.


Plans with Employee After-Tax Contributions In addition to the nondiscrimination testing requirements described above, for plans that permit voluntary after-tax employee contributions, such contributions are subject to the IRC §401(m) provisions and must pass the Actual Contribution Percentage (ACP) test to satisfy nondiscrimination rules. See the Glossary for a more detailed description of the ACP Test. For Contributory Plans, (a defined benefit plan with mandatory after-tax contributions) the ACP test is not required. Instead, such contributions are subject to other nondiscrimination rules. Corrective Steps for Nondiscrimination Test Failures Satisfying nondiscrimination rules are plan qualification requirements. Failure of nondiscrimination tests may mean plan disqualification if corrective actions are not taken. Corrections must be made within 9 1/2 months of the plan year (e.g., October 15th for calendar year plans). Typically, corrective measures include increasing contributions or benefits so the plan can satisfy the rate group test described above. Accrued benefits may not be reduced to correct the discrimination. In addition, additional benefit accruals resulting from the corrective amendment must satisfy the IRC §401(a)(4) nondiscrimination rules when tested separately. Based on the type of nondiscrimination test failure, you can do one of the following:

• Amend or modify the benefit formula;

• Amend or modify the definition of compensation;

• Increase the NHCEs’ benefits in order to pass the rate group test;

• Expand the group with the discriminatory benefit, right or feature, or eliminate the offending benefit, right or feature.

What if you miss the deadline for correcting nondiscrimination test failures? If you fail to correct any qualification defects within 9 1⁄2 months of the end of the plan year, the Employee Plans Compliance Resolution System (EPCRS) allows sponsors to correct operational or plan document failures. There are different

corrective programs within the EPCRS, depending on the type of failure and the timing of the correction. §415(b) Annual Benefit Limitation Test MassMutual Service: If you completed the employee census and we provide your actuarial services, we will perform this test, if necessary. Description of the Test The §415(b) annual benefit limitation test limits the amount of benefits that can accrue for each employee for the limitation year (which is typically the plan year). Pursuant to IRC §415(b), the annual benefits limit for 2009 is the lesser of: (i) $185,000; or (ii) 100% of the participant’s average Compensation for his/her high three consecutive calendar years of employment. MassMutual performs the limitation test annually, based on information you provide in your employee census. On the employee census there is a column provided for you to report IRC §415 compensation information that is used to determine the participant’s average annual Compensation for his/her highest three consecutive calendar years of employment. §416 Top-Heavy Test MassMutual Service: If you completed the employee census noting Key Employees, we provide your actuarial services and MassMutual provides services for your 401(k) or other defined contribution plan, we will perform this test, if necessary. If you have a 401(k) or other defined contribution plan with another service provider, you will need to provide the results of the Top Heavy Test for that plan. Description of the Test The top-heavy (IRC §416) test measures the value of accrued benefits held by Key Employees. A plan is top-heavy if the sum of the present value of the accrued benefits for Key Employees exceeds 60% of the sum of the present value of accrued benefits for all employees. The top-heavy ratio must include all plans maintained by the employer or those


sponsored by members of either a Controlled Group of corporations or an Affiliated Service Group. Any plan that covers a Key Employee will be included in the aggregation group, as well as any plan that is aggregated in order to meet coverage and nondiscrimination rules. Determine Active Key Employees A Key Employee is any one of the following: (i) an officer with greater than $160,000 in compensation: (ii) a more than 5% owner; or (iii) a more than 1% owner with greater than $150,000 in compensation. You must count employees as Key Employees if they meet this definition at any time during the 2009 plan year. Please refer to the Glossary section for a more detailed description of Key Employees. Determination Year The determination year is the Lookback Year, or for a new plan, the first plan year. The accrued benefits valued as of the most recent valuation date within the 12-month period ending on the determination date are used to perform the top-heavy test. The determination date is the last day of the determination year. Definition of Compensation used to Determine Key Employees In determining Key Employees, the compensation considered is the IRC §415 compensation defined by the plan, which includes all elective deferrals. For a detailed discussion of IRC §415 compensation, please refer to the “Compensation” section above and the definition of Compensation found in the Glossary. Plan Distribution History Accrued benefits being tested must include distribution amounts resulting from termination, death, disability or retirement taken during the 2009 plan year. Distributions made to an employee while he or she is still employed, if applicable, are added back if made within the last five years. Rollovers from other qualified plans are not taken into account.


Part 4 Glossary Accrued Benefit A benefit payable at a specified time, typically the normal retirement date, as defined by the plan, calculated under the plan’s benefit accrual formula. For defined benefit plans, a procedure for determining a participant’s accrued benefit must satisfy one of the following benefit accrual formulas: • Fractional Accrual Method: The participant’s

accrued benefit must be at least as large as the projected retirement benefit, multiplied by years of accrual service to date, divided by total years of accrual service at retirement. Years of accrual service can be all years of service with the employer; total years of plan participation; or total years of participation plus a specified number of years before participation in the plan.

• 133-1/3 % Accrual Method: (Also known as the Unit Credit Method) A participant’s rate of accrual in any given year cannot exceed 133-1⁄3% of any prior year accrual. This method is used by plans with a unit benefit formula because the benefit is expressed as a separate accrual rate per year of credited service.

• 3% Accrual Method: The accrued benefit

cannot be less than 3% of the total retirement benefit (the normal retirement benefit to which the participant is entitled if he/she commenced participation at the earliest possible age and continued employment to the normal retirement date) multiplied by years (not in excess of 33-1⁄3) of participation in the plan.

