MWeddell

It feels like piling on until rcline46 gets a chance to review the regulation, age and service conditions can only be disregarded for optional forms of benefit or social security supplements. I also think this is a participation requirement, not a service requirement. Furthermore, I can't see considering the 100% match level "currently available" to everyone when that's frankly not true -- it takes a year's worth of deferrals first. I stand by my earlier post.

I agree with most if not all of Medusa's posts. It sounds like everyone is eligible for the 50% match, so that's not a BRF available to only some employees. The fact that some people choose not to defer at all doesn't change that the 50% match is available to them. As I understand it, to get the 100% match is not a service requirement and hence cannot be ignored. Suppose you have a calendar year plan and are doing snapshot testing as of 12/31. I'd say that the 100% match level is currently available to (1) employees getting the 100% match on 12/31, (2) employees who received the 100% match earlier in the fourth quarter but suspended their elective deferrals, and (3) employees who received the 100% at any time during the third quarter but suspended their elective deferrals. All of those employees, if they'd have chosen to contribute on 12/31, had the 100% match currently available to them on 12/31. If the plan passes BRF, I don't see any other compliance problems here. It feels like it might violate 410(a), but because this is not a coverage issue, it's okay.

Thanks. That clears up some of the confusing.

There is a DOL regulation that delineates what is clearly a non-ERISA 403(B) (because it is not provided by the employer) from what is very likely a ERISA 403(B) plan. That regulation sets forth the rationale that may be used by the employer to restrict the number of providers ("annuity issuers"). I have a hard time reading that regulation and being able to tell a client that it can narrow it down to just 1 provider and still be confident that it has a non-ERISA 403(B) provider. However, I know of one attorney who disagrees with me and the regulation does not clearly say "non-ERISA 403(B) plans must have > 1 provider." You'll have to read the regulation for yourself. Remember there are three types of 403(B) plans: those subject to ERISA, those not subject to ERISA, and those that the employer believes are not subject to ERISA but really are. Don't let your client fall into the third category! A non-ERISA 403(B) plan should not have a written plan document. That alone may make your client's plan subject to ERISA. The employer would have to be conducting payroll withholding for any 403(B) deferrals, so there's no way that there are 403(B) arrangements that are unknown to the employer's payroll department. Sounds to me like the providers are grasping at straws here to protect their existing contribution inflows.

For hardship withdrawals of 401(k) elective deferrals, the regulations require that any available nontaxable loans from the plan first be taken (subject to the comment Jon made). This is true for both the safe harbor resources test and the general resources test. It should not vary depending on the plan document.

The plans may be permissively aggregated for the plan year from the point in time that the plans covered employees in the same controlled group, assuming they are also aggregated for 410(B), 401(a)(4), etc. Aggregating them starting from the beginning of the plan year if the corporate acquisition occurred after that date strikes me as too aggressive a position, but as with many m&a questions the lack of regulatory guidance may allow a broad range of reasonable interpretations.

It seems unlikely that this will work unless the hourly employees are in a collective bargaining unit. Code Section 410(B) limits the extent to which a plan can cover a disproportionate number of highly compensated employees.

Rollover contributions (and related investment earnings) can be withdrawn at any time if the plan document so provides. You'll need to read your plan document to answer this question.

Without looking it up, my recollection is that it is 6 years from the due date of the annual Form 5500. However, many types of errors could be considered to be a continuing disqualification event if the error wasn't corrected for all subsequent years, so I wouldn't rely too heavily on the passing of the limitations period.

This is not a distributable event. It's possible that both plan documents allow the participant to elect to transfer his or her account, so you'll have to check the plan documents for that language. It's not the sort of provision that is routinely in plan documents.

Other limits, notably under Code Sections 404 and 415©, were also increased so there may not be compelling reasons to maintain a limit as low as 15% of compensation for a 401(k) plan. That's an initial reaction -- there'll be plenty of time to consider this more fully as we near 2002. Whether the limit for any particular plan changes depends on whether the plan sponsor amends its own plan document. The 15% limit you refer to apparently is a limit found in the plan document.

