MWeddell

Assets should be transferred on 7/1. If you wait to transfer assets until August, the new recordkeeper typically won't be able to provider recordkeepering services until the date of the asset transfer. How you handle the transferred assets is a fiduciary decision. The best method is to get 100% of participants to elect where they want their accounts invested in the new provider's investment fund line-up, transfer their accounts into those funds on 7/1 using estimated percentages from the 3/31 periodic valuation, and then truing up the results in August once the 6/30 periodic valuation is complete. Of course, getting 100% of participants to make the election is nearly impossible if you're dealing with a substantial number of participants and often the new recordkeeper doesn't want to deal with the above procedure. A far more common method is to map on 7/1 the assets to the most similar funds in the new investment line-up that compare to the funds in the old investment line-up, end the black out period in August once final records are transferred, and then encourage participants to make their own investment elections then. Note there's probably no ERISA 404© protection on money that stays in the mapped funds. Transferring all of the money to a money market account is an option that most recordkeepers support, but typically not recommended. Choosing the fund at the low-return, low-risk end of the risk / return spectrum for retirement savings may not be the most prudent choice and getting all participants to make their own elections afterwards can be difficult. A black-out period probably is unavoidable. Once in a blue moon, there'll be a recordkeeper who will still accept investment transfers during the period before the transfer of assets date to the date final records are received and implemented. Such transfers are done on an estimated basis with the recordkeeper truing them up afterward. I don't know of any major recordkeeper currently pushing that solution. Note though that a black-out period is not a big deal for the folks in the periodic valuation plan (if it was valued per quarter for example, effectively, 89 days out of every 90 have been blacked out routinely) and shouldn't impact the participants in the daily valued plan. Good luck. Ask your daily valuation recordkeeper this same set of questions too.

Yes, I guess that last question was unnecessary, now that I've got a better feel for the data you've posted. Previously, it wasn't obvious to me that the 45% and 82% were ratio percentages using the whole controlled group. Yes, I would say that all match rates pass current availability based on the data you've listed. Effective availability is unlikely to be a problem based on what you've told us.

Pensions & Investments magazine has an annual edition that comes out each September with rankings of defined contribution providers that's worth finding. If you can't locate the hard copy, page 17 of http://www.pionline.com/pension/ has a chart that vaguely tells you the largest defined contribution providers. The hard copy issue is much better though.

What are the counts for the whole controlled group, including group 4?

It sounds like the coverage test numbers for the 401(m) test will be identical to the 401(k) test. Only 3 of the 4 groups are eligible, so you'll need to run the ratio percentage and see what you get. Then, you'll have a BRF testing issue for each rate of match. If the third group has no match available to them regardless of what those employees elect to contribute, then it'll count as not benefitting when you're determining whether each match rate passes current availability.

It seems unlikely. In the 1998 enrolled actuaries meeting gray book, Q&A-23, the IRS did say that the 410(b)(6)© transition period concept also applies to 401(a)(4) and 401(k) discrimination testing. However, that transition period ends once the plan sponsor makes significant changes to the plan. There probably would be changes made to the acquired company's 401(k) plan to convert it to a safe harbor plan design, which would end the transition period. If the transition period ends, then the house of cards is going to fall down. Having HCEs from the safe harbor plan participating in another plan in the controlled group won't work. If instead you try to aggregate the two plans for the whole plan year for testing purposes, that won't work either. Wait until the end of the plan year, in my opinion.

Also, to suspend the safe harbor match, you needed to have reserved the right to do so in the safe harbor notice that was distributed to participants 30-60 days before the plan year began. Again, IRS Notice 2000-3 should answer your questions in this regard.

Also, note that if a distribution (such as this one) is not an eligible rollover distribution and is > $200, then the payor must notify the recipient of his/her right to elect not to have income tax withheld. One isn't permitted to just process these distributions with 10% withholding without giving participants the chance to elect. See Treas. Reg. 35.3405-1T, Part D.

