katieinny

The shares are not publicly traded. We're okay with participants voting their allocated shares for the pass-through-matters, but the plan currently says that the Trustee shall not vote the shares in the suspense account. We're thinking about amending the plan to change that provision so that the Trustee can determine how those shares are voted. We just want to make sure there isn't a prohibition against the Trustee voting those shares.

mjb: Your reply intrigued me because we have a client with that set up -- EE must contribute 5% in order to get the ER's 10%. That sounded like a violation of the Universal Availability rule to me. Is it not? If the employer agrees to contribute 2 times an EE's deferral (whatever percentage that might be) up to no more than 10%, then it would qualify as a match, right? However, is there a problem between the EE that defers 2% and gets 4% from the ER vs the EE that defers 5% and gets 10% from the ER?

Robin: Yup -- that's where it was. Thanks for pointing me in the right direction.

I've been reading the rules about QP distributions that are and are not eligible for rollover. I don't see anything indicating that if a plan distributes too much the entire amount of the distribution can't be rolled over.

A retiring participant in a DB plan rolls her lump sum distribution into an IRA. Several months later it's discovered that the actuary made a big mistake (in the participant's favor) when calculating the lump sum. Several more months go by before it is determined that the excess distribution cannot be recaptured (long story -- that's not the question anyway). Does the fact that the lump sum consisted of more than the participant was entitled to put the IRA rollover in jeopardy? There were no adjustments to any tax forms and the plan was a qualified plan. A devil's advocate is raising the issue because he thinks it could be determined that the IRA holds an excess amount. I say baloney.

J4FKBC: I appreciate your comments. I was able to get confirmation regarding the EACA requirement to have a QDIA. I was told that QACAs, while not required to, will want to use QDIAs, and they will become EACAs just by going through that process.

J4FKBC: Okay, that explanation makes sense to me. I'm going to see if I can get somebody to confirm it.

We've asked the client to talk with a bankruptcy attorney to find out if they need to respond to the notice. If I ever get an answer, I'll let you know.

I understand that having a QDIA is a good idea for defined contribution plans that allow employees to direct their investments, and it would be especially useful to plans with automatic enrollment. But is having a QDIA a legal requirement for any plan? If so, for which types of plans is it a requirement?

Hmm, I thought that payroll deductions to repay the plan loan could not be suspended, even if the participant demands it.

We know that loans from a qualified retirement plan cannot be included in a participant's list of creditors that he wants to write off. However, apparently his lawyer doesn't know that and included the plan loans (2) anyway. The plan administrator received a notice from the US Bankruptcy Court. Does the plan administrator need to respond to the notice? There is a deadline to file a "complaint objecting to discharge of the debtor or to determine dischargeability of certain debts." The instructions say that if a creditor believes that the debtor is not entitled to receive a discharge you must start a lawsuit by filing a complaint in the bankruptcy clerk's office. I can't believe that the plan would have to go that far.

A client is starting a Death Benefit Only plan. The benefit is paid by the employer if the employee dies while still working. There are no salary deferrals. Are there any filing requirements for this type of plan?

The 401(k) has a very liberal self directed investment policy. A few of the HCEs want to invest in a vehicle that is limited to only high net worth individuals. While the plan does not prohibit the rank and file from investing in the same vehicle -- the investment itself is not available to them due to the high net worth restriction. Can the plan permit the HCEs to invest knowing that the NHCEs could not invest due to the investment's restrictions?

Judy: For what it's worth, I would go with #2 on your list. It's my understanding that they are not eligible for DFVC. I think the IRS was just asking if they had done a filing prior to getting the IRS letter. I think you can make a compelling case in your statement of reasonable cause based on the reasons you mentioned in your post.

I'll advise the client to amend by adding the 75% QOSA, but it doesn't make sense to force plans to amend that already offer other options. I must be missing something.

A DB plan has the normal 50% QJSA, and also offers an optional 100% JSA. Doesn't that satisfy the new QOSA requirement since it is more than 75%?

Ahhh -- exactly what I wanted to hear. Thank you.

I'm bringing this topic up again because we have a similar situation with one of our clients. We will be sending in the missing 5500EZs with the appropriate Statement of Reasonable Cause. However, in addition to the IRS penalty for late filing, isn't there also a DOL penalty? How do we go about making sure that gets waived?

Tom: So changing from a fiscal year to a calendar year isn't a factor here. Since we missed the 10/1 date, we can start 1/1/08?

I'm having trouble understanding the rules about adding a Safe Harbor feature to an existing profit sharing plan at the same time the plan year is converting from a fiscal year to a calendar year. I'm pretty sure we missed the deadline by a few days, but I would still like to understand what I'm reading. A profit sharing plan has an August 31st year end. The employer just contacted us about adding a Safe Harbor 401(k) feature and changing the plan year. So there would be a short plan year from September 1 to December 31. If we had added the Safe Harbor feature by October 1, would that have worked? I've read about the exception if the short plan year is created by an amendment (which we would do), but the 2 conditions confuse me: 1) the plan year immediately preceding the short plan year (Sept. 1, 2006 -- Aug. 31, 2007) satisfied the 401(k) safe harbor rules. (How could it do that? It wasn't a safe harbor plan then.) AND 2) the plan year immediately following the short plan year also satisfies the 401(k) safe harbor rules (no problem). It seems to me that even if we had met the October 1 deadline, the client still couldn't convert to a safe harbor plan in 2007. But can we convert to a safe harbor plan beginning January 1, 2008?

We had the very same issue with a client. After this went on for a couple of years, we insisted that they either amend the plan to remove the 1000 hours/last day requirement or stop making matching contributions each pay period. They finally saw it our way and amended the plan.

Yes, I understand that the answer really depends on whether he is truly an independent contractor. I've been doing some reading and I think our best advise is to tell him to do everything he can to make sure the IRS would think so if they decided to check him out. Then, and only then, should he set up a retirement plan of his own. Thanks for your reply.

A former HCE of a company has recently retired. However, he has been hired as an independent contractor by the same company. He insists that he controls his own time and work and would not be considered an employee. He wants to set up his own retirement plan based on his 1099Misc income. At this point he doesn't provide his services to any other company, but that's not to say he won't at some point. This question must come up fairly often, so I'm hoping somebody has prior experience.

So, even though a not-for-profit business must permit a certain class of employees to make elective deferrals, they can exclude that group from receiving employer contributions.

No, there's no mention of a minimum percentage. It simply says if the employee contributes 3% he or she will get a 5% contribution from the employer.