I have a bank that I insure for Long Term Disability. They have self funded their short term disability for years and I just found out that they have no handbook or formal written agreement that defines their short term disability. What kind of trouble can they get into without a written agreement? Thanks.

A deposit has been made the wrong money type in a 401(k) Plan. The participant elected to defer Roth contributions into a plan, however, payroll coded it improperly and the money was deposited into the participants pre-tax salary deferral money type instead. I have not found a corrective process. Has anyone else had this happen and how was it handled. Also, where did you find the corrective process that provided the guidance.

Thank you!

In case you are a 'fool' and don't subscribe to such things: This is quite good, its the first explanation I've seen for a failure involving a safe harbor match. subscription is free http://www.irs.gov/retirement/content/0,,id=154836,00.html

Fall 2008 edition IRS Retirement News for Retirement Plans

Fixing Common Plan Mistakes:

Failure to Provide a Safe Harbor 401(k) Plan Notice

Each issue of the RNE looks at a common error that occurs in retirement plans and provides information on fixing the problem and lessening the probability of its recurrence.

Background:

A safe harbor 401(k) plan requires the employer to provide:

• timely notice to eligible employees informing them of their rights and obligations under the plan and

• certain minimum benefits to eligible employees either in the form of matching or nonelective contributions.

The employer should provide the rights and obligations notice within a reasonable period before the beginning of each plan year (or in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). In general, the law considers notices timely if the employer gives them to employees at least 30 days (and no more than 90 days) before the beginning of each plan year. The notice must include, at a minimum, details on:

• whether the employer will make matching or nonelective

contributions, • other contributions under the terms of the plan,

• the plan to which the safe harbor contributions are made, if more than one plan,

• the type and amount of compensation that may be deferred under the plan,

• how to make cash or deferred elections,

• the specific time periods available under the plan to make cash or deferred elections,

• withdrawal and vesting provisions for plan contributions, and

• how to easily obtain additional information about the plan (including a copy of the summary plan description).

The Problem:

Rainbow Company established a safe harbor 401(k) plan in 2005. The plan provides for matching contributions in an amount equal to: 100% of elective contributions up to 3% of the employee’s compensation plus 50% of elective contributions greater than 3%, but not more than 5% of the employee’s compensation. Eligible employees received timely notices in 2004, 2005, and 2006. However, in 2007 Rainbow failed to provide safe harbor notice to its employees. In addition, Rainbow did not furnish notices to employees who became eligible to participate in the plan in 2008. Rainbow discovered the problem when it conducted an internal review of its plan operations at the end of 2008.

Violet first became eligible to participate in the plan on January 1, 2008. She did not receive notice and Rainbow did not inform her of her right to make elective contributions to the plan. She earned $20,000 in compensation in 2008.

Indigo has been a participant in the plan since 2005. She has made elective contributions of 2% of compensation each year, after receiving notices in 2004, 2005, and 2006. While she did not receive a notice in 2007, the human resource department (HR) informed her that the employer’s matching contribution formula will remain the same for 2008 and that she should inform HR if she wanted to make any changes to her elective contributions for 2008.

Finding the Mistake:

In order to find the mistake, review:

• The deferral decisions among eligible employees. If many eligible employees are either not making elective contributions or deferring at low rates, it is possible that they did not have timely access to the information contained in the notice.

• The plan’s procedures for issuing notices.

• The plan’s records showing that the employer followed the plan’s procedures relating to the distribution of notices.

Fixing the Mistake:

Rainbow must evaluate the impact of its failure to provide notice to its eligible employees. The solution might be different for each affected employee. As illustrated in this problem, the failure to provide notice could require correction for the exclusion of an eligible employee or a simple revision to an administrative procedure.

Exclusion of an eligible employee. Violet belongs in this category. Due to its failure to provide notice, Rainbow did not inform Violet of her ability to make an elective contribution when she was eligible. To correct the failure, Rainbow must make a corrective contribution for Violet to replace her missed deferral opportunity and the missed matching contributions that occurred because Rainbow improperly excluded her from the plan. The corrective contributions are determined as follows:

(a) Missed deferral opportunity: If an employee is not provided with the opportunity to elect and make elective deferrals to a safe harbor §401(k) plan that uses a rate of matching contributions to satisfy the safe harbor requirements of §401(k)(12), then the missed deferral is deemed equal to the greater of 3% of compensation or the maximum deferral percentage for which the employer provides a matching contribution rate that is at least as favorable as 100% of the elective deferral made by the employee. Violet’s missed deferral is 3% of her compensation of $20,000, or $600. Violet’s missed deferral opportunity is 50% of her missed deferral of $600, or $300. Rainbow needs to make a corrective contribution to replace Violet’s missed opportunity to make elective contributions of $300 (adjusted for earnings).

