Is the HEART ACT provision that a person who goes on active military duty for more than 30 days be treated as a severance from employment for the purpose of making a 401(k) withdrawal a required or elective provision. I have seen it described both ways.

Client has a 401(k) plan with safe harbor match.

Plan compensation is defined as wages, tips and fringe benefit comp as reported on W-2.

Client paid 2008 Christmas bonuses to all rank and file employees in a fixed net amount ($250), and grossed them up for FICA and Medicare.

No deferrals were withheld from the bonuses.

Then on the last paycheck of the year, some employees' deferrals were REDUCED by the amount of deferrals that should have been withheld from the Christmas bonuses.

So deferrals for a lot of people are incorrect, plus the related SH match - small amounts for each, but sizable for the plan as a whole.

The plan is being audited by a CPA firm.

Does this need to be corrected?

If so, how?

Thanks!

Here's the situation - an active employee was allowed to receive a total withdrawal of his 401(k) account in error. This was caused because recordkeeper did not update status from terminated back to active when the employee was rehired, although it appears there was direction from employer/plan sponsor to do so. Participant filed distribution paperwork with recordkeeper and since status indicated terminated, the distribution was processed.

Distribution was paid directly to participant, there was no rollover. We are still checking, but this appears to have only happened to just this participant. Based on in-service distribution language in the plan document, the participant could have received most of his account while still employed, so most of the distribution was allowable as an in-service. Only the employee's deferrals shoulld not have been distributed.

I'm unclear on how to fix. Most of what I've seen in regs about this type of thing specifically references hardship withdrawal errors, but I'm applying the same principles because it seems like the closest example I can find.

Does anyone know if this can be corrected under SCP, or do we have to go the VCP route? I've reviewed both IRS SCP and VCP regs, and I'm unclear. Distribution occurred last year, we would be fixing it now. It appears that only 1 participant out of a plan that covers about 2300 has had this type of error (we are still checking), and the impermissible portion of the distribution was only about $5000 (an insignificant percentage of the overall assets).

For correction, we will ask participant to repay that portion of the distribution which he should not have received. However, I am certain this employee will NOT repay the amount. It appears that if the participant refuses repayment, the employer would need to make the repayment. But would the repayment be made to the particpant's account, creating a windfall for that participant? It doesn't seem right the employee should end up financially ahead in this type of scenario.

Or would employer make repayment to the Plan - to a forfeiture account within the plan for example? Since plan doc allows for forfeitures to reduce future company contributions funding, that doesn't seem to make much sense either. The company could make the repayment to the Plan, and then immediately use those same monies now in the forfeiture account to reduce that week's wire transfer for company contribs. It seems to make the repayment option pointless, however, I suppose if your plan doc didn't have this wording, the monies would be in forfietures and have to stay there.

And in any repayment scenarios, should the repayment have an earnings calucaltion worked into it to cover the period from the impermissible distribution to the date of repayment?

Appreciate any help that can be provided.

Company A is owned equally by three other entities: B, C and D. All 4 companies adopted one 401(k) plan.

80% of the assets of Company A are sold to Company E. 80% of the Company A employees are also transferred to Company E as part of the sale.

Company A continues to exist with the other 20% of the assets and employees.

As part of the sale, Company E agrees to become successor plan sponsor of the Company A, B, C and D 401(k) plan. Company A, B, C and D will no longer be participating employers in the plan.

For the 20% of employees who stayed with Company A, there has been no severance from employment. They are still working for Company A.

In order to distribute the 401(k) assets from the plan that belong to the Company A, B, C and D employees is it necessary to spin-out the portion of the plan with their assets into a new plan and then terminate that plan?

I read through some prior posts and it was suggested a few times that since Companies A, B, C and D are no longer participating employers in the plan, that distributions could occur. But this does not make sense to me. Discontinued sponsorship in the plan I suppose could be construed as a plan termination of sorts with regard to just those entities, but I do not think you can terminate only a portion of the plan. Does anyone have support for the conclusion in the prior posts? Or support that you cannot distribute due to "plan termination" if the entire plan is not being terminated?

Thank you!

Laura

Does anyone have an idea why Notice 2009-9 states that "most participants and beneficiaries...are not required to withdraw any amount in 2009"? Are some participants excepted from the waiver? I have heard some people saying that they think 5% owners can't take advantage of the waiver(?).

