Top heavy 401(k)/profit sharing plan.

Company does not want to make a contribution.

Can key ee's over 50 make catch up contributions without triggering the need for a TH company contribution?

I represent a large defined benefit church plan that is a non-electing church plan (not subject to ERISA). I am struggling with the application of the prohibition on in-service distributions prior to normal retirement age in the context where a participant terminates employment with a covered church entity and immediately becomes employed by another entity that is affiliated with the same church, but which does not participate in the same plan. Assume for purposes of this question that both entities are either a church or a qualified church-controlled organization. I understand that the controlled group rules of 414©apply for purposes of the prohibition on in-service distributions from a pension plan, but we don't have any real guidance on how to apply the controlled group rules to a church plan (see Proposed Regulation 1.414©-5). Does anyone think I have a problem if we allow a pre-NRA distribution to a former employee who is still working for "the church," but not for a church entity that participates in the same Plan? Thanks.

We are looking at taking over a 401(k) plan with a calendar limitation year and a 1/31 plan year. Testing and plan allocations have been based on calendar year compensation and deferrals.

The client is interested in amending to a Safe Harbor Match 401(k) as soon as possible. If the change is made 2/1/08 would the match formula be applied to the 2008 calendar year compensation or the compensation from 2/1/08 to 1/31/09?

Would the best approach be to have a short plan year ending 12/31/07, so that the limitation and plan year match?

Hello-

A group health plan currently has a $1million lifetime maximum. One benficiary of the plan has satisfied their lifetime maximum. The group is looking to move carriers to a plan w/ a $2 million lifetime maximum. They are wondering whether they can exclude this beneficiary from coverage since he already satisified the lifetime maximum under the prior contract. He would be otherwise eligible for the plan. If they don't exclude him can they count the prior $1 million against the new $2 million maximum?

I see problems w/ respect to HIPAA nondiscrimnation by excluding the beneficiary entirely , but wanted to get some additional opinions.

Thank you!

Am still getting used to the new layout on message threads. Is there any way to epxand so that you don't have click on each posting in a thread?

Has anyone ever heard of a plan basing a rehired employee's eligibility on whether they still maintain a balance in the plan from their prior service? The document states that BIS rules do not apply to eligibility.

Background: two EEs worked 1+ YOS for ER and terminated. ER merged into a new company, with a new profit sharing plan that requires 1 YOS for a PS contribution. The EEs are rehired after the merger so they have no prior service with the new ER, but they had both been eligible for the former ER's 401k, which has since been merged into the new ER's plan. New ER counts their prior service for vesting but determines that only one of them is eligible to receive the current PS allocation.

Because one of the EEs still had money in her account from her prior tenure, she was deemed an existing "participant" and given a prorated share of the PS contribution for the year of rehire. The other employee had either not contributed previously or had already taken distribution of her account so she did not have a current balance in the ER's plan when she was rehired. Because of this, the new ER determined that she was not a former participant of the plan and is requiring her to complete a new YOS.

A State has a law that requires employers in the coal industry to remit monies to a pension fund on behalf of coal workers employed in that state (and to make matters more complicated, some are union and some are non-union employees).

Is there any reason to think that employers could disregard these state-mandated contributions when doing 410(b) discrimination testing?

We are a TPA with a prototype plan. Our document does not allow for life insurance as a plan investment. We have a new client that is getting ready to move their recordkeeping business to us. Their plan currently has some participants with life insurance in the plan. If the participants are under 59 1/2 and not eligible for a distribution from the plan, how do they remove the life insurance from the plan? Can the participants still purchase the contracts by paying the cash surrender value into the plan in exchange for having the policies transferred? With this go in as after tax? What other options do they have? Thanks for any assistance!

Is there a regulation on the term a 401k loan can be taken for a primary residence?

I thought it was always 15 years...

I have a db plan where each participant (all plan participants are HCEs) has a separate rollover account in the plan. The plan sponsor wishes to continue the db plan but allow everyone to take their rollovers to IRAs or cash out... Does anyone see any problems with this? Is this allowable? Do they have to wait until NRA?

