If a plan states in the plan document that it intends to follow the safe harbor rules with respect to withdrawals, does the plan document have to include all of the six safe harbor reasons in the document?

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The IRS clearly permits restorative payments be made to a plan (Rev Rule 2002-45) or to an IRA (PLR 200852034). However, it seems that the situations allowing for restorative payments all involve only an plan or an IRA (plan participants wronged and restorative payments made to the plan OR IRA participant wronged and restorative payments made to IRA).

However, I am curious what happens if a plan is wronged but is terminated before restorative payments can be made (terminated because only a nominal amount of funds remained as a result of a breach of fiduciary duty). Does a new plan need to be adopted? Can an IRA, which was created to accept a rollover of the remaining funds as a result of termination, receive the restorative payments? It doesn't seem to be a stretch to conclude that the restorative payment rules would allow payments be made to an IRA where a plan has terminated (especially since the termination was a result of the breach of fiduciary duty). I am curious if anyone has ever considered this before. Perhaps a PLR would be prudent.

The IRS clearly permits restorative payments be made to a plan (Rev Rule 2002-45) or to an IRA (PLR 200852034). However, it seems that the situations allowing for restorative payments all involve only an plan or an IRA (plan participants wronged and restorative payments made to the plan OR IRA participant wronged and restorative payments made to IRA).

However, I am curious what happens if a plan is wronged but is terminated before restorative payments can be made (terminated because only a nominal amount of funds remained as a result of a breach of fiduciary duty). Does a new plan need to be adopted? Can an IRA, which was created to accept a rollover of the remaining funds as a result of termination, receive the restorative payments? It doesn't seem to be a stretch to conclude that the restorative payment rules would allow payments be made to an IRA where a plan has terminated (especially since the termination was a result of the breach of fiduciary duty). I am curious if anyone has ever considered this before. Perhaps a PLR would be prudent.

The IRS clearly permits restorative payments be made to a plan (Rev Rule 2002-45) or to an IRA (PLR 200852034). However, it seems that the situations allowing for restorative payments all involve only an plan or an IRA (plan participants wronged and restorative payments made to the plan OR IRA participant wronged and restorative payments made to IRA).

However, I am curious what happens if a plan is wronged but is terminated before restorative payments can be made (terminated because only a nominal amount of funds remained as a result of a breach of fiduciary duty). Does a new plan need to be adopted? Can an IRA, which was created to accept a rollover of the remaining funds as a result of termination, receive the restorative payments? It doesn't seem to be a stretch to conclude that the restorative payment rules would allow payments be made to an IRA where a plan has terminated (especially since the termination was a result of the breach of fiduciary duty). I am curious if anyone has ever considered this before. Perhaps a PLR would be prudent.

Who generally prepares them (CPA?, TPA?, Actuary?) and how expensive/inexpensive are they?

The custodian of the assets of a 401k Plan recently received a letter from a State agency directing the Custodian to pay child/spousal support from the account of a terminated participant. The Custodian sent a letter back to the State agency (and copied the Plan Sponsor) saying they are not able to make a distribution of assets without the direction of the Plan Sponsor. The Plan Sponsor has asked what should be their response to their anticipated receipt of a letter from the State agency.

A couple of questions:

1) Does the state agency have the right to demand payment from a participant account which has not been distributed?

2) Does the request need to follow the rules of a DRO have the SSN, address of the participant, name of the Plan, signed by a Judge, etc. to be a valid order?

This is the first one of these I have seen and would greatly appreciate any advice which you could provide for how the client should respond. Thank you!

Hypothetically, a plan is being taken over where the benefit formula in the document was X% of pay accrued fractionally. The plan was administered under this formula for the first year but in the next two years, the actuarial report and Schedule SB were prepared using a significantly higher benefit formula that resulted in all participants accruing the maximum benefit. Participants also received benefit statements illustrating this maximum benefit. There are owners as well as rank and file employees in the plan.

The problem is, that the plan's benefit formula appears to never have been amended.

No participants have ever been paid out, so there is not any issue of participants being underpaid, but there are obviously other issues, including possible deduction problems.

The client does not want to go through VCP and would rather fix everything on a go forward basis and take their chances on being audited.

