MWeddell

The hardship withdrawal regulations don't specify what proof you need and when you collect it. If the IRS audits your plan thoroughly, they will expect you to have on file sufficient documentation to prove that the participant met the plan's hardship withdrawal criteria. While it's not an administrative practice I'd recommend and not a precedent I'd want to set, as long as you eventually get sufficient documentation on file, you should be fine.

KJohnson, I would guess that the DOL still would regard it as a fiduciary decision. Possibly amending the plan to state how the demutualization proceeds are handled might create the presumption under ERISA 404(a) that fiduciaries should follow the plan document unless they conclude that doing so would be imprudent. Our motivation for amending the plan was to better insulate us from any participant challenges.

MetLife also put out a brochure on the same topic too. There is no clear answer how to allocate it. It's a fiduciary decision. To give a sense of the range of possible answers, I worked with a Prudential client who allocated demutualization proceeds based on current balances in all investment funds. The rationale was that the proceeds were due to the historical relationship with Prudential, not just who happened to be invested in the guaranteed account on a particular date. They then amended their plan document to clarify that this allocation method would be followed.

ERISA Section 402(a)(1) requires plans to be maintained pursuant to a written instrument. If the plan is never amended for EGTRRA but the plan is administered in compliance with EGTRRA, eventually the DOL might find that one has violated 402(a)(1). I agree that enforcement of this is very lax, so the difference of opinion between my posts and mbozek's may be less than it first appears.

Do you already have a qualified plan in place? Does it include a qualified cash or deferred (401(k)) arrangement? When does its plan year end?

403(B) plans that are subject to ERISA (primarily those plans that have employer contributions, not just elective deferrals) are required to have written plan documents and be administered in accordance with their documents. However, unlike the IRS, the DOL doesn't declare precisely when EGTRRA amendments must be made before it considers a plan as violating ERISA because it's not administered according to its plan document.

I've not dealt with your situation and hence haven't specifically researched it, but your suggested resolution seems correct. I believe that Notices 98-52 and 2000-3 somewhere provide that if you fail to meet the safe harbor then one performs ADP / ACP testing, presumably on a current year testing method basis. However, you'd still be obligated to contribute the safe harbor match, although this is a matter of interpreting your plan document which I've not read.

No, it has not. That's the most current piece of guidance on the 401(k) / 401(m) safe harbor rules.

I advise clients against charging to participants' own accounts fees for processing distributions (excluding in-service withdrawals). It's debatable as an earlier poster said, but not a fight I'd want to choose. However, one could be more aggressive. Even if the 1994 QDRO opinion letter is followed, note that distributions are only required by law after the participant reaches age 65 per Code Section 401(a)(14) and the parallel ERISA provision. Processing distributions prior to that time is still rendering a service not mandated by law.

Katherine, I don't recall that 72(p) distinguishes between employee and employer contributions, so I don't know what you're referring to. However, the Internal Revenue Code generally does classify elective deferrals as employer contributions.

There are exceptions to the excise tax for distributions prior to age 59½. I have no idea whether they apply to you. They are stated in Code Section 72(t). Any amounts subject to income tax would also be subject to the early distribution excise tax. Hence, to the extent you have after-tax contributions and can withdraw them, then the contributions will not be subject to income or excise taxes but any investment gains on them will be subject to both income and excise taxes.

First, let's assume that this 403(B) program is not an employer-sponsored plan subject to ERISA. For example, it is a church plan or it is a voluntary elective deferral only program. Under that assumption, the answer to your question is yes. An employee with a $14,000 account balance may borrow $10,000. After the loan transaction, the account balance now holds a promissory note worth $10,000 and other assets worth $4,000. The portion of the account invested in the promissory note serves as collateral. If the participant were somehow to immediately default on the loan and become eligible to take a distribution simultaneously (let's say by terminating employment for a loan that required one to remain actively employed), then the loan may be offset against the promissory note and the participant could then take a distribution of $4,000 but have income tax withholding based on a taxable distribution of $14,000.

My opinion hasn't changed since this thread. I agree that there is no deadline. The IRS examination guidelines issued in June 2002 didn't state a deadline either. http://benefitslink.com/boards/index.php?showtopic=6844

I agree with the above response. To answer your other question, yes you may amend the plan to switch between the current and prior year testing method because you're still in the GUST remedial amendment period. Note that the method you choose for the last year of the GUST remedial amendment period will affect your ability to switch methods in the future.

