We have a recently terminated EE who completed an enrollment form for our 401k in 2000. She selected one fund and indicated she wanted to defer 6% of salary. HR completed on-line enrollment at the Principal website and Principal has a record of this. But the form was never processed by our Accounting dept. and no funds were ever deferred from her paychecks over the years. She would have been eligible for a 3% match immediately upon enrollment because she had been employed since 1998. I have consulted a benefits attorney and Principal (the TPA0 and I am still confused over what we should do to correct this error. Without knowing about the error, we have put processes in place in HR and Accounting over the past few years that should keep this from happening again. To correct its error, the company is willing to deposit 50% of EE's missed deferral amounts (even tho she never actually deferred anything), plus the match on what would have been her full deferral amount, plus any gain that the fund she selected would have earned over the years (hoping to calculate the gains/losses quarterly to reduce the effort involved). (Assuming deposit of 50% of the deferrals, the total amount involved is around $5000 because this was not a highly paid EE and she only worked part time.)

Yes, the EE should have noticed at some point in the past 6 years by looking at her paycheck stub that no deferrals were being made but oh well....

Do I need to file any formal paperwork with DOL or IRS in order to correct this error by depositing the amount suggested above? Or can I just make the deposit and document how I corrected the problem and go on?

Thanks,

carol

The company I work for is looking at administrating flex for a large corporation that has mulitple office through out the United States. I am wondering if we need a TPA license in any of these states to be able to administer flex. I am not sure where to find the answer to this question. Any help would be appreciated. I am mainly concerned with NY, IL, CA.

Thanks

When calculating an employee's average benefit percentage, must the employer include the employee's elective deferrals under a 401(k) plan? According to § 1.410(b)-5(d)(2), "only employer-provided contributions and benefits are taken into account in determining employee benefit percentages . . . employee contributions . . . are not taken into account."

The 401(k) Regs say, of course, that employee elective deferrals are treated as employer contributions. § 1.401(k)-1(a)(ii). So, does "employer-provided benefit" always equal "employer contribution"? I'm hunting for an explanation of any difference between these terms, but no luck so far.

Interestingly, the cited 401(k) Reg includes a non-exhaustive list of Code sections to which the "treatment-as-employer-contribution" rule applies: 401(a), 401(k), 402, 404, 409, 411, 412, 415, 416, and 417. This list doesn't include 410 (the section I'm concerned about), and does incude section 411 (vesting rules), under which elective deferrals are always 100% vested (i.e., the rule really shouldn't apply under 411).

Thanks for any ideas.

I'm really hoping someone can point me to something I'm missing, otherwise we've got a big problem. We have a small employer customer which we are cancelling because the group committed fraud. HIPAA clearly allows us to terminate for fraud. However, the guarantee issue portion of HIPAA does NOT reference fraud as one of the few reasons that we would not have to quote a group. So, we could terminate them and they could turn right around and apply to us for coverage the next day and we would have to issue it. Am I missing something in the law or regs that we say we don't have to quote this group? (FYI, the state law appears to mirror HIPAA.)

This is a pretty elementary question, but I seem to have a brain freeze. A plan bacame top heavy as of 12/31/2005 and is subjected to minimum contribuitons in 2006. It is a 401k voluntary only plan. Assuming the key employees do not make any 401k contributions in 2006, can I assume there is no Top heavy minimum for 2006. The 401k contributed by key employees in 2005 is irrelevant--correct?

Client and client plans all operate on fiscal year basis (10/1 through 9/30).

Client sold a division of business 7/15/05 that had constituted one of three separate line of business (QSLOB) for which Form 5310-A had previously been filed. If client now wants to file another Form 5310-A to modify the prior filing to remove this particular QSLOB, would this filing be modifying the 2004 testing year or the 2005 testing year?

Testing year is defined as the calendar year.

The sale of the QSLOB obviously occurs during the 2004 testing year and during the plan year beginning 10/1/2004. However, for part of the 2004 testing year and the 2004 plan year, the prior election would still be valid (i.e., the QSLOB had not yet been sold).

Anyone encounter this issue?

Our FSA has an experience gain from last year (2005) that is great enough to offset the plan's administrative expenses for the year and then some. The plan sponsor wishes to return the remainder to plan participants in the form of a per capita premium reduction for the 2006 plan year. But, what do you do when the participants in the plan this year are not the same as those that were in the plan last year? (i.e. several new employees have joined the company and several have left the company) Should participants who joined the plan this year still receive part of the refund or should it be limited to current employees who participated in the plan during the year the gain was incurred?

I have termination / rollover to a Company (like Fidelity) IRA paperwork from a participant who is in both the ( Non-Erisa) and (Erisa) plans. The participant has recently re-married and has a pre-nuptial agreement stating that all retirement accounts are to be kept separately from the spouse. Therefore, the participant did not have the spousal consent section of the termination form completed but had forwarded a copy of her prenuptial agreement. Would a prenuptial agreement override the spousal consent for a distribution?

Would anyone be willing to share what kind of cover letter they are planning to attach to the new Funding Notices that need to go out this year for multiemployer plans?

