MWeddell

My opinion differs on some aspects of the above post. If an employer wants its plan to remain non-ERISA, I would urge the employer not to scrutinize the investments, except perhaps in the context of limiting the # of providers, or else the plan accidentally may become subject to ERISA. The DOL has not jurisdiction to police employers who have non-ERISA plans. On the other hand, employees' state law claims (breach of contract which implicitly required using reasonable care in selecting the annuity issuers) are unlikely to be preempted by ERISA since ERISA doesn't apply.

I agree that if the plan passes on a contribution basis (so that the fail-safe language is not triggered) then there's no need to also test on a benefits basis. I didn't mean to imply otherwise. However, before additional contributions are made to additional participants, there shouldn't be any employer discretion. Also, no one working for the employer should have discretion or else the 411(d)(6) regulations tend to call this employer discretion. Hence, if the plan document language simply says "if the plan does not satisfy Code section 410(B) ..." then it should be interpreted as requiring one to try any possible testing methodology for which the plan might demonstrate that it satisfies 410(B). If you don't want to be obligated to test every which way, then the plan document ought to specify in what manner one tries to satisfy 410(B) before making the fail-safe contributions.

I agree with the above post. The rules about not being able to exclude part-timers entirely regardless of coverage testing results are based on Code Section 410(a). Nothing in your proposed plan design would violate that Code Section, in my opinion.

http://benefitslink.com/boards/index.php?showtopic=9007 http://benefitslink.com/boards/index.php?showtopic=8208 Looks like some prior posts from Tom Poje also agree with this position.

Okay, then here's some credible evidence: http://www.watsonwyatt.com/homepage/us/res...ash_balance.htm Per this survey, employers who convert from a traditional pension to a hybrid plan (most commonly a cash balance plan) on average save only 1.4%. Most employers do it not to save major $$. I believe another consulting firm came out with similar research results. In my experience, employers who convert to cash balance plans typically figure that their traditional pension plans, which heavily reward long-service employees to a greater extent then other employees, no longer fit their needs.

A pension plan must have definitely determinable benefits and a profit-sharing plan must have a definite predetermined formula for allocating contributions. Hence, if you've got plan document language that adds more participants to prevent a 410(B) failure, it SHOULD be drafted in a manner that eliminates any discretion.

The IRS' informal position is that unless there's authority for having a suspense account (e.g. Leveraged ESOP, 415 excess), then one can't carry a suspense account from one plan year to the next. Therefore, when someone terminates employment during the year, one uses the provisionally allocated match which no longer belongs to their account immediately to reduce the cost of the next matching contribution. That prevents the unallocated money from building up past the point where one could use it up before the end of the plan year. Hence, by the time the match is contributed for the last pay period, the goal is to have all funds allocated to employees' accounts.

I've also seen situations where the 3% is made to the ESOP and the ESOP (for compliance, administrative, and communications reason) is run as a stand-alone plan.

Yes, this is legal. I have a client who has just recently decided to implement this design at my advice. You obviously have to communicate to employees that even thought this amount shows on on their statements, they don't receive if they terminate before the end of the plan year. From the employees' perspective, this feels like nonvested money. However, if you want to apply it to employees otherwise fully vested, the document will be worded to say that it is tentatively or provisionally allocated during the plan year but the final allocation isn't done until the end of the plan year. I don't see any problem to having someone other than the trustee control the investment direction. It happens all the time with nonvested money. The advantage is for a company currently matching each pay period but is looking for cost savings in a way that minimizes employees' negative perceptions. The match is still made each pay period but that year's match is removed only for those who terminate employment during the year. Employees can still see that the match is being funded, can still get investment earnings on it during the year, basically experience no chance unless they terminate employment during the year. (One can also make other exceptions for retirement, death, disability, etc.)

Matt, Sorry I didn't notice your second post until receiving your e-mail. 2Q(2) - I think your interpretation - that one should aggregate each individual's deferrals and compensation to produce one combined actual deferral ratio for that individual - is the best interpretation, but the regulations are not clear on this point. 3Q(1) - Again, I think your interpretation - that one includes not just deferrals but also compensation earned while eligible for both 401(k) plans - is the best interpration, but the regulation is not clear. There's an example in the regulation (I cited the regulation in my prior post) that doesn't help much. 3Q(2) - The exception only applies to when you are not allowed to aggregate the two 401(k) arrangements. The example in the regulation is where one 401(k) is an ESOP and the other is not an ESOP. If you are merely choosing to run the two plans separately, you still must use the special HCE only aggregation rule. -- Michael Weddell

IRS regulations under Section 72(p) provide that the 5-year limit still applies even if loan payments weren't made due to a grace period (unless of course the the loan was for the participant's prinicipal residence so that the 5-year limit didn't apply in the first place).