ACP Test For defined benefit plans that permit voluntary after-tax contributions, the law prescribes a special nondiscrimination test that must be performed and satisfied with regard to employee contributions, in addition to the nondiscrimination tests performed for the more traditional defined benefit plans. This test

is known as the ACP (Actual Contribution Percentage) test. The ACP test compares the average contribution rates of the NHCEs to the average contribution rates of the HCEs. The ACP test is generally performed as follows: 1. Employees are divided into two groups – HCEs

and NHCEs. 2. Each employee’s contributions (even if none are

made) are divided by his/her compensation to calculate an ADR (Actual Deferral Ratio).

3. The ADRs of all HCEs are totaled and divided

by the number of HCEs. The ADRs of all NHCEs are totaled and divided by the number of NHCEs. The resulting two figures represent the ACP of each group.

4. The ACP for the HCEs must fall within a

statutory mandated range of the ACP for the NHCEs, as outlined below:

If your defined benefit plan has mandatory after-tax contributions, the ACP test is deemed satisfied.

Active Participant An active participant is a current employee of the company, who met the plan’s eligibility requirements and accrues a benefit under the plan.

Affiliated Service Group A group of related employers that includes two or more organizations that have a service relationship and in some cases, an ownership relationship. An

If the ACP of Your Then, the ACP of NHCE Group is: Your HCE Group is Limited to: Under 2% Two times the rate of of compensation the NHCE group Between 2% 2% more than the rate and 8% of of the NHCE group compensation Over 8% 1.25% of the rate of of compensation the NHCE group


affiliated service group can fall into one of three categories: A-Organization Groups, B-Organization groups and management groups. Employees who work for two or more companies that are part of an affiliated service group are considered to be employed by a single employer.

Aggregation The combination of any qualified plans (or certain components of qualified plans) as a single plan for certain plan testing purposes. For minimum participation testing, plans cannot be aggregated. For minimum coverage testing, however, retirement plans may be permissively aggregated. Aggregated plans must have the same plan year.

Benefiting An employee is treated as “benefiting” under a plan (or portion of a plan) if his accrued benefit increases in the plan year. An employee is treated as benefiting in certain circumstances even if he/she does not accrue an additional benefit (for example, if a participant has reached the §415 limit for accrued benefits).

Church Plan A church plan is established by a church, a convention or an association of churches, which is exempt from tax under Internal Revenue Code (IRC) §501. These plans may be exempt from some of the rules under ERISA and the IRC such as minimum age and service rules, coverage rules, minimum vesting, top-heavy rules, joint and survivor rules, and Form 5500 filing. A church plan may elect to be subject to rules under ERISA and IRC. Once made, the election is irrevocable.

Collectively Bargained Employees An employee covered by a collective bargaining agreement between employee representatives and one or more employers. The qualified plan rules for coverage and nondiscrimination testing have some exceptions if the retirement benefits are subject to good faith bargaining between employee representatives and the employer. However, no more

than 50% of the collective bargaining unit can be owners, officers or executives of the employer and no more than 2% can be professional employees. If either of these limits is exceeded, the employees are not considered collectively bargained employees for qualified plan purposes and the exceptions for coverage and nondiscrimination testing do not apply.

Compensation There are four basic definitions of compensation (W-2, IRC §3401(a) wages, 415 compensation and 415 safe harbor compensation). Compensation includes wages and other amounts (as defined by your plan) paid to employees. Your plan may have separate definitions of compensation for several purposes, including 415 testing, determining HCEs and Key Employees, calculating accrued benefits, and nondiscrimination testing. For purposes of nondiscrimination testing, compensation may include elective deferrals or exclude fringe benefits as elected in your plan document. See “Elective Deferrals” and “Fringe Benefits” below for additional information. There are two basic definitions of compensation (415 compensation and W-2 compensation), and there are two versions of each. There may be little difference between the four basic definitions of compensation, depending on your workforce. All four definitions are used to determine a participant’s gross income and each definition has different components that are included or excluded. See the chart at the back of this booklet for a side by side comparison. (1) IRC § 415 Safe Harbor Compensation: includes all amounts in an employee’s gross income: wages, salaries, fees for professional services, commissions, tips, bonuses, fringe benefits, reimbursements and expense allowances. Excluded are amounts realized from the exercise of a non-qualified stock option (or when restricted stock/property becomes freely transferable or not forfeitable), amounts realized from the disposition of stock under a qualified stock option, other amounts which receive special tax benefits (i.e., premiums for group-term life insurance that are not included in the employee’s gross income, contributions to a tax-sheltered annuity, etc.), contributions made by the company to a plan of deferred compensation to the


extent that, prior to the application of the § 415 limits, the contributions are not includable in the employee’s gross income. (2) IRC § 415 Total Compensation: includes amounts listed directly above for § 415 Safe Harbor Compensation PLUS earned income for self-employed individuals, accident/health plan income when includable in the employee’s gross income, nondeductible employer-paid moving expenses, value of non-qualified stock options granted to the employee to the extent they are includable in the employee’s gross income, transfer of property for services (under IRC §83) to the extent includable in the employee’s gross income. (3) W-2 Wages Subject To Federal Income Tax – IRC § 3401(a) Compensation: includes wages, salaries, vacation allowances, bonuses, commissions, tips (charged by customers or reported by employees on Form 4070), sick pay, fair market value of non-cash pay (i.e., goods, lodging, meals), non-substantiated payments for travel and business expenses of employees, supplemental unemployment compensation (severance pay) received before separation from service, reimbursements for nondeductible moving expenses, golden parachute payments, taxable fringe benefits (cars, flights, discounts, country club or social club membership, tickets to entertainment or sporting events). (4) W-2 (Box 1) Gross Salary – IRC § 6041/6051/6052 Compensation: includes amounts listed above for 3401(a) compensation PLUS all other compensation paid to the employee, including prizes and awards, the fair market value of vacation trips for meeting sales goals, moving expense reimbursements (whether or not deductible), non-cash payments (including certain fringe benefits), tips, employer contributions to a tax-sheltered annuity contract that exceeds the dollar limit, gift certificates or cash (i.e., as a Christmas gift), elective deferrals in excess of legal limits, employer contributions to a non-qualified plan, amounts paid to or on behalf of an employee for educational assistance that are not job related, taxable benefits made from a cafeteria plan (i.e., employee chooses cash), scholarships, fellowship grants, certain employee business expense reimbursements such as per diem or mileage allowance payments in excess of standard mileage rate (the nontaxable standard

