2muchstress

Thanks MGB. It feels so good to be right (though it might not happen often).

However, had the participant not taken the loan, he would have $2000 in his account. When that money is distributed, then the $2000 is taxed. The money he used for the loan payment would have been taxed just the same as if he used it to pay his utilities. So there is no difference. The IRS is getting the same amount in taxes, except they are getting extra taxes on the interest portion when a loan is taken.

It's actually on the interest portion of the loan payments that is double taxed, which is a pretty small amount anyways. The principle is not double taxed because the money was pre-tax when it was contributed, the loan was not taxed when it was taken, so the principle payment is just replacing the pre-taxed money that was borrowed. It's only the interest on loans that is double-taxed.

Most plans I see will say something like (paraphrased) : The Plan Sponsor may rely on the employee's written representation that the need cannot be satisfied through other means. In your scenario, if the employee has no credit cards, is the plan sponsor going to make him apply for a credit card and be denied before issuing the hardship? How many times would an employee have to be denied credit before the plan would permit the hardship? There are credit cards available to people with the worst credit, they just also get the worst terms. Though I am only commenting on part of your question, I think it seems very extreme. I would never request an employee max out a credit card before granting a hardship.

I agree. However, there have been many times where a company will set up a psp with the full intention of funding it. Then for some reason or another, the company is unable to fund their plan. At which point, you would have eligible participants, but no assets. In this case, I believe a 5500 should still be filed, hollow as it may be. Reasoning: You have a written plan, the plan has been submitted to IRS for favorable determination, plan has received favorable determination, plan has received a trust ID number. For all intents and purposes, a plan exists. Isn't it a requirement for all plans to file a 5500?

I think I would have to agree with the 3 eyed fish. However, I don't know if the original question was answered. If a plan has no assets, you still have to file a 5500, right?

I administer several plan documents using the Accudraft volume submitter, and several prototypes written by ERISA attorneys where years of service prior to the adoption of the plan are specifically excluded for vesting purposes. I would sure hate to think that all those attorneys are wrong - though it would be great if they were

In this situation, I have always filed a 5500 with a bunch of zeroes. It doesn't take much time to complete the forms if there are no assets. I'm not sure of the answer to your question and would be interested to see if you could get away with not filing but I don't think so. Anyways, it seems to me that there would be no harm in filing.

What is the time frame that an employer has to reimburse an employee for dependent care expenses? Our company has always issued reimbursement checks on the same day each week, but recently (on more than one occasion) checks have not been issued and employees have been told that there is just no money in the account. I am aware of DOL regulations regarding the timing of 401k deposits (as soon as the assets can be segregated from the assets of the corporation, but no later than 15 business days following the end of the month in which the deductions were withheld). Do these same rules apply??? Also, because employer has consistently paid claims on the same day each week for years, are they setting a precedence that claims must be paid on that day, especially if employees are relying on the reimbursement. Any educational help is greatly appreciated. Thanks.

I'm not a huge fan of negative elections, but you might want to think about it. Negative elections are when the participant automatically would defer a set percentage (say 3%) when they became eligible. So rather than having to elect to defer, they must elect not to. Although, it could really tick them off when they got their first paycheck with the deferral.

Keeping this train of thought, I have a plan that has always filed as a small plan. We have scrutinized every employee and have come up with a count of 120 at the beginning of the year. The 80/120 rule reads "between 80 and 120". Would you interpret the "between" to include 120? I would probably encourage them to have the audit under normal circumstances, but they recently liquidated part of the business and will never be close to having this many participants again. So the chances of becoming a large plan in the future are very very slim.

On this same topic: I am looking for a citation that states when a plan must be audited. I have found many citations regarding the 80/120 rule and which schedule to file, but nothing that states that a large plan must be audited. Could sure use some help. Thanks.

The instructions to the 5500 Schedule H are below. The schedule H must be filed for your plan w/ 118 participants in the first plan year because the 5500 was not filed in the prior year. The 80/120 rule only applies to existing plans. If the number of participants is between 80 and 120 and a Form 5500 was filed for the prior plan year, the employer may elect to complete the current year Form 5500 in the same category (large plan or small plan) as was filed for the prior year Form 5500. This rule appears to create an anomaly if the number of plan participants increases from below 100 in year 1 to between 100 and 120 in year 2 and subsequent years. For example, a qualified retirement plan with 95 participants in year 1 files as a small plan filer; and, in year 2, if the plan has 105 participants, it may again file as a small plan filer. Each year thereafter, if the plan has between 100 and 120 participants, the plan may file as a small plan filer for each such year. [DOL Reg § 2520.103-1(d); 2001 Instructions for Form 5500]