If the paperwork you submitted included an election whether or not you wished to receive payment as part of the rollover, that election is valid for only 90 days. The fact that the plan administrator or recordkeeper gave you the distribution form may indicate that the plan allows payments shortly after termination of employment, which is typical although not required (as the previous two posts indicate). Contact the plan administrator to ask when you can expect to receive payment, but if it's more than 90 days since you submitted your distribution form, ask some more questions.

You've got 3 related issues to untangle: 1) All 3 members of the controlled group are considered a single "employer" for testing purposes, so employees of all three are in the denominator of ratio percentages when you do coverage testing. 2) You permissively may aggregate 2 or more plans. In other words, you may elect to treat them as a single plan for testing purposes. If this is required, then it's usually called mandatory aggregation. Plans must be aggregated or disaggregated in the same manner for 410(B), 401(a)(4), top-heavy, 401(k), and 401(m) testing. 3) If you test the plans separately, then Reg. 1.401(k)-1(g)(1)(ii)(B)(1) contains a special rule aggregating HCE deferrals to all plans for each of the plans' testing. A similar rule applies to 401(m) testing. Now I'll comment on the rest of your posting. Realize that it's a big assumption that all plans have the same benefits, rights, and features. With different investment choices, different withdrawal options, loan conditions, etc., unless the plans were intentionally set up to be clones of each other, it's highly unlikely that your 3 plans have the same benefits, rights, and features. Nothing that you've told us leads me to believe there is mandatory aggregation, i.e. nothing that requires that the 3 plans be treated as 1 plan for testing purposes. For your hypothetical HCE, $8,000 of deferrals must be included in all three plans' testing if you are testing each plan separately. Whether all $160,000 of compensation is included is unclear. Sometimes these tests are run so that only compensation during the portion of the plan year in which an employee was eligible to defer is included when computing actual deferral ratios, which may mean that less than $160,000 is included. Permissively aggregating all plans together generally is what is needed to avoid aggregating the HCE deferrals for each test. Another possibility is if one of the 401(k) plans is an ESOP, but there's nothing in your post to indicate that.

I'll start by repeating the disclaimer at the beginning of my first post: "the answer to your question is not very clear." Nonetheless, I disagree with Carol Calhoun's post. It's unfortunate that such a key issue is left unclear, that none of us can give a definitive cite to firmly answer the issue. Carol seems to be saying that because a 403(B) plan does not have a trustee, then she is not sure that the employer has continuing ERISA fiduciary duties after the initial investment is made. I find no hint in ERISA 404(a) that an employer ceases to have a continuing fiduciary duty depending on whether there is a trustee or not. On the contrary, DOL regulations regarding IRAs and a partial Congressional exception for simple plans in ERISA 404©(2) leads me to think that not having a trustee does not relieve one of ongoing fiduciary liability. Situations where individual annuity contracts are distributed to participants strike me as distinguishable. Note that many small 401(k) plans are invested in annuity contracts with no trustees. It's quite common for plan sponsors to move those plan assets and I've never heard it raised that the plan sponsor had no power to do that. Again, that doesn't PROVE anything, but it provides some evidence. Although it's only a secondary source, note that Q 5:31 from the 403(B) Answer Book (5th edition) seems to agree with my contention that for 403(B) plans that are subject to ERISA, the employer has fidiciary duties. However, it does not address the specific question of whether the employer may change investment options for existing plan assets. Well, I've flailed around long enough! While it's an unclear question, I believe that the plan sponsor of an ERISA 403(B) plan has fiduciary duties that extend beyond the moment the contribution is invested and that continue as long as the money remains plan assets. For the reasons expressed in my earlier posts, if the employer bears the fiduciary liability, it also has the power to change the investments. If anyone has a more ironclad answer to the issue, I'm also be interested in reading it.

Well, I wouldn't call them "participant accounts" necessarily, but I'll answer yes to your question. If it's an employer-provided plan that is covered by ERISA, the employer is the one with the responsibility to prudently select providers including investment funds. If the employer has the responsibility, then one has to give the employer the power to change investment providers too.

The answer to your question is not very clear, but I think it depends on whether the old money was contributed under an ERISA plan or a non-ERISA arrangement. If it was an ERISA plan all along, then the employer is a fiduciary and has not just the right but also the responsibility to change fund managers when it considers it prudent to do so. If it was a non-ERISA arrangement, then the employer was only facillitating a relationship between the participant and the contract issuer and has no authority to change the investments without the participant's consent.