amount allowed for employee business expense reimbursement is shown in Box 13 with a Code L in Box 14), cost of accident and health insurance premiums paid on behalf of 2% or more shareholders of a Subchapter S corporation, and back pay settlement or judgment, (including unpaid life insurance and health insurance premiums). You may also select an alternative definition of compensation: 414 (s) Compensation: The use of IRC §414(s) compensation is mandated for any required nondiscrimination tests on employer-provided benefits. Any of the IRC §415 compensation definitions are safe harbor definitions of IRC §414(s). In addition, three safe harbor modifications to the IRC §415 compensation definitions automatically satisfy the requirements of IRC §414(s). All three or any combination of the following three safe harbor modifications is permitted: 1) Exclusion of all of the following items:

a. Reimbursements or other expense allowances b. Fringe benefits (cash and non-cash) c. Moving expenses d. Deferred compensation (non-qualified plans) e. Welfare benefits

2) Inclusion/exclusion of all of the following

deferrals:

a. 401(k) arrangement b. 403(b) plan c. SIMPLE d. SARSEP e. IRC §125 cafeteria plan f. 457 plan g. Salary deferrals for a qualified transportation

fringe benefit under IRC §132(f)

3) Exclusion applied only to HCEs – Any item of compensation can be excluded if the exclusion applies only to HCEs. The exclusion may apply to some or all HCEs.

If §415 compensation is modified in any manner other than by the safe harbor modifications


described above, the resulting compensation may be treated as IRC §414(s) compensation only if the definition is reasonable and satisfies a compensation ratio test. In addition, § 415 regulations provide that amounts received by a participant following severance from employment generally is not included unless payment is made either (a) within 2-1/2 months of severance date or (b) by the close of the limitation year in which the severance period, whichever is later. Section 415 compensation automatically includes any post-severance payment made within this period if the amount would otherwise have been paid to the participant in the course of employment and is regular compensation for services during regular working hours, compensation for services outside the regular working hours (such as overtime or shift differential pay), commissions, bonuses, or other similar compensation (“Regular Compensation Payments”). In addition a plan may provide that § 415 compensation includes the following post-severance amounts: Accrued Leave Payments; Deferred Compensation Payments; Military Leave Payments; and/or Disability Payments.

Compensation - Time Period The time period for determining compensation depends on how you are using the compensation definition (e.g., 415 testing) and the unique provisions in your plan document.

Controlled Group A type of related employer group. A controlled group of businesses may be comprised only of corporations, unincorporated businesses or a combination of both types. The controlled group definition is found in IRC §414(b) and 414(c). A controlled group relationship exists if the businesses have a “parent-subsidiary” relationship or a “brother-sister” relationship. A parent subsidiary relationship exists when one business owns at least 80% of another business. For purposes of applying the limitation under IRC §415, a parent-subsidiary relationship exists if the parent owns more than 50% of the subsidiary. A brother-sister relationship exists

if five or fewer “common owners” satisfy an 80% common ownership test and a 50% identical ownership test. A “common owner” must be an individual, a trust or an estate. The businesses must satisfy both tests to constitute a brother-sister relationship. If two or more organizations are part of a controlled group of businesses, the organizations are treated as a single employer when applying qualified plan requirements.

Date of Participation The date an employee begins accruing a benefit after becoming eligible for plan participation. This date is used to determine eligibility in the plan for accrual of benefits and for Form 1099-R reporting purposes.

Design-Based Safe Harbor This is a retirement plan that satisfies the IRC §401(a)(4) general nondiscrimination test, so long as the following design requirements are met: • Uniform normal retirement benefit – The

benefit formula must provide all employees with an annual benefit payable in the same form commencing at the same uniform normal retirement age;

• Uniform post-normal retirement benefit –

With respect to an employee with a given number of years of service at any age after normal retirement age, the annual benefit commencing at that employee’s retirement age must be the same percentage of average annual compensation or the same dollar amount that would be payable commencing at normal retirement age to an employee who had that same number of years of service at normal retirement age;

• Uniform subsidies – Employer-subsidized

optional forms of benefit must be made available to all employees;

• No employee contributions – The plan cannot

be a contributory plan; • Period of accrual – Each employee’s benefit

must be accrued over the same years of service


that are taken into account in applying the plan’s benefit formula to the employee; and

• Average annual compensation – The plan must

determine benefits as either: (i) a dollar amount unrelated to an employee’s compensation; or (ii) a percentage of the employee’s average annual compensation.

