Thought everyone ought to see this, and be made aware of what some are trying to do...

SCAM - Loaning deferrals to participants

I think everyone ought to view this - so here is the link to the discussion on the 401(k) board.

SCAM - Loaning deferral monies to participants

Is there any guidance related to the expenses incurred by an employer necessary in making a "DRO" a "QDRO". In other words, if the Plan's attorney & actuary review the "DRO" in order to determine what needs to be changed or clarified in order to make it a "QDRO", can those fees be passed on to the participants and/or alternative payee?

As many of you know, if your dealing with an attorney with little or no QDRO experience, you can rack up quite a bit of time getting the DRO qualified.

Okay - let's talk about this - has anyone seen this?

Participation Loan

I stumbled upon this site while doing a search, and just could not believe that someone would actually try to get this established in our country. Talk about taking advantage of people.

The most interesting portion is in how the "interest" is calculated, and the fact that the formula does not incorporate losses that a participant may incurr.

Let's beat this up, and make everyone aware of some of these scams in the market.

Just received my "Notice of Active Status" from the Joint Board and I am a little confused as to when I should start using the "02-" prefix for Schedule Bs, etc. The notice I received states "Under these extensions, your "99-" prefix is valid through August 31, 2002. Beginning September 1, 2002, you must use the prefix "02-" before your enrollment number."

Now I know that this is relating to the extension for continuing education due to 09/11. However, I can't determine whether I have to wait until 09/01/02 to start using "02-" even though I've been approved for "active" enrollment, or should I start using "02-" now since I've been approved?

If one cannot locate the beneficiary of a deceased participant with a $ 600 accoutn balance in a terminated DC plan, what are the options? We have tried a private locator company.

I know the PBGC program allows you to purchase an annuity (viable here?) or deposit money in an individual bank account opened in the participant's name

I have heard of sending 100% witholding to IRS; has anyone done this successfully?

Are there any other options? Does anyoen see a problem with any of the above mentioned?

A new comparability PS plan fails 410(B) for calendar 2001 due to several participants terminating employment. The terminated participants all had over 1,000 hrs. and were all terminated on the same day. Plan has last day requirement for allocation. The document does not contain any failsafe provisions. Only a portion of the terminated participants would have to get an allocation for the plan to pass 410(B). Since they were all terminated the same day, with presumably the same number of hrs., is there a way to avoid giving allocations to all of them?

Also, for new participants entering mid-year, the doc's definition of compensation says to only recognize comp from DOP. I'm pretty sure it's OK to also use partial comps for cross-testing but would appreciate verificiation of this. Are there any regs that require the use of total comp for the year in such a situation?

Thanks in advance for all help.

Looking at the In-Service Distribution issue with respect to the 4 year look back. Does the participant's status as of the Top Heavy Determination date have any effect.

Example: 12/31/01 Determination date for 2002. Participant terminated in 2000 but had made In-Service Withdrawals of $1,000 for each of 1997, 1998, 1999.

Q1-Can those withdrawals be ignored?

Q2-Are Required Minimum Distributions considered "In-Service Withdrawals"?

How should a 5300 and 5500 be completed for a plan that passes the 410(B) ratio test but must use the Average Benefits Test to pass the 401(a)(4) general test? For example, consider a cross-tested plan that provides a profit sharing contribution to all participants, but in which at least one rate group passes only by virtue of the nondiscriminatory classification test and the average benefit percentage test. Does this plan complete the 5500 Schedule T indicating that the plan passes coverage by the ratio test or by the average benefit test? Does this plan complete the 5300 (line 13) saying Yes - plan passes the ratio percentage test, or No - plan does not pass ratio percentage test? Should or must a Schedule Q Demo 5 be done to show the Average Benefit Test, or is it enough to just do Demo 6 (the general test demo - which might need to include the Average Benefit Test)?

Suppose the following:

- an MP plan's document specifies that forfeitures are "used to reduce" future MP contributions.

- the MP plan provides 204(h) (now 4980F) notice to the participants stating that the MP contributions will cease and the plan will merge into an existing PS plan.

- the MP plan has an "employed on the last day" benefit accrual requirement, and provides the employee notice early enough to prevent a MP contribution from accruing for its final year, but late enough that there have already been forfeitures added to the MP plan's forfeiture account during the year.

Given the plan merger and the fact that there is no final MP contribution that the forfeitures can be used to reduce, how are those final MP forfeitures to be handled? Should the merger amendments address this (I assume so) - and if so, what is the common or recommended way to handle these forfeitures? Reallocate to the MP participants eligible to share in the reallocation that plan year?

