Is a withdrawal from an IRA originally funded by a direct rollover distribution from a qualified plan also eligible for the "first-time home buyer" exemption from the premature distribution penalty?

In other words, would a terminated plan participant requesting a cash distribution from his/her qualified plan account be better off doing a direct rollover to an IRA and then withdrawing his/her home-buying $s from the newly established rollover IRA - i.e., to avoid the penalty on the first $10,000 of the distribution?

Thanks!

Employer's 401(k) plan complies with a matching safe harbor formula of 100% match on the first 3% of pay deferred + 50% match on the next 2% of pay deferred. Employer decides to increase the match during the plan year to 100% match on the first 5% of deferrals. Employer is willing to comply with any applicable notice requirements.

My initial impression was that a mid-year increase of matching contributions would cause the plan to no longer comply with the safe harbor requirements for that plan, instead necessitating that the plan be subject to ADP / ACP testing. However, upon closer inspection (and following discussion with legal counsel), the ramifications might be even worse. Treas. Reg. 1.401(k)-3(e)(1)(2nd sentence) states:

In other words, if one amends the plan to change the provisions of the plan that satisfy the safe harbor rules effective for that plan year and if the change is an increase, not a suspension or reduction of the match permitted by 1.401(k)-3(g), then the ADP test is not satisfied.

I had read the preambles to both the proposed and final versions of the 401(k) / 401(m) regulations and do not see anything that addresses mid-plan year increases in matching contributions. I also found nothing relevant in recent IRS gray books. We can't avoid dealing with the regulations as they are written.

Help me decide between two possible interpretations:

(1) Employer cannot increase the matching contribution in the middle of the plan year. There are some other possible solutions described below.

(2) Amend the plan to add in the additional layer of match (50% on deferrals in excess of 3% of pay but not exceeding 5% of pay) but don't amend any of the plan provisions describing the safe harbor match already in the plan. Now, the sentence in the regulation I quoted doesn't apply, right? [Query: might this interpretation go too far? Does the plan still meet the safe harbor rules so that ADP / ACP testing isn't required? Although it would be prudent to notify employees, is that technically required?]

Other work-around solutions:

- Wait until the beginning of the next plan year obviously.

- Change the plan year in compliance with the rules in the safe harbor portions of the 401(k) / 401(m) regulations.

- If one anticipates this happening in advance, use the discretionary match rules in the safe harbor portions of the 401(k) / 401(m) regulations, although to avoid having a higher rate of match available to an HCE than is available to any NHCE, the discretionary match probably has to be made for the whole plan year or exclude HCEs from the discretionary match.

FYI, I searched and found some prior threads on related topics, but none that addressed my question exactly:

http://benefitslink.com/boards/index.php?showtopic=29756

http://benefitslink.com/boards/index.php?showtopic=9518

Thanks in advance for any replies.

A paricipant in a 401(k) plan went over the 402g limit for 2007. We/he didn't discover the "excess" until now. Since it is past the 4/15 deadline to return/refund what is the fix? Can we still refund or does the money have to stay in the plan?

It's now October 1 but my trusted Timex shows a day of 31. Unfortunately, while it took a lickin' and kept tickin', the stem broke off, so I'll just have to wait until the day the watch shows is back in sync with the actual calendar day. How long will I wait?

Can you provide a simpler route to the answer than just grinding it out on Excel?

I saw in ERISA Outline where a person can make an irrevocable waiver of the right to make deferrals before she is eligible, and she wouldn't be in the ADP test.

I couldn't find anywhere if she would also not partake in the ER portion. ALso, would the revocation of rights apply tot he entire plan year, or just the plan year going forward?

Hello, all. The new EPCRS revenue procedure says that submissions relating to § 457(b) eligible governmental plans will be accepted by the Service on a provisional basis outside of EPCRS through standards that are similar to EPCRS. Yet on the sample VCP forms (Appendix D and F to Rev. Proc. 2008-50), there is a box to check indicating that the plan being submitted is a 457 plan.

Can we correct a 457(b) plan using VCP? Specifically, this would be a non-amender submission using Appendix F.

Any guidance will be much appreciated.

Surprise -- this is not a question about what situations qualify as a mistake of fact.

The instructions for correcting a mistake of fact deposit indicate that a refund must be processed within 12 months of the original deposit. I haven't been able to find any indication of what the correction is after 12 months. Would a correction after that time require a VCP filing?

I am trying to figure out whether it is acceptable to contribution wellness incentives into an FSA for an employee... The situation would be that once an employee completes an HRA, the money would be contributed to a health FSA for the employee's use. Is this acceptable?

I am also curious as to the logistics - the employee elects $1000 for the year for FSA contributions, on March 2, earns $100, so the employee simply now has $1100 available? The intent is to make it the employee's option - take the money in cash or let them elect to put the money in an FSA.

Thank you

I am trying to figure out whether it is acceptable to contribution wellness incentives into an FSA for an employee... The situation would be that once an employee completes an HRA, the money would be contributed to a health FSA for the employee's use. Is this acceptable?

I am also curious as to the logistics - the employee elects $1000 for the year for FSA contributions, on March 2, earns $100, so the employee simply now has $1100 available? The intent is that the employee will have a choice - elect the cash or elect to have the money contributed to an FSA.

