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On the subject of fees for participants who either cannot be (or choose not to be) cashed-out, the IRS doesn't like to see a "significant detriment" on their ability to leave their money in the plan. See Revenue Ruling 96-47 and Revenue Ruling 2004-10. (That doesn't mean you can't charge reasonable fees.) There might be language in the plan document reflecting this guidance that you would need to observe if the plan's language is more conservative than what you think the law provides. The document might also fail to contain a mandatory cash-out at age 62/NRA even though a plan can be drafted to contain a mandatory cash-out at age 62/NRA. I have seen documents that continue to require consent even after the time described by IRC 401(a)(14), i.e., participants may choose to keep their money in the plan for life. For such a document, you would want to establish what preapproved cash-out provisions are available and which are not (as a matter of product design) before signing on the dotted line.

SHUO--- I agree with you that for some people, inertia takes over and they just forget to move their funds, except in this economy maybe less so. I have seen a couple of pros and cons of keeping your retirement benefit with your former employer on web sites from some of the large mutual fund houses in my memory (they helped me to make my decision for two fairly large rollovers). One of the big issues I found is that an IRA provider might not conceivably provide fund fees as low as a large employer--this was more true 20 years ago than now- most mutual fund fees especially indexed funds are now historically low for both IRA providers and plan sponsors. One academic issue I also remember is that IRA assets might be lost in a bankruptcy of the provider whereas qualified plan assets can not be, but that is more an academic argument today---ie, if a Vanguard or Fidelity go under, we're all in trouble. One other wrinkle: I believe that advising a participant as to what to do with their funds (stay or rollover) may now potentially trip the new fiduciary rules, so it's an area to be careful about. Hope that helps.

Seems to be answered by the COBRA regs. This is Treasury Regulation 54.4980B-5, Q&A 4: Q-4: Can a qualified beneficiary who elects COBRA continuation coverage ever change from the coverage received by that individual immediately before the qualifying event? A-4: (a) In general, a qualified beneficiary need only be given an opportunity to continue the coverage that she or he was receiving immediately before the qualifying event. This is true regardless of whether the coverage received by the qualified beneficiary before the qualifying event ceases to be of value to the qualified beneficiary, such as in the case of a qualified beneficiary covered under a region-specific health maintenance organization (HMO) who leaves the HMO's service region. The only situations in which a qualified beneficiary must be allowed to change from the coverage received immediately before the qualifying event are as set forth in paragraphs (b) and (c) of this Q&A-4 and in Q&A-1 of this section (regarding changes to or elimination of the coverage provided to similarly situated nonCOBRA beneficiaries). (b) If a qualified beneficiary participates in a region-specific benefit package (such as an HMO or an on-site clinic) that will not service her or his health needs in the area to which she or he is relocating (regardless of the reason for the relocation), the qualified beneficiary must be given, within a reasonable period after requesting other coverage, an opportunity to elect alternative coverage that the employer or employee organization makes available to active employees. If the employer or employee organization makes group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating, then that coverage is the alternative coverage that must be made available to the relocating qualified beneficiary. If the employer or employee organization does not make group health plan coverage available to similarly situated nonCOBRA beneficiaries that can be extended in the area to which the qualified beneficiary is relocating but makes coverage available to other employees that can be extended in that area, then the coverage made available to those other employees must be made available to the relocating qualified beneficiary. The effective date of the alternative coverage must be not later than the date of the qualified beneficiary's relocation, or, if later, the first day of the month following the month in which the qualified beneficiary requests the alternative coverage. However, the employer or employee organization is not required to make any other coverage available to the relocating qualified beneficiary if the only coverage the employer or employee organization makes available to active employees is not available in the area to which the qualified beneficiary relocates (because all such coverage is region-specific and does not service individuals in that area). (c) If an employer or employee organization makes an open enrollment period available to similarly situated active employees with respect to whom a qualifying event has not occurred, the same open enrollment period rights must be made available to each qualified beneficiary receiving COBRA continuation coverage. An open enrollment period means a period during which an employee covered under a plan can choose to be covered under another group health plan or under another benefit package within the same plan, or to add or eliminate coverage of family members. (d) The rules of this Q&A-4 are illustrated by the following examples: Example 1. (i) E is an employee who works for an employer that maintains several group health plans. Under the terms of the plans, if an employee chooses to cover any family members under a plan, all family members must be covered by the same plan and that plan must be the same as the plan covering the employee. Immediately before E's termination of employment (for reasons other than gross misconduct), E is covered along with E's spouse and children by a plan. The coverage under that plan will end as a result of the termination of employment. (ii) Upon E's termination of employment, each of the four family members is a qualified beneficiary. Even though the employer maintains various other plans and options, it is not necessary for the qualified beneficiaries to be allowed to switch to a new plan when E terminates employment. (iii) COBRA continuation coverage is elected for each of the four family members. Three months after E's termination of employment there is an open enrollment period during which similarly situated active employees are offered an opportunity to choose to be covered under a new plan or to add or eliminate family coverage. (iv) During the open enrollment period, each of the four qualified beneficiaries must be offered the opportunity to switch to another plan (as though each qualified beneficiary were an individual employee). For example, each member of E's family could choose coverage under a separate plan, even though the family members of employed individuals could not choose coverage under separate plans. Of course, if each family member chooses COBRA continuation coverage under a separate plan, the plan can require payment for each family member that is based on the applicable premium for individual coverage under that separate plan. See Q&A-1 of § 54.4980B-8.

