MWeddell

I disagree with the prior post, but there's sure to be a longer explanation of my interpretation and various others in the threads that Fredman linked to. The fact that the plan document doesn't expressly contain the minimum doesn't strike me as a reason for thinking that there's no BRF testing required. There are a lot of examples of other rights or features, such as the right to a particular class of an investment product, that wouldn't typically be stated in the plan document but yet 1.401(a)(4)-4 would seem to require to be tested.

It all depends on what the document says. If it contains the fail safe language, does it first require you to perform average benefit testing? If it fails, does it make all hourly employees eligible for the plan or just enough to pass coverage testing? Does it allocate QNECs to those who were excluded (assuming this is a 401(k) plan, one guesses that's the case)? If the plan doesn't contain fail-safe contribution language, then you'll probably want to look at the corrective amendment stuff in Treas. Reg. 1.401(a)(4)-11(g).

According to the proposed catch-up regulations, one cannot set a lower maximum deferral percentage for those who are catch-up eligible participants (i.e. age 50 or older) versus those who are not catch-up eligible participants. Hence, if the maximum deferral percentage for HCEs is 5% (yes, I realize that'll very likely produce an average HCE ADP of < 5%), then you can't set a lower limit for HCEs who are age 50 or older. HCEs age 50 or older will be able to contribute 5% + $2,000 for 2003. If you're talking about deferrals in excess of the ADP limit, not a plan limit, then one runs the ADP test just as before except that instead of making corrective refunds to HCEs, one checks to see if any of the HCEs about to get refunds instead are catch-up eligible and haven't fully used that calendar year's maximum catch-up amount.

I remember some criticism of Roth IRAs etc. when enacted both because it added complexity and because it increased current tax revenues at the expense of future tax revenues. However, even if there wasn't criticism then, the LSAs will prove to be much more popular, and hence a bigger drain on future revenues, so the criticism is fair. If one assumes that investments' rate of return will be the same as inflation, it makes no theoretically difference whether Congress collects the taxes now or in the future. However, given the funding problems with Medicare and Social Security that will require much greater tax revenues in the future, many of us think that saving through the Roth-style tax treatment is a poor idea.

Unclear, so make sure whoever decides has the Firestone discretion to interpret the plan document. You might want to request that the hardship withdrawal applicant supply proof that the brother could force both co-owners to sell the property to a third party if the participant refused to buy out the brother's half of the property. That's not an easy question to answer -- it depends on how the property is owned and the laws of the state in which the property is located -- but the burden of proof ought to be on the applicant, not the plan.

Yes, QNECs can target specific NHCEs as long as the plan document contains a definite predetermined allocation formula for the QNECs. As long as employer nonmatching nonelective portion of the plan passes coverage testing using the 70% ratio percentage test, then there's nothing that prohibits the plan's allocation formula from listing individuals by name. Given that QNECs are designed to go to NHCEs, if those are the only employer nonmatching nonelective contributions, as the prior posts point out there's highly unlikely to be a coverage testing issue. Note though that that idea might cause problems in future years because one can only change allocation conditions under 411(d)(6) prior to the time the first employee has satisfied all of the QNEC's allocation conditions, so think twice before specific individuals' names are incorporated into the plan document. The Congressional conference committee report for EGTRRA said: "With respect to the increase in the defined contribution plan limit, the conferees intend that the Secretary of the Treasury will use the Secretary's existing authority to address situations where qualified nonelective contributions are targeted to certain participants with lower compensation in order to increase the average deferral percentage of nonhighly compensated employees." While the IRS is widely rumored to be considering outlawing bottom up QNECs altogether, in the meantime one can keep relying on the current regulations, which don't prohibit their use.

To preserve the safe harbor, the plan with the HCEs would have to pass coverage testing separately. Hence, the plan with the HCEs would have to pass the average benefit test or the ratio percentage test.

When a plan uses the general test for determining which events constitute a safe harbor, almost by definition it's going to have to address situations where there aren't precedents. Make sure you have the committee responsible for interpreting the plan document and that has Firestone discretion make the decision. For what it's worth, this sounds immediate and heavy to me and I'd be inclined to grant the request. No, I don't know of articles exploring what events meet the general hardship withdrawal standards.

