I have a client who has a deferred compensation plan that permits a participant to elect, at any time after a deferral has been made, to surrender irrevocably the value of his deferred compensation account and have the employer buy the participant split-dollar life insurance instead. I am assuming this is no longer permissible under 409A, but was curious if anyone out there had any thoughts on this type of provision (or disagrees that it would no longer be permissible).

Assume Plan covers 2 groups of employees. The Plan provisions are the same for both groups of employees with the exception of the match formulas:

Group A - 50% match on the first 6% of compensation deferred (maximum match is 3% of compensation)

Group B - 50% match on the first 3% of compensation deferred (maximum match is 1.5% of compensation)

Questions:

1. Do you agree that these are separate rates of match that must be tested as rights and features for current availability and effective availability?

2. If yes, and assuming the coverage ratio for the rate of match for Group A is 10 NHCE short of passing current availability for the prior year, which of the following do you think would be acceptable correction measures (assume a corrective amendment will be prepared on a timely basis and filed with IRS for their approval):

A. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE in Group B so that current availability is passed. Assume the 10 NHCE selected are deferring 3% of compensation so that the net increased match is $0.

I don't think this one has substance to qualify as an -11(g) amendment.

or

B. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE selected in Group B so that current availability is passed. Assume the 10 NHCE selected are deferring 4% of compensation so that the net increased match is 0.5% of compensation (total match for this group is 2% of compensation).

I am not sure about this one since they are receiving the same match formula as Group A, but since they are not maximizing the deferrals at 6% of compensation, the increased match is less than 3% of compensation in total.

or

C. Replace the Group B match formula for the prior year with the richer Group A formula for 10 NHCE selected in Group B so that current availability is passed. Assume that the 10 NHCE selected are deferring 3% of compensation. Increase the match for the year to 100% up to 3% of compensation.

The argument here is that these employees would have contributed 6% of compensation if they had known that the match formula cap would have been 6% instead of 3%.

QDRO issud for QP. Assets were not not given to former spouse.

Assets subsequently roleld to IRA at another financial inst.

Participant wants to use QDRO to trasnfer assets from IRA to former spouse. I vaguley remember reading somewhere that you cannot use a QDRO issued for a QP for an IRA?

What do you think?

Thanks in advance.

Jane

Client received a call from DOL saying that since they answered the F5500 "no" with regards to fidelity bond coverage we are wondering what DOL will do if they actually come out to "audit" the plan. Does anyone have experience w/ DOL and this type of failure? I'm not concerned about IRS, just DOL.

Thanks

How are people administering loans with the following:

Max. loan amount = 1/2 the vested interest up to 50K. Participant has the following sources.

401(k) = 40K

Match = 10K

Profit Sharing = 20k

Can all 35K come out of the 401(k) source or do you have to administer it accross all sources?

Thanks.

As part of a complicated restructuring of our defined benefit, defined contribution, health and retiree medical plans, we would like to make a one-time nonelective contribution to former employees in the 401(k) plan. The contribution would either be a flat dollar amount to all former employees or proportional to account balances. Is a contribution of this nature permissible?

A large plan auditor is instructing the client to provide a deferred vested benefit notice to participants reproted on the SSA. My feeling is that the quarterly investment company statement satisfies this obligation( plan is 100% vested safe harbor 401k). Would it be any different if the plan was not fully vested as vesting is not on the investment company statement? Does anyone actually do these things?

I'm looking for recent guidance on how to rectify an employer's failure to deduct deferrals from employees' paychecks. I know that earlier guidance requires the employer to make up the deferral, match and earnings, but I really seem to remember reading somewhere a change in this guidance, i.e. an unfair windfall to the employee. But I sure can't find it now! I believe the example I read was extreme, i.e. employee elected to defer $12,000, employer didn't set it up in payroll, employee didn't notice for 18 months.

The situation I'm dealing with now is much less extreme, small amounts over a short period of time, picked up on audit, never noticed by employee. It seems fair to me that the employee should receive the match, but it just doesn't make sense that he should be entitled to a QNEC and the fatter paycheck. Even if you decide to fund the QNEC and the match, it just doesn't make sense to me that you should give the employee earnings as well, isn't 100% return good enough??

Participant in a real cash crunch. State Law (CT) requires the employees authorization for payroll deductions, and the employee can revoke the authorization. Does anyone have any concrete cites for whether or not payroll deductions can/should cease if the participant rescinds the authorization?

I realize of course the loan must still be repaid, and that therefore the sponsor must try to get payment from the participant via personal checks or whatever. Also, I think the sponsor should never lend them money again, but is that where it ends?

All money is in individual accounts.

Here's one I've never seen. Participant in a 401(k) requested a hardship withdrawal. TPA incorrectly calculated the allowable hardship, and told them they could take (x) when in fact they were only allowed to take (y), which was a couple of thousand dollars less than (x). By the time the error was discovered, check already cashed, and money spent.

What would be your approach to correcting this? Seems like Rev. Proc. 2003-44, Appendix B, .04 (2)(a)(iii) is appropriate, but I'm wondering if there isn't a simpler method.

