MWeddell

I agree with Tom Poje's calculations, but want to elaborate on two points. When Tom says that it looks like you need at least 3 NHCEs eligible for the 401(k) plan, that would suffice only to get above the unsafe harbor percentage. You'd either need 4 NHCEs so that (4/11)/(2/2) = 36.36% > 34.25% safe harbor percentage or you'd need obtain IRS approval that being above the 24.25% unsafe harbor percentage was sufficient. See Treas. Reg. 1.410(B)-4©(3)(ii). Second, if you're going to include anything less than 8 out of the 11 NHCEs, i.e. anything so that your ratio percentage is below 70%, then the classification of which NHCEs are eligible has to be "reasonable" and "established under objective business criteria." See Treas. Reg. 1.410(B)-4(B). You can't just arbitrarily pick any 3 or 4 NHCEs. Maybe I'm just repeating things you already knew, but I thought I'd mention these points.

I know it doesn't make a lot of practical sense, but your former employer is correct. Based on IRS guidance, you probably have not experienced a "separation from service" that constitutes a distribution event from a 401(k) plan. The IRS modified its position about a year ago so that most asset sales now are distribution events but a change of employers due to outsourcing is not a distribution event. If you are age 59½ or older, your plan may allow a distribution for that reason. Ask for a SPD if you don't already have one to check if that's an option.

Making loans available to terminated employees who are still (1) participants and (2) parties in interest may even be required by ERISA's prohibited transaction excemption for plans that offer any participant loans. This stems all the back to a ERISA Opinion Letter 89-30A issued in October 1999. I don't recall what the IRS did, but somewhere in the 401(a)(4) regulations you'll find a fix that prevents this from being a discrimination problem. On the other hand, I sure wouldn't assume that a terminated HCE is a party in interest without reading that definition carefully. Is the terminated HCE still on the plan sponsor's board of directors? What makes you think that he/she is still a party in interest now that he/she is no longer an employee?

Different analysis, but perhaps the same result as the above post. One cannot aggregate for 410(B) testing a 401(k) arrangement and employer nonmatching contributions such as the 15% money purchase plan contribution. However, the 401(k) plan probably can pass the average benefit percentage test given the 15% contribution (which does get included in that test), so the ratio percentage of the 401(k) plan needs only to exceed 20%-50% in the nondiscriminatory classification test. Hopefully, you can pass that lower threshold.

If a plan sponsor plans to grow to have > 100 employees soon, a SIMPLE 401(k) plan can be converted to a regular 401(k) plan easily. Given that the competitiveness of the funds and provider arrangements depends largely on the amount of plan assets per participant, it's nice to start a plan off as a SIMPLE 401(k) plan and start growing those assets instead of a SIMPLE IRA which becomes a dead end (under current law at least) if the company grows to be > 100 employees.

A 401(k) plan does not have to offer hardship withdrawals at all. If it does offer hardship withdrawals, there are several different choices for how to offer hardships. Ask for a Summary Plan Description or ask to see the official plan document to find the rules for your employer's plan. Most plans offer hardship withdrawals for the pre-tax deferrals you contributed to the plan. It sounds like your plan probably allows hardship withdrawals if you have one of four safe harbor events listed in the regulation. If you go to http://frwebgate.access.gpo.gov/cgi-bin/ge...=2000&TYPE=TEXT and search for the word "foreclosure" you'll find the list of 4 events that probably allow you to get a hardship withdrawal. Note that you'll pay income taxes and a 10% excise tax for early distributions, so you probably only want to tap into your 401(k) for financial emergencies. If you still want a hardship withdrawal, talk to your mortgage lender about receiving a notice that does threaten foreclosure because being in danger of having a car repossessed isn't one of the 4 safe harbor events.

Well, you've got two more opinions and they don't agree, so I guess we'll turn this into a survey question. I agree with Tom Poje. One can take the 3% employer nonmatching safe harbor contribution into account in other 401(a)(4) testing as long as one doesn't use permitted disparity. This is different from the traditional QNECs where 401(a)(4) must pass both with and without the QNECs. The cite is in Tom's posting, noting that Notice 2000-3 didn't change that portion of Notice 98-52.

The DRO should clearly provide whether the percentage applies to the vested account or the whole account and if it's the latter whether any nonvested monies are prorated between the participant and alternate payee or whether the alternate payee's money comes first from the vested portion. It it's unclear, it should not be accepted as a QDRO. A QDRO cannot allow the alternate payee an option that other participants don't have, such as having the AP's vesting percentage increase depending on whether the participant earns more vesting service. If the AP wants the advantage of continued vesting service, then the QDRO should not subdivide the account yet. Also, check with the plan's recordkeeper before promising anything that might be impossible to administer.

It's my client's decision, not mine, whether to revise and redistribute the SAR. The client would prefer not to because of the distribution costs and dealing with questions about why old SARs are being revised now. Although the DOL rejected the Form 5500, the client subjectively thinks the original SAR disclosed the plan's financials and hardly anyone reads those darn reports anyway. Subjectively, the client sees little value in new SARs and has asked me how sure am I that a revised SAR is required. I follow the intuitive logic of "if Form 5500 is materially revised, summary of Form 5500 should be revised" but cannot locate a citation to back up the logic.

If a participant has a loan in one plan and is transferred to a plan where everyone else doesn't have a loan, this could be a problem. If the participant is nonhighly compensated or in a collective bargaining unit, then there's not a benefit, right, or feature testing problem. However, to meet ERISA's prohibited transaction exemption for loans, if participant loans are offered they generally must be available to all participants who are parties in interest, which includes all participants who are actively employed. Having loans available only to participants who transfer in from an affiliate's plan could violate the terms of the prohibited transaction exemption.