Of course, this discussion assumes that the Bush administration savings plan proposal becomes law. The providers who have specialized in 403(B) plans will face increased competition. Boundaries between 457, 403(B), and 401(k) markets will no longer formally exist, so it'll be easier for providers who have specialized in 401(k) plans to compete for what used to be 403(B) plans. The investment restrictions that apply to most 403(B) plans (only mutual fund custodian accounts and annuities) will be gone so medium and large plan sponsors should gradually demand diversified stable value funds for their low-risk options, not undiversified guaranteed accounts offered by providers. The legal rules creating an incentive for multiple 403(B) providers will disappear. Grandfathering old providers may not be allowed if Treas. Reg. 1.401(a)(4)-4 applies to 403(B) plans without something like Notice 89-23 preventing this. Elimination of average benefit testing for defined contribution plans may cause some additional plan consolidations and provider movements among larger employers. However, these changes will be gradual. The cultural legacy of having providers on site often (because they used to have to compete for assets at the participant level not the plan sponsor level in multiple provider 403(B) situations) won't disappear overnight. We'll finally have a fair race between the high-touch high-cost approach versus the low-touch low-cost approach. Obviously, only a small portion of the plan sponsors will select new providers each year and of that group, many will continue to prefer the high-touch approach. Furthermore, assuming that there's nothing in the bill that gives the plan sponsor the right to transfer assets for what previously was regarded as non-ERISA 403(B) assets, a plan sponsor essentially has a start-up plan and won't immediately be an attractive prospect for a low-cost approach provider.

Before concluding that it is a regularly-scheduled blackout period, read the definition in the regulation carefully and review the SPD and other existing communications to make sure that the quarterly blackout periods are clearly communicated. I also agree with the above post: given the potential financial penalties, be cautious and distribute the notice if you're at all unsure.

Deciding whether a partial termination has occurred is as clear as mud. The answer may vary depending on whether one enforces the IRS de facto standard or the courts' de facto standard (and if the court standard is used, in which of the federal circuits is your client located). All authorities agree that the most important factor is the reduction percentage, but calculating that percentage is unclear: one considers only plan participants, not all employees, although one recent court said that one ignores fully vested participants from the calculation. Also, the IRS and courts differ on the burden of proof for ignoring voluntary terminations from the calculation. Occasionally a court says that a "significant number" of reductions affects whether there is a partial termination, but usually they focus on whether there is a "significant percentage." Hence, to (finally) answer your question, I'd say that no, the fact that you're dealing with a small employer won't matter -- the percentage is high. Tell your client (i) either fully vest affected participants (or all participants) or (ii) client should check with its legal counsel to assess the risk if the client wants to try to not declare that there's been a partial termination.

I'd feel comfortable with it. Tips are an irregular and additional element of compensation. One might argue that the amount is irregular but not the receipt of tips, but one could say the same thing about overtime pay in some companies. The fact that mostly NHCEs get it is a testing issue, not something affecting whether the definition is reasonable. I do suggest you do more research -- I've never run into this question before.

If the plan document (or written loan procedures incorporated into the plan document) provides for the spousal consent, then it's required. It is possible for the plan not to require spousal consent if this the normal (or default) form of payment is not an annuity, then the QJSA rules only apply to the participant once the participant elects to receive a distribution in the form of an annuity. Hence, at the time of the loan, the QJSA rules aren't (at least yet) applicable and no spousal consent need be required.

As I recall, the prohibited transaction class exemption does not 100% sanction paying the cash surrender value. In any case, it's a complicated enough issue that you should read the class exemption itself, not just rely on our summaries of it.

I agree with what Belgarath wrote -- that's still the current rule even though it's a puzzle to me how the IRS came to that decision based on the language in the Code.

Sorry, Trumpy, for repeating a response very similar to yours. I hadn't read yours yet when I drafted my prior post.

"The conditions for receiving an allocation of contributions or forfeitures for a plan year after such conditions have been satisfied" are a section 411(d)(6) protected benefit that may not be retroactively amended. Treas. Reg. 1.411(d)-4, Q&A-1(d). The way around this restriction is to add a completely new type of contribution to the plan document with its own allocation formula and fund that contribution, not the prior contribution.

I agree that one can rely on the existing IRS regulations that permit QNECs and don't preclude a bottoms-up allocation of QNECs since it is not inconsistent with current law (merely inconsistent with EGTRRA legislative history) and hasn't been revoked.

