Can a publicly traded company ESOP use an average trading price to determine the amount of the diversification distribution for qualified participants? In other words, the company has proposed that after the 90 day period has expired, the trustee will sell the diversified shares and give those participants who elected to diversify an amount equal to the number of shares diversified multiplied by an average trading price obtained by the trustee. The plan document is silent on the issue of determining fair market value for diversification purposes.

I am involved in terminating an overfunded 30 life DB plan, all NHCEs. The plan sponsor would like to use IRC Sec 4980(d)(3) to provide a pro-rata benefit increase of 20%. He would then revert the balance of the excess and owe only a 20% excise tax on that amount.

The problem: There are no active participants among the 30 and 4980(d)(3) requires that only 40% of the 20% or 8% of the excess may be used to provide the prorata benefit increase to the non actives. 12% must be used to provide a prorata increase to the actives, of which there are none.

At face value it would appear that the prorata benefit increase is not an option for this plan if the sponsor wants a 20% excise tax. (The sponsor is not interested in doing the other option, a 25% transfer to a succesor plan.)

Questions:

1. Is anyone aware of the policy reason for this 8% rule?

2. I have been unable to locate the Committee Reports related to the legislation than enacted this code section, I believe OBRA 90, PL 101-508, Oct 1990. It someone has access to the Committe Report for just 4980(d)(3), could you fax it to me at 757 877-1311? Much appreciated.

3. Anything that I'm missing that would allow me to proceed?

We have a participant coming forward who in 1992 received a letter from the Social Security Administration saying that he was owed benefits by this client's plan. We have no record of this person or his balance, nor does the company, but presumably at some point in the distant past his name was put on an SSA. Of course that would have been several trustees and several TPA's ago. We don't even know when he supposedly worked there.

Does anyone know whose burden this is, in terms of the participant vs. the employer? Does the employer have to prove that the person was paid, or does the participant have to prove that he wasn't? It has been proposed to force the person to provide copies of all his tax returns to accomplish the latter, but somehow I don't think that would fly. It would be nice to be able to get a copy of a 1099R for the person, but I don't even know from when it would be, or whether the IRS keeps them for that length of time.

New 401k plan established for Company A with initial short plan yr (short limit yr) because Co. A terminated leasing agreement mid yr with XYZ and established their own plan. Moast but not all of Co. A employees were leased from Co.XYZ. XYZ had a 401k plan that Co. A "co-sponsored" according to a letter they sent Co. A. upon termination of the leasing agreement.

Co A elected to have plan assets of their employees transferred into their new plan making it a successor plan- correct?

How do we do the ADP/ACP test for the first short year?

We are having more and more participants who are going on military leave. I am aware of the requirements - no break in service, how to calculate make-up contr's, etc....

However, I am not sure how to handle these participants while they are away. Since they can not have a break in service, how are they to be reflected on the reports?... I'm thinking that in the year of deployment, they would be reflected as a terminee and included in any compliance tests applicable. For subsequent years, they would not be included in any compliance tests. Upon return, they would again be included in compliance tests (make-up contr's of course would be disregarded in 404, 402(g), catch-up, 415 for year actually made, but would be subject to years for which they are attributed.)

Your thoughts and procedures on this issue are greatly appreciated.

Thanks!

Is it permissable to forfeit rather than distribute very small account balances, (e.g. $15 or $20)?

In this situation, cost to employer of processing the check is $15, though this is not charged against the participant's account. So, the employer could be paying more to the TPA than the employee will receive.

I know that under the IRS correction programs, an employer need not make small corrections, but I am not aware of anything that allows the employer to forfeit very small accounts rather than distribute

Would your answer be different if the balance in the account, however tiny, represented 401(k) or other participant contributions?

Thanks!

A client maintains a 401(k) plan with some grandfathered participant accounts containing "esoteric" (but permissible) assets from way back when. Current recordkeeper and trustee don't much care for this stuff and would clearly like to see it all out of the plan ASAP.

The proposal is to amend the plan to permit these assets to be distributed in kind. The one twist is that the participants whose accounts hold these assets are uniformly highly-compensated, although there are a relatively small number of them at this point (maybe 1-2% of the participant population).

I suppose we need to check the numbers to ensure that we don't run into any 401(a)(4) issues here, but can anyone think of any other landmines in this situation?

Thanks!

I am currently enrolled in Mississippi's PERS (Public Employees Retirement System). I believe it is a 401a plan. Our city is attempting to privatize all public works operations, which would likely mean a 401k plan under a contractor. Our wonderful city manager is telling us that our benefits will be just as good. Can someone briefly describe the differences in a 401a vs 401k? Are 401a plans "safer" or guaranteed in some way? Which is better? Thanks in advance!!

