Participant tells plan administrator that he is separating and planning a divorce. Plan administrator knows nothing about QDRO's. Subsequently, participant comes to plan administrator, explains that pursuant to a separation agreement, he had to make a large payment to his spouse, and has been strapped for cash and needs to tap his 401(k) to avoid eviction. He takes the max loan, comes back with an eviction notice, requests a hardship distribution, gets it. Plan makes and has no communication from or to spouse/AP.

Should the plan have permitted the loan and the hardship distribution? Do they have an obligation to put a stop on loan issue and distribution from the plan in the absence of a proposed DRO, even though they know about the separation and possible divorce? Does the plan have potential liability vis-a-vis the spouse/AP's interest in his account? Everyone involved is in California, a community property state.

Thanks -

JP

We have some conflicting information and was hoping someone might be able to help. We have a plan with a prototype document where the Basic Plan Document language regarding separate deferral election on bonus states "Such an election to defer all or part of a bonus shall be independent of any other salary reduction agreement and shall not constitute a modification to any pre-existing salary reduction agreement".

The plan does not exclude any form of compensation from the definition of compensation. The definition of the plan compensation is total gross compensation.

The document provider states that if a participant makes a separate election for bonus and indicates a "0" than no deferral must be withheld on the bonus amount at all. We believe that the last part of the sentence above in the BPD "......shall not constitute a modification to any pre-existing salary reduction agreement", contradicts that intrepretation. We believe that what ever eligible compensation is for the plan is subjective to the elective deferral. Therefore, by electing "0" on a separate deferral election would mean no additional deferral we be taken on the bonus.

Thanks for any insight!

I have a client that sponsors a profit sharing plan with a 401k feature.

The plan sponsor manages the investments.

2 vested employees with balances between $1,000 and $5,000 recently terminated.

Since the plan does not have individual sub accounts for each participant (but one pooled account) , how would we calculate the amount due the participant? That is, the amount in the plan changes every day, so if we provide a client the portion attributable to the terminated employee based on the account as of say 10/1/08 and the client isn't going to actually make the distribution until a later date, can we lock in the amount based on the value computed as of 10/1?

The plan administrative forms, etc. provide for automatic lump sum payment for amounts less than 5k, but requires consent if the amount is over 1k. What is the purpose of consent when the distribution is automatic lump sum? I suppose they want to hear if it is a rollover or a cash payment, etc.

Finally, say $2,000 is the non vested portion forfeited. In order for such amount to be used to reduce the next year's contribution do we just keep track of the forfeited amount just like any other account balance and then use it as the reduction in contribution? Of course the same dilemma of changing daily values occurs. Perhaps they can create another suspense account for the forfeited amount?

Thanks.

I know that when the Final 401(k) regulations came out a few years ago, they said that GAP earnings needed to be included in ADP/ACP and Excess Deferral refunds.

But what about refunding excess annual additions in excess of the 415 limit? Can those continue to be only plan year earnings?

For example, say you have a 1/1/07 to 12/31/07 limitation year and John has $2000 in excess annual additions. There is no "deadline" for issuing the 415 refund - so say that it's just being done now.

Would the earnings on this $2000 only include plan year earnings (earnings up to 12/31/07)? Or would they include GAP earnings (earnings up to the date of distribution).

I don't think the 415 regulations really say anything about how earnings should be calculated for 415 refunds. Heck, the new 415 regulations don't even say anything about 415 refunds because they should now be handled in the EPCRS.

There is a note in the ERISA Outline Book under the 415 refund section that says "The longer the delay in making the distribution (415 refund), the more earnings will have to be distributed as well." The only way earnings could increase is if GAP was included. If GAP was not included, then the earnings would be the same regardless of when they were distributed.

Thoughts?

401k plan has a matching formula based on compensation. Participants earning up to $40,000 receive 100% match on their salary deferrals, paticipants earning more than $40,000 receive 50% match on their salary deferral. Is there additional testing other than the ACP test on the match since it isn't a uniform formula?? Thanks.