Thanks.

discrimination regs under 401(a)(4), 410(B), and the like after 2003, how will that effect the arrangements sold by several insurance/annuity and custodial account vendors.

Specifically, I'm thinking of one-time irrevocable elections which are deemed employer contribution, not employee deferrals subject to 402(g).

I understand the "discrimination" regs. (LOL) for non-ERISA 403(B) plans is that an eligible employee is eligible for one 403(B) arrangement or another.

Ergo, the 403(B) arrangement that holds employer contributions (one-time irrevocable elections) has just the superintendents (HCEs) and the other 403(B) is salary deferral elections with everyone in it.

Will this arrangement fly in 2003 if governments are subject to the discrimination rules? Assume for purposes of this question that the arrangement could not be cross-tested.

Client wants to set up a new 401(k) Plan. In addition to several outside mutual funds, they want to use their hedge fund as an investment alternative.

Since the client runs the Hedge Fund, the fund will pay the Plan Sponsor management/incentive fees.

Am I correct in stating that this is a Prohibited Transaction?

Two corporations are members of a controlled group but have separate 401(k) Plans. I seem to recall that both plans must elect to use the same testing method (i.e. current year versus prior year). Does this still apply during the GUST rememdial period or can one plan use prior year and the other current year.

I appreciate your thoughts as well as the guidance as to where this is actually stated in the regs. It may be a result of the definition of employer and treating members of a controlled group as one employer.

A small DB plan with frozen benefits has been merged with a larger DB plan as of 7/1/2001. Both plans have calendar plan years. Are my following assumptions correct regarding the 2001 Form 5500 for these plans?

(1) The smaller plan will file a final form 5500 for a 6-month plan year.

(2) The larger surviving plan will file a form 5500 as if the plans were merged on 1/1/2001. In other words, the Schedule B will show 1/1/2001 amounts that are inclusive of the merged plan so that all amounts projected to 12/31/2001 include the merged plan.

Thanks in advance.

I have a client who invested $10,000 into a non-qualified variable annuity. It was surrendered in full in 2001 for $7500. Where does the loss get deducted on Form 1040.

One of the custodians we use for our plans will not make deposits to a state for withholding taxes on distributions as they will for Federal tax withholdings. This custodian will only issue a check payable to a state's Department of Revenue and send it to the Sponsor for the Sponsor to make the appropriate deposit and filing. That works OK when the state is the same state as the Sponsor and as an employer they are already making deposits to the state. But when the participant is now living in another state and wants state taxes withheld (or is required to have them withheld), the logistics become difficult.

Does anyone have a good solution for deposit of out-of-state withholdings?

Thanks.

In a 2002 DB/DC combo where the DB is not the dominant plan and the pv of the DB for the HCEs is high enough to make the gateway requirement be 7.50% of pay, who gets the 7.50%? Is it just people eligible for a contribution, or is there something that requires that all non-statutory excludables be included?

Example, I have one where only certain classes of employees are included in both a DB and DC plan. In the recent past, a DC contribution of 5.5% of pay was needed to pass 401(a)(4) and 410(B). As I understand it, the 5.5% needs to be increased to 7.50% to pass the gateway. Is that all? Do I need to bring any employees that I didn't need to include before (if not needed for testing)? For example, what about participants in the DC plan who terminate before the plan year end (assume a last day requirement)? Do they need to get 7.50% if before they would get nothing?

We are completing ADP testing for a takeover client. In the prior year, ADP refunds were returned to several HCEs. In our review, we've determined that an employee's HCE status was miscoded, and had the status been correct, they would actually have passed ADP.

We are at a loss as to how to correct this? Is it possible to return the refunds to the plan? Though it's tempting to stick to our hold harmless, we want to know what the options are.

Thanks!

We have an employee who has four children. One child (Child A) has had Medicaid coverage for several years because he has a special health condition. Child A and her other children have been on our company's insured health plan. Her other three children recently became eligible for our state's childrens health insurance program. She now wants to drop all of her children from our company's health plan and switch from family coverage to single coverage.

From our research, we see that losing or gaining coverage in this type of program is a qualifying event. Our question is whether it is a qualifying event for all the children since only three of the four recently became eligible for SCHIP. Our employee service company took the position that it was not a qualifying event because one child did not have a change. However, I do not think that is right since dependents are treated as a class. Does the status change of three out of four dependents entitle our employee to drop her dependent coverage?

Company A acquires 100% of Company B stock 01/01/01. For determining HCE's in 2001, do I consider compensation earned by Company B employees during 2000? It appears to me that I do (414(q) says apply controlled group rules before applying 414(q)), just want to double check though.

Thanks for any help.