What would be the actuaries responsibility in 2010, the 4th year.

Since the final regs are effective in 2010 and there is a free pass on change in funding method if that is the year that you choose to comply with the regs, can the plan be amended to the maximum accrual formula by March 15, 2011 and administered as such going forward? In this case, would a hold-harmless agreement for previous years be useful?

Are there any other options/requirements?

Also, just because no one can seem to come up with a copy of the amendment doesn't mean that it wasn't actually adopted (why would an actuary sign an SB without it). Absent an actual copy of the amendment or a board reso, can a client certify to the actuary that an amendment was adopted or is there any other acceptable way to illustrate that the new benefit formula is correct?

When a self employed individual has a DB and 401k PSP, the deductible amount of the contributions going into the 401kPSP and DB plans is limited to Schedule C net income less 1/2 SE Tax, correct? So while the profit sharing plan contribution cannot exceed 6% in general, it is also limited by the Schedule C income, because a net loss cannot be created by the deduction of a plan contributions?

Disabled participant is ultimately being let go. Plan sponsor is giving him taxable severance pay, should loan payment(s) be withheld? My guess is "yes"

A plan in critical status adopted a rehabilitation plan to forestall insolvency (i.e., the plan is not reasonably expected to emerge from critical status). It is likely the plan will have a funding deficiency next year. It appears under IRC 412(b)(3) that if a plan is in critical status, has adopted a rehab plan, and complies with the rehab plan, the minimum funding rules of IRC 412 do not apply. Nevertheless, I have heard some practitioners take the position that IRC 412(b)(3) is only applicable for critical plans that have adopted a rehab plan that will get them out of critical status within the rehab period. To my knowledge there is no guidance from the IRS yet on this issue, but I imagine many plans are in a similar situation. Has anyone heard anything on this? Any help would be appreciated.

I have a client, a potential corporate trustee of a number of 401(k) plans, who has been asked by the current third party administrator (TPA) for these plans, to make an offer as to a referral fee it will pay to the TPA if the TPA recommends to the sponsoring employers that my client act as corporate trustee (as a replacement of the current corporate trustee who is winding down its business). I wonder whether any such referral fee for existing plans, or for any new plan accounts in the future, is permissible under ERISA. I would think the TPA and my cleint would need to clearly disclose the payment of a referral fee to the employer sponsors. I am not sure whether any disclosure is required to participants since the referral fee would be paid from the general assets of the corporate trustee. If the TPA was my client I think I would be concerned that it would be breaching a possible ERISA fiduciary duty by recommendiing the new corporate trustee be the entity that pays the TPA the highest referral fee. Would this be a prohibited transaction? What additonal advice should I give my client? Thanks for your help.

I have a mulitple employer plan where one employer wants to amend it a safe harbor plan and the others want to leave it as a traditional SH plan.

From a previous post: Treas. Reg. 1.401(k)-3(b) states the safe harbor contribution must be made to each "eligible NHCE". Treas. Reg. 1.401(k)-6 defines an eligible NHCE to be an employee who is eligible to make elective contributions under the 401(k) arrangement.

Can the multiple employer plan be amended for one unrelated employer and not for the others?

From the above, this cannot be done for a plan where related employers/divisions have adopted the plan and one employer wants to be SH and the other doesn't, but I did not know if the same thing held true for a multiple employer plan.

A participant exceeds the 415 limit by $88.00. According to 6.02(5)(e) of the EPCRS..."if the total amount of an Excess Amount with respect to the benefit of a participant or beneficiary is $100 or less, the Plan Sponsor is not required to distribute or forfeit such Excess Amount. However, if the Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified that the Excess Amount, including earnings, is not eligible for favorable tax treatement."

I know that this section applies to 415 corrections - so the $88.00 does not need to be refunded to the participant. But I'm a little confused on the last part regarding favorable tax treatment. Does this mean that the participant cannot roll this $88.00 over? When this participant eventually takes a distribution from the plan - does this $88.00 (plus earnings) have to be treated differently?

It almost seems easier to just pay this money out rather than fool around with earmarking it as "not eligible for favorable tax treatment".

Thoughts?