A fully funded DB plan was supposedly terminated last year, but nothing was filed with the PBGC (Form 500). I was told that fully funded plans don't need to file with the PBGC. I've since learned that that's not the case. The filing of Form 500 is required. Since the assets have not been distributed, the plan will be frozen and terminated properly at a later date.

The owner would like to get his life insurance policy out of the plan, but he wants to keep the coverage. I've heard that he can simply swap the policy for it's cash value. That way the policy comes out of the plan and there is no taxable event. Is it really that simple?

Section 205 of Title II of the bailout bill extends Qualified Charitable Distributions from IRAs at age 70 1/2 to 12/31/2009.

That is, if it passes.

Moved to correct forum

Deleted and moved to correct forum

the plan is a 403(b) with employee deferrals only. however, it is invested in mutual funds in a custodial account. Everything is handled by the employer through a TPA. ie. distributions, deferrals etc. would this be subject to Title I of ERISA and have to file a form 5500 under the new rules? are there other factors i am not considering?

The calculation of the PBGC variable premium is based on the methodology used during your normal valuation. An assumption of 100% lump sums is made for 1/1/2008 for the valuation. Lump sums in the plan are defined to be the greater of AE or the 417(e) rates - using the proposed regulation method of funding interest segments. The PBGC though has different interest rates (4.93, 6.13 and 6.69) for purposes of calculating their liability. How is the lump sum calculated for PBGC purposes?

a Lump sum is computed using the greater of PBGC rates or AE

b Lump sum is computed using the greater of 417(e) per the valuation OR the lump sum at retirement discounted to attained age using PBGC rates

c Something else

Thanks in advance for any and all comments.

We had a COBRA question arise today that we are hoping to find an answer for.

The group is in their open enrollment period and they are offering an employer paid HRA plan to their active benefit eligible employees.

Do they have to offer the HRA to their current COBRA participants?

My best guess would be no. Any thoughts?

We have a participant that is getting divorced. As part of their divorce decree, her spouse is entitled to a part of her 401k. She wants to withdrawal this money to pay him, without getting a QDRO drawn up. The only in-service options this plan allows is a hardship and at age 59 1/2 (which she is not).

Can the plan accept her divorce decree paperwork showing that she owes her spouse this amount without having a QDRO drawn up?

Thanks!

We took over a Plan in 2007, but the 2006 5500 is showing Oxford Health Insurance on the 2006 Schedule A.

Oxford Health Insurance is not an investment option in the Plan, and has nothing to do with the 401(k) Plan.

I don’t believe it should be reported on the 401(k) 5500? Do you agree?

Should it be reported by the company on a separate 5500?

Plan was late in applying for Retiree Drug Subsidy and so the request was denied by CMS...reason for missing deadline is essentially that the Account manager drpped the ball. We are attempting an appeal to CMS of the denial...any ideas on strategy/liklihood of success/past sucess stories/ etc etc???

Does anyone have a phone number for the IRS in Covington Kentucky?

I would like either a phone number or an answer to this question.

I am submitting for a determination letter on a volume submitter that looks and feels like a prototype. Of course, I am sending in a copy of the adoption agreement and the IRS approval letter. My question is: Do I need to send a copy of the complete document?

This is bad: For the past several years, participants who took loans from the company 401(k) Plan never had any loan repayments made. Not their fault, for some reason the person in charge of having these withheld from their pay and deposited back into the plan, just dropped the ball badly and never triggered these repayments. The participants, out of either ignorance or perhaps sensing an error in their favor, never noticed or said anything about it.

Looking for possible consequences:

(i) For the more recent loans which still have a few years left on their repayment terms, can we go back and re-amortize the outstanding balance, coming up with a new (higher) repayment schedule for the rest of the remaining terms of the loan?

(ii) For the others whose loans are either close to the end of their repayment schedule (or in some cases, that date has already passed), are they stuck with having this a deemed distribution and being taxed on this this year? Am I correct that they still have to pay the loan back, but still get taxed on it this year as well? Does it matter that this is not their fault since it was the employer who did not make the deposits?

I know there is a lot wrong here and I am checking into all of the consequences, but if anyone can point out a few of the major problems, that would be a great help.