I've not seen any plans with this provision. If one allows the participant to renegotiate an existing loan, such as making lower payments but lengthening the amortization period, then one probably must remeet the DOL loan regulations (based on current interest rates, etc.) but it'll be subject to the original 5-year period under IRC 72(p). Sounds like a mess for any plan large enough to have the loan process automated. If the plan does allow active employees to renegoatiate existing loans, it likely does not have to allow this to terminated employees. Given that most plans don't allow loans, even continued repayments on existing loans, to terminated employees and the IRS has not been insisting that this constitutes a "significant detriment" that violates employees' rights to decide whether or not to defer distribution under Reg. 1.411(a)-11, I doubt that ceasing to allow employees to renegoatiate loans is illegal either.

For most purposes, 80% common ownership is required. Do the owners of the other 40% of the new company own 0% of your company? If not, then you still have two separate controlled groups. If they are in one plan, you have a multiple employer plan. An exception is that for applying the 415 limits, only > 50% common ownership is required for parent-subsidiary controlled groups, which includes your situation. See Code Section 415(h).

Unless there's an outsourcing situation here, or a termination of an outsourcing arrangement, it sounds to me like there are separations from service.

Another theoretical possibility is doing 401(a)(4) testing, presumably on an age-weighted basis, without imputing permitted disparity on the 3% contribution used for the 401(k) safe harbor. Of course, the chance that your client wants a general 401(a)(4) testing situation when the plan is designed to avoid the ADP test seems fairly remote.

I don't perceive a problem here, other than the plan won't meet a 401(a)(4) safe harbor and hence will require general testing. Profit sharing contributions, if any, will be allocated for a pay period in proportion to participants' compensation during that pay period. Sounds like a definite allocation formula to me. The employer can stop and start and change the amount contributed each pay period but is not changing the allocation formula.

Also, double check that your plan document doesn't require that you use the full 12 months' worth of compensation or have it amended to provide the flexibility that RCK points out.

The self-directed account is an investment option which is subject to benefits, rights, and features testing. If it passes on the date that you freeze the feature to new money, then it will be treated as passing thereafter. See Treas. Reg. 1.401(a)(4)-4(B)(3). In summary, yes if the participant in question is not current a highly compensated employee.

I agree with the prior post. However, the full QNEC could be allocated in a bottom up fashion, so it MIGHT not be as expensive as the previous post implies. I don't think we've got enough demographic information to tell you which correction method is best.

John, you wrote "The consensus does seem to be that the plan sponsor is obligated to try every possible method to meet 410(B) before using the fail-safe language unless the plan document language clearly indicates otherwise." I think that includes examining various mortality and interest rate assumptions unless the plan document specifies what assumptions to use. I would think that the person doing the testing could use some judgment about whether there's any chance that a specific combination could improve the test and is not required to run every theoretically possible combination.

Interesting post, KB. Your argument can be made, but you're skating on thin ice and I just don't see a benefit to the client substantial enough for running this compliance risk. The reason why the hanging match if is forfeited is because you don't want HCEs to have a higher rate of matching contributions (considering only contributions left in the plan after ADP/ACP testing, considering only compensation not exceeding the 401(a)(17) limit) because giving one or more HCEs a higher matching rate than any NHCEs enjoy would constitute a discriminatory benefit, right, or feature. Your argument is that the rate of match is match divided by compensation, but it could also be match divided by elective deferrals, right? Read Treas. Reg. 1.401(a)(4)-4(e)(3)(iii)(G) where the IRS mentions elective deferrals for no reason other than apparently it might affect how one computes a match rate. Add to that IRS pronouncements about the hanging match problem (from the prefatory discussion to the 1994 401(k) regulations I think) and I think your argument is too risky for me to endorse.

Private letter ruling 8816050 interpreted "employee" in Code Section 402's rollover rules to include an retired employee. It's not a very strong or recent piece of authority, but supports a conclusion that you legally could do this for former employees.

I agree with your above post, John A. I think it's unanimous.

The place to start is Revenue Procedure 2001-17. The IRS has started to update the various compliance correction programs annually, and this is the most recent guidance. It's 90 pages long, including the appendices, so it'll take you a while to read and digest. You probably want to go through it and figure out whether your client qualifies for the Self-Correction Program.

Dawn, your point is also correct. I was replying to John A's most recent post and didn't mean to imply any disagreement with your post.