Here are the facts:

Company A, which sponsors a 401(k) plan, has a wholly-owned subsidiary, Company X. Employees of Company X participate in Company A's plan.

In May 2008, Company B, which has no plan, purchases all of the stock of Company X. Immediately after closing, Company X starts a new 401(k) plan for its employees and shortly thereafter accepts a plan-to-plan transfer of the employees' accounts from Company A's plan. Assuming no employees are 5% owners of Company X, could there be any HCEs for 2008 in Company X's plan?

I understand that this is sometimes a tricky question because there is no IRS guidance on the determination of HCEs in a stock acquisition. However, it seems to me that, even though Company X changed controlled groups and the employees changed plans, because Company X was the employer of the employees both before and after the transaction, you would be required to look at the employees' compensation from Company X in 2007 (when it was in Company A's controlled group) to determine if anyone was an HCE in 2008 (when it was in Company B's controlled group) for purposes of X's plan.

Does anyone disagree?

401(k) plan for Company X - administered by Fidelity. 1/1 plan year. John is a HCE, terminates on 4/18/08, and rolls his money from his 401(k) to an IRA at Washington Mutual. The total amount of the rollover is $122,000.

On 5/1/08, the ADP test is completed for the 2007 plan year - and it fails. John is due a refund of $1500. It will be taxable in the year of distribution. Fidelity adjusts the 2008 tax record of the distribution to show a rollover of $120,500. They create another 2008 1099 for $1500, to reflect the excess contribution refund.

The plan sponsor notifies John that a portion of his distribution was ineligible to be rolled over. John contacts the Washington Mutual and they refund him $1650 (includes earnings). They create a 1099 for the distribution.

January of 2009 - John receives the two 1099's from Fidelity, and the 1099 from Washington Mutual.

Question A: What should John do? Contact Fidelity to delete the 1099 they created? Keep in mind that the 1099 from Fidelity is for $1500, while the 1099 from Washington Mutual is for $1650.

Question B: Who is to blame for the fact that John has two 1099's for the same distribution? Fidelity or Washington Mutual? Who should be creating the 1099 in this situation?

Question C: Instead of rolling the money into an IRA, say that John rolled it into another qualified plan at his new employer. Does that change anything?

Thanks for any thoughts...

So far have two plans impacted. One in particular was valued using an end of year val date and also had plan year that ended 11/30/2008. As of that date, everything was fine in the world (and the statement from the shaky investment manager had it as such). As we all know the curtain was pulled back 10 days later. Working on the PBGC and DOL notifications, but just wondering what the heck to do with the valuation for ye 11/30/2008. Know we're not supposed to reflect anything after the val date, but that seems a little too slick to me (especially since this client had probably 97% invested).

Other plan at least had losses through Lincoln Financial (Rye Investment) with amount under the $500k cap. Other one is trashed. Any advice?

Any suggestions as to what provisions of this document might raise any red flags, either as a matter of compliance with 457b and regulations, or practical aspects of plan operations?

Hello all,

Some of our clients pay their TPA fees directly (we are the TPA), with the exception of distribution fees. If a participant's vested account balance is $500, and the distribution fee is $100, the participant receives $400 and that is what is reported on their 1099R.

Now, the investment platforms don't typically break out that $100 in their annual reports. In the foregoing situation, they would show a distribution of $500.

The question is whether the $100 fee is a plan expense or a participant expense. I feel that because the participant never sees the money, nor does the taxable amount include the $100, it is really a plan expense and should be reported as such on the Schedule I.

Does anyone feel that this doesn't need to be reflected as a plan expense? All points of view welcome!

Also posting this on 5500 board.

Medusa

Hello all,

Some of our clients pay their TPA fees directly (we are the TPA), with the exception of distribution fees. If a participant's vested account balance is $500, and the distribution fee is $100, the participant receives $400 and that is what is reported on their 1099R.

Now, the investment platforms don't typically break out that $100 in their annual reports. In the foregoing situation, they would show a distribution of $500.

The question is whether the $100 fee is a plan expense or a participant expense. I feel that because the participant never sees the money, nor does the taxable amount include the $100, it is really a plan expense and should be reported as such on the Schedule I.

Does anyone feel that this doesn't need to be reflected as a plan expense? All points of view welcome!

Also posting this in Distribution board.

Medusa

Hi,

We have a plan that acquired a division of a larger plan. They are not transferring the assets to our plan. They are not looking a compensation prior to acquistion for HCE purposes. However they are crediting prior service for eligibility and vesting. My question is for determining the otherwise excludables, do we use the acquistion date (3/1/08) or do we use original hire date?

Hello - Looking for advice on an eligibility question.

A safe harbor 401k with a discreationary match receives three new participants in a plan year. Two new participants (Bob1 and Jeff1) that became eligible on 1/1/2008 and one new participate (Suzy7) that became eligible on 7/1/08. Bob1 started contributing 1/1/08. Jeff1 never completed enrollment paper work until 7/1/08. Suzy7 completed enrollment forms and started contributing when she became eligible on 7/1/08.

Ok. The year has ended and the employer has decided to make a discreationary profit sharing contribution. Should the contribution formula use a full years salary for Jeff1 and Suzy7?