Figured it out... but i can't figure out how to delete

Received a memo from employer dated 3/20/07 stating 401(k) match is being reduced by half as of 4/01/07. Can anyone kindly tell me if this is sufficient notice to employees? I appreciate any input. Thank you!

With the upcoming final regulations due under 403(b), there is a definite need to re-think how 403(b) documentation is structured. For a variety of reasons, mostly historical and marketplace driven, there is no generally agreed set of practices for how to get documents in place that actually meet the requirements of 403(b) and are consistent with the complex of plan structures that has evolved over time.

The marketplace is likely to evolve in these directions over time, so this post is something of a roadmap for the future. At least, it should provide a template of issues you can raise with your provider when the final regulations come out. (And, of course, how we will be working with our clients.)

THE THREE PLAN TYPES

There are three distinct program types in the 403(b) world, as opposed to just two in the 401(k) environment. Each of these types has different documentation needs, so let's look at each separately.

ERISA Plan

A 403(b) that seeks to be or admits it is a plan subject to ERISA is, in many ways, the simplest type to figure out. These plans almost always limit investments to a single array, within the setting of a single group annuity contract or a single TPA administration structure. This means that, like an ERISA 401(k) plan, they need (1) a plan document, and (2) a funding vehicle. Group annuity contracts regularly provide both where they are the selected investment medium (subject to my concerns about whether they are amended on a timely basis). Otherwise, the plan needs a plan document and a pooled custodial account agreement that comply with 403(b)(7) (all in mutual funds, plan document controls over custodial account agreement, etc.). Given the possibility that there will be prior annuities in place with distribution restrictions, and the possibility that an employer would allow an opener to individual annuities, the plan document probably ought to permit the plan administrator to designate more than one investment vehicle or at least to grandfather existing funding arrangements.

Non-ERISA Plan

There are also 403(b) programs that are plans, but not subject to ERISA, because the employer itself is not an ERISA employer (technically, the exemption is for governmental and church plans under a bizarre and complex set of definitions). These are going to require either (1) a separate plan document that excludes ERISA rules, or (2) a master document that has provisions for ERISA and non-ERISA plans. There is no particular technical reason to pick one of these over the other. The single document is easier to draft and to draft from, but has provisions that do not apply to non-ERISA plans, while the two-document choice has less extraneous materials for non-ERISA plans. Given the implications of not having a remedial amendment period, and the better quality control inherent in a single document, we have opted for a single, combined master plan.

Oh, and don't forget church plan retirement income accounts as a third investment medium.

Non-Plan Programs

Mostly for cultural reasons, there is a genuine fear of plan status in 403(b) culture. There is good reason to attribute this mostly to fear-mongering in a marketplace where a lot of small insurance agencies make money from individual 403(b) annuities, but it is real. Setting aside all the negative effects on employees of not having any assistance from employers with, hopefully, better expertise, there it is an there it will remain for some time.

This creates an entirely new type of 403(b) program, the non-plan program or arrangement. Even ERISA-exempt employers try to maintain this status, and one of the central marketplaces, school districts, normally have to do so by state law. Otherwise, the structure tends to be fixed by the requirement of the DOL's definition of "pension plan".

Normally folks want to see these programs as simpler. For starters, they are all salary reduction-only, so there is no need to cover things like matching contributions or vesting. For another, there is no need to comply with ERISA requirements, except to the extent that analogous rules are placed in the final 403(b) regulations. However, the investment side, and the effects of the market structure, create offsetting complexities.

In this marketplace, and program type, there are multiple, unrelated investment providers, most of whom are offering single annuities. Each of these single annuities purports to comply with 403(b), although they are rarely amended on a timely basis to reflect changes in the law. However, none of them provides any of the aggregate limitations resulting from the fact that 403(b)(5) says, and has always said, that multiple contracts are treated as a single contract. Nor do they have to have common provisions about such essentially employer issues as withholding and timing of contributions.