(b) Missed matching contribution: If Violet made an elective deferral of $600, she would have received an employer matching contribution of $600. Rainbow needs to make a corrective contribution to replace the missed matching contribution of $600 (adjusted for earnings).

Fixing an administrative problem. Indigo belongs in this category. The failure to provide notice did not prevent her from making an informed timely election to change (or maintain) her elective contribution to the plan. No corrective contribution for Indigo is required. The plan needs to reform its procedures to ensure that she receives timely notices in the future.

Do the 100x or 2/3 limitations on life insurance apply anytime the plan invests in an insurance type product? or do they only apply if the plan's death benefit involves proceeds from the policy.

That is, if the only death benefit is the PVAB, does it matter if the plan invests all its money in an insurance policy?

Situation: H & W own 100% of Corp. H & W are Corp's only 2 EEs. Corp has a QRP. It's only asset is a loan on which H & W are obligated (possible 72p problems are being explored separate and apart from this post). While loan is yet outstanding, H & W divorce. H receives in the divorce split of assets all of the stock of Corp. W no longer is an owner of Corp directly or by attribution, but yet has benefits in the QRP.

Question: Has the non-ERISA QRP become subject to ERISA by reason of the divorce since W is no longer an owner of Corp but has benefits under the QRP? If so, what steps need to be taken by the fiduciary (H) to diversify the assets and establish the liquidity to be able to pay benefits (specifically, W's benefits)? It would seem if ERISA applies that the small employer exception to independent audit by an accountant is also blown by virtue of the loan being the QRP's only asset.

We have a client that is terminating its SERP this year. The company has been using search firms to locate missing participants, but we are preparing for the possibility that a few may not be located by year end. One approach is to report the distribution amount as a taxable distribution to the IRS and pay the benefit, less tax withholding, to a bank account for the participant's benefit. Does anyone have any comments or suggestions?

I apologize if this topic has been touched on before, but if a safe harbor that utilizes the basic safe harbor match....is there a limit on how much the plan can fund towards an additional employer match that is subject to vesting? Lets say they wanted to do a 50% on deferrals up to 8 percent of comp in addition to the Safe Harbor basic match?

Thanks

Our PD defines an Eligible Employee as: an employee who is regularly scheduled to work in accordance with the current practices in effect when the Employee was hired or re-hired.

This seems to indicate that eligibility is determined based on guidelines in effect at the date of hire and not the current guidelines.

Who determines the eligibility guidelines -- the employer, our plan provider, the IRS?

If the employer determines eligibility, can the requirements be changed at any time?

Are there any regulations (IRS or other) regarding a minimum number of hours that an employee needs to work in order to participate in an FSA?

Thanks so much!

A DB plan is frozen with notices to participants. Do top heavy minimum acruals stop?

Is the 5,000 maximum for a Dependant care FSA subject to any type of Cost of Living adjustments? It seems to me that the number has been the same for a long time which leads me to believe that there are no increases.

First of all; how low is the stock market going to go? 7000? 6000?

Anyway,

Say a one man plan is implemented where the individual has 5 years of past service at plan inception.

Let's assume we do not have prior years' compensation.

Say in year one he earns 50,000 and in year 2 he earns $0 (but is credited with a year of service). Therefore, the average compensation goes from 50,000 to 25,000.

Say benefit is 10% per year.

Then theoretically in Year 1 his AB would be 5 * .1 * 50k or 25k, limited to 415 limit of say 18,500.

Then after year 2 his AB is 6 * .1 * 25k or 15k.

And a negative accrual results in a negative TNC.

Any problem?

Thanks.

In addition to trying to find if ANY regulations or guidance have been issued about when and how (content) a notice alerting participants that distributions will be limited under ERISA sec. 206(g)(3)©, I have been asked whether or not a plan sponsor has a fiduciary duty to warn participants in advance that their ability to get a lump sum under the plan may be unavailable in a few months. So far, I see no guidance, but was wondering if anyone had a take on this....