OK, thanks, Bill. And thanks, Kevin C.

Thank you, Bill.

I'd have to think the person's not an HCE in the year they're hired (unless they bought into their new company), so hey, the new sponsor might even LOVE the 57,000 contribution for ACP testing purposes (presuming no carveout)! Of course going back to the 415 issue, she'd have to actually earn 57,000 in wages at her new job. And the standard disclaimer to make sure Plan B doesn't have a % of pay limit on the after-tax.

I agree with the earlier post that if there is a per participant charge, this includes terminated vested participants. Sometimes that fee is paid by the employer but sometimes it is paid by the participant.

Who is writing this stuff? The law requires that money in a divorce be handled through a QDRO. It appears that your QDRO is going to transfer 100% of the participant's acct to the alternate payee (that what the last two sentences above say). Fine. But then the language in the first part just doesn't apply. If all of the participant's money in the plan (that is the defendant, yes?) goes to the ex-spouse as part of a QDRO, it is now the ex-spouse's qualified plan money (can be transferred into the alternate payee's IRA, for example) and when it comes out, it is taxable to the ex-spouse. You can't control or treat it as alimony; it is not. The reference to "defendant's 50% share" makes no sense if 100% is transferred to the ex; there no longer is ANY share for the participant. You need a competent ERISA expert to make sure what you want to accomplish is done in a way the accomplishes what you want; I don't see that in the above. Who is writing this? Doesn't look like they under the ERISA law with regard to QDRO's from what I can understand of the above, which is extremely unclear at this point. Best of luck.

First: where did you HEAR that? Always be suspect of "hearing" things. They usually are not true. Second: What kind of a problem are you asking about? Normally, the employer isn't doing anything special since the admin service is doing all the work. Third: Who are YOU when you refer to "we" in the encouragement issue. Why do you care? Fourth: Almost all of our plans provide for a lump sum distribution to be available after the year is over in which the participant terminates and the annual work is done for that year, and almost all of the participants take their money at that point. We see very little evidence of people leaving their money with their ex-employer. Just some things to add to the discussion. Welcome aboard. Larry.

There might be other conditions. Does keeping them in the plan help or hurt the overall plan efficiency? (Other readers may have already crunched the numbers on this.) Are there any assets that are unavailable as alternative investments because the plan falls below a particular $ threshold? Is there a likelihood of former employees to become "missing"? (Yes.) Etc.

It might be aggressive but I think it's doable. Will the after tax contributions pass the ACP test?

I agree with this description of what the seller could have done prior to the sale and that more options would have been available prior to the sale. But, the transaction the OP describes has already happened. First of all, the IRS has never issued guidance dealing with mergers of safe harbor plans. 1.401(k)-3(i) was originally reserved for it. But, it just says Reserved. For those who think 1.401(k)-3(e)(4)(ii) doesn't apply after the transaction has taken place, what do you see that indicates this is only available before the transaction? With no guidance available, our only choice is to use a reasonable, good faith interpretation of the code and regs. Let's change the OP situation a little. Suppose after A closes on the stock purchase of B, that A terminates Plan B shortly thereafter. Plan B will have a short final year due to the plan termination and it looks to me the termination was in connection with a transaction described in 410(b)(6)(C). So, under 1.401(k)-3(e)(4), it can be safe harbor for the final year. But, wait. Under 1.401(k)-1(d)(4), Plan A is considered to be an alternative defined contribution plan of the "employer" as of the date Plan B is terminated. That means the plan B termination is not a distributable event. So, what happens to the balances of the active participants in Plan B? While the regs don't directly address it, if Plan B is going away and you can't distribute the balances of the active participants, I don't see any option other than merging their balances into Plan A. I don't see anything in 1.401(k)-3(e)(4)(ii) that says it doesn't apply if any of the balances can't be distributed due to the plan termination. So, I don't see that it is affected by the balances going to Plan A after the plan termination. The big question is do you get the same result in the very similar situation of Plan B being merged into Plan A after the stock purchase? With no guidance on merging SH plans, it's a judgment call.