I think recovery from the participant is unlikely, since they have no money which was why they took a hardship in the first place. And I'm dubious about the legality of the employer withholding this from pay if participant doesn't agree to it. So if participant can't pay, just code the excess on a separate 1099 as premature distribution, and that's that? It doesn't seem appropriate for the employer or TPA to deposit this into the plan as you would in some situations, since this would result in a windfall to the participant.

Appreciate any thoughts!

Plan has not filed 5500's for 11 years. We have prepared the 5500's for these years and the plan will file under DFVC program. Employer will pay DFVC fees.

Our fee for the preparation of the 5500's is almost $15,000. Client wants to pay fees from plan assets. Although we agree the plan may be charged with normal fees for preparing 5500, is is alright to charge these fees against the current year assets when they pertain to the last 11 years?

Although the workforce was fairly stable over that time period, about half the participants left the plan and took distributions during 2004 as the result of one owner breaking away to start his own business. Therefore, the remaining participants will bear the cost.

OK, anyone have some straight skinny, or decent speculation, on what's going on with Treasury guidance and the 409A effective dates?

I saw an industry org. at-issue memo asking Treasury to postpone certain 409A effective dates due to the lack of guidance. Personally, I was expected to see more from Treasury before summer and I don't like having projects on perma-hold.

The reality is some NQDC sponsors are going to be headed for enrollment meetings in Sept - Oct with issues undecided, designs unfinished and questions unanswered.

Ggrrr.

NRA under DB plan is 65. NRA under DC plan is 62. Is it ok to aggregate the two plans for general testing purposes and use 65, the later of the two uniform retirement ages, as the testing age for all particpants in both plans?

One person told me I need to amend the DB plan to have a NRA of 62.

Thanks in advance for any comments.

Arlingtonray

Self employed doctor in city A sells his clients and moves his practice to another city. Dr. sponsors a 401k plan. Can the dr simply terminate the employees in city A (creates a partial plan termination) and when he moves to city B and sets up practice use this same plan with provisions for employees he hires?

I have a client that is being purchased as part of a stock sale. The sale is set to close several weeks before the end of the plan year and the plan has a last day requirement to receive an allocation of the match. Client wants an amendment providing an exception to the last day rule for participants employed on the sale/merger date but involuntarily terminated before the end of the plan year. Client has asked that the amendment only be effective from a short time before the proposed sale date to the end of the plan year. It appears that if the sale takes place during the 2006 plan year, no exception will apply for the match allocation.

The more I think about this, the more it bothers me - but I am unable to pinpoint why. I keep thinking that it is a discrimination issue, but the amendment would be tied to when the sale occurs and not when any particular group is terminated. However, an amendment that says "Effective from 11/1/2005 to 12/31/05, participants who ... are excepted from the last day rule" just seems to "smell".

Any thoughts?

a husband divorced and received a order. the wife elected to receive the payments in monthly installments effect. jan06. amount is appx $950 per month. husbands plan is governmental and ex wife is 401(k). she wants to rollover payments into her plan, but what if she died a year from now? would they continue to her beneficiary or would she have been better served taking a lump sum rollover into her plan? thanks.

There do not appear to be many restrictions on what type of compensation can be deferred into a 401(k) plan. Based on informal comments by the IRS (and prior to the new 415 regs), it seems as though the only significant restriction is that the compensation must be payable to an employee. So here is the question: can an individual elect to defer nonqualified deferred compensation distributions into a 401(k) plan and have those contributions made on a pre-tax basis?

Assume: (1) that the elections to have those distributions contributed to the 401(k) plan are made prior to participating in the NQDC plan (no control over those assets at the time of election); (2) the 401(k) plan's definition of compensation for deferral purposes includes distributions from a NQDC plan; and (3) the individual is an employee when the distributions/contributions are made.

Would this be okay under the 401(k) rules? Would this be considered a second deferral under 409A that could potentially trigger the penalty? Please help. Thanks.

Can a doctor release PHI of a deceased patient (who passed away while under the doctor's care) to that individual's adult daughter? The daughter is not the executor of the estate nor is she an authorized representative. However, it seems ridiculous that HIPAA would prevent the doctor from explaining to the daughter what happened to her mother.

For plans subject to 419(e) deduction limits, it is understood that the deduction is limited to the "qualified cost", where such cost is computed as the level premium for the death benefit coverage of a life insurance policy.

The question is when determining the qualified cost, is it necessary to compute the death benefit based on the guaranteed policy rates or the assumed policy rates?

With the assumed rates the death benefit is higher or the coverage extends to an older age, due to the greater return on the investment.

The guaranteed v. assumed rates are shown in the policy illustrations.

Thanks.

I've heard some thoughts about this in the past and am resigned to the fact a Form 5500 needs to be filed for the first plan year, even if the only contributions are accruals deposited in the following plan year.

For example, effective date of 401(k) plan is 12/1/2004. No contributions in 2004, however, there is a PS contribution deposited in early 2005.

Would a Form 5500 need to be filed for 2004? My guess is "yes" so that you could report the coverage results on the Schedule T, even though there will be no financial data because of cash basis reporting.

Any thoughts?