Here are the facts...

The plan is a 401(k) Plan with a June 30th year-end

In January 2006 the sponsor transmitted the deferrals for a particular payroll period to the custodian. The custodian received the money but never credited them to the participant accounts. The amount of the deferrals was a little over $6,000.

The plan changed custodians at the end of December 2006.

In early 2007, when the plan was audited for its 6/30/2006 year-end the custodian's error was discovered and disclosed in the notes of the financial statements as employee contributions receivable, with a description of the error. The old custodian was contacted and subsequently sent the money, which had been sitting in limbo, to the new custodian.

The new custodian received the money in July 2007 and applied it to participant accounts. An analysis was done of missed earnings and these were paid by the old custodian and applied to the participant accounts. It was a little over 550 days from the time of the error to the time of correction.

So, the participants have been "made whole" as of July 2007. My questions are about paying the excise tax due and whether the steps we are taking will prevent further penalties or more severe actions.

I know that the initial error is considered a prohibited transaction, and each subsequent plan year that it goes uncorrected is another prohibited transaction. Will what I am going to file correct all of the problems, or do I need to explore one of the voluntary correction programs? (Or is use of the correction programs negated by the fact that we went beyond 180 days before correction?)

We are filing a Form 5330 for the year ended 6/30/2006 to pay 15% on the earnings missed between January 2006 and June 30, 2006 (calculated at the applicable federal rate).

We are filing a Form 5330 for the year ended 6/30/2007 to pay 15% on the earnings missed for the year ended June 30, 2007 (including compounding).

We are filing a Form 5330 for the year ended 6/30/2008 to pay 15% on the earnings missed for the few days from July 1, 2007 until the correction later in July 2007.

We will list the amount of the delayed contributions on line 4a, Part IV of Schedule H of Form 5500 and attach a schedule listing the amount of the delayed contributions as a prohibited transaction.

Thanks to anybody with advice to offer.

I've got a rehire who was formerly employed in a class of employees that were ineligible to participate in the 401(k) plan. Now she's rehired in a class of eligible employees. Had she been in a class of eligible employees when she was employed previously, she would have entered the plan at that time (i.e.: she had at least 1000 hours of service). She was gone for fewer than 5 years. Does she enter the plan immediately upon rehire, or can we make her wait until the next entry date? DO we count that service for purposes of vesting?

The plan document does not cover this scenario, so I'm trying to figure out what's required under ERISA.

FYI- my conclusions so far are 1. immediate eligibility and 2. count all service for vesting purposes, but I'm just trying to see if I missed something...

have a client that had all of the pension money with madoff. Small business, no ee's. The two owners were the only participants.

their BOY assets were 1 mill. EOY assets are 0.

Should I carry the mill as a receivable? Or should I carry it as a lesser value.

In an acquisition, the target sponsors a SIMPLE IRA which will be terminated pre-closing. The transferred employees will participate in buyer's 401(k) plan post-closing. The joint DOL/IRS document entitled "Simple IRA Plans for Small Businesses" states under the heading "Terminating the Plan" that "[Y]ou must also notify your employees that the SIMPLE IRA plan will be discontinued." Where is this requirement in the law and is there a minimum notice period that must be satisfied.

Thanks.

ASPPA's ASAP says that minimums for 2009 for qualified plans would be waived under the pending legislation. Reading the technical summary from Congress seems to limit this to DC plans. Is the ASPPA ASAP wrong (call it incomplete or misleading if you wish), or did I miss something about DB minimums?

I represent an employer that is being pressured to join a multi-employer plan is endangered under the PPA. Because of the potential exposure, the employer is likely not to join, but wants to make an informed decision. What information about the plan besides the plan document, Form 5500's, actuarial reports, and the information referenced in ERISA 101(k) should this employer request.

It's my understanding that the IRS will publish (separately from its annual Cumulative List) a list of so-called "interim amendments" which document sponsors and, potentially, adopting employers, must adopt by the applicable RAP--generally, the date the adopting employer's tax return is due for that year (including extensions).

On 12/19/2005, the IRS released Notice 2005-95 in IRB 2005-51 which contained its list of interim amendments for the 2006 plan year. In a "Special Edition" of its "Employee Plans News" newsletter (released in August 2007), the IRS released its list of interim amendments for the 2007 plan year. Ok, fine.

What about its list of interim amendments for the 2008 plan year? I can't locate it anywhere and can't seem to find any statement that it isn't being published for such and such a reason. What am I missing?

I can see the value of Information Sharing Agreements for a plan with more than one participant, but I'm restating a plan for a one-man not-for-profit. Does he need to get one of these signed for each vendor he uses for his plan assets? He doesn't have a loan or hardship provision in his plan.

By the way -- since our firm is restating his plan, do we need to have an Information Sharing Agreement with him, too?

I have a Plan that terminated effective 12/18/08 which is the last payroll date for the 2008 plan year which is the calendar year.

Plan fails ADP and corrective distributions are required. Is it ok to make corrective distributions tomorrow with associated gain/loss?

What has me a little confused is that corrective distributions must be made after the end of the plan year and the plan year does not end on the date of plan termination. Is there an exception for terminating plans? If the Plan terminated on January 15, 2008, I would have one year to make corrective distributions but it does not make sense that I would have to wait until after 12/31/08 to make corrective distributions.

Is it necessary to amend the Plan to provide for a short plan year 1/1/08 - 12/18/08? This would seem to reslove any uncertainty but is it necessary?

Would 2008 1099-R's for corrective distributions be completed with the code of 8?

