A § 401(k) retirement plan provides participant-directed investment (with daily instructions).

The plan’s menu is filled with a broad range of diversified SEC-registered mutual funds.  (Assume these are prudently selected, prudently disclosed, and meet all ERISA § 404(c) conditions.)

Beyond those diversified investment alternatives, the menu for participant-directed investment includes an account that invests in the publicly-traded stock of an operating business.  The account is 1% “cash” (to facilitate transactions) and 99% the stock.  The stock is NOT employer securities.

Assume the plan’s administrator furnishes to participants every securities-law report and other disclosure the stock’s issuer has filed.  (The administrator sends these to participants’ work e-mail addresses and the plan’s website a few minutes after the document is filed with the SEC or the stock exchange.)

Is it enough that a participant can decide for himself or herself to invest in (or avoid) this stock?

Or must a fiduciary evaluate whether this stock account should remain an investment alternative?

If there is such a duty, under what facts and circumstances would a fiduciary find that a participant no longer should have the choice?

I am very new to VEBAs. VEBA holds surplus assets, and accountant determined that it owes a large UBIT.  Can this be paid out of VEBA assets (as opposed to being paid by the company)? VEBA trust document is silent. 

I know the IRS defines a Hardship as "costs relating to the purchase of a principal residence".  The question is what would be included in that?  For example, does the cost of a moving van, etc. fall under that?  Or does it mean closing costs, attorney fees, etc.?

Thanks in advance!

An employer who has both a DB Plan and a 401(k) Plan is terminating the DB plan.  Under the terms of the DB plan, a participant isn't eligible for an in-service distribution until attaining age 62.

Some participants are electing to roll their DB proceeds into the 401(k) Plan.  We know that some features of the DB assets will be retained when rolled into the 401(k) Plan.  Does that also include the in-service provision if the 401(k) plan otherwise permits employees to take in-service distributions at age 59 1/2?

Thank you!

Are taxable fringe benefits such as premiums for group life insurance in excess of $50,000 excluded from comp? 

Does it make a difference if the fringe benefits are taxable or non-taxable?      

 Comp definition is 3401(a) excluding reimbursements or other expense allowances, fringe benefits(cash and non-cash), moving expenses, deferred compensation, welfare benefits, unused leave.     

Non Safe Harbor 401(k) plan covers union and non-union employees.  Match is discretionary.

Is the plan sponsor permitted to make a match for the non-union employees only, so long as they pass ACP testing?

Or would the correct approach be to sponsor two plans.  One for the union yes and one for the non-union

A participant would like to do an in-plan conversion of after-tax contributions to Roth. Which code would be used for this distribution?

Thanks.

Client sold assets of his business earlier this year.

As part of asset sale, all employees were terminated and were hired by asset purchaser.  

Client wants to use the installment payment he will receive in 2020 as part of the asset sale to provide a bonus to his former employees based on performance criteria (i.e. their services to their new employer).

I am having trouble wrapping my head around how Client can do this in the form of a nonqualified deferred comp plan. Any ideas?

A participant who is transferred to a country with which the US has a tax treaty (the Netherlands in this case) wants to continue to participate in the 401(k) plan.  He would remain employed by the US employer but would pay taxes in the Netherlands under the US/Dutch tax treaty.  I am struggling with 415.  If the wages have to be includible in gross income for purposes of 415, does the fact that the tax treaty treats the wages as Dutch taxable mean there are no wages for purposes of 415?  I know that the wages excluded under 911 are added back in for 415, but that's not my concern. These wages would be excluded under the treaty not 911.  There is a savings clause in the treaty providing that the US can double tax, does that  make the wages includible for purposes of 415?  I know this is done all the time and that I must be missing something obvious, but I don't know what it is.

A recordkeeper has me so confused over the calculation of the maximum loan amount.  I do not agree with their methodology and would like some clarification.

1.  Does the $50,000 loan limit only apply in the case where the participant has a vested account balance over $100,000?

2.  What is considered the highest outstanding balance of loans during the last 1 year period?  Would that be the one day in a 365 period in which the participant had their highest loan balance or if they had 3 loans in a one year period are you looking at the highest balance of each loan in that 1 year period?

Participant has 2 outstanding loans as of 11-05-17, say loan 1 and 2.  The balance of both at that point in time was $32,000.  In April 2018, participant pays off loan 1 and take another loan (3) for $14,000.  Current vested account balance including the loans is $72,000.  Current outstanding loan balance of loan 1 and 3 is $29,000.

The recordkeeper is saying that all 3 loans should be taken into consideration in determining the highest outstanding balance by adding the balance of loans 1 and 2 from a year ago and the loan from April, so $32,000+$14,000 = $46,000

Participant wants to refinance loan 3 as the plan only permits the participant to have 2 loans outstanding at a time.  We are arguing over what is available, if any, for the participant to get as additional loan funds.

I have a participant applying for a 10 year loan, but mentions her name will only be on the deed.  She is going to gift the loan proceeds to her fiancé and the debt to acquire the home is only in his name.  The ERISA books are a little light on the documentation required.  I looked through similar threads on this.  But, doesn't the documentation need to show that she also incurred the debt to acquire the home?

We recently corrected for coverage testing failure by making QNECs to the plan (401(k)).  Many of the QNECs went to people who otherwise had no account balance, so their accounts are now very small.  Our plan administrator suggested we erase these accounts pursuant to this section of EPCRS:

(b) Delivery of small benefits. If the total corrective distribution due a participant or beneficiary is $75 or less, the Plan Sponsor is not required to make the corrective distribution if the reasonable direct costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution. This section 6.02(5)(b) does not apply to corrective contributions. Corrective contributions are required to be made with respect to a participant with an account under the plan.

