What are the notification requirements when an employer wishes to "terminate" a SIMPLE-IRA? Is the employer required to provide a 60 day notice to participants? Is there any written guidance regarding this issue?

Our company was bought out by another company about 2 years ago and for now, we maintain our own payroll/benefit plans. The parent company will be paying our company's senior management team their annual bonuses. After the bonus is to be paid, our company's payroll will be provided the bonus information so that we can add to our database. Our company pays our employees from our own payroll system.

By the time our company receives this bonus information, some of these senior managers will have exceeded the the 401(a)(17) limit of $170,000. Is it permitted that when we run our next weekly payroll cycle, we can deduct for these individual's 401(k) (pre-tax contributions) and Supplemental Savings and Retirement (after-tax contributions) so that they would have the opportunity to contribute up to the 401(a)(17) limit (not exceeding 402(g) and 415© limits as well)? Or would such deductions not be permitted since the 401(a)(17) limit was reached when the bonus was paid? No savings plan deductions were taken from the bonus paychecks so some of these individuals would have missed the opportunity to contribute to their savings plans.

How soon does an employer have to give the proper INITIAL COBRA Notice after hire date?

We have several employees wanting compensatory time off in lieu of being paid overtime. What are ramifications and how is it handled?

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David A. Harmon

Is a participant eligible for a distribution if they terminate and resume employment within 6 months? The Plan allows for distributions to terminated participants however, this plan was in blackout status because it was being moved to a new service provider and the distribution forms were never furnished to the participant.

A participant terminated but due to the moving of the plan fron one service provider to another, was not able to complete distribution paperwork. He is now employed again with the Employer (after a few months). The participant would like to get a distribution believing he is entitled because he had a separation of service. The plan does provide for distributions when there has been a separation. Should we let him have one?

my admin software gives me the option of including 401(k)&(m) sources as well as ER PS when running the Average Benefits Percentage test under their 401(a)(4) compliance test report. But, it's my understanding that you can't include these sources for 401(a)(4), only for coverage under 410(B). Can anyone shed light on this rule for me, and/or share your thoughts?

Is it legal for the employer to receive the EOB's for a fully insured health insurance plan. The employer in question opens all EOB records and then gives them to the employee. The EOB's are not mailed to the employees home addresses.

May all HCE's other than the company owner be excluded from the 3% non-elective contribution in a safe harbor 401(k) plan. The owner is 30 years old; cross testing doesn't work. The owner doesn't want to give the 3% contribution to any other HCE's, but wants it for himself. Is this within safe harbor rules, if all non-owner HCE's are excluded from the non-elective contribution.

We offer 2 options with our medical plans. Employees can elect a high option or a low option. With the high option, the employee pays higher employee premiums, but receives a higher amount of coverage. With the low option, the employee pays a lower premium but receives a lesser benefit. If an employee is enrolled in the high option, but has a family status change could they change to the low option (because of the difference in cost)? For example, an employee has the high option for herself and her spouse. She had a baby and will now need family coverage. Can she change to the low option with the addition of the baby?

A 501©(3) client has a non-ERISA 403b program and wants to add an ERISA 403b plan for a matching feature only. If this is done, the vendor (Vanguard) for the salary deferral funds says that they will no longer be able to handle the funds since the funding contracts are enforceable solely by the employee. Funds would not be combined as the trustees of the ERISA plan want to direct the investments of the matching dollars. I know contribution limit tests would need to be run on the combined contributions, but other than this, is this a viable plan design? Any other options (I know we could add a 401(a) plan, but the results look the same)?

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A Plan excludes all highly compensated employees from participation as a class. The Company purchases another company and credits past service for purposes of participation and vesting. Are the HCE's of the aquired company HCE's for first Plan Year with new Company ( they did not earn more than 80,000 with the Plan Sponor in the prior plan year?

There is some argument in my office. Is MU testing required in a safe harbor 401(k) plan? Specifically, ADP safe harbor by using 3% NEC. There is a match hat requires testing under ACP. Would this scenario require MU testing?

Thanks in advance for all answers.

I don't have the cites handy but I looked into this once before and there are PLRs which state that if a participant is taking minimum required distributions while still employed, this does not prevent any subsequent payment at separation from service from being a lump sum and thus eligible for 10 year averaging if the other requirements for averaging are met.

[This message has been edited by Dave Baker (edited 02-23-2000).]

A nun began distributions from a non-qual'd DC plan in 1999. The payments were made to her religious order (because she has taken a vow of poverty).

How should W2 tax reporting be handled by the institution making the distribution?

Does her age, religious order, amount of distributions come into play at all?

Any information at all is greatly appreciated!

Beth, assume the following:

The match formula is 50% of first 6% of compensation. Now assume that through August, EE has deferred $10,500 on compensation year to date of $105,000. This is a 10% deferral rate, yet the match is limited to 3% of compensation, or, $3,150. Now through the end of the year, compensation is $170,000, but no more deferrals can be made due to the 402(g) limit. The match now should be 3% of $170,000 or $5,100. So, if the language in the document is based on per payroll comp, then match would be $3,150. If based on annual compensation, then match would be $5,100. Therefore a "true-up" match contribution would need to be made as of the end of the year. Hope the math worked and this helps.

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An Employer had a SARSEP Plan in place for the first half of the plan year (PY=01/01/99-12/31/99). The Employer opted to freeze the SARSEP Plan effective 6/30/99. The Employer set-up a 401(k) Plan effective 01-01-99 and communicated the plan to all employees, however, eligible participants were not given the opportunity to make salary deferrals to the 401(k) Plan. Salary deferrals made by plan participants were automatically deposited into their SARSEP account. The Employer made a discretionary contribution and it was also deposited into the participants SARSEP account until 6/30/99. Effective 7/1/99 eligible Participants could make salary deferrals to the 401(k) Plan, and the Employer began making their discretionary contributions to the 401(k) Plan. Is there anything the ER can do to correct this action? Are there any problems with a SARSEP/401(k) Plan overlapping? For testing purposes under the 401(k) Plan would you include the salary deferrals/ER Discretionary contributions made to SARSEP plan when testing the limits on deductible contributions? Thanks much for your assistance.

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Jean Blackwood

Can a plan subject severance and/or disability payments to a deferral election when such payments are made after the employee's termination date? The plan's definition of comp is 3401 such that these payments would clearly be included if made when the participant was an employee. The plan is unclear on whether they would be included if the payments were made when the participant was no longer an employee. I have always had the thought that, once an employee is terminated, there can be no further deferrals, even if the individual receives further payments (eg, severance or disability) after his termination of employment despite the fact that the payments are subject to withholding (in a plan that contains a 3401 definition of comp) since non-employees cannot participate in a 401(k) (or any plan for that matter). Any thoughts or experiences would be greatly appreciated.

My company is considering the possibility of charging an administrative fee to participants who take a loan. I'd like to see what typicial practise, or if you have knowledge of what other companies are doing (i.e., Does your company currently charge a fee for loans, if so, what's the cost per loan? Is the fee taken from the proceeds of the loan or do participants pay via check?) Any information would be helpful. Thanks.

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Is it permissible to have the following plan document provision:

If the Employer matching contribution that would otherwise be contributed or allocated to the Participant's Account would cause the annual additions for the Limitation Year to exceed the maximum permissible amount, the amount contributed or allocated shall be reduced so that the annual additions for the Limitation Year shall equal the maximum permissible amount.

Does this provision cause a problem if it results in reductions in match for NHCEs but not for HCEs?