Thanks

We have a new client for a 2007 401(k) plan audit. From 2003 when they put their plan into place, through 2006 when a new TPA informed them of their error, this client had more than 20% leased employees but improperly excluded them from plan participation. They amended the plan to exclude all HCE's, allowing them to exclude the leased employees thereafter because they now automatically passed the minimum coverage ratio percentage test. SOMEONE - and so far we haven't uncovered who it was - advised them to make a QNEC on behalf of the excluded leased employees. They were not able to locate or identify all the improperly excluded leased employees, and the PEO's were not cooperative when it came to releasing employee data - preseumably because of HIPAA privacy considerations. I would gladly ignore whether the QNEC was properly calculated or whether it covered who it was supposed to cover as issues presumably resolved prior to our involvement - except that the QNEC was posted as a liability of the plan at 12/31/2006 and was paid in 2007, the year under audit, so I can't ignore it. There is no evidence of any involvement by an ERISA attorney. Can anyone give me guidance on 1) what disclosures, if any, I need to make in regard to this issue, and 2) how IS the corrective QNEC calculated in thse circumstances? I assume it would be at least a safe-harbor percentage centribution for what they could have contributed if made eligible, plus the associated match, plus appropriate earnings, but I have not encountered this situation before and I'm not sure what to do.

Thanks as always for the help -

Jack Point

In a 401(k) plan what is the character of the money and it's associated gains attributable to employee's deferral agreement?

Is this considered employer contribution till distribution? This is in context of PLR 9806012, para 9 (excerpt shown below)

Contributions made by the employer at the election of an employee pursuant to a qualified cash or deferred arrangement described in section 401(k)(2) are considered employer contributions rather than employee contributions.

A safe harbor matching plan wants to make a profit sharing contribution for 2008. The plan would need to add the profit sharing option, currently it just allows 401(k) and safe harbor match. I was told that it could be amended for 2008 since the plan is being made less restrictive, but I have also been told you cannot amend a safe harbor plan mid year except for roth contributions and hardships provisions.

My concern is that not just a profit sharing contribution, when the plan document was prepared there was no vesting schedule selected, since there were no vested contribution options. I think the plan would also have to add a vesting schedule. The plan wants a cross tested formula which would require a new document not just an amendment.

Has anyone added a profit sharing contribution to a safe harbor plan mid year?

Is it possible to amend a plan now to discontinue the safe harbor 3% non-elective for the calendar year 2009? In theory, a notice was handed out to participants on time, i.e., 12/1/08.

Can you give more than than a 3% Safe Harbor Non Elective Contribution and still be considered a Safe Harbor Plan?

What is the Non Elective % Maximum?

Thank you, ALEX

Is there any if the plan was previously frozen (post-9/05) and doesn't pay lump sums? Does the deemed election of 1.436-1(a)(5) still apply?

Conversely, is there any advantage to maintaining the COB/PFB rather than burning to get back up to 60%?

After reading the last posts [Link], I have convinced everyone that the Simple invalidation is not worth the trouble. Instead, we are looking at terminating the Simple and starting the 401(k) at the beginning of next year. However, this seems to bring up a whole new can of worms regarding the notification to employees that the plan was being terminated. It seems that notice was supposed to be given at the beginning of November; is this an unavoidable date or are there ways to cure this problem since we are creating the new 401k?

Thanks for the help, I am new in the area of emplyee benefits and am just starting to wrap my brain around everything.

Under the new PPA provision for allowing participant's to take hardships for primary beneficiary expenses, can a mother be the primary beneficiary and the participant take a hardship for a parent's medical expenses? If so, can this only be the case if there are no spouse or children that could first make claim on the plan account upon the participant's death?

Typically the deadline to make a deductible employer discretionary contribution is the due date, plus extensions, of the employer's tax return. If the employer is a nonprofit that does not file a tax return, and has no corresponding deduction, what is the deadline?

Has anyone heard if we still need to do a Notice of Benefit Restrictions if no benefit restrictions apply?

I have a 10/1 case. 2007 AFTAP proxy was 85%, 10/1/08 AFTAP 75%.

The new bill states I can use my 2007 AFTAP to determine if benefit restrictions apply for 2008, therefore I assume benefit restrictions don't apply, but I didn't see anything relieving me of the notification requirements.

Also, since my plan only pays lump sums of less than $5,000 (which have been exempted from the restrictions), even if restrictions applied, they wouldn't really apply since my plan doesn't pay lump sums > $5,000. (I heard someone say that it isn't really $5,000, but it is the mandatory distribution amount. Therefore, if your plan states that only lump sums < $1,000 can be forced - due to those wonderful IRA rollover rules- than only lump sums less than $1,000 would be exempt and lump sums between $1,000 and $5,000 would still be restricted.) :angry:

So, do you think I still need to give a notice prior to 1/31/09 (assuming I certified AFTAP on 12/31/08)? If so, would it simply state the AFTAP? Which AFTAP? Would I need to mention the restrictions that don't apply?

Client's FSA administrator offers a system where participants can elect to have payments made directly to healthcare/daycare provider. Participant enters info (service, date, amount, provider) on adminstrator's web-based system. Administrator then sends check to provider. Check stub indicates participant's name, type of service (medical, dental, etc.), date of service, and amount. Face of check indicates that endorsement certifies payment is for qualified healthcare or daycare expenses. I'm concerned about this process under current cafeteria plan proposed rules re: expense substantiation. Administrator indicates check constitutes third party verification of expenses due to endorsement statement and that because check has to be endorsed prior to payment, it meets the requirement for substantiation prior to payment. Thoughts?