Mojo, Good to chat with you again. My views are similar to yours, I believe: - It is common for surrender charges and negative market value adjustments to not be assessed all at once but instead for the new provider to temporarily absorb that cost and recover it through higher ongoing fees for the next few (typically 5) years. This is such an analogous situation with no DOL enformcement initiative against the practice, that I'd be comfortable defending it in the reverse, where there's a positive market value adjustment. - The guidance on dealing with demutualization proceeds is instructive. While they must be treated as a plan asset, how they should be allocated to participants is unclear and more than one reasonable method is possible. Demutualization proceeds are attributable to the longstanding relationship with the insurer, not attributable merely to those in the GIC contract on the date of demutualization, and hence may be spread among participants in a variety of ways. The same should apply to your situation. - I have one client who is spreading the benefit of a positive market value adjustment over the next 3 years, after looking into the situation. - Whatever the decision, it should be made by the plan fiduciaries in conjunction with legal counsel. Just the process of deliberating about the alternatives should make it more defensible if it's ever challenged.

There used to be a feature at the top of each thread where it would take me to the most recent post since the last time I visited the message boards. I don't see that now. There probably are new features that offset this loss, but so far I've not discovered them. I don't see a difference in speed, but I'm most often accessing the boards while at work where the Internet connection is very fast. As for the layout, I don't care either way. It's the content that draws me to your website. Thanks for your work, Dave, even if my endorsement of the new software is a bit unenthusiastic!

The 404© regulation has two lists of disclosure information, one of which must be provided to the participant, the second of which must be provide upon request to the participant. Prospectuses are in the first list. Simply informing a participant that prospectuses are available sounds like providing upon request, not providing to me. In my opinion, we don't need to wait for a court decision -- if the prospectuses are only available, then the employer won't have complied with the 404© regulation and therefore will not have shifted fiduciary liability for selecting which funds are best for the participant to the participant. I do agree that we need more court decisions to determine how useful it is to have a 404© legal defense (for the rare plan sponsor who actually does meet all of the regulation's requirements) compared to having a plan that satisfies most of the 404© requirements but misses a few of the more technical requirements and therefore doesn't have the 404© defense. It seems to me that plaintiffs are more likely to win on a 404(a) claim (i.e. one of the funds were prudent in general without regard to the participant's individual circumstances) than they are on a 404© claim.

MBozek, There are no sanctions at all for not complying with the ERISA 404© regulations. The regulations are entirely optional. The only thing that will happen is that one will not have a possible legal defense (not that it's an especially useful legal defense) if one is sued by participants for a breach of fiduciary duty.

Code Section 72(t), the provision governing the 10% early distribution excise tax, at point depended on the plan's definition of retirement age, but quite awhile ago (TRA '86 or maybe a couple years before that) the provision was changed so that the exception applies to separation from service after attainment of age 55 (although it's enforced as if it was separation from service during or after the year in which the participant attained age 55). Anyway, if you've been in employee benefits long enough, you might be remembering the old rule.

I agree with the previous posts. The deadline I referred to governs when the money is deposited in the trust, not when the trust invests the money in the various funds in accordance with participant's investment directions. There's no specific DOL regulation governing when the money must be invested. It's such a gray area that none of us can clearly say whether a breach has occurred. Unfortunately, the market has gone up sharply enough that you might have some damages now compared to holding the contributions in a no-interest account. You may want to contact the DOL in addition to making noise yourself.

You are correct about the deadline. It is "the earliest date on which such contributions can reasonably be segregated from the employer's general assets" but no later than the 15th business day of the month following the month in which you would have received the money in cash had you not elected to defer it to the plan. Labor Reg. 2510.3-102(a) and (B)(1). Violations generally lead to (i) crediting the participants with lost investment earnings at the greater of whatever they would have earned in the plan or an interest rate determined by law, and (ii) if the employer doesn't voluntarily disclose the problem to the DOL, an excise tax because the employer's use of the money after it became a plan asset is a prohibited transaction.