I agree that it does not meet the ACP safe harbor. Even if the match were limited to the first 6% of pay deferred, it still would not meet the ACP test safe harbor. Some HCEs would receive a higher match rate than some NHCEs, which violates the conditions of Section VI(B)(3) of Notice 98-52, the relevant portions of which were not modified by Notice 2000-3.

Because the elective deferrals officially are considered to be employer contributions for IRS purposes, there is NOT a complete cessation of employer contributions that would trigger full vesting.

Correct, there are no highly compensated employees in each of your examples.

For a very long discussion of this issue, see: http://benefitslink.com/boards/index.php?showtopic=8135

Intuitively I agree with you, b2kates, but I can't find any authority telling me that's the correct answer.

An employer timely filed a Form 5500. The DOL recently rejected the filing as incomplete under ERISA Section 104(a)(4), informing the employer that a revised filing must be made within 45 days. The employer plans to file a revised Form 5500 within that time period. Is there an obligation to distribute a new Summary Annual Report to participants? Does it depend on how significant an impact the Form 5500 changes would have on the SAR? Is anyone aware of any DOL position on the issue?

Take a look at this thread for an answer to your question: http://benefitslink.com/boards/index.php?showtopic=4792

Cindy, Yes, I guess we didn't give you a clear answer. In your situation, I say allow the alternate payee to have a hardship withdrawal and prorate the amount available. The plan allows hardship withdrawals to "all participants" you said earlier which probably could be reasonably interpreted to include alternate payees. Doing so avoids the gray area where the QDRO conflicts with the plan document. There was some disagreement about the best method for splitting the hardship amount available. However, the disagreement seemed to be how throughly and in what forum the proration method should be specified. It seemed like all of the posters suggested prorating the hardship amount available when the order was silent on the issue.

Kip, I disagree with your 10:50 a.m. post, but considering this is a gray area and that I've tried clarifying my position as best I can, I'm inclined to move on. My long post earlier in this thread gave an example where I believe a well-drafted QDRO could give the alternate payee a right that the plan document would have denied. The Qualified Domestic Relations Order Answer Book (by Panel Publishing, including the 2000 Supplement) doesn't help us much in resolving our disagreement. When answering whether a QDRO can "require that an alternate payee be entitled to receive a hardship withdrawal ... if the plan does not include such a provision," it concludes that "the answer is not clear." Q 1:9, 5:24. -- Michael Weddell

I'm not sure I understand the last sentence of your post, Kip, but agree with the gist of your post. In my hypothetical, it's only because the plan allows 401(k) hardship withdrawals to other participants that I conclude it must do so for the alternate payee as well.

If the QDRO is silent about how to split hardship amount available, I would also guess that the recordkeeper would also pro-rate this amount.

As far as I can tell, you can have a 2-year eligibility requirement for the match if it is immediately vested. There's nothing in 401(m) analgous to IRC 401(k)(2)(D). I caution that I've never heard of this plan design before, so I suggest you research the issue more carefully than I just did!

I agree with QDROphile's post above, but will try to clarify paragraph (2) from my prior post in case QDROphile didn't already do so for me! Suppose that a 401(k) plan document allows hardship withdrawals only to "active participants" and that the plan document defines "active participants" in a way that clearly excludes alternate payees. Former participants are allowed lump sum distributions, but not partial withdrawals. The plan does not provide for complete distributions to alternate payees as soon as feasible after an order has been accepted as a QDRO, as discussed in (1) of my prior posting, and in fact defines "former participants" in a way that doesn't allow the alternate payee to get a lump sum distribution while the participant is still employed. A domestic relations order is submitted in a divorce action when the participant is still actively employed by the plan sponsor. Further suppose that everyone involved agrees that an order meets the IRC 414(p) definition of a QDRO except it also expressly says "The alternate payee shall be entitled to any other form of benefit provided under the plan to similarly situated participants who are not alternate payees." In that hypothetical, a plan administrator looking only at the plan document would deny any hardship withdrawal request from the alternate payee. However, the alternate payee (or his/her attorney) should argue that the sentence quoted above from the QDRO requires that valid hardship withdrawal requests from the alternate payee be honored. Furthermore, the AP's attorney would argue that the quoted sentence does not cause the order to fail to be a QDRO and in particular does not violate IRC 414(p)(3)(A). Although the situation is admittedly unclear, my opinion is that the AP is probably entitled to a hardship withdrawal (although it's foggy whether it'd have to be the AP's hardship or the participant's hardship if that makes a difference). In other words, I think that the AP has a statutory right to have the QDRO enforced once it satisfies IRC 414(p). If the order is properly drafted and if the plan gives hardship withdrawals to other participants, then it must allow hardship withdrawals to alternate payees. The main problem the AP (or his/her attorney) has is convincing the plan administrator of this argument.

Also take a look at your plan document. The rules you've discussed are part of some "safe harbor" hardship withdrawal requirements and do not apply if your plan uses the general resources test.

1) Check the plan document. A lot of 401(k) plans will give the alternate payee the right to request a complete distribution once the order has been accepted as a QDRO. That would make your question about whether a partial withdrawal due to hardship becomes available a moot point for most alternate payees. 2) A carefully drafted QDRO could give the hardship withdrawal right to the alternate payee and prorate or divide up in another way the hardship amount available between the participant and the alternate payee. This does not constitute giving the alternate payee an option that the participant does not have and hence is likely permissible. The problem will be convincing the plan administrator to honor the QDRO if the withdrawal is not expressly authorized in the plan document. I agree with Kip Kraus that most plan documents will not expressly authorize this.