Thanks

I am working on a plan provision that permits a 'make-up payment' to be paid on the SERP commencement date. The Plan currently pays in the form of a life annuity, but a make-up payment (lump sum payment equal to the SERP benefit multiplied by the number of months difference between the start of the db benefit and the SERP commencment date) is triggered if a participant's db payments commence before the SERP commencement date. In sum, the difference in time is made up by one lump-sum payment on day one of the SERP benefit.

My question is whether the make-up payment changes the time/form of payment which will then require 12 mo./5yr delay. Does this cause the payment to not be a life annuity?

Say a new one participant plan is implemented for 2008.

Say the assumed distribution form is a lump sum.

The participant is age 55 at plan inception and NRA is 65.

So the lump sum would be taken in 10 years based on the plan terms and assumptions.

When computing the funding target (subject to a subsequent thorough review of existing regulations):

My impression is that I would compute the PV of lump sum at age 65, where the basis is the 417e segment interest rates and the 417e unisex mortality table (assuming these are all finalized or at least proposed).

In order to do this the lump sum would be based on an annuity at 65 where the first ten years of payments (65 to 75) are computed using segment 2 rates and segment three rates are used beyond age 75.

So let's say the pv at 65 is 200,000.

Then the funding target would be the pv of a payment of 200,000 made in ten years and thus it would be v ^ 10 * 200k, using the segment 2 rate.

Does the above make sense? As opposed to if an annuiity were the form of payment and the pv would be computed using the funding segment rates and funding mortality tables (not unisex).

In conclusion my impression is that the mortality table and the segment rates for 417e purposes is different from 430 purposes.

Shortfall Amortization

Say a new one participant plan is implemented for 2008, where the participant is age 60 (with 5 years of past service counted) at inception and NRA is 65 & 5. As a result the employee would receive his pension in 5 years.

If the participant received a lump sum in 5 years, where the plan were terminated at that time, the question is:

Should (or must) the initial funding target be amortized over 7 years even though plan is only expected to be in existance for five years? If it is 7 years, then of course there may be a relatively higher final plan contribution to fully fund the pension.

Thanks.

A state law that applies to group life policy requires that individual's be given an individual conversion right when they become no longer eligible to be covered under the group life policy.

The state law also requires that the individual be provided a notice at that time that explains the conversion rights and how to take advantage of those rights.

The state law also includes extra provisions that by their terms apply only to group life policies of governmental employers (which would be exempt from ERISA)

The plan that I'm dealing with is clearly an ERISA one; the employer is private, not governmental.

Does anyone know off the top if the two provisions of state law that by their terms apply to all group life policies would be preempted by ERISA (ERISA § 514(a)) or exempt from preemption under ERISA § 514(b)(2)(A)?

I've noticed a large number of public company incentive plans contain the concept of a "Change in Control Price". Typically, if there is a change in control, all options and SARs vest, and holders receive a payment equal to the "Change in Control Price" less the exercise price. “Change in Control Price” is usually defined as the highest price per share during the 30 or 60-day period immediately preceding the occurrence of the Change in Control...

My concern is that this would cause otherwise exempt SARs to fall within 409A, because 1.409A-1(b)(5)(i)(B) provides that compensation payable under the SAR cannot be greater than the excess of the FMV of the stock on the date the SAR is exercised over the FMV on the date of grant, and if it is, 1.409A-1(b)(5)(i)© provides that the grant will generally be a deferral of compensation subject to 409A.

I don't see that the definition of FMV for public companies under 1.409A-1(b)(5)(iv)(A) is broad enough to permit using the highest price during the previous 30 (or 60) days. For instance, suppose an SAR had a grant price of $1/share (its FMV), and the FMV as of the change in control is $5, but sometime during the 60 day period preceeding the change in control the stock price hit $10/share before dropping back down. If the "Change in Control Price" is $10 when the current FMV is only $5, it seems like the recipient is receiving more than the excess of the FMV of the stock on the date the SAR is exercised over the FMV on the date of grant, and thus would not fit within the SAR exemption.

Any thoughts on this? A number of recently drafted plans by reputable firms contain this type of provision, but I just can't seem to get comfortable that it works with respect to SARs.