We are a TPA firm with 15-20 employees and have been using ASC for a few years. We are considering other administration software and the front-runner is Relius. Ideally, I'd like to hear from someone who has switched from ASC to Relius. Any comments/suggestions you might have regarding the Relius program would be greatly appreciated.

I am trying to set up a DB/DC combo plan. There are two HCEs, one over 70 and one in early 30s. There are 8 NHCEs ages 23 - 67. One of the HCEs is 100% owner and he wants to participate in both plans. The DC plan is X-tested PS and the DB plan excludes the youngest empoyees and provides a 2% of comp benefit for the older employees while giving the owner as much as he can get considering the 404(a)(7) limit. The combined ebars pass the rate group test and avg. bfts test. Does the DB plan have to pass the rate group test and avg. bfts test on its own??? Thanks.

This is about an ESOP plan which had made contributions years ago, so it has a number of participants with more than 10 years of service. The ESOP first started to make contributions after 1987 in 1998. For a participant who meets the requirements of age and participation but has no eligible contributions to diversify, does their QEP actually start the year of their first new contributions? So would 1998 be Year 1? There is another participant who received his first post 1987 contributions in 2000 at age 60 with over 10 years participation. Would 2000 be the actual first year of his QEP?

Thank you

If you have a failed ADP test and the only correction available is to refund deferrals to the HCE's, do you have to rerun the ACP test once the corresponding match contributions have also been refunded/forfeited as the case may be?

I have a client who has not contributed the required top heavy contribution for 2001 or 2002. in addition the w-2 reports that the nhce contributed $4,081. However only $693 made it into the plan. the hce's w-2 shows a $6,327 contribution, however only $1,818 made it into the plan.

besides the qualification issue for failure to make the top heavy contribution, what other problems can we expect?

thanks

If in following the matching formula for a 401(K) plan, a NHCE receives excess match, does this excess get counted in the ADP/ACP?

Are visits and food you purchase at a weight clinic allowed for reimbursement through the cafeteria plan?

How does one calculate orphaned matching contributions (following return of ADP excess contributions) if the plan contributes matching contributions more frequently than annually and no true-up?

For example, calendar year plan, match contributed quarterly, match formula 25% up to 8% of pay. HCE contributes up to 402(g) limit in final quarter (say 24% of pay during quarter or $50k). For ADP testing, his ADP is 6%, but needs to be cut back to 5% ($2,000). If he instead contributed the 6% of pay throughout the year, the forfeited match is 25% of $2000. However, since the $2,000 was contributed in the final quarter, it was not matched since greater than 8% of pay.

It seems obvious in this example, he shouldn't be required to forfeit any match since the returned deferrals were not actually matched. But, this would require an accumulation of deferrals not matched during each allocation period (even if the allocation period is per payroll period) to determine if returned deferrals exceeded this accumulation. Is this correct?

Re information that MUST be provided to a participant if a Plan is intended to be a 404© Plan:

One requirement is that a copy of the most recent prospectus is provided either immediately before or after investment if the investment is subject to the Securities Act of 1933.

How are sponsors and advisors managing this requirement - handing a stack of fund prospecti to each participant or making them available and easily accessible during enrollment and other times?

Plan has a participant that gets annual MRD. Participant is still actively working with the employer.

MRD was calculated and transmitted to Employer to have withdrawn from investment accounts. Monies were distributed from the investment company on 12/31/2002, but participant did not receive the monies until 1/3/03.

Questions, does the participant get assessed the MRD penalties even though she still works and/or the monies were out of the plan by the end of the year?

Also, does she receive a 1099R for 2002, even though she did not receive the monies until 2003?

Thanks.

A new 401(k) has an Age 21/Year of Service eligibility that was waived for anyone who was employed on March 31 -- the effective date of the plan. The plan has failed its ADP testing (testing statutorily excluded employees separately).

If the Employer opts to correct w/QNEC, are only ee's w/year of svc & age 21 eligible? How about if Employer opts to only give QNEC to ee's who deferred (a document option)? The document does not address this issue. It only definitively excludes ee's not employed at the end of the plan year. (FYI - It is a Corbel Volume Submitter.) Having to include the excludable ee's will obviously drive up the total cost of the QNEC.

On a related note - what is the current word on a bottoms-up QNEC? Legal today?

What is a reasonable time for a company to update information with the insurance company? What if a company accepts 3 COBRA payments with a fourth on the way and then something happens and the individual learns they do not have coverage with the insurance company though they paid the premiums?

Also, who should the recieve the EOB's? The Ex (who is the insurance primary person) or the ex-spouse who now pays there entire premium on there own? I would think the EOB goes to the person paying and recieving treatment NOT the ex spouse who was the primary.