The following plan features will not necessarily cause a plan to lose its safe harbor status: • More than one entry date;

• Service requirements consistent with year of

participation rules under IRC § 411(b)(4) (e.g. a minimum of 1,000 hours of work per year to accrue a benefit);

• A limit to the number of years of service used to

determine plan benefits; • Providing maximum benefit limits as a

percentage of pay or a flat dollar amount; • Lower benefits to one or more HCEs than would

otherwise be provided to plan participants; • Benefits may be determined based on the greater

of the benefits determined under two or more formulas, or as the sum of benefits determined under two or more formulas, so long as they are safe harbor benefit formulas; and

• Top-heavy minimums provided only to non-key

employees eligible to receive top-heavy minimum benefits in top-heavy years.

Different Design-Based Safe Harbor Plan Designs Unit Credit Formula – A unit credit formula is one that uses years of service and average annual compensation as of the current plan year to determine a participant’s accrued benefit in the current plan year. Plans with a unit benefit formula may satisfy the Defined Benefit Safe Harbor accrual requirements by using the 133-1⁄3% accrual method, under which the accrual rate for any year of service cannot exceed 133-1⁄3% of any prior year accrual.

Fractional Accrual Method – Under this method of benefit calculation, a participant’s accrued benefit must be the normal retirement benefit multiplied by a years-of-service fraction (years of service over number of years to projected retirement) and satisfy one of the following: • An employee cannot accrue a portion of the

normal retirement benefit that is more than 1⁄3 larger than the portion of the same accrued benefit by any other participant; or

• The plan requires that the normal retirement benefit under the plan is a flat benefit that requires at least 25 years of service at NRA to accrue the full, unreduced benefit.

Salary-based formula: In addition to the Unit Credit or Fractional Accrual Methods (above), if the benefit formula is based on a percentage of average annual compensation, the safe harbor plan must also define average annual compensation, based on the following guidelines: • An IRC §414(s) definition of compensation

must be used;

• The average annual compensation must consist of at least three consecutive 12-month periods, but does not have to be longer than the employee’s period of employment. If the benefit formula is not a permitted disparity formula, the plan may define the averaging period as consisting of non-consecutive 12-month periods; and

• The compensation averaging period must be part

of a compensation history that is at least as long as the averaging period, continuous and ends in the current plan year.

Non-Design-Based Safe Harbor The non-design-based safe harbor is similar to the Fractional Accrual Method safe harbor, except that the minimum number of years required for the unreduced benefit may be fewer than 25. The plan must meet the Average Benefits Test. All employees other than excludable employees for coverage testing purposes must be taken into account.


Determination Date For top-heavy testing, the determination date is the last day of the preceding plan year. In the case of a plan’s first plan year, the last day of the first plan year.

Disaggregation Treating one plan as if it consisted of two or more separate plans and testing each portion (for minimum coverage) separately. Plans may be disaggregated because they include different types of contributions, union and non-union employees, or they are multiple employers. Plans may be disaggregated for purposes of performing the minimum participation test.

EIN – Employer Identification Number The nine-digit number assigned by the IRS separately to the plan administrator, the plan sponsor, and the trust. If you do not have separate EINs, you may apply for them by filing an IRS Form SS-4, or by calling the Tele-TIN phone number for the IRS service center for your state. If your request to the IRS for an EIN is pending, notify us of this action on your Plan Year-End Information Request Form. Later notify MassMutual when you receive your EIN so we can update our records.

Elective Deferrals Elective deferrals are contributions made by the employer on behalf of the participant in a defined contribution plan. Elective deferrals to the following plans are excluded from an employee’s gross income, except to the extent that they are designated Roth contributions: 401(k), 403(b), SARSEP, SIMPLE-IRA. For purposes of determining HCEs, determining Key Employees and performing the § 415-limitation test, you must include elective deferrals in Compensation.

Eligible Employees Eligible employees are employees who have met any age and/or service requirements under your plan as of a plan entry date. Typically, a participant becomes

eligible upon attaining age 21 and completing one year of service (as defined by your plan) but the plan may contain eligibility requirements that would allow participation more quickly. However, some plans allow for an employee to become eligible upon attaining age 21 with 2 years of service, as long as the plan provides for immediate vesting. Eligible employees are counted for certain annual plan testing purposes, such as minimum participation and minimum coverage. An employee who did not accrue a benefit because of IRC §415 or §416 top-heavy limitations is still considered to have received a benefit.

Employee Contributions Any mandatory or voluntary contribution to the plan that is treated as an after-tax contribution at the time it is made. Voluntary after-tax employee contributions must be segregated into separate accounts and are subject to the ACP test.

Excluded Employees For Accrual of Benefits Current or former employees who are not eligible to accrue benefits based on plan provisions (e.g. those who have not worked 1,000 hours in a plan year).

Excluded Employees For Determining HCEs Employees who are not counted in determining either the i) top 20% group of HCEs who earn over $105,000 in the Lookback Year, or ii) the requisite 50 employees necessary to qualify as a QSLOB. In determining how large the Top 20% Paid Group is, the following employees need not be counted: (1) employees who have not completed 6 months of service, (2) part-time employees who normally work less than 17.5 hours per week, (3) employees who normally work not more than 6 months during the year), (4) employees under age 21. After determining how many individuals are counted in the top 20% group, all the employees excluded in (1) through (4) above are still considered for determining whether they are highly compensated. In addition, nonresident aliens who have no earned income in the U.S. are excluded. Generally, union employees are included in the determination of the Top 20% Paid Group.


However, union employees are excluded if: (1) at least 90% of the employees are covered by a collective bargaining agreement, and (2) the plan being tested does not cover any union employees under the collective bargaining agreement. If this exclusion applies, the union employees are disregarded for determining both the size of the Top 20% Paid Group and the members of the Top 20% Paid Group. This union exclusion does not apply for purposes determining whether the 50 person test is satisfied for a QSLOB.