Our DB plan allows normal retirement at age 65 with 3 years of service. The vesting provision is also after 3 years.

In early 2008 we hired a lady at age 67 and she got a year of service during 2008 (1000+ hours). She recently terminated employment, still with 1 year of service. She's not vested now, I think.

Other than returning to work (no chance of that), is there any way she could ever become vested?

(We hope not!)

I have just taken over plan document duties at my office.

As I understand it, EGTRRA restatement occurred some time ago. Perhaps in 2008?

My understanding is that all volume submitter DC plans must be restated for EGTRRA by 4/30/10?

I also believe all DC plans have to include the PPA amendment by the end of the 2009 plan year?

So if a plan does not restate for EGTRRA do we agree that the plan could be disqualified? Same for PPA?

Thank you.

We have a calendar year 401(k) profit sharing plan that we are amending and restating onto our EGTRRA document. The GUST document did not have a last day or hours requirement in order to receive an allocation of the (discretionary) profit sharing contribution; however going forward the client would like to implement a last day & 1,000 hour requirement to receive an allocation. Is this permissible? (I assume it is, but...) Are there any notice requirements (e.g., 204(h)) or can we just move forward with the restatement and make this new provision effective for the current plan year (or would we have to wait for 2010 for the new provisions to be effective)?

Any input would be greatly appreciated.

Thanks!

I have a Multiple Employer Plan that terminated as of 6/30/09. One of the groups has decided to spin off on their own and maintain their 401k plan with another provider, etc. I found out today that the new plan is effective 8/1/09 - is that an issue? I thought it would have to be effective 7/1/09 since it is a spinoff and the old plan terminated 6/30.

thanks!

For you attorneys out there - I was just looking at this, and I wondered - if the Trustee took "reasonable" steps, whatever those might be - to determine that the person requesting the funds was in fact that person, is the Trustee then liable to replace the funds in the Participant's account?

We're so used to thinking of qualified plan funds as inviolate, that I never considered what would happen in a situation like this. Restitution is great, but the thief may not be able to pay restitution.

Release Date: July 7, 2009

Release Number: 09-781-KAN

Contact Name: Rich Kulczewski

Phone Number: 303.844.1302

Former casino employee sentenced for theft of 401(k) plan assets

Kansas City — A former employee of a Kansas City, Mo., gaming casino was sentenced to one year in federal prison and three years of supervised probation after completion of her prison term. Dana Wachter also was ordered to make approximately $38,000 in restitution stolen from a co-worker.

The sentencing was based on a criminal investigation by the U. S. Department of Labor’s Regional Office of the Employee Benefits Security Administration (EBSA) in Kansas City, Missouri and the U.S. Postal Inspection Service.

Dana Wachter was sentenced June 29, 2009 in U. S. District Court for the Western District of Missouri. She was indicted in June 2008 on one count each of aggregated identity theft, mail fraud and theft from an employee benefit covered by the Employee Retirement Income Security Act.

“Theft of employee benefit assets jeopardizes the benefits of workers. This case reaffirms the Labor Department’s commitment to protect workers’ benefits by identifying criminal activity wherever and whenever it occurs,” said Steve Eischen, director of EBSA’s Kansas City Regional Office.

The indictment charged that from November 2006 through July 2007, Wachter, a former table games dealer at a Kansas City casino, stole the identity of a co-worker in furtherance of a number of economic crimes that resulted in actual damages to the victim of over $38,000. The indictment contends that, in March 2007, Wachter used her co-worker's social security and personal identification numbers to authorize an $18,000 distribution from her co-worker’s 401(k) account. Wachter is further alleged to have used the mail to steal a distribution check and forged the participant’s signature on the check.

The criminal case was prosecuted by the U.S. Attorney’s Office for the Western District of Missouri.

U.S. v. Wachter

Criminal No. 4:08-cr-00180-GAF

U.S. Department of Labor news releases are accessible on the Department's Newsroom page. The information in this news release will be made available in alternate format (large print, Braille, audio tape or disc) from the COAST office upon request. Please specify which news release when placing your request at 202.693.7828 or TTY 202.693.7755. The Labor Department is committed to providing America's employers and employees with easy access to understandable information on how to comply with its laws and regulations. For more information, please visit the Department's Compliance Assistance page.

We have a client that sent their 5500 (due on 7/31) via FedEx in March, and they have verification from FedEx it was received. However, the DOL’s automated system does not indicate it has been received. What is the recommended course of action at this point?