The notice requires disclosure of the funded ratio based on RPA Current Liability and Actuarial Value of Assets. This can be terribly misleading, especially in the multi-employer area.

I was planning on attaching a cover letter explaining that the notice can be misleading, that it is required, and stating the funded ratios based on market value and a more reasonable interest assumption. I assume that others aren't just sending the notice out blind, and was hoping someone might want to share how they handled it.

Can a plan sponsor can terminate their SAR-SEP and establish a 401(k) plan within the same calendar year? This has been a deferral only SAR-SEP (no employer contributions). Form 5305A-SEP states that the plan sponsor cannot maintain another qualified plan. What it doesn't say is if they can terminate the SAR-SEP and then establish a qualified plan. I understand that the 402(g) limit would apply to participants and any deferrals made into the SAR-SEP would count towards the 2006 limit. Any thoughts would be greatly appreciated.

What count we report in Line 7i for Separated participants with deferred vested benefits - Only Code A participants are reported or we include Code B, C and D participants too in the count reported?

We have a profit sharing plan with a cross-tested formula. The 100% owner is in a group by himself and gets the maximum allocation. His parents are in another group identified by age (key EEs over age 65) and get a much smaller contribution-usually about 7% of pay. The rest of the employees are divided into 2 groups based on age-those under 31 and under and those over 31. The 31/under group got a larger contribution in the audit year (2004) and in the prior year than the over 31 group.

First, if we amend the plan to remove the references to age for 2006, would this fix the ADEA problem? In other words, if we identify the groups by job title for instance, is it then OK to provide less for individuals over 40 if they happen to fall into a category that is getting a smaller contribution? Is the only reason this is a problem is because of the age designations?

Next, we must negotiate a fix for 2003 and 2004 with the IRS. I think it is preferable to avoid audit CAP with its sanction, but the solution proposed by the area coordinator is very expensive. He is proposing that everyone 40 and up be increased to 20%, the percentage of 401(a)(17) pay received by the 100% owner.

The cost for this totals about $619,000 for the 2 years. The employer was planning a 2005 contribution of about $115,000 so the $619,000 would be a real burden.

Does anyone have any experience negotiating settlements with the IRS in this type of situation?

Also, any ideas on alternative arrangements the IRS may accept?

I'm feeling very responsible for accepting the word of a local attorney that this type of allocation is acceptable and want to do the best thing for our client. Any help would be appreciated!

How are you defining this in your documents?

Can it be something as simple as 0% vested while employed and then they become 100% vested upon separation of service?

thanks

I finally have an opportunity where I might be able to do a NQDC design for a prospective client.

The prospect has many employees and essentially no one, other than the HCEs, is deferring. They like the idea of restricting eligibility in the 401k plan to only NHCEs and opening up a NQDC for the HCEs.

I found the audit guidelines on the IRS website and it points to a section in 401(k) that states that eligibility can't be limited to participants who elect not to participate in the 401k.

If I read this literally this doesn't apply to my situation. These participants are not being allowed to opt out of the 401k plan. If they're an HCE, they're excluded from the 401k plan.

Am I reading this right?

Thanks

Being a novice as well as skeptical I have been told that there is no problem in setting up a DB with maximum funding for a year or two then terminating the plan and rolling into IRA if $ become tight. Are there any repurcussions for this and is this in fact allowable?java script:emoticon('', 'smid_1')

I have a client prospect who wants to put in a $2000 deductible PPO plan. They plan to reimburse each employee up to $1500 of this deductible through regular business reimbursement procedures. No plan document, no TPA.

This doesn't sound good to me....

1. What are the ramifications?

2. Is this reimbursement considered taxable income to the employees?

3. Can the employer deduct these dollars as an eligible business expense?

Client has a Safe Harbor 401(k) Plan and just added a companion Defined Benefit Plan. The 401(k) plan would be Top Heavy but is deemed not Top Heavy due to Safe Harbor.

The question is - do we still combine the 401(k) with the DB plan to determine if the aggregated group is Top Heavy? Of course the key employees benefit in both plans.

Unfortunately the 416 regs have not been updated so there is no 'official' guidance, but maybe the IRS has said something at one of the conferences??

Is anyone aware of any exceptions from the Form 5500 and/or audit requirement for a pension plan that has been involuntary terminated by the PBGC pursuant to Section 4042?

I have an employee who has terminated effective July 18th. We will be paying this person for the last time this week. I currently have the FSA deduction deducted from the last paycheck. I have another employee that states that we shouldn't take the last deduction from the paycheck because COBRA is based on the amts. on the last day worked and that would change if a deduction was taken from the last paycheck. Please advise.

Can I get some feedback on what people do when they have to issue corrected 1099s to participants due to clerical errors, ie internal coding incorrect, etc.? When the 1099s were sent to participants with standard advice to consult tax professional, there have been questions about "Who is supposed to pay for this?" There are a limited number of amended 1099s, plan administrator is interested to see what others' "best practices" are in this situation. Should plan or employer offer to cover some portion of expenses to avoid unhappy employee calling IRS/DOL?