Excluded Employees For Top-Heavy Test Any active employee who was formerly a Key Employee but did not meet the criteria for being a Key Employee at any time during the testing period. Also excluded are any former employees who did not perform services for the employer at any time during the testing period. Accrued benefits of excluded employees are not taken into consideration when determining the top-heavy status of a plan.

Family Attribution An individual who is treated as owning any interest owned by the individual’s spouse, children, grandchildren or parents. This rule, as set forth in IRC §318, will apply in determining:

• HCEs (refer to 5% owner definition);

• Key Employees (refer to 5% owner definition);

• owner-employee status under the prohibited transaction rules; and

• Affiliated Service Groups and Controlled Groups.

Thus, if a 5% owner is married with two children, the spouse and children are treated as 5% owners because the stock owned by the 5% owner is attributed to each family member. If a grandfather owns 50% of the stock in a company and the grandchild owns the other 50% of the stock, the grandparent is treated as a 100% owner because he is attributed his grandchild’s ownership. The grandchild, however, is not treated as owning the grandparent’s interest. (Double attribution is not permitted. For example, if a husband is attributed ownership from his spouse, her interest is not

attributed to their daughter.) Attribution may also occur from owners to entities (corporations, partnerships, trusts) and vice versa.

Fidelity Bond Section 412 of ERISA requires that every fiduciary and person handling plan assets be bonded to protect the interests of the participants and their beneficiaries from fraudulent or dishonest acts of plan officials (only limited exceptions apply to this bonding requirement). An ERISA bond must have a face amount of at least 10% of the plan assets being handled as of the beginning of the plan year. In no case can the bond be less than $1,000 or more than $500,000 (for plan years after 12/31/07, the maximum bond is increased to $1,000,000 for plans containing employer securities). The plan should be the named insured on the fiduciary bond covering plan officials (i.e., plan administrator, officer, or employee who handles plan assets).

Five Percent (5%) Owner An employee who owns more than 5% of the employer, determined by the type of business organization, either by direct ownership or attribution. For a corporation, an employee must own more than 5% of the outstanding stock or stock possessing more than 5% of the total combined voting power of the corporation. For a partnership, a 5% owner is an employee who owns more than 5% of the capital or profits interest, whichever is greater. For a limited liability company or a limited liability partnership, a 5% owner is an employee who has a greater than 5% membership interest in the organization. A sole proprietor owns 100% of the sole proprietorship. See Family Attribution for additional ownership rules.

Fringe Benefits Taxable fringe benefits, cash and non-cash, are included in an employee’s gross income anytime the definition of compensation must satisfy IRC §415 (e.g., determining HCEs and Key Employees, annual §415 limitation testing, determining top-heavy minimum required contributions). According to IRS Publication 15 Circular E, Employer’s Tax Guide, taxable fringe benefits include, but are not limited to


the following items provided by the employer: cars, flights on aircraft, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs or other social clubs, and tickets to entertainment or sports events. IRS Publication 15-B, Employer’s Tax Guide to Fringe Benefits, provides greater detail on how to determine whether a fringe benefit is taxable or not. Both of these publications can be downloaded form the IRS website at www.irs.gov.

Governmental Plan A retirement plan established and maintained for its employees by the U.S. government, by a state or political subdivision of a state, or by any federal or state agency or instrumentality. These plans may be exempt from some of the rules under the Internal Revenue Code such as minimum age and service rules, coverage rules, minimum vesting, top-heavy rules, and joint and survivor rules. A governmental plan is exempt from Title I and Title IV of ERISA; and thus, exempt from filing a Form 5500.

Highly Compensated Employee (HCE) An employee who earned over $105,000 in the Lookback Year (2008), or was in the top 20% paid group and is otherwise a Highly Compensated Employee. Also, any 5% owner (or family member) in the current plan year or Lookback Year is also a highly compensated employee. (Also see Family Attribution, and Five Percent Owner.)

Key Employee A “top-heavy” plan is one in which the present value of the accumulated accrued benefits under the plan for Key Employees exceeds 60% of the present value of the cumulative accrued benefits under the plan for all employees. In making the top-heavy determination, current benefits, as well as distributions (for severance from employment, death or disability) are made to employees within the Lookback Year, and in-service distributions in the previous 5 plan years are taken into account for individuals who are currently (or were key employees in the Lookback Year).

A Key Employee is defined as any employee who, at any time during the plan year containing the determination date, is: 1. an officer of the employer who receives annual

compensation in excess of $160,000 (as indexed). The following employees are excluded (i) employees who have not completed 6 months of service; (ii) employees who normally work less than 17.5 hours per week; (iii) employees who normally work less than 6 months during the year; (iv) employees who have not attained age 21; (v) union employees if they constitute 90% of the employer’s workforce and the retirement plan covers only non-union employees (refer to IRC §414(q)(5)); and (vi) non-resident aliens with no U.S.source income. The maximum limit on officers considered for purposes of the key employee determination is the greater of 3 individuals or 10% of employees. However, no more than 50 employees shall be treated as officers, even if the 10% cap is greater. The definition of compensation that must be used for this purpose is found in IRC §415(c)(3).

2. a “more than” 5% owner of the employer (or

related employer); or

3. a “more than” 1% owner of the employer with annual compensation in excess of $150,000 (not indexed) for the plan year.

Also see “Family Attribution”, “Five Percent (5%) owner”, and “One Percent (1%) Owner”.

