MWeddell

There's an 18-month retroactive period in Code Section 414(p). If one reads it carefully, you'll find it has to do with when payments are made, not when the parties were divorced, but many plan administrators are confused by this provision and may not initially accept a QDRO more than 18 months old.

I believe Revenue Procedure 98-25 governs this issue.

Dan, Proposed regulations under Code Section 401(a)(9) (prior to its amendement by SBJPA) shows that the IRS expects that persons other than individuals may be named as beneficiaries. That's not exactly on point. Maybe someone else has a better cite.

I agree with the above, but check the plan document too. Often documents are drafted to not handle the hanging match problem as optimally as is legally permitted.

John A, you asserted that a hardship withdrawal is not a 411(d)(6) protected benefit. I don't mean to split hairs unnecesarily, but a hardship withdrawal form of benefit payment is a 411(d)(6) protected benefit, although it's one that may be reduced or eliminated. Compare Treas. Reg. 1.411(d)-4, Q&A 1(d) with 1.411(d)-4, Q&A 2, esp. Q&A 2(B)(2)(x). Hence, the provisions later in the regulations about employer discretion do apply to hardship withdrawals. Hence, the plan must state the objective criteria in the document for obtaining a hardship withdrawal. You've correctly pointed out that the employer can retain the authority to determine whether objective criteria specified in the plan (e.g., objective criteria designed to identify those employees with a heavy and immediate financial need or objective criteria designed to determine whether an employee has a permanent and total disability) have been satisfied. The distinction between the two levels of discretion may be difficult to make in practice, but that's the situation we've got.

Revenue Ruling 71-224 is what permits hardship withdrawals from employer contributions not affected by the 401(k) regulations. The standard must be defined in the document (there's mention of this in the 411(d)(6) regulations as well) and not discriminate in favor of highly compensated employees.

This may not be as clearly written as you'd like, but look at Treas. Reg. 1.401(k)-1(a)(3)(ii) & (iii). You could probably find a clearer statement that one can change contribution percentage elections at any time by looking at sample plan document language in the IRS's Lists of Required Modifications.

Yes, I've seen the letter. It was distributed internally to Watson Wyatt associates yesterday. I'm not authorized to post company stuff on the web (and don't e-mail me either unless you're a client I consult with). However, I'd guess that it'll be generally available very shortly. BNA Daily Tax Report already picked it up. Yes, it looks like a general information letter, signed by Martin L. Pippins, Manager, Actuarial Group 2. Answering the question raised in the above post, the letter addresses the calendar year data election from 97-45: "f the calendar year data election is made for a plan with a non-calendar plan year beginning in 2000, the compensation limitation for determining HCE status is $85,000."

The situation isn't black and white here. The issue is the hardship standard must be specific enough to not give the employer discretion (other than administrative discretion) in violation of the 411(d)(6) regulations. If the plan already has a favorable determination letter, then there's no need to be alarmed, and if it doesn't, fix the provision before submitting the plan. Either eliminate it or incorporate more language from the general hardship standard in the 401(k) regulations. The issue is still a live one even if the employer has never used the provisions. One still can't have a form of payment with employer discretion in the plan document.

The short answer is yes, you can have two profit sharing plans covering the same employees. One sometimes sees a variation of this to sort of get around the 401(a)(17) on compensation which applies to each plan. However, having two 401(k) plans (or qualified cash or deferred arrangements within profit sharing plans, to be technically precise) leads to some rather punitive testing results. HCE deferrals to both plans are counted in each plan's 401(k) but only NHCE deferrals to that particular plan counts against that plan's test. There's a parallel rule for 401(m) testing I believe. I think what you want is to freeze one plan and start up a new plan. As long as this occurs at the same time as the plan year end, the above rule won't mess up your plans.

While 404© requires certain information to be provided to participants, your typical account statement doesn't contain the 404© disclosures. Hence, 404© has nothing to do with it. Statements at least annually are sometimes distributed because participants have an ERISA right to request a statement of their benefits. Often, statements don't meet the technical requirements however. There's no other obligation to distribute statements. 401(k) plans developed the convention to distribute statements quarterly but it's not a legal obligation.

It's a big assumption, but assuming the independent contractor determination was correct, you'd have to exclude payments prior to when they became employees in identifying HCEs.

I think what you suggested would work. If you don't want to track the 3% QNEC separately, then all contributions need to be fully vested with no last day of the plan year condition, etc. [This message has been edited by MWeddell (edited 12-03-1999).]

Pax, I think you're in the minority this time. Refunds during the year (except for HCEs >= 59-1/2) violate the 401(k) distribution restrictions. Doing it with a negative contribution makes it harder to detect but doesn't solve the compliance problem.

DOL regulations aren't much practical help (because commericial lenders don't make loans fully secured by participants' account balances, so what exactly is similar) and DOL regulators won't say what they want. Given that uncertainty, I figure there's safety in numbers. About 70% of plan sponsors use prime rate plus or minus an increment, with prime rate + 1% as the most common interest rate.

Yes.

Prospectuses are not required to be delivered to employees by the DOL. If an employer chooses to comply with ERISA 404© and hence shift some liability to employees, then prospectuses must be provided (not "provided upon request" but provided) to employees immediately before or immediately after an employee shifts part of his/her account into the registered investment vehicle for the first time.

