M R Bernardin

In terminating the 401(k) portion, you can't distribute the accounts, because the profit sharing portion will be considered a successor plan.

This probably won't be helpful, but I've never heard of any such requirement. I think the general qualified plan distribution rules would apply, regardless of where the employee has gone. I believe the U.S. Company could continue to cover an employee of a foreign affiliate, although tax issues for the employee would have to be addressed. So, if the employee is still working for an affiliate, even if it is a foreign entity, there may be an issue as to whether there has even been a termination of employment. If this is a DB plan, I would look to the plan document; if it's a 401(k) plan, I would assume there has not been a separation from service.

A participant takes a hardship distribution under the safe harbor rules, but the employer does not immediately suspend future deferrals as required. Subsequently, the employer also makes a matching contribution based on the ineligible deferral (which is a relatively small dollar amount). When performing the ADP and ACP tests for the year, are these ineligible contributions disregarded if they are corrected via APRSC? Any cites would be helpful.

The 401(m) regulations do not permit distribution of matching contributions merely because the contributions to which they relate are excess contributions, excess deferrals (your situation), or excess aggregate contributions. So, the plan document has to permit distribution of the match under these circumstances in order to distribute. The "attributable-to" matching contributions may be forfeited, even if the match would otherwise be vested. (It is a match which fails the ACP test which cannot be forfeited if it's vested.) If the plan allows the match to be distributed, it would still be counted for purposes of 401(a)(4), so that you must be able to demonstrate that, after distribution, the rate of match (including the match that was distributed) is nondiscriminatory. For that reason, many documents simply provide for forfeiture in this situation. ------------------

Harry O: I think I was thinking of Rev. Rul 76-28. I know there is some controversy on this point, but had always thought that was generally with respect to employers trying to deduct, for a given tax year, deferrals and match made after the end of and with respect to compensation earned after the end of, that tax year, rather than with respect to a straight p/s contribution.

There is a ruling that ERISA did away with the need for the liability to be fixed and determinable at year-end. Wish I could provide the cite, but I have come across it before. I don't see how this violates 411(d)(6) if you're increasing the groups to receive the contribution, as long as the amount of the contribution itself is discretionary.

In my mind, this is a sort of murky area. There are only two provisions in the Internal Revenue Code which seem to expressly permit a plan to be amended after the close of a plan year. Those provisions are as follows: 1. Code Section 412©(8), which allows an amendment adopted within 2-1/2 months after the close of a plan year to be treated as though it were adopted during the plan year, if certain conditions are satisfied. But I believe that this rule is relevant only for purposes of Section 412's minimum funding requirements (which would not be applicable to most defined contribution plans). In order to use this rule, the plan administrator must notify the Department of Labor of its use, IF the amendment results in the reduction of accrued benefits, by attaching a statement to the plan's 5500 or, if the 5500 was filed before the amendment, by attaching a statement to a copy of the 5500 which was filed and mailing it to the DOL by the due date for the 5500. 2. Code Section 401(a)(4), which allows a "corrective amendment" adopted within 10-1/2 months after the close of a plan year to be treated as though it were effective on the first day of the prior plan year, but only for purposes of 401(a)(4) and 410(B). This type of corrective amendment is specifically not to be given retroactive effect for purposes of 404 or 412, unless otherwise permitted by those sections. There are no other provisions of which I am aware that specifically address the ability to adopt a retroactive amendment. But, on the other hand, there is also nothing that specifically precludes the ability to adopt a retroactive amendment. Of course, if retroactive amendments are permissible, they could not violate the Code Section 411(d)(6) anti-cutback rules. The bottom line is that some people believe you can always retroactively amend a plan to increase benefits. I think I would count myself in that camp, too. However, the ability to retroactively amend does not mean that increases the employer's deduction amount. In fact, I think it doesn't unless you decide you come within 412©(8). I assume that if the employer adopts this amendment, it would be equally applicable to all employees who terminated in the prior year, and that you have otherwise determined that the timing of the amendment would not be discriminatory. One final thought: it wouldn't hurt to consider filing for a letter on the amendment to reassure yourself that it is okay. If the IRS had a problem with it, you would likely be given the opportunity to cure it. ------------------

How does an employer determine the cost basis, to the plan, of an annual match made in the form of employer securities after the plan year has closed? For example, an employer contributes shares as a match on 4/30/99 for the plan year ended 12/31/98. Is the plan's cost basis based on the fmv of the shares as of the date contributed (in this case, 4/30/99), or can the employer use the fmv of the shares as of 12/31/98? Would the answer vary if the shares being contributed are treasury stock, rather than shares purchased on the market by the employer and then contributed to the plan? Finally, if each participant's interest in the stock is tracked on the basis of "units" rather than "shares," how is net unrealized appreciation determined (i.e., does unitization mean the shares have not been allocated to participant accounts for purposes of determining net unrealized appreciation?)