Leaderboard

Yes it can exclude a class (like a location or job category) and yes it must pass coverage.

Can we assume nothing in the plan, or any other documents, includes (or maybe implies) "per stirpes"? IMHO, the plan does not need to state that this; it should be self-evident that beneficiaries of a "certain and life" payment form are entitled to name their own beneficiary. The plan does not care who, since it has promised to pay X number of payments.

I have not looked at this lately so I could be completely off base here. I thought when you roll a Roth 401(k) into a Roth IRA, the holding period of the Roth IRA determines whether the 5-year rule has been met. So, if you roll an old and cold Roth 401k into a new Roth IRA that you open up to receive the rollover (and you have no other Roth IRAs), the 5-year holding period restarts because the Roth 401k holding period is irrelevant. However, if you roll the same old and cold Roth 401k into a Roth IRA that you first contributed $1 to 6 years ago (and nothing since), the holding period would be based on the Roth IRA and thus the 5-year holding period would be met. (I thought there's a rule about aggregating all your Roth IRAs and using the oldest holding period but that might not apply in this instance (since there are so many five-year holding rules).) I guess I was wondering when they ask about the first year of Roth, are they asking about the 401k or the IRA account(s)? Sorry if I am completely off base here.

72(p)(1)(A) states a loan from a plan is a distribution: "If during any taxable year a participant or beneficiary receives (directly or indirectly) any amount as a loan from a qualified employer plan, such amount shall be treated as having been received by such individual as a distribution under such plan." Then 72(p)(2) provides an exception. Treas. Reg. §1.72(p) initially states the exception is for bona fide loans "with adequate security and with an interest rate and repayment terms that are commercially reasonable." I assume your unreasonable interest rate is not "commercially reasonable" and, thus, for purposes of the Regulations, would not be a bona fide loan that meets the exception. Just my thoughts so DO NOT take these ramblings as advice...

This is the answer.

Right, look to the statute. §4980(d)(2)(C) states: (C) Allocation requirements (i) In general. In the case of any defined contribution plan, the portion of the amount transferred to the replacement plan under subparagraph (B)(i) is (I) allocated under the plan to the accounts of participants in the plan year in which the transfer occurs, or (II) credited to a suspense account and allocated from such account to accounts of participants no less rapidly than ratably over the 7-plan-year period beginning with the year of the transfer.

The loan must bear a reasonable rate of interest in order to be exempt from being a prohibited transaction under IRC 4975(d)(1)(D) and ERISA 408(b)(1)(D). Since a plan fiduciary (and the plan administrator, even in a non-Title I plan) may not enter into a prohibited transaction, the loan could not be made in the first place. So, I suppose I agree with your conclusion that making a loan with an unreasonable interest rate would not be a 72(p) violation. It would however be a disqualifying failure and a fiduciary breach.

It is a fantastic resource, and has been run so well, for so many years. A rarity these days. Thanks so much for all your hard work!!

I still have some of the stone tablets somewhere.

It's not just the 402(g) limits. A municipality is not permitted to have 401(k) plan at all, unless it (or an entity considered part of its control group) had a 401(k) plan before May 6, 1986. So if the employee were given the option to take the amount in cash, the entire amount would be taxable to the employee even if they elected to contribute it to the plan, and the 402(g) limits would be irrelevant.

Agreed, otherwise it is a CODA and you must comply with the 402(g) limits.

You can use historical compensation, including prior to plan adoption, from the entity sponsoring the plan and from any entity within the control group - which ABC and XYZ were not a control group. Joe would have had an aggregated 415 limit IF both ABC and XYZ sponsored DBPs but I don't see you being able to use historical XYZ compensation. I think Joe has 415 FAE of $150k from ABC 2015-2017.

Lou and Peter are spot on. Discretion for consistent and reasonable interpretation of vague plan provisions, not for exceptions. Also, a vague provision does not give carte blanche on interpreting any way the PA desires, it must still be reasonable. I've read many lawsuit summaries where the PA was sued alleging its interpretation was arbitrary and capricious (legal term for willy nilly).

I’m not a 125 expert, but I don’t see how you wouldn’t have to aggregate. Otherwise you could have separate plans for HCEs and NHCEs or separate plans for each person in the extreme.

An important starting point for an ERISA-governed plan’s administrator or other fiduciary is: “[A] fiduciary shall discharge his duties with respect to a plan . . . in accordance with the documents and instruments governing the plan insofar as such documents and instruments are consistent with the provisions of this title [I] and title IV.” ERISA § 404(a)(1)(D), 29 U.S.C. § 1104(a)(1)(D). A plan’s governing document might grant the plan’s administrator some discretionary authority to construe or interpret ambiguities in the plan’s text. But that is not authority to deviate from what the plan provides. Further, if a governing document’s grant of discretionary authority to interpret the plan is, ostensibly, so wide that it would allow an administrator other fiduciary to ignore or vary a plan provision, a fiduciary is duty-bound not to apply that portion of the discretion that would be inconsistent with ERISA’s command: “Every employee benefit plan shall be established and maintained pursuant to a written instrument.” ERISA § 402(a)(1), 29 U.S.C. § 1102(a)(1). This is not advice to anyone.

The discretionary authority is generally to interpret the rules of the plan that may be ambiguous in a consistent manner not to make exceptions to the written terms of the Plan Document, that typically requires a plan amendment. This is not legal advise and I am not a lawyer.

Keep in mind that plan documents have default beneficiary provisions and the Plan Administrator cannot force a participant to make an affirmative elective. Also keep in mind that a terminated participant who has an accrued benefit can change their beneficiary designation while they remain terminated. It is good practice to encourage participants to make affirmative elections, and to periodically remind participants to review their affirmative elections. Some plans have generic communications that center around how life events - including rehire - that can impact benefits and those communications include the reminder to update beneficiaries.

The title asks "must?" No, of course not. However, the employer's procedures for rehires probably do not differ from its procedures for new hires, so Yes. But more to the point, it would be enormously foolish to assume nothing has changed in this person's personal life "after several years".

The usual way this is done is to provide that at retirement, all unused leave goes into the plan; employees have no election to take it in cash. However, you then provide that the retired employee can take a lump sum distribution of the amount at any time. This has pretty much the same effect as allowing them an election unless they are so young they would face the 10% penalty for early distributions.