To answer this question, one would have to interpret your plan document. That's hard for us to do through an internet bulletin board.

You could have a plan-to-plan transfer of assets before any termination distributions are processed, but that might be hard to accomplish practically. If the plan was updated for EGTRRA to allow distributions upon a severance from employment, then 411(d)(6) will prevent you from amending the plan to remove that distribution option.

Good point. In my experience, any loads are typically waived for 401(k) plans. However, I don't often work with very small plans so I let that slide by the first time without comment.

I believe this would be a benefit, right, or feature subject to discrimination testing. A benefit, right, or feature includes an "other right or feature." "The term other right or feature generally means any right or feature applicable to employees under the plan. Different rights or features exist if a right or feature is not available on substantially the same terms as another right or feature." Treas. Reg. 1.401(a)(4)-4(e)(3)(i). An example of an other right or feature is "The right to a particular form of investment, including, for example, a particular class or type of employer securities (taking into account, in determining whether different forms of investment exist, any differences in conversion, dividend, voting, liquidation preference, or other rights conferred under the security)." Treag. Reg. 1.401(a)(4)-4(e)(3)(iii)©. Nothing in the regulations distinguishes between provisions established by the plan document and those established by the investment vehicle used for funding the plan. Therefore, I believe that this feature is subject to BRF testing (and as you point out likely to be discriminatory if that testing is required). There have been many threads that have explored this issue in the context of establishing minimum account balances for self-directed accounts. I think those threads address a situation that is analogous to your situation. Not all of the posters agreed with my views, so it's certainly worth perusing to get a broader variety of opinions: http://www.benefitslink.com/boards/index.php?showtopic=14662 http://www.benefitslink.com/boards/index.php?showtopic=15726 http://www.benefitslink.com/boards/index.php?showtopic=8869 http://www.benefitslink.com/boards/index.php?showtopic=7700 http://www.benefitslink.com/boards/index.php?showtopic=13078 http://www.benefitslink.com/boards/index.php?showtopic=9575 http://www.benefitslink.com/boards/index.php?showtopic=15306

Tom Poje wrote: "Austin, if it smells too good to be true, it probably is" but the key word is "probably." Yes, it sounds to good to be true, but that's not a substitute for analyzing the issue. There's not a compliance problem with the plan document forfeiting the hanging match on excess deferrals. I'm just agreeing with the position that Katherine was originally advocating that this isn't required by the IRS. Also, I agree that many plan documents as currently drafted would require the forfeiture. No one's convinced me that the suggestion made in Austin3515's second post is wrong. One could draft a plan document that complied with IRC 401(a)(30) by saying that participants' elective deferrals aren't initially subject to an annual dollar limit but that after the end of each calendar year any deferrals over the limit are refunded by April 15. The same plan document could provide that hanging match on excess deferrals stay in the participant's account in the plan. The plan could encourage high paid employees to contribute as much as they like in order to get as much match as possible. I believe such a plan would still be qualified. There are some real pragmatic issue withs such a plan design even assuming one found a client that welcomed unconventional suggestions. First, it really could cause some ADP test problems (a 401(k) safe harbor plan couldn't match on unlimited deferrals). You'd have to get payroll to not monitor the 402(g) limit and stress to the recordkeeper the importance of monitoring the 402(g) limit. However, the biggest problem is that I suspect having one's high paid employees with deferrals > the 402(g) limit on their W-2s might increase the probability of IRS audit more than offsetting the value of extra match earned by these employees.

Great suggestion (in the right circumstances) and no I don't think it's ridiculous. Check the plan document to make sure that what you suggest is permitted by the document. Under your other conditions (no cap on what's matched, no testing difficulties), the suggestion makes sense.

Sorry for the delay, but I did want to post after looking up the above reference that I also am now convinced that the hanging match on excess deferrals may remain in the plan. Thanks, Katherine, for being persistent about your point. Here's the explanation from the ERISA Outline Book: "Whether the rate of match is nonuniform is determined after correction of the ADP test, the ACP test, and the multiple use limit. See Treas. Reg. §1.401(a)(4)-4(e)(3)(iii)(G)(note that the regulation does not reference corrective distributions under IRC §402(g), because §1.402(g)-1(e)(1)(ii) provides that excess deferrals are taken into account for purposes of §401(a)(4))."