The main differentiator of having mutual funds within an annuity product rather than having the plan invest directly in mutual funds is that it allows for an extra layer of fees, beyond the mutual fund's own expense ratio, to be charged against plan assets in a manner that is not readily visible to participants. Whether that's an advantage or disadvantage depends whether you're a participant, employer, broker, etc. For a plan with only 50 participants, annuity products are fairly common. If you're a participant or plan sponsor, I'd be more concerned about what are the total fees instead of what form they take, but when you hear that the funds are in an annuity product, you've got to be more diligent in searching for all the fees. Second item to look for: with annuity products one's investments tend to be less liquid. In other words, there's a greater chance of surrender charges, redemption fees, market value adjustments, etc. if the employer wants to switch providers or, in some cases, when participants take distributions before retirement. It's tough to answer your question without editorializing, as you can see.

k man, It's a matter of interpreting the plan document regarding over what period (per pay period? per month? per plan year?) the match is allocated. If the plan's silent, I don't think anyone can give you a clear answer.

The participant is treated as the sponsor (for 415 purposes) of his/her own 403(B) contract, regardless of whether the 403(B) plan is an ERISA plan. If the participant is only an employee of his/her employer, there will be a separate 415 limit for the 401(a) plan. The 415 limit on the 403(B) limit will be aggregated with any other 403(B) arrangements in which the participant contributed this year.

I agree with Richard Anderson's post, assuming we're still talking about the alternative from the first post in this thread and we're talking about a year in which the discretionary contribution was > 50% so that the ACP safe harbor conditions were violated.

You were earning a "thumbs up" or yes response all the way until the last word of your posting. In other words, yes to your first question, the discretionary match you described does not spoil the ACP safe harbor. For the alternative, if the discretionary match were limited to 0% - 50% then it would work, but if you match > 50% then, it won't work. If I understand your alternative, the total match is 100% on the first 3% of pay, and > 100% on the next 3% of pay deferred. That violates Section VI(B)(3)(ii) of Notice 98-52 (the pertinent provision of which was not modified by Notice 2000-3) so you will no longer have an ACP safe harbor.

Your plan document should say how 415 excesses are handled. One solution is that it says that you don't make the profit-sharing contribution in the first place to the extent that an individual will exceed 415. A better solution from employees' perspective is to refund elective deferrals. Having most employees receive 15% profit sharing except for a few NHCEs who due to 415 receive lower amounts is not necessarily discriminatory. You may not even need to perform discrimination testing. See Treas. Reg. 1.401(a)(4)-2(B)(4)(iv). Helpful links to IRS regulations and other primary materials can be found at http://www.benefitslink.com/articles/usingweb.html

Actually, hardship withdrawals are a 411(d)(6) protected benefit but you may modify or eliminate hardship withdrawal provisions. The effect of this distinction is that while one does have hardship withdrawals in a plan, the plan document has to set forth the conditions instead of leaving it up to employer discretion.

In Rev. Ruling 2000-27, the seller was no longer recipient of the transferred employees services. That's what makes it different from your situation. Also, if you've got access to private letter rulings, 200027059 issued on 7/10/2000 seems to describe a situation similar to yours where distributions were not allowed.

The IRS has unofficially said that the answer is unclear. This is from the 1996 Enrolled Actuaries meeting gray book: "QUESTION #20 If the section 415 annual addition rules are violated because of a reasonable error in determining the amount of elective deferrals that are permitted within the constraints of section 415, because of the allocation of forfeitures, because of a reasonable error in estimating a participant's compensation, or under other appropriate factors determined by the IRS, then a number of correction options become available under the section 415 regulations. One of these options is to distribute elective deferrals or after-tax employee contributions to the extent that the distribution would reduce the excess amounts in the participant's account pursuant to Reg. 1.415-6(B)(6)(iv). Prior to December 1994, the regulation stated that gains attributable to returned after-tax employee contributions would be counted as employee contributions if not distributed with the refunded contribution. The regulation did not state that this rule would apply to elective deferrals as well. Amendments to the regulation have now conformed the rule for elective deferrals to the rule for after-tax employee contributions. The language of the 415 regulation is slightly different from the language of the section 401(k) and (m) regulations relative to corrections of excess contributions and excess aggregate contributions. Those regulations specifically call for the adjustment of the excess to reflect both gains and losses, while the 415 regulation merely mentions "gains". Should refunds made under the auspices of the 415 rules be adjusted for losses? Also, is there a deadline for making the correction when using the 415 rule? RESPONSE It appears that there is no requirement to adjust for losses and it is unclear whether such an adjustment may be made. There is no regulatory deadline for making the 415 correction. The expectation is that the correction should be made within a reasonable time after it is discovered. For example, the Service would not look favorably on a full year's delay in getting the correction made."