This doesn't really make sense to me, since the correction involves making corrective contributions (QNECs) and the above is for corrective distributions.  

That said, our plan has a $75 fee for distributions.  So for people with less than $75 in the plan, they won't be able to get their money out anyway, since the entirety will be used to pay the distribution fee.

What are our options?  Should we inform these people that they have an account balance but will never see the money?  Should we just erase the accounts worth $75 or less?  Is that an appropriate way to correct coverage testing failures?  How should are decisions be affected by those who are still employed versus those who are not?  

A frozen DB Plan (hard freeze) that is not covering enough active employees to pass 401(a)(26) can add a new participant (if all that is needed is one more participant to satisfy 40%) and give a .5% accrual for the current year as is suggested above. I have seen this solution being advised on numerous occasions. Can someone please help me understand this method, as if the plan is frozen how is this (minimal) accrual being given to a new participant (and all current participants are not given an accrual for the current year)? Is it allowed as a special corrective measure? If yes, is an amendment required stating that " an accrual of .5 will be given to a new participant to comply with 401(a)26)"? Thank you in advance for shedding light on this topic.

Assume a DB plan's NRD is age 65. It provides for early retirement at age 55 with 10 years of service, where the benefit is reduced at 3% per year. Also assumes the plan allows a participant to take a distribution from the plan at any time after termination. They can take a lump sum, or they can take an immediate annuity. If a participant takes an immediate annuity prior to their early retirement age, then they won't get the subsidized reduction. Their benefit is reduced based on the plan's definition of actuarial equivalence.

Further assume that the only death benefit provided under the plan is the required QPSA. An active participant dies at age 48 (with 15 years of service). The regulations in §1.401(a)-20 say to calculate the QPSA as of the "earliest retirement age", and A-17 in the regulations defines the earliest retirement age. It says that if the plan provides for voluntary distributions that commence upon termination of employment, then the earliest retirement age is "the earliest age at which the participant could separate form service and receive a distribution". 

If that's the case, then the QPSA is calculated at age 48, in the example above. It sounds like you would take the member's NRD benefit and reduce it to age 48 based on the plan's definition of actuarial equivalent. If the spouse chooses to defer the benefit - the regulations say that "the plan must make reasonable actuarial adjustments to reflect payment earlier or later than the earliest retirement age". So if the spouse defers the benefit, then it sounds like you take the QPSA (again, calculated at the member's age 48 with a reduction based on the plan's definition of actuarial equivalent) and then increase it actuarially to the date of commencement.

Whereas, if you calculate the benefit at the member's age 55 (with a subsidized reduction) and then further reduce it to age 48 based on the definition of actuarial equivalent, you'll get a much larger QPSA benefit because it includes the early retirement subsidy. You can make the argument that age 55 is the earliest "retirement" age - but then again that doesn't appear to be what the regulations state.

Any comments on how you've seen this calculated for plans that allow benefits at termination? Seems like the spouse could get a much smaller benefit if you treat age 48 as the earliest retirement age in which case they are not getting the advantage of the subsidized early retirement reduction.

Documents have had an option to have an annuity contract be purchased.  These plans do not elect otherwise to have an annuity form of distribution.  Is this election option protected under §411(d)(6)?  I suspect it is, however, in the final analysis, it seems the same as a lump sum with the Participant buying an annuity.  The only difference is that with the option, the Plan would choose the annuity.

I know it can be removed for new Participants.  What is the risk for current Participants?  Ultimately, IMHO, it's a dumb option.

So my questions are :  1.  Is it protected under §411(d)(6)?
                                         2.  Does the election serve a positive purpose?

We had a call from a self-employed pastor who does not draw a regular salary for his services, and does ministerial services for multiple congregations. He received a 1099, but one church would like to contribute  $100 per month to a 403b(7) custodial account. Would that be acceptable or must it be a 403b(9)?????  

Right now 12b-1 fees are returned to participants by the institutional trustee.

 After a plan is terminated and liquidated what can the trustee do with 12b-1 fees it receives in arrears? This is further complicated when a plan sponsor has dissolved and there is no entity to which 12b-1 fees in arrears can be returned.

Can the trustee/former trustee feel comfortable that this is no longer a prohibited transaction because the plan and/or the plan sponsor no longer exist?

We have a participant who lives abroad but is a U.S. citizen. The participant filled out the required W-9 form for the distribution. How would this distribution be taxed? Would it be subject to 20% federal tax withholding and no state tax (even if the participant previously lived in a state that had state tax)?

Thank you.

I see there was a question somewhat like this recently posted. However, it is not completely the same.

Suppose you have an employer who sponsors a cash balance plan and a safe harbor 401(k) Plan. The plans are top heavy and the 401(k) plan provides a safe harbor match. Both plans would pass 401(a)4 and 410(b) combined testing.

The top heavy minimum is 5% and provided in the 401(k) plan.

The non-elective employer contribution in the 401(k) plan requires 1,000 hours and last day. The CB plan only requires 100 hours to accrue a benefit.

There is a non-key NHCE who terminated employment in 2018 with 400 hours of service. She is covered under both the 401(k) plan and Cash balance plan.

Must she receive a 5% top heavy minimum in the 401(k) plan since she did accrue a benefit in the CB plan? Then must she receive the 7.5% gateway as well?

Thanks.

Sponsor of large plan uses a temp agency to "test drive" potential employees for 3-6 months.  After the trial period a worker may be hired to become a regular employee of the plan sponsor.  We have advised the sponsor that the time while the worker was working through the temp agency must be counted toward eligibility for plan participation.  Does anyone have a citation or code section that supports that position?

Thanks.