An employer who sponsors an ERISA 403(b) plan would like to discontinue its current Group Tax Sheltered Annuity contract with its current carrier. When the employer discussed the idea with the rep, the employer was told that if it terminated the contract it would be liable for the exit fees, which are estimated to be quite substantial. However, this is not a situation of just wanting to switch to a new carrier but rather there are performance issues involved and the employer is unhappy with the service of the current carrier. Is there any way to transfer employee balances to a new carrier without the exit fees? Is there any way to avoid these exit fees? Any guidance would be greatly appreciated. Thanks!

Company currently sponsors a Profit Sharing Plan. As a result of an asset sale as of 05/31/05, all employees - other than the two owners - were terminated (some went to work for the entity that bought this company's assets). The original company remains in business, with two employees - the original owners.

The majority of the terminated participants were terminated late enough in the plan year so that they were credited with more than 500 Hours of Service. Consequently, it would seem that, if the company's two remaining owner participants want to make a PS contribution for 2005, there will obviously be significant "minimum coverage" issues, possibly requiring employer contributions for at least some of the terminated participants sufficient to pass the ratio percentage test (assumes the Plan doesn't pass the ABT).

Query - Any problem with adding a safe-harbor 401(k) provision, using an enhanced 6% match, effective 09/01/05 that would cover only the two remaining owner participants, allowing them to at least make a $14,000 employee salary deferral contribution and receive a 6% safe-harbor match - and forget about making a PS contribution for 2005 due to the coverage issue?

Thanks for any and all responses.

I have a PS plan terminating on 8/15/05. All of the HCE's have individual self-directed accounts. Dr. X has an old stock in his account that is worth about $10. The issuing company was going to charge $100 to $150 to change the registration on the stock from PS to IRA, so Dr. X decided to take a taxable distribution on this stock. However, the stock is still registered to the plan.

Dr. X is now asking - what if this stock miraculously goes up in value over the next few years and a dividend check would be issued. The check would go to the name of the PS Plan which doesn't exist. Also the corporation adopting the plan no longer exists.

How should a situation like this be handled? Thanks.

Ours is a hardship Q, but may be an issue for other distributions.

Non-rollover, of course.

We assume it violates anti-assignment or alienation to make out distribution check to thrid party (escrow agent for hardship on principal residence or mortgage company for forclosure).

Others have stated that since withholding goes to IRS, that it is ok to make the check out to someone esle.

Ultimately we want to prevent the participant from taking hardship money and spending it on something else and using the same hardshp reason again in the future (We know the hardship part is a different issue and have limited the number of hardships available per year to indirectly address the question).

Is the anti-alienation response too uptight?

Company has sponsored a deferred compensation plan for over a decade. Plan allows select employees to make elections to defer amounts that exceed what can go in Company 401(k) plan and receive a vested matching contribution up to a percentage of compensation. In December, passed resolution to freeze or separately account for grandfathered amounts under plan and comply with 409A for future benefits. Participants make deferral elections for 2005 before end of 2004. Fast forward to summer of 2005, Company is being purchased, effective before year-end, in stock sale. Company now wants to terminate the deferred comp plan effective ASAP. Can this be done?

Notice 2005-1 appears to allow for the amendment of the plan to terminate it and make distributions with no referrences to pre-409A vs. post-409A amounts. In addition, sale will meet change in control definition later this year. SO, plan can be amended to terminate, without adopting 409A amendments, and distributions made of total account balances either at termination or by the sale?

OR does Notice 2005-1 only allow termination and distribution of grandfathered amounts? Thus, plan can be terminated, but only pre-2005 amounts can be distributed and 2005 deferral must wait until change in control event?

Can Q&A-18 be used to amend the plan to allow participants to revoke their 2005 elections and receive these deferrals (but maybe not the match) immediately or concurrently with the termination of the plan? Should both amendments be made?

The Notice seems to NOT answer these questions and I am seeing commentary all over the possible spectrum.

Do I sound like I am seriously wishing for some real transitional guidance from the IRS???

Our client is considering adding a HDHP with an HSA as a full replacement. They have a number of foreign nationals who are mostly in higher management positions. Does anyone have experience offering an HSA program as a full replacement with foreign nationals? What experiences/problems did you have? Did you consider offering a seperate non-HDHP for the foreign nationals?

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 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