The reason I ask is I have an employee that thiks she is being shorted.

Thank you for your response.

Does the law stilll allow a vesting schedule that starts at 20% in the third year of service? If the law does not allow this, when did it stop allowing such a vesting schedule?

Can they get used for EGTRRA, GUST, 401(a)(9), 401(a)(31), etc.? Can one use them for some but not for others? Do some of these absolutely require amendments signed and executed by the taxpayer?

Can costs associated with the refinancing of a primary residence be taken as a hardship under a 401(k) plan if the participant is otherwise eligible for a hardship and the refinancing is not needed to prevent a foreclosure? I don't believe so, but was wondering if any recent guidance had come out to help participants even if they are not in financial distress.

Since gap earnings are not applicable for 2oo8, how would you figure out earnings on an ADP refund in this case:

HCE puts in full $15,500 deferral from last paycheck of the year. Pay date is 12/28 and the deferrals are on the 2008 W2. However, the deposit to the plan is not made until January 5.

HCE is due a gross refund of $3,000. How do you figure out the earnings on that? None whatsoever, since everything was deposited in '09, after the plan year ended?

[Hypothetically.]

AFTAP=100%. HCE age 62 has accrued monthly pension payable at 65 of $120,000 annually. Because he has completed 30 YOS, the Plan allows him to take it unreduced at age 62. Plan's lump sum factor is 12.50 which assumes 5% interest; minimum PPA is 11.75. So, lump sum is $1,500,000 (120,000 x 12.50).

The plan's actuarial equivalence for non-lump sum benefits produces an actuarially equivalent benefit of $84,000 annually at 62.

(1) Is amount that can be distributed under 401(a)(4) $120,000 or $84,000? I.e., can subsidy be included?

(2) Let's assume we can distribute $120,000. At the end of year 1, the undistributed balance is

(1,500,000 - 120,000) x (1+i).

Question: What is "i"? Is it 5% or the applicable segment rate or could it be specified in the plan?

(3) Suppose plan lump sum factor is 11.50, so that lump sum is 1,410,000 determined using the PPA 11.75 rate. At the end of year 1, the undistributed balance is

(1,410,000 - 120,000) x (1+i).

Question: What is "i"? Is it 5% or the applicable segment rate or could it be specified in the plan?

(4) Presumably, the remaining balance is used for liability purposes for 401(a)(4), 404, 430, 436, PBGC variable premium, and FASB. Any disagreement?

Employer since 2001 permitted eligible employees to commence deferrals immediately upon hire instead of making such employees wait until the plan's dual entry dates. The employer can't use self correction because this error goes back more than 2 years and presumably is

significant. What is likelihood under VCP that the IRS will let the employer correct with a retroactive amendment providing for immediate eligibility?

I have a plan with 2 year eligibility.

I have a key who terminated in 2008 and worked 1000 hours. He took an immediate distributions.

He now is planning on returning in July,he will be working full time but will not be a shareholder or officer.

My questions are these

1) is he a still a key?

2) when does he reenter the plan?

Thank you,

Andrew

I have a plan where Discretionary non-elective contributions were never expected. The document has everyone in their own group. The owner is very young so cross testing will not work.

Can I use the same permitted disparity that would be allowed if the document said integrate at $50,000?

I understand the rules for the ability of a plan to permit proxy or pass-through voting of employee stock, but is anyone aware of any DOL or Treasury rules that mandate a particular procedure for collecting and effectuating participant votes? For instance, would it be appropriate to merely send paperwork to each participant or is there a particular procedure or specific guidelines that must be followed? This is fairly urgent, so any immediate feedback would be very helpful. Also, please provide citations if possible...

EDIT: typo

ok -I have my first ING plan that I need to import to Relius.

When I went onto ING to use the TPA download feature...it created files with an *.FI1 extension. Does anyone know what's up with that? My computer won't read them and Windows said it doesn't even recognize the file extension. Am I doing something incorrectly?

My boss advised that ING does know that we use Relius, so I'm at a loss.

Any help appreciated.

A plan is facing lump sum restrictions under 436(d)(5) when the 2009 certification is made (surprise!). The plan has mandatory employee contributions but does not pay out in excess of the $5,000 limit unless it is an employee contribution refund. Does the restriction apply to limit the refund of the employee portion of the accrued benefit?

For example, if a participant is not vested they would be entitled to an employee contribution refund only which would obviously exceed 50% of the present value of the $0 vested benefit. Even vested participants with short service may find that the employee contribution portion exceeds 50% of the pv of the total accrued benefit.

A local attorney says the restrictions seem to apply. Doesn't make sense to me, I can't see my client telling their employees they can't get their money back.

What say ye?

Participant took a loan in March 2008. Although payments were supposed to be withheld from paychecks, it didn't happen and no one noticed until the plan changed recordkeepers in December 2008. The original recordkeeper defaulted the loan in June 2008 and issued a 1099-R to the participant in January 2009.

It appears that the employer still has an obligation to institute the loan repayments from payroll.

Questions:

1. Is it possible to void the 1099-R, i.e. taxation to the participant, since this could be argued that the employer was at fault? If so, is it recommended?

2. Are there any prescribed methods of correction from IRS in this situation?