I doubt that there's a legal barrier to granting the second hardship. The 401(k) regulations regarding hardship don't require the participant to stay in the first primary residence for a set time period. Most 401(k) plans (read your plan document to confirm this) use the safe harbor resources test so that as long as the participant has no other distributions or loans available under the plan and is willing to accept a 6-month suspension of contributions, then he or she can get the hardship withdrawal even if the participant has other assets.

Yes, the plan needs to state a definite allocation formula for any contributions. It's likely that this will convert your prototype to a custom-designed plan, but since (i) I don't work with prototype plans much and (ii) that depends on the plan document and adoption agreement which of course I haven't read, I can't answer that question with much certainty. An IRS determination letter isn't required but may be prudent.

Jaemmons, Yes, I agree with your most recent post. I tried to make clear that my post specifically was addressing a situation where someone resided in Puerto Rico and that if someone were to actually apply the reasoning to a specific case that one should check out the precise conditions in the Code and regulations I cited.

Parts of this thread are pretty stale, but let's go back to the original question. If someone is a citizen and resident of Puerto Rico for the entire year and works in Puerto Rico for the entire year, then that person is excludable from 410(B) coverage testing and has no effect on the testing arithmetic. In other words, I disagree with some of the earlier posts. Treas. Reg. 1.410(B)-6©(1) under certain conditions excludes an employee "who is a nonresident alien (within the meaning of section 7701(B)(1)(B))" from coverage testing. Code Section 7701(B)(1)(B) defines a nonresident alien as someone who is neither a citizen nor a resident of the United States. Code Section 7701(a)(9) provides "The term “United States” when used in a geographical sense includes only the States and the District of Columbia." "State" is also defined to include the District of Columbia (sort of) but apparently doesn't include Puerto Rico. Hence, a Puerto Rican typically is excluded as a nonresident alien from coverage testing. Take a look at the citations above yourself before applying these rules to a specific situation.

Kirk, I have no such authority nor do I agree with the proposition. An ESOP must be disaggregated for testing purposes from a non-ESOP. That means that a QNEC to an ESOP can be used to improve an ADP test only if the ADP test is being performed on a 401(k) plan that is part of an ESOP. My prior post is consistent with this view. You might have misread it. -- Michael Weddell

I agree, it doesn't work. A QNEC in an ESOP cannot be used to improve a non-ESOP's 401(k) or 401(m) test. One quasi-exception is that a safe harbor contribution to avoide the 401(k) and 401(m) tests completely may be made in the ESOP.

The Code and regulations are silent on this -- see Reg. 1.401(k)-1(f)(4)(ii). That means one can choose whatever is preferable. During years in which investment earnings are positive (not the norm lately!), LIFO is better because it maximizes the amount that stays in particiipants' accounts in the plan. The corrective refunds will be taxable to participants in their tax year that includes the FIRST day of the plan year. Some folks extrapolate from this that the FIFO method of calculating investment earnings must be used. Sure, that'd be logical, but it's not required. Others may have different opinions on this issue.

The IRS regards the failure to follow the written plan document as a disqualification issue. You'll need to correct it using a correction program from the EPCRS. Those correction programs call for placing the plan and the participants in the position they would have been in but for the administrative error. Accordingly, I would lean toward excluding the excess match from any discrimination testing (plus you'll need to remove the excess from the participant's account).

Why did the NHCE receive excess match? Was it in excess of the match formula stated in the plan document, in excess of the 415 limit, or something else?

If one allocates bottom-up QNECs to 25% of pay, make sure the plan document's allocation formula matches. If the plan document says "up to the 415 limit" then you've got to allocate up to 100% of pay before moving onto the new lowest paid NHCE. The method is still permitted until the IRS changes its regulations. In the meantime, taxpayers are entitled to rely on the regulations. Note that the regulations are not inconsistent with the law: EGTRRA's legislative history merely directed the Secretary of Treasury to consider the issue (I'm paraphrasing very liberally).