Large Plan Filer A Large Plan Filer is a Plan with 100 or more participants at the beginning of the 2009 plan year. If the number of participants reported on line 6 of the Form 5500 is between 80 and 120, and a Form 5500 was filed for the prior plan year, you may elect to complete the Return/Report in the same category (“large plan” or “small plan”) as was filed for the prior Return/Report. Thus, if a Return/Report was filed for the 2008 plan year as a small plan, and the number entered on line 6 of the 2009 Form 5500 is 100 to 120, you may elect to complete the 2009 Form 5500 and Schedules in accordance with the instructions for a small plan.


Leased Employee For an individual to be treated as a Leased Employee under IRC § 414(n), the following requirements must be met: • the recipient (the company for which the

individual performs services) must be paying a fee for the services of the individual,

• the individual performs services under the

primary direction or control of the recipient, • the individual operates under an agreement

between the recipient and the leasing organization, and

• the individual performs these services on a

substantially full time basis for one year, • the leasing organization, not the recipient, must

be the common law employer of the individual.

Generally, Leased Employees are entitled to coverage under the plan, unless otherwise excluded in your plan.

Limitation Year The limitation year is the period used for determining annual additions to the plan for IRC §415 testing purposes (as elected in your plan document).

Limited Liability Company (LLC) A contractual arrangement among the owners of the company, which provides limited liability like a corporation, combined with the freedom of ownership and management relationships. Each state has its own unique statute. An LLC may be taxed as a corporation or as a partnership (or if only one owner, as a sole proprietorship or a corporation). Your company elected its federal tax status on IRS Form 8832 (Entity Classification Election). If treated as a partnership or sole proprietorship, an owner’s distributive share of income or loss is treated as plan compensation.

Limited Liability Partnership (LLP)

A partnership that registered with the state as an LLP. It is generally taxed as a partnership.

Lookback Year The Lookback Year is the preceding plan year. The Lookback Year is the 12-month period immediately proceeding the determination year (which is generally the plan year). The Lookback Year is used in Nondiscrimination Testing where certain employees (for example HCEs) must be determined to perform the applicable test.

Minimum Coverage Known as the IRC §410(b) test, it requires a plan pass either the ratio percentage test or the average benefits test to ensure the plan’s benefits do not disproportionately favor HCEs.

Multiemployer (see “Plan Entity”)

Multiple-Employer (see “Plan Entity”)

Municipality (see “Governmental Plan”)

Non-Highly Compensated Employee (NHCE) (see “Highly Compensated Employee”)

Normal Retirement Age Per regulations issued in May 2007, an “age that is not earlier that the earliest age that is reasonably representative of the typical retirement age for the industry in which the covered workforce is employed.” According this rule: (1) a Normal Retirement Age of at least age 62 meets this definition; (2) for a Normal Retirement Age of 55 to 62, a determination of whether this age meets the definition is dependant on all relevant facts and


circumstances; and (3) a Normal Retirement Age under age 55 is presumed NOT to meet this definition, unless the IRS determines via letter ruling that it meets the industry standard. A Normal Retirement Age of 50 or later is deemed to be reasonably representative of the typical age for the industry in which the covered workforce is employed when substantially all of the participants are qualified public safety employees. For non-governmental plans, the effective date of this change is the first plan year that begins after June 30, 2009. For governmental plans the effective date of this change is the first plan year that begins on and after January 1, 2011.

One Percent (1%) Owner Any employee who, at any time during the 2009 plan year, owned more than 1% of the company. Ownership is determined by the type of business organization. For a corporation, an employee must own more than 1% of the outstanding stock or stock possessing more than 1% of the total combined voting power of the corporation. For a partnership, a 1% owner is an employee who owns more than 1% of the capital or profits interest, whichever is greater. For a limited liability company or limited liability partnership, a 1% owner is an employee who owns more than 1% of the membership interest. A sole proprietor owns 100% of the sole proprietorship. See “Family Attribution” for additional ownership rules.

Participation Date (see “Date of Participation”)

Party-In-Interest Generally, a party-in-interest is any:

1. plan fiduciary (e.g., plan administrator, trustee)

2. plan counsel

3. person providing services to the plan

4. employer whose employees are covered by the plan

5. relative of any persons described in 1, 2, 3, or 4 above (A relative is: the spouse, ancestor, lineal

descendant (e.g., child, grandchild) or spouse of a lineal descendant.)

6. employee organization (e.g., union) representing members covered by the plan

7. direct or indirect owner with 50% or more of the voting power, capital or profits interest, or beneficial interest of the employer or a relative of a 50% owner

8. officer, director or a 10% or more shareholder of the employer, service provider or 50% owner

9. a 10% or more partner of, or a joint venture with any person or organization described in 3, 4, 6, or 7.

Plan Entity Plan entity includes different types of filers recognized by the IRS.

Single Employer: A qualified plan maintained by: • one employer or one employee organization;

• one member company in a Controlled Group where no other member companies participate; or

• two or more member companies in a Controlled Group or Affiliated Service Group in which contributions are pooled and allocated to all employees of the participating companies. (Only Form 5500 should be filed by the plan.)

Multiemployer: A multiemployer plan is maintained pursuant to one or more collective bargaining agreements where more than one company is required to contribute. No election under IRC §414(f)(5) and ERISA §3(37)(E) should have been made (to opt out of being treated as a multiemployer plan).

Multiple Employer: A plan sponsored by two or more employers where at least two of the employers are not members of a Controlled Group or an Affiliated Service Group. The companies that participate in multiple employer plans usually have a common business relationship (e.g., in the same industry) or


some common ownership (just not sufficient to be a Controlled Group or an Affiliated Service Group). Participating employers to a multiple employer plan may be treated as a single employer for certain purposes (i.e., eligibility, exclusive benefit rule, vesting, IRC §415 limits). Generally, the minimum funding requirements and nondiscrimination testing are determined as if each participating employer has a separate plan. In addition, a single Form 5500 is filed for the plan with a separate Schedule T for each participating employer.