Profit Sharing Plan effective in 98, but never filed a 5500. Plan is now terminating. Durign the termination process, it was discovered that no 5500's were ever filed.

How far back do you go?

I proposed 3 years under the DFVC program (2009, 2008, 2007), plus the regular 2010 filing.

We all know the story... The 25 year old in a new comp (non-safe harbor) termiantes and therefore gets no profiut sharing. The whole plan desgin hinged on this one employee benefitting.

May I please do a -11(g) amendment? See the Q&A below, though note that we did NOT do a projection. In the eyes of an ERISA attorney that I worked with on this issue a few years ago, he said "a projection is JUST a projection", i.e., the fact thtat one did or did not run a projection should not be a relevant factor. But I'm wondering if there is anything else out there.

From an ASPPA Q&A in Sept 2004:

57. An employer with a cross tested profit sharing plan receives a

contribution projection/allocation estimate approximately two months

prior to its year end and approves the recommendation. After that date

but before the year end, a NHCE participant quits. The plan has a last

day employment provision. When the new contribution calculation is

completed after year end, significant adjustments in allocations are

required to pass non-discrimination tests now that the terminated

employee is excluded. Can a -11(g) amendment be adopted to provide

the terminated employee (who is already 100% vested) with the same

contribution that he would have gotten had he not terminated, thus

passing the non-discrimination tests?

A: YES, so long as the -11(g) amendment is non-discriminatory and

meets the meaningful benefit rule. Reg 1.401(a)(4)-11(g)(2)

specifically includes the language: ... "a corrective amendment... may

grant accruals or allocations to individuals who did not benefit under

the plan during the plan year being corrected." Since this participant

is a vested NHCE, a -11(g) amendment that adds him back and gives

him an allocation that allows the non-discrimination test to pass (the

amount does not have to be what he would have received if he had not

terminated) would be acceptable under the regs.

Plan PS contributions are at the 25% deductible limit of total participant comp for the ER. Document states FF are to be reallocated. If I reallocate FF total allocations are about 26.5% of total comp. The ER will only deduce the 25% and no participant will go over the individual limits. Is there any issues with this? I am thinking that it is ok since they are only deducting the 25%...

Thanks,

Are union employees (whose participation is pursuant to a CBA) required to be disaggregated for purposes of nondiscrimination testing?

How does a tax-exempt organization comply with the requirement under Notice 2010-6 to attach a 409A Document Correction Statement to its "federal income tax return"? Does anyone know if the IRS has indicated in any informal discussions whether tax-exempt organizations must attach the statement to the Form 990 (which is an information return, not a federal income tax return)? Or are tax-exempt organizations exempt from this requirement because they do not file a federal income tax return? Thanks.

Company X acquired the assets of Company Y, including certain employees. Company X promised Company Y that it would pay a certain dollar amount to each acquired employee in connection with the sale, and the dollar amount owed to each acquired employee pursuant to this agreement varies by employee. Company X wants to contribute these amounts to its 401(k) plan as a nonelective contribution, only up to the annual additions limit. The employees have no legally binding right to the money and will not be allowed to make an election. The employees are not HCEs for the year in which the contribution would be made because they had no compensation from the employer during the look-back year. Is this type of one-time nonelective contribution to a group of NHCEs allowed? Is there a way to word the allocation formula of such a nonelective contribution so that it will work (concerned about the allocation formula being definite and predetermined in accordance with Reg. sec. 1.401-1)? This seems somewhat analogous to mandatory contribution by the employer of unused vacation pay to a 401(k) plan as a nonelective contribution, which has been approved by the IRS as long as nondiscrimination requirements are satisfied.

A participant in a 401(k) plan names two primary beneficiaries for their account, his sister 50% and his brother 50%. The participant also names two contingent beneficiaries for their account, niece 50% and nephew 50%.

At the time of the participants death, his brother is already dead. Does the remaining primary bene, his sister, receive the full 100% of his account or does the brother's 50% fall to the contingent beneficiaries?

Does the answer to this question hinge at all on how the beneficiary form were completed? For instance, had the participant indicated on the beneficiary form "my brother and my sister in equal shares" rather than specifically giving each one 50%?