After some hemming and hawing, we came to the conclusion that this program type needs a separate document type. Essentially, the need is for a program document that (1) says it is not a plan (ours calls itself a personnel policy), (2) includes overall limitations to be applied under all funding vehicles, in the aggregate, on contributions, loans and distributions, (3) contemplates the addition and removal of specific annuities, custodial account arrangements and retirement income accounts as funding vehicles, and (4) includes the definition of a non-plan under the DOL regulations, where applicable. Procedures under such a program would also be required, along with cooperation from investment providers, to ensure compliance with the aggregate limitations, but that should become a standard part of the "common remitter" function, as we are prepared to do.

So there we are. Reasonable minds can differ, but it is clear that the decisions we have made will keep our clients in compliance.

This is going to be an important subject, but it is unlikely that anybody will write much about it when the final regulations come out. Accordingly, I am going to pst this on my blog (403b-457plansblog.blogspot.com) for regular readers and at the 403bWise and BenefitsLink bulletin boards. My hope is that the bulletin board postings will generate discussion, and point out the flaws in this posting. At least, they will create forums where I can clarify the underlying reasons and how our system will work.

Tom Geer

is it possible for a DB wrap plan to allow participants to freeze their accruals (so they can receive a benefit under a nonqualified DC plan)?

Is there any way to exclude fringe benefits from the definition of compensation used to determine a SEP contribution for employees?

It is my understanding that in a "bad" year, an employer may reduce the safe harbor contribution (at least for SHNEC...not sure about SHmatch), but I am searching for the rules/regs on this and am having no luck.

Could someone please point me in the right direction?

Thanks!

A participant is requesting a hardship withdrawal to purchase her principal residence. However, because she is purchasing the house via an auction, she does not know the amount needed. Also, if she does not "win" the auction, she would want to put the money back into the plan.

#1 - Can a hardship be taken without knowing the specific amount of the hardship, as is this case?

#2 - i'm guessing the answer is "No", but can she put the money back into the plan if the reason for the hardship goes away (i.e., she doesn't get the house)?

Thanks

We are looking at taking over a case with a 12/31 limitation year and a 1/31 Plan Year. 401(k) testing and contribution allocations have been based on the census data and deferral information for the 12/31 period.

The client is interested in changing to a safe harbor 401(k) plan.

If the change is made for the 2/1/08 Plan Year would the SH match be for payroll from 2/1/08 forward, even though the limitation year is 1/1/08 through 12/31/08.

If the client is agrees, would the best approach be to create a short plan year at 12/31/07 and have the plan and limitation year in sync?

I have an interesting situation with one of my brokers. Everything goes through him and I am considered a "ghost". Not only that, but getting information is quite something. I only get the information once a year, and several months after the year end at that.

The broker just informed me that the client's 2005 Safe Harbor contribution was not completely deposited...even as of today. They were a few hundred short of depositing all of the 2005 Safe Harbor contribution.

My question is...What will need to be done?

First and foremost is to get the money deposited. This I know.

Do they then owe the 10% excise tax? Would fair market adjustments need to be applied on that money?

Thank you for any help you can provide.

I've already contributed some money to my 2007 Roth IRA. However, I just learned that I will be receiving much more income this year than I expected and I will be over the Roth IRA income limit to contribute. What do I do? I talked to my IRA custodian to see if I could move the money out and they said it would be considered a cash distribution and be subject to all the early withdrawal fees. Any suggestions would be greatly appreciated - as you can imagine it is difficult to search the web for answers to a question like this. Also - a bit more info - I maxed out my 2006 contribution last year, so applying the money to 2006 is not an option.

Thanks

DB plan is cancelling life insurance, allowing for purchase by participants.

Son of participant is interested in purchasing policy. Is that ok, or is there a problem with it such as a Prohibited Transaction?

Admittedly I have not had time to research it and am hoping someone can point me in the right direction to do so.