Professional Employee “Professional Employee” means any highly compensated employee who, on any day of the plan year, performs professional services for the employer as an actuary, architect, attorney, chiropodist, chiropractor, dentist, executive, investment banker, medical doctor, optometrist, osteopath, podiatrist, psychologist, certified or other public accountant, stockbroker, or veterinarian or any other professional capacity determined by the Commissioner of Internal Revenue to constitute performance of services as a professional.

Prohibited Transaction ERISA and the Internal Revenue Code consider the following transactions between the plan and parties-in-interest to be prohibited (unless the transaction is exempt by statute, regulation or class/individual exemption): • sale, exchange or lease of property between the

plan and parties-in-interest;

• lending of money or extension of credit between the plan and parties-in-interest;

• furnishing of goods, services or facilities between the plan and parties-in-interest;

• use of plan assets by, or for the benefit of, parties-in-interest; and

• acquisition, on behalf of the plan, of any employer security or employer real property in violation of IRC §407(a).

In addition, plan fiduciaries are prohibited from: • using plan assets for the fiduciary’s own interest

or for the fiduciary’s own account;

• performing a transaction on behalf of someone whose interest conflicts with the interests of the plan and its participants; and

• receiving consideration for their personal account due to a transaction with any party dealing with the plan that involves plan assets.

Prohibited transactions are subject to a 15% excise tax, and your plan may incur liability for any losses. Also, Schedule G of Form 5500 must be completed if your plan engaged in a prohibited transaction (referred to in Schedule G as a “Nonexempt Transaction”).

Qualified Separate Line of Business (QSLOB) To be treated as a QSLOB, a line of business must: • be organized and operated separately with

separate workforce, management and financial accountability;

• consist of at least 50 employees throughout the plan year; and

• satisfy certain safe harbor tests or obtain an IRS determination of administrative scrutiny.

Ratio Percentage Test The NHCE ratio is determined by dividing the number of NHCEs benefiting under the plan by the total number of non-excludable NHCEs under the plan. The HCE ratio is determined by dividing the number of HCEs benefiting by the total number on non-excludable HCEs in the plan. The plan passes the ratio percentage test if the percentage of NHCE’s benefiting under the plan is at least 70% of the HCE’s benefiting under the plan. If the plan does not meet the ratio percentage test, additional testing is required and you may need to consider plan design changes.


Service Provider A service provider is any person or entity who received compensation, directly or indirectly, during the plan year for providing services to the plan.

Single Employer (see “Plan Entity”)

Small Plan Filer A Small Plan Filer is a plan with less than 100 participants at the beginning of the 2009 plan year. If the number of participants reported on line 6 of the Form 5500 is between 80 and 120, and a Form 5500 was filed for the prior plan year, you may elect to complete the Return/Report in the same category (“large plan” or “small plan”) as was filed for the prior Return/Report. Thus, if a Return/Report was filed for the 2008 plan year as a small plan, and the number entered on line 6 of the 2009 Form 5500 is 100 to 120, you may elect to complete the 2009 Form 5500 and Schedules in accordance with the instructions for a small plan. Schedule I of Form 5500 is completed for small plan filers. The DOL requires that an audit be included with the Form 5500 filing. However, small pension plans can claim a waiver of the annual examination and report of an independent qualified public accountant when the following conditions are met: • at least 95% of the plan assets are “qualifying

plan assets” as of the end of the preceding plan year, or any person who handles non-qualifying plan assets is bonded in accordance with the Fidelity Bond rules of ERISA § 412 (except that the amount of the bond shall not be less than the value of such assets);

• the summary annual report includes certain

information required by 29 CFR § 2520.104-46 in addition to any other required information; and

• in response to a request from any participant or

beneficiary, the administrator, without charge, makes available for examination or furnishes

copies of each regulated financial statement and evidence of any fidelity bond.

Qualifying plan assets include: (1) any assets held by certain regulated financial

institutions, including an insurance company qualified to do business under the laws of the state (e.g., MassMutual), a bank or similar financial institution as defined in 29 CFR §2550.408b-4(c), an organization registered as a broker-dealer under the Securities Exchange Act of 1934 and any other organization authorized to act as trustee for individual retirement accounts under IRC §408;

(2) in the case of an individual account plan, any assets over which the individual or beneficiary can exercise control and for which a statement from regulated financial institution(s) describing the assets held by the institution is issued at least annually;

(3) qualifying employer securities;

(4) participant loans meeting the requirement of ERISA §408(b)(1);

(5) shares issued by an investment company registered under the Investment Company Act of 1940; and

(6) investment and annuity contracts issued by any insurance company qualified to do business under the laws of a state.

Upon request, the plan administrator must make available for examination copies of each regulated financial statement (e.g., MassMutual Certified Statements of Assets and Liabilities) and evidence of any required bond. If all of your small plan assets are invested with MassMutual, you may claim a waiver from this auditing requirement.

Terminated Participant A terminated participant is a former participant who separated from service (terminated, retired, or died). This includes anyone who received a distribution, purchased an annuity, or continued their account during the plan year.


Top-Heavy Test The top-heavy test measures the value of accrued benefits held by Key Employees. If the ratio exceeds 60%, the plan is top-heavy. Certain employees are excluded from the test - refer to “Excluded Employees For Top-Heavy Test”. The testing period is the plan year containing the determination date. (In-service distributions for the 5 preceding plan years are also included.) Top-heavy plans are subject to special vesting schedules and minimum benefit accruals.