Surveying the wreckage of my retirement accounts, it occurs to me that converting my prior employer 401(k) to a Roth IRA is now 50% cheaper in terms of taxes than it was previously.

It's days like these that make it hard to follow my own advice. The rollercoaster has gone into a tunnel and the fear comes not so much from the plunge itself but from not knowing where it ends.

A Money Purchase Plan was terminated effective 5/17/2008. The Plan calls for a 10 % of compensation contribution.

The company paid a large bonus on 5/20/08.

I am now doing the Money Purchase Contribution Calculation.

My question is do I use compensation up until 5/17/2008 and add in the bonus paid on 5/20/08 to calculate the Money Purchase Contribution?

Any help is greatly appreciated.

Thank you, Alex

My wife and I each have more than one IRA with different brokerages. I plan to partially convert at least two of her accounts to new Roths and then recharacterize depending upon post-conversion market performance and the amount of ultimate 2008 tax liability. I may also convert from my own IRA(s) depending on the reply I receive to the following.

I seem to recall hearing somewhere that if I recharacterize, I cannot make another conversion to a Roth within the same year. Perhaps my recollection is wrong.

My question is: If the above recollection is accurate, may I recharacterize a 2008 conversion in 2009 and then perform another conversion in 2009 (obviously for 2009)? I don't suppose that my wife's recharacterization would impact my own same-year conversion - even if we do file a joint return.

Thanks for any help in demystifying this stuff.

Michael

If some contracts were issued prior to 2005 by a former provider and those providers ceased to receive contributions prior to 2005, do those contracts have to be included as part of the plan under the final regs? Do we still need to make a "good faith" effort to include them or can they be ignored?

Have a small (under 100 life) collectively bargained plan. PY is 10/1-9/30.

Benefits were frozen under plan as of 1/1/2007. Lump sum is not an allowable form of payment (except for de minimis under $5k payments). Optional forms are equivalent to SLA normal form, no SS offset, so no payment would exceed SLA form. Does provide for unreduced benefit for disability purposes.

My reading of 436 is that it doesn't apply until PYB after 1/1/2010 in this situation.

Calculated AFTAP is under 60%.

What are my notification requirements?

If neither the participant or alternate payee have legel representation, then is it ok that the QDRO is not signed by an attorney? Is it ok that the DRO is just signed by the court and approved by the Plan to become a QDRO?

I am taking the ASPPA RPF-1 QKA test, and there are a few questions that don't seem to be covered in the material anywhere. Could someone point me in the right direction? I'm not asking for the answers, just suggestions, maybe, of something I might be overlooking.

Question 1.) All of the following statements regarding parties involved in plan operation are TRUE, EXCEPT:

A.) A retirement plan administration firm may provide ministerial functions

B.) A retirement plan consultant may be hired to perform the Form 5500 audit.

C.) An ERISA attorney may be hired to draft the plan document.

D.) An accountant may be employed to provide payroll services.

E.) A broker may be hired to provide participant investment advice.

I've found material in the textbook that supports ALL of these scenarios, and yet one must be false. What are your thoughts? Thanks in advance.

I have come across a question that I would guess has a relatively easy solution, but I cannot seem get my arms wrapped around it. I have a calendar year 401(k)/PSP. It has only the two sources: 401(k) and profit sharing. The elig and entry date for the two sources is as follows: 401(k) – Age 21/1YOS, entering monthly; PSP – Age 21/1YOS, entering on 1/1/ and 7/1. (At this point, no allocation conds. for the PS.) The plan defines compensation as while a participant in each specific source. The plan excludes a division of employees from all sources. When the ratio test is performed for coverage (for both sources), it fails. (No fail-safe language.) Therefore, we need to run the ABT. My question is which compensation do I use to complete the ABPT? Comp for the entire year? Comp while a ptp in the 401(k) portion? Comp while a ptp in the PS portion?

The example is as follows: Person is hired on 2/1/2007; They are eligible for the 401(k) on 2/1/2008; they are eligible for the PS on 7/1/2008. When the ABPT is run, do I use 1/1/2008—12/31/2008 or 2/1/2008—12/31/2008 or 7/1/2008—12/31/2008. Is it optional? Any help would be greatly appreciated.