I understand that the new regs do NOT cover certain 403(b) contracts or custodial accounts issued to current or former employees before 1/1/09, but if the plan is subject to ERISA, the disclosure is required, yes?

So for example if a plan with 10 participants 8 of which whose accounts were issued prior to 1/1/09, receive some sort of employer contribution, they are not required to have the 408(b)2 notice, but 2 participants who joined the plan after 1/1/09 must be issued the notice of fees?

For unknown reasons, our payroll company implemented stop dates in there system for several employees that shut off their 401(k) contributions a few months into the year. This was done without our knowledge. The issue was eventually detected. Our TPA (not the payroll company) now says that we have to make a QNEC contribution of $30k+...which is a substantial amount for our company. Their specific statement was:

Revenue Procedure 2008-50 covers the required corrective action when an employer fails to implement an employee deferral election. The procedure requires corrective action on the part of the employer whereas the employer makes a QNEC contribution to the plan on the participant's behalf in an amount equal to 50% of the employee's missed deferral plus matching contributions equal to the matching contribution the employee would have received had the employee made a deferral. The contribution must also include earnings to the date the corrective contribution is made to the plan.

Excerpt:

(5) Failure to implement an employee election. (a) Missed opportunity for elective deferrals. For eligible employees who filed elections to make elective deferrals under the Plan which the Plan Sponsor failed to implement on a timely basis, the Plan Sponsor must make a QNEC to the plan on behalf of the employee to replace the “missed deferral opportunity.” The missed deferral opportunity is equal to 50% of the employee’s “missed deferral.”

Two questions:

1. Do you think this falls under this provision given that we, as the Plan Sponsor, implemented it and a third party caused the error?

2. Do you think this is the proper provision for handling this issue or is there another alternative that would allow the employees to make catch up contributions?

Under 409A a participant can change form of payment so long as, generally, the change doesn't take effect for a year and the payment is deferred an additional 5 years from when it otherwise would have been paid. I know there are some nuances, but I'm not concerned with those.

If an employee has one payment scheduled at termination of employement, can he make a subsequent deferral just on half of that payment?

For example, participant is to receive $10,000 on termination. Can he make a subsequent deferral election at least one year in advance to receive $5,000 5 years after termination--the other $5,000 still payable on termination?

Does anyone know when the IRS will publish the new 430 segment rates calculated under MAP-21? Or does anyone know where these rate have been calculated?

Thanks.

Our branch is part of a large holding company and my branch along with the rest of the company was in a 401k that had employeer matching. The main company moved us under a different branch and in the process terminated our 401k that had matching and gave us the option to be part of a new non-matching 401k the company above us uses. Again the rest of the the holding company is still under the matching while our plan was terminated while we remain part of the company.

They also will not allow us to roll that 401k over to another plan citing we work for the same company. Is this legal?

I have a new client where the prior "vendor" () never told the client they were top-heavy. I was reading the ERISA outline book and Sal suggests that one might make a legally definsible argument that the top-heavy minimum may not be due in the year that a plan terminates. The argument would almost certainly be rejected by the IRS (he says), but you could fit this into a literal interpretation of the regs. He strongly recommends against this approach (I want to make sure I make this clear!).

I seem to recall though that there was a recent IRS Q&A where this approach was publicly shot down by the IRS, and I'm need of that reference for purposes of these ongoing discussions. If anyone has it, I would appreciate it.

Thanks!

!.409A-1(h)(2(ii) indicates that payments due to separation from service can't be made for at least 12 months in the case of an independent contractor who does not qualify for the exemption from 409A. Example: employee goes to independent contractor status and performs sufficient service so as not to trigger separation from service. When he is done performing services as a independent contractor, does he have to wait for 12 months to receive distribution? Thanks for the help!

If a sponsor has a DC plan and a TDA plan - do they need to be combined for 5500 filing and/or for the participant counts?

A 92 year old family member is currently receiving a J&S annuity at his 415 limit. While he's alive, the plan is underfunded. After he dies, the plan will be close to 100% funded. It would be nice to have some cost certainty.

We asked insurance companies if they'd sell us an annuity. They're not interested because of his advanced age.

I don't think we can pay him a lump sum because he'd lose the value of the survivor benefit (assuming we ignore the multiple annuity starting date issue).

Any ideas would be greatly appreciated.

I am considering a life insurance policy, but not sure about the amounts. I am considering between the 100 and 250k amounts. The difference between them is about ~300 a year. Obviously in the event of my death, I want my family to be able to have some breathing room to deal with my debts and the what not. When i was talking this over with my sister, she was shocked I was considering something so high. She and her husband only carry 50k each.

My reasoning, was it will need to at least cover my annual salary, and and while not quite enough to settle the note on the house, it should be able to cover mortgage payments for several years to either wait on selling when the market improves, or at least be usable as a down for my wife to use to move cheaper (if she or the kids mis-use the money, then well, I tried...) place. But what strategies do you guys who have life insurance use to determine how much to buy into?

We have a new client starting their first 401k plan. They have payroll twice a month, but the employer only wants to allow employees to defer from the last payroll of the month. I have been searching for IRS guidance on this and have struck out. Can anyone point me in the right direction? I also checked the plan document and can't find where it is addressed. My feeling is that they should have to allow employees to defer from every pay check.

If a participant sends notice to a plan of the birth of a child and requests enrollment of the child within the special enrollment period, but then fails to send in enrollment form and the required documents to establish the child’s eligibility for coverage, e.g., a copy of the birth certificate, within the special enrollment period, is the plan still required to cover the child back to the date of birth?