Top 20% Paid Group An employer may elect to limit the number of HCEs included in the nondiscrimination tests. Under this twenty percent (20%) limitation, the employee would be an HCE only if he was in the top 20% of employees for the Lookback Year, ranked by compensation, and his compensation for such prior year was in excess of the required dollar amount. The Top 20% Paid Group election will be applied consistently by an employer to the determination years of all plans of the employer, beginning with or within the same calendar year. If one plan has the Top 20% Paid Group election in its definition of Highly Compensated Employee, all other plans of the employer must include this election as well. An employer can make this election on a year-by-year basis. If the employer is a member of a Controlled Group of corporations, the total number of all the employees of the employers that comprise the Controlled Group need to be determined before the Top 20% Paid Group can be identified.

Total Employees Total employees include all employees of your company and any members of a Controlled Group or Affiliated Service Group during your plan year. Vesting A vesting schedule elected in a retirement plan provides a participant with non-forfeitable rights to plan benefits based on years of service. If specified in your plan, service of employees under age 18 does not count towards vesting. MassMutual calculates and reports the vesting percentages of each

participant if the appropriate census data has been supplied. The descriptions provided in this Glossary are for informational purposes only and should not be construed as legal or tax advice. Consult with your tax of legal advisor regarding the specific application of these laws to your plan.


Summary Comparison of Compensation Definitions allowed under §415(c)*

Description

§415(c)(3) Safe Harbor

Compensation** (1.415(c)-2(d)(2))

§415(c)(3) Total

Compensation** (1.415(c)-2(a))

W-2 Wages Subject to Federal

Income Tax IRC §3401(a)


W-2

(Box 1) Gross Salary


Employee’s regular wages or salary Included Included Included Included Vacation pay, sick pay paid by employer Included Included Included Included Compensation which is not for personal services actually rendered (e.g., severance pay)

Excluded

Excluded

Included***

Included***

Overtime Included Included Included Included Bonuses Included Included Included Included Commissions Included Included Included Included Tips Included, but

allocated tips are arguably excepted

Included, but allocated tips are

arguably excepted

Exclude allocated tips, noncash tips

under $20 per month

Exclude allocated tips, noncash tips

under $20 per month Elective Deferrals: 401(k), 403(b), 457 or SARSEP, SIMPLE, pre-tax employee contributions under §125 cafeteria plan; elective deferrals to qualified transportation fringe benefit plan under §132(f)

Included

Included

Included

Included

Expense reimbursements – accountable plan Excluded Excluded Excluded Excluded Expense reimbursements – nonaccountable plan

Included Included Included Included

“Qualified” moving expense reimbursements (only to the extent these amounts are not deductible under section 217)

Excluded

Excluded

Excluded

Excluded

Nontaxable fringe benefits Excluded Excluded Excluded Excluded Taxable fringe benefits Included Included Included Included “Excess” Group Term Life Insurance (Imputed income > $50,000)

Included Included Excluded Included

Taxable medical or disability benefits. Taxable payments included in employees gross income as described in §104(a)(3), 105(a), 105(h)

Excluded

Included

Included

Included

IRC §83 property that become freely transferable or no longer subject to substantial risk of forfeiture

Excluded

Excluded

Included

Included

Income attributable to IRC §83(b) election Excluded Included Included Included Nonqualified plan contributions excludable in year of contribution

Excluded Excluded Excluded Excluded

Nonqualified taxable plan distribution from an unfunded nonqualified plan

Excluded / unless specifically included

by Plan

Excluded / unless specifically included

by Plan

Included

Included

Other distributions from qualified plan Excluded Excluded Excluded Excluded Qualified stock options – grant or exercise Excluded Excluded Excluded Excluded Nonqualified stock option includible in income in year granted

Excluded Included Included Included

Nonqualified stock option includible in year of exercise

Excluded Excluded Included Included

* Reference chart only not legal advice. ** Final section 415 regulations provide that amounts received by a participant following severance from employment generally is not included unless payment is made

either (a) within 2-1/2 months of severance date or (b) by the close of the limitation year in which the severance period, whichever is later. Section 415 compensation automatically includes any post-severance payment made within this period if the amount would otherwise have been paid to the participant in the course of employment and is regular compensation for services during regular working hours, compensation for services outside the regular working hours (such as overtime or shift differential pay), commissions, bonuses, or other similar compensation (“Regular Compensation Payments”). In addition to the post-severance Regular Compensation Payments that are mandatorily included in section 415 compensation, a plan may provide that Section 415 compensation includes the following post-severance amounts: Accrued Leave Payments; Deferred Compensation Payments; Military Leave Payments; and/or Disability Payments. For details on what is included in these four types of post-severance amounts, please refer to the Section 415 Compliance Amendment Election Form.

*** Compensation which is not for personal services actually rendered (e.g., severance pay). Included for purposes of the W-2 and §3401 definitions if paid prior to

severance from employment (e.g., with the employee’s last paycheck). If payment is made after severance from employment, it is not included for pension plan purposes as the regulations restrict the post-severance amounts that may be included.

© 2009 Massachusetts Mutual Life Insurance Company, Springfield, MA. All rights reserved. www.massmutual.com.MassMutual Financial Group is a marketing name for Massachusetts Mutual Life Insurance Company (MassMutual)[of which Retirement Services is a division] and its affiliated companies and sales representatives.

04012 1209 C:18334-00

comprehensive instructions · 2009-12-07 · november 2009 c:18334-00 dear plan sponsor, this...

Documents