A DB plan provides a fully-subsidized QPSA benefit and also provides an alternate death benefit to non-spouse beneficiaries if the QPSA is waived by the participant with spousal consent.

The DB plan document says that the QPSA explanation will be provided automatically by the plan sometime during the three year window which opens on the first day of the plan year the participant turns 32 and closes on the last day of the plan year the participant turns 34.

The DB plan sponsor is not providing the QPSA explanation at any time during this three year notification window.

Not providing a notice required by (1) applicable law and (2) the plan document is potentially, with respect to (1), a disqualifying defect and, with respect to (2), an operational defect.

Is this a problem to be concerned about?

Does the IRS offer any correction to this problem?

Thanks in advance for any suggestions.

I have checked everywhere I can think of, and cannot find a definitive answer.

Entry requirements are age 18 and 1 year of service. Year of service is the 12 month computation period from hire date to anniversary (switching to plan year afterward) in which and employee has 1,000 hours of service. Entry dates are monthly.

Date of birth = 5/7/86

Date of hire = 6/13/05

Date of term = 12/10/07 (actual last pay was 4/15/07)

Date of rehire = 7/16/08

2005 hours = 466

2006 hours = 675

2007 hours = 207

2008 hours = 960

2009 hours = 1,032

EE did not have 1,000 hours between 6/13/05 and 6/12/06.

When does this person become eligible for the plan?

a) software says 7/1/09 (1,000 between 1/1/09 & 6/30/09),

b) client says 8/1/09 (based on 7/16/08 rehire date)

c) gut says 1/1/10 (ee never had a year of service in a prior computation period)

I have an issue and could use some advice, I am new to this board. I have a small business client who cut all salaries for all employees by 20% on May 31. He stopped paying commissions, and cut auto allowances by 20%. On June 30 he laid off an EE, gave her a severance package that paid her the commissions from the end of May, made up the missing salary, paid her regular salary for July, made up the missing auto allowance and paid her COBRA costs for 6 months. There was no signed release or agreement. Company rehired EE in July and wants the money back. EE only wants to pay back the COBRA money and is saying that she was owed all the monies that she received. Does the ER have any rights to get the money back since there was no release and no rehire agreement? Thank you for any help that any of you can provide.

Situation:

An employer establishes a new 401(k) plan and signs an adoption agreement with an effective plan date of 01/01/2008. The plan is never communicated to the employees, no enrollment forms are ever completed and no contributions are ever deposited to the plan.

Questions:

1. Does an employee obtain a "right to defer" simply by the signing of an adoption agreement? If so, is the employer now liable for "missed deferrals"?

2. Or, can the employer simply move the effective date of the plan forward, since no communications were made to the employees and no contributions made?

We have a DB plan benefiting only an owner-employee. This person died with a large contribution obligation. Must an executor make the contribution or would they have some alternatives after the death?

My company is looking at an acqustion of a company with an ESOP plan. Can anyone tell me the key ESOP issues to look at during the due diligence process? It will be a stock purchase, not an asset deal. I don't know yet if the stock is publicly traded. Thx.

I'm not sure how to interpret IRS Sec. 318 as it pertains to Sec. 416 regarding the treatment of family members. A plan covers a 10% owner, his wife and her mother. No question the wife is considered having the same ownership as the 10% owner and is, therefore, deemed to be a key employee. Is the mother-in-law also considered to be a key employee? All help is greatly appreciated.

After reviewing COBRA enrollees acquired from merger of two companies, discovered the following issue: employee terminated on 06/01/07 and elected COBRA health and dental for himself and spouse, employee enrolled in Medicare coverage on 10/01/07 and continued family dental coverage, spouse remained on single health coverage. As of today's date, both are still enrolled in their coverage elected at that time, employee on family dental and spouse on single health. I believe that both should have had their elected coverage end on 12/01/08. What is the best route to take in correcting this? Any guidance would be much appreciated.

A participant has a vested balance of 10,000, of which 2000 is his loan balance. He is allowed to take in-service distributions from all accounts in the plan. Can he take 8000 (all of the cash) or does he have to keep 2000 in the plan in order to keep his 2000 loan? I was thinking that the loan requirements were only relevant when the participant takes his loan out and that he can take all of the cash remaining now. He will continue making payments on the loan. Is this correct?