Thank you

We are switching medical vendors for a company we purchased as part of a stock deal today.

Prior medical vendor wants to charge us the regular ASO fee ($38/month/ee) for 3 months totalling around $45K

I think this is high. All they will provide is run-out claims adminstration. We are self-insured.

Has anyone else experienced this? What is a reasonable fee arrangement for this sort of service?

Thanks

ER pays for group life insurance coverage for EEs. ERISA applies.

EE goes on LTD. No waiver of premium. LTD plan does not call for ER to continue the group life insurance coverage for former EE even if on LTD. Group policy does give terminating EEs a right to convert to and pay for individual life coverage.

Strong evidence that ER's health insurance rep erroneously told EE (and EE's spouse) that there was a waiver of premium on the life insurance for those on LTD. Neither insurance company nor ER can produce any notice or letter to EE or spouse about individual conversion option.

EE dies. ER and insurance company deny coverage.

Spouse is claiming equitable estoppel argument that the EE and spouse detrimentally relied upon the misinformation given by the ER's health insurance rep.

How strong of a factor in the ER's defense of the case do you think it is that the EE and spouse relied on a HEALTH insurance rep of the ER on an issue about LIFE insurance? Was it reasonable for the EE and spouse to have relied on a HEALTH insurance rep about LIFE insurance issues?

Can someone provide a regulation that would allow a participant to reduce or stop salary deferrals immediately, or 30 days, upon a participant's request?

Thank you.

We have a situation where Company A acquires Company B and keeps many of Company B's employees. Company B decides to terminate its 401(k) plan. Employees of Company B moving to Company A are instructed to complete enrollment documentation if they want to participate in or rollover funds into Company A's plan. The employee in this scenario completes a rollover form and instructs Company B's TPA to do a direct rollover to Company A. Company A receives the rollover form and check and returns the check to Company B's TPA because the individual did not complete the enrollment form for Company A's 401(k) plan.

Nearly two years later, the employee receives a large tax bill from the IRS. He contacts Company A who refers him to Company B's TPA. Company B's TPA still had the check and decided to reissue a new check payable to the employee and Company A's trustee.

My question is whether Company A should touch this check? Put aside for now the question of how Company B terminated its plan with a large check still outstanding.

ACOPA?

'Mea culpa' is a Latin phrase that translates into English as "my fault"

This may seem a contrite but I have a client with a self directed 401 k plan (brokerage accouts for some, bank cd accounts for others) its a 401 k with each person choosing own route and broker etc under employers 401 k plan. So with all the market stuff they asked what limit of insurance applies for each type, broker versus bank. I think the bank side is 250,000.00 but all that we have found is that mentioned for ira's keogh's not specific to a FBO 401 k, the broker side seems to be 500,000.00 any help is appreciated.

Can you do a hardship under safe harbor regulations for costs associated with the draws on a home that is under construction and consider it to be part of purchase of principal residence? How would we go about determining whether those costs had already been pulled under the construction loan or would we?

Any opinions would be greatly appreciated!

I know this contradicts a recent ASPPA issuance, but 10/1 is too late as I understand it. Isn't this correct?

I have a plan that has a group of employees that are specifically excluded from the Plan. The plan is passing the 410(b) coverage tests with that specific group "Not Benefitting". Because the coverage tests are passed, can this specific group be carved out of the 401(a)(4) test?

I need help setting up my PPA valuation for a plan that pays lump sums based on the accrued benefit payable at NRD.

Assuming x% of the TV’s will defer payment until NRD and elect a lump sum at that time, my reading of the rules would have me value a deferred annuity commencing at NRD using the valuation segment rates, with PPA mortality before NRD and the 417(e) mortality after NRD. But since my plan provides for a death benefit equal to the present value of the vested benefit, it seems appropriate to assume no mortality during the deferral period.

If y% of the TV’s are assumed to elect an immediate lump sum benefit, my reading of the rules would have me value a deferred annuity commencing at NRD using the valuation segment rates and the 417(e) mortality both before and after NRD. In this case, it makes sense to apply a mortality decrement prior to deferral age since that is consistent with the actual 417 lump sum basis.

For a given employee terminating at age z, this would make the liability for the immediate lump sum lower than that for a deferred lump sum. This doesn’t seem right, so maybe I'm missing something. Or maybe it just illustrates the fact that the immediate 417 lump sum is a bad deal under this plan because of the death benefit?

Hi,

A plan is being amended to an integrated allocation from a comp percentage allocation. Plan is top heavy.

The plan currently maintains an American Century doc. It states that under Top Heavy, first there will be an allocation of 3% to all eligible participants. Second step is an Excess Comp allocation multiplied by the Permitted Disparity Percentage. In this case we are using the TWB for 2007 of $97,500 and therefore a PDR of 5.7% (225000-97500)*.057 = 7267.50 is the second step allocation. The third and final step is the remainder of the contribution allocated on a comp percentage basis.

This differs from a Top Heavy Profit Sharing allocation in a Mass Mutual Corbel prototype and in fact is less beneficial to the sole Key Employee.

Am I missing something?