The IRS has usually required that the shares released from the suspense account be regarded as contributions, which are subject to a bunch of limits. However, the IRS seemed to have a new position in a Technical Advise Memorandum publicized in the Dec. 1997 ESOP Report published by The ESOP Association, where it approved treating the released shares as investment gains. I've not been following this issue too closely since then, but suggest you contact the folks at The ESOP Association.

While one is not required to give the 3% nonmatching safe harbor contribution to HCEs, it is permitted. You may disaggregate the 401(k) plan into two component plans, with the safe harbor contribution given in the MPP to all employees who could not have been excluded under the maximum age and service conditions permitted by Code Seciton 410(a). If there are any HCEs in the component plan of < 21 and < 1 employees (which is rare), it must be separately tested. Notice 98-52, Section VIII(H).

Not that I'd recommend this, but ... One may craft unique vesting provisions that are always more favorable then the statutory / regulatory methods. For example, the plan's vesting schedule could be a 1-5 year graded vesting schedule using your last day of the plan year condition or the statutory 3-7 year graded vesting schedule using the normal 1,000 hours method of counting service. As a practical matter, you might find that the statutory schedule rarely matters. Pity the recordkeeper or pension administrator who has to administer this provision and explain to the employer's payroll contacts why collecting hours of service data is still essential. It sounds like an error waiting to happen. One guesses that most recordkeeping and pension administration systems aren't set up to measure vesting service in two different methods and apply the more favorable of two completely different vesting schedules to the same contribution source. [This message has been edited by MWeddell (edited 11-18-1999).]

It's a real muddle, but I think the answer is yes, you can get to the result you want. Prior to 1999, the way to accomplish this was to disaggregate the plan into two component plans, one component plan that covered employees that could have been excluded from coverage using the maximum age and service conditions permitted by Code Section 410(a) and the other component plan covering the rest of the employees. One could use an entry date assumption when defining which employees are otherwise excludable under 410(a). Technically, both component plans have to be tested, but because beginning in 1997 the HCE definition depends on prior year compensation (with the rare exception of a newly hired 5% owner or a family member considered a 5% owner through the stock attribution rules), it was easy to judiciously choose an entry date assumption that would cause no HCEs to be in the otherwise excludable component plan. Beginning in 1999, Code Section 401(k)(3)(F) becomes effective. It's not very clear whether you can use the entry date assumption when you exclude those < 21 years or < 1 year of service. Key IRS officials believe that one can't use the entry date assumption under Code Section 401(k)(3)(F). See Q&A 76 from the IRS questions from the Oct. 1999 ASPA conference [with thanks to Dave Baker for posting it on the what's new section of BenefitsLink]. However, what's left unsaid in the IRS Q&A is that one seemingly can still use the disaggregation rules that are still in the regulations instead instead of the new statutory rule that "the employer may" use. As explained earlier, the regulatory disaggregation rules probably still get you where you want to go because there's rarely any HCEs in the otherwise excludable component plan. Well, that's about as clear as I can explain it. Hey, I said it was a muddle! [This message has been edited by MWeddell (edited 11-18-1999).]

I'd also be interested in hearing others' opinions on this one, because the issue is arising more often. I think that it potentially is discriminatory, but have heard more than one reputable service provider suggest it, which makes me wonder whether I'm missing something. Having access to a self-directed option is subject to benefit, rights, or features (BRF) testing. Treas. Reg. 1.401(a)(4)-4(e)(3)(iii)(B) & ©. This testing applies to any BRFs provided under a plan, without a distinction of whether the employer or the broker imposed the restriction. Treas. Reg. 1.401(a)(4)-4(a). The fact that the restriction might not appear in the plan document isn't relevant technically (although it'll affect whether the IRS notices a potentially discriminatory BRF). Investments aren't subject to the 411(d)(6) regulations, so discretion is allowed and the condition needn't be stated in the plan document itself, but if the restriction is enforced, it's subject to BRF testing. [Ray Williams - Although I disagree with the IRS verbal analysis, let us know if they issued anything in writing at the ASPA conference.] Once one has determined that the BRF is subject to testing, take a look at Treas. Reg. 1.401(a)(4)-4(B)(2)(ii)(D). It's not the easiest provision to read and apply, but seems to say one ignores a dollar limit if the BRF is available only for those with account balances <= $x but doesn't give us permission to ignore a dollar limit if the BRF is available only for those with account balances >= $x. This will often (but not always) cause a minimum account balance requirement for a self-directed option to flunk BRF testing, creating a disqualification issue.

I work with a client that contributions profit-sharing money quarterly. Because it requires employment on the last day of the calendar quarter, it doesn't fit a 401(a)(4) safe harbor, but the general testing passes easily so it needs to be rerun only every three years.

That's right, it's a plan document issue. See whether the plan computes the matching contribution, per payroll period, per month, per plan year, or whatever.

Besides checking the plan document, also look at Treas. Reg. 1.401(k)-1(g)(2)(i)(fourth sentence). You may limit the compensation for all eligible employees to just the amount earned during the portion of the plan year when each employee was eligible to make a cash or deferred eleciton.