This excerpt from the prefatory discussion to the proposed 1.414(v)-1 regulations makes clear (to me anyway) that one allocates ADP test refunds by leveling by dollar amount before determining which of those refunds may instead remain in the plan reclassified as catch-up contributions: "For a section 401(k) plan that would fail the ADP test of section 401(k)(3) if it did not correct under section 401(k)(8), the ADP limit is the highest dollar amount of elective deferrals that may be retained in the plan by a highly compensated employee after the application of section 401(k)(8)© (without regard to section 414(v)). For example, if after ADP testing, elective deferrals by highly compensated employees in excess of $8,000 would be required to be distributed or recharacterized as employee contributions under the statutory correction set forth under section 401(k)(8)©, then the ADP limit is $8,000..."

I'll stick with my first answer but try to explain it. If the plan document authorizes the plan administrator to restrict deferrals by HCEs as is considered necessary or desirable to ensure passage of the discrimination tests, then you have authority for limiting HCEs (in MBCarey's example to $10,000, in Katherine's example to 5%). That's a plan limit, which is an applicable limit for catch-ups so catch-up eligible participants who reach that limit can make catch-up contributions. If your plan document doesn't authorize this type of restriction, then you're not allowed to do it at all and certainly not allowed to call some of those contributions as catch-ups. Instead, you've got to wait until the end of the year, run the ADP test, determine the ADP test limit, and money that would have been refunded instead may be reclassified as catch-up contributions.

That's right. For step 3, the benefits, rights, and features test, one only need pass the nondiscriminatory classification test, not the average benefit percentage test.

If the plan document authorizes you to set a plan limit of $10,000 maximum deferrals for all HCEs, then what you suggest is possible. More likely, you've got to first run the ADP test, compute corrective refunds, and then if the the refunds are owed to those age 50 or older who've not maxed out their catch-up contributions, you can reclassify as catch-up contributions instead of refunding them.

I don't believe having no match until 4 years of service is a problem. The 410(a) rule that only 1 year of eligibility service (or in one exception 2 years of eligibility service) may be required applies to the whole plan. The concept that the 401(m) portion is tested separately applies to 410(B), not 410(a). This interpretation is not universally held, so you may want to check with your attorney. What you're testing is whether the availability of a higher match rate is a discriminatory benefit, right, or feature. If you walk through the cross-references in the regulations, you'll find that you only need to pass the nondiscriminatory classification test (i.e. coverage testing except not the average benefit percentage test). That means that rate group 3 also passes. Good news!

Notice 98-52 is more recent and taxpayers may rely on it. Eventually this'll get clarified whenever the IRS finally issues revised 401(k) / 401(m) regulations but in the meantime rely on Notice 98-52.

You could consider serving on a jury if called because it's one of your duties as a citizen. (BOO! HISS! THAT WASN'T FUNNY AT ALL!) If they expect it to be a long trial though, tell them that as the owner of your own business, it'd be a hardship for you to be on a jury more than a couple of days. And don't forget: Do it to them before they do it to you.

Looks like I did answer this question too hastily. I agree with the above post that it depends on the facts. If the money was withheld from the paychecks but not transmitted, the DOL's VFC program is the appropriate method of correction. If the participants elected to defer but money wasn't taken from their paychecks, it still may be an ERISA issue (administering the plan not in compliance with the written document), but the DOL's VFC doesn't cover this and you're probably right to use the appropriate IRS correction program.

While BrianF is right to be careful about the coverage testing, it doesn't sound like too much of a problem. Employees < age 21 or < 1 year of service can be tested separately (no HCEs typically in that group) and when you're looking at just the group with age 21+ and 1+ years of service, you may not have too many of the out-of-state employees left by then.

I guess I'm outvoted on this one and since it's been a few years since I've been directed involved in recordkeeping, your opinions are probably better informed than mine. I'm not suggesting that anyone do pro bono work, but to be so shocked to have a client request to accelerate their vesting only to the extent required by law as to not have any idea what the cost is struck me as unreasonable. It seems a perfectly reasonable request on the client's part. 100% checking of vesting at the time of distribution is normal, but is 100% checking of all participants' vesting for quarterly statement production required? You can bet the major recordkeepers aren't doing that: after some spotchecking you've got to have confidence that your software works right. Thanks for the discussion.

This is a defined contribution plan, right? I say reject the DRO as not meeting the definition of a QDRO. It calls for you to provide a feature that is not available to similarly situated participants. If the parties or court really intend to have no investment gains or losses on the amount given to the AP, then have them submit a QDRO and distribution request form simultaneously so that they are executed by the recordkeeper on the same day.