Here’s an example:

June 1 – baby born

June 6 – participant notifies plan by letter that child is born and requests enrollment in the plan

June 12 – plan sends participant enrollment form and information on documents (birth certificate) that must be submitted to establish child’s eligibility. (Plan has a 30 day special enrollment period.)

September 8 – participant sends completed enrollment form and documents (birth certificate) that establish child’s eligibility

Is the letter sent by the participant in June sufficient for purposes of the HIPAA special enrollment rules even though the participant did not complete the enrollment form and send in the birth certificate until September (long past the 30 day special enrollment period)?

I've looked at the regulations, which provide that"the plan must allow an individual at least 30 days "to request enrollment."

Any thoughts would be welcome. Thanks.

Hi. We have an employee that died recently. He does not have a beneficiary designation on file. He is divorced with two children. Our 401(k) plan doc states that absent a designated beneficiary, his account is distributed to a surviving spouse (which there is none), then to children (there are two), then to parents, then to the estate. It appears then that we should distribute to the two children (which are adults).

But he also has a 403(b) account. That plan document says that if there is no beneficiary designated that the account is distributed to the surviving spouse, and if there is none, then to the estate.

So it seems that the two plan docs are not consistent. Can someone fill me in? What does the law say on this? I have looked in 401(a)(9) but haven't found anything helpful.

Thanks.

Hi. We have an employee that died recently. He does not have a beneficiary designation on file. He is divorced with two children. Our 401(k) plan doc states that absent a designated beneficiary, his account is distributed to a surviving spouse (which there is none), then to children (there are two), then to parents, then to the estate. It appears then that we should distribute to the two children (which are adults).

But he also has a 403(b) account. That plan document says that if there is no beneficiary designated that the account is distributed to the surviving spouse, and if there is none, then to the estate.

So it seems that the two plan docs are not consistent. Can someone fill me in? What does the law say on this? I have looked in 401(a)(9) but haven't found anything helpful.

Thanks.

EGTRRA and Notice 2001-56 seem to suggest that the suspension period for taking a hardship is exactly 6 months, but the regs under 401(k) say the period is at least 6 months.

Under Treas. Reg. 1.401(k)-3©(6)(v)(B), a plan may limit the amount of elective contributions on account of a hardship distribution for 6 months in accordance with §1.401(k)-1(d)(3)(iv)(E).

§1.401(k)-1(d)(3)(iv)(E) says for at least 6 months after receipt of the hardship distribution

Can a plan impose a suspension period that is greater than 6 months? Any guidance you can cite?

IRS Rev. Rule 81-11 describes two methods for applying the fractional accrual method when less than a full-year of service has been credited in an accrual period. The Rev. Rule does not specify a default method. Two acceptable methods were outlined. A plan does not specify a method and the case has arisen whereby the participant left after accruing 20/40 benefit, did not receive a distribution, was rehired 10 years later, and then terminated 5 years later.

Under Method I, we have 20/40 + (1-20/40) x 5/10 = .75

Under Method II, we have (20 + 5) / (20 + 10) = .8333

The Plan does not address the situation. I.e., it does not specify Method I or Method II.

Question: (1) May the Plan now specify Method I without a 411(d)(6) violation?

(2) May the Plan Sponsor adopt Method I (say in its Retirement Committee meeting minutes)?

The regulations provide three categories of plans for purposes of determining the amount of vested deferred compensation that is eligible for grandfathering treatment: account balance plans, nonaccount balance plans, and equity-based compensation plans. I am trying to classify a non-exempt incentive plan that pays a benefit based on the various objecive performance measures (for example, an increase in sales growth over a specified period). I would like to categorize this as an account balance plan, so that the increase in the amount of benefits after 12/31/2004 constitute earnings and therefore included in the grandfathered portion (as such earnings relate to the vested portion as of 12/31/04).

Any thoughts?

Safe Harbor Plan uses a non-Safe Harbor definiton of comp for allocation of the SHNEC. The comp ratio tests fails. Can I use Rate Group testing, along with Profit Sharing allocations during the plan year to determine if the allocation(s) would otherwise meet 401(a)(4)? Or, would the definition of comp require an amendment for the SHNEC? Thanks.

Safe Harbor 401(k) plan had 401(a)(17) failure in 2011. Employer deposited too much matching contribution. Can't use the account balance reduction method, because 100% of the account participant's was paid out in accordance with a QDRO.

We know that a safe harbor plan can't be amended mid-year. Is there any exception to this in order to correct with a retro amendment and making an additional contribution for the other participants?

My employer's 401(k) Plan offers participants the opportunity to contribute to the Plan on a pre-tax, Roth after-tax and non-Roth after-tax basis.

During a HRIS system update at the start of year, one participants long standing non-Roth after-tax election was not carried over properly. The IRS provides guidance on "Correcting a Failure to Effect Employee Elective Deferrals". The guidance specifically states that the procedures do not apply to after-tax or catch-up contributions--which is kind of odd because catch-up contributions are elective deferrals but non-Roth after-tax are not considered, at least that I've seen, elective deferrals...but I digress.

The produre for correcting a failure to effect elective deferral elections is nearly identical to the procedure for correcting the improper exclusion of an eligible employee from a plan with the difference being that instead of using the ADP for the ee's group (NHCE or HCE), you use the actual election, because it's known, to determine the correction. The correction is the product of the eligible earnings multiplied by the deferral election multiplied by 50%. There is a similar correction for after-tax contributions for excluding an eligible EE--you you use 40% instead of 50%.

Based on all of this, can I assume, because the IRS does not provide guidance, that the corrective contribution for failing to effect after-tax elections is the same as the procedure for failing to effect elective deferrals (again, using 40% instead of 50%)? Or is the employer not on the hook for correcting the mistake except, possibly, for missed earnings?

Any help or a point in the right direction would be much appreciated.