katieinny

Under the old rules, Regional Prototype plans had to keep a master list and submit it to the IRS annually. Now that there are no more regional plans, is there a procedure of notification if a client refuses to restate their document? We are sending the client a certified letter and dropping him from our master list. But somehow, that doesn't seem to be enough.

The participants are only accruing a benefit in the MP plan until the contribution formula is amended to zero. They should receive 10% of compensation earned up to that date, which could be deposited after the end of the year or earlier. I believe that there's no problem making the contribution to the PS plan, since the MP will be merged into the PS before the required contribution is made. Perhaps we could get the opinion of someone more knowledgable to confirm or refute my analysis.

We're not that far away from June 1, so at this point it won't save much. But why wait for the June date? If you provide the EE notice today and amend the MP to zero as of May 1, the ER is only responsible for 4 months of accrued contributions under the MP plan. However, one month's worth of contributions isn't worth the rush unless we're talking about a lot of participants.

We've been doing a lot of these mergers. If the plan requires 1000 hours of service for an allocation, and no one has worked 1000 hours yet, this should be a good time to do the merger. We do a corporate resolution indicating that the merger will take place as of [date] and amending the contribution formula for the MP to zero percent. Don't forget the Notice to Employees.

Thank you for your help. I am in the process of working with the recordkeeper for the daily plan, but as you said, they want to keep things as easy as possible for them, so it's difficult to get them to talk about alternatives. If we transfer the assets on 7/1, I want to make sure that the blackout period can be limited to the merging employees, and will not be forced on the existing participants. In other words, it's not an all or nothing kind of thing.

Company A (daily plan) buys company B (periodic plan). The final valuation date for the Co. B periodic plan is 6/30/03. However, the final valuation won't be complete until some date in August probably. 1) Should the assets be transferred on 6/30 and held in a money market account until the valuation is done, and then transfer the assets into individual accounts? 2) Or is it better to keep the assets where they are until the valuation is done, and transfer the assets in the middle of the quarter? It looks like there will be a black-out period for those assets in either case. Is there any way around that?

Fact set: Plan Year July 1 - June 30. Distribution to terminated EE occurs in August. ER decides to terminate plan on February 28. Forfeitures are added to ER contributions and allocated as of the next valuation date. Plan has annual valuations. Does the EE become 100% vested because the plan termination is in the same Plan Year during which the participant received a distribution? Or, is the forfeiture reallocated to other participants because the EE received the vested portion of his/her plan balance before the decision to terminate the plan was made?

We have a client who will be applying to the IRS for a letter ruling relating to the exception to the 60 day rollover rule. We don't believe she qualifies under the automatic exception. As of today, the assets are not in an IRA account. We are wondering if we should put the assets into the IRA now, or leave them where they are until we get an answer from the IRS.

Yes, this only pertains to terminated employees who, for whatever reason, did not request a distribution when they terminated employment.

I have a client who would like to take advantage of the cash-out feature in his retirement plan and distribute some small balances to several participants. He will be sending a letter telling the participants that they have 45 days to respond or a check will be sent, minus the 20% withholding. He will include the Special Tax Notice and distribution paperwork with his letter. Does anyone have a sample letter that you would be willing to share?

Our area is expected to qualify under the Federal Disaster Relief program. We expect that the tax filing deadline will be extended for a number of months. In that case, can the IRA be funded by the new filing date assigned under the relief program?

Thanks, Gary. That's the section I was relying on, but I wanted to make sure I wasn't missing anything.

One of the owners of a small C-Corp passed away just before the SEP contribution was going to be made for 2002. I believe that the SEP contribution should still be made for him. Is there anyone who thinks it can't be made?

Thanks for your input. I'm not going to experiment with this (or any) client's plan. I'll check with some local people and see what I can find out.

I don't want to put anybody through hoops. I'm not the TPA, so I won't be looking at individual EE scenarios such as cash-outs, vesting, years of service, etc. I'm just trying to assist the employer with making the most logical choices in the adoption agreement based on what I know about the employer's business. Can the ER use the Rule of Parity for EEs who are gone for a long period of time (over 5 years), and the one-year hold out rule for the those who come and go during shorter periods? Or is that having your cake and eating it too?

I see your point. As I understand it, under the Rule of Parity, a participant would need to be gone for 5 years before his prior service can be ignored. If he comes back anytime before that, all his prior service counts. Under the one-year holdout rule, the EE only needs to be gone for 1 year, and then if rehired, you wait to see if he will meet eligibility again. If he does, the prior service counts. So, if you have a company with quite a bit of turnover, that tends to rehire former employees within a year or 2 of the initial termination, the Rule of Parity will never kick in. Under the one-year holdout rule, you'll have an administrative nightmare, BUT there's a chance that a couple of people might not meet eligibility again when they return, and therefore would not come into the plan. Do I have it straight?

The adoption agreement offers two choices: 1) The Rule of Parity 2) One-year holdout rule There's probably a default in the plan document (which I don't have). I'm leaning toward the one-year holdout rule, but I wanted to get some input from some break in service experts.

After making some phone calls, it seems you are right. I understand that the DOL is putting the pressure on, and the 5 day thing seems to be what they are shooting for. The fact that some of these cases are getting some public attention has the advisors trying to put the fear of God into their clients.

Has the DOL come out with a reg. that says elective deferrals must be deposited within 5 days after the payroll date? I am familiar with the reg that says contributions must be made as of the earliest date they can be segregated from the general assets, not to exceed 15 business days after the end of the month. But someone just told me that a new DOL reg came out.

I have been doing some reading that supports that conclusion. Thank you very much for your help.

Two new companies are formed in late 2001, consisting mainly of employees from Co. X. They are NOT a controlled group. The new 401(k) plans for the new companies (effective 1/1/02) say that service with Co. X counts for eligibilty, etc. How are the HCEs in the new companies treated for compliance testing? Is there a look-back period that goes back to their service with Co. X?

Since my client is in the process of restating the 403(B) plan, do you think it's safe to include the 6 month language in there?

I looked again at the EGTRRA language that reduced the waiting period for deferrals down to 6 months after taking a hardship distribution. It looks to me like it only applies to 401(k) deferrals and did not get extended to include deferrals under 403(B) plans, which means that the 12 month rule still applies to them. I specifically noticed that the language says for a period of "at least" 6 or 12 months (whichever is applicable), which means that an employer can't be generous and permit employees to continue deferring immediately after a hardship withdrawal takes place. In fact, it sounds like an employer could keep a participant from deferring for a much longer period of time -- maybe a couple of years or so if he wanted to put that language in the plan.

I have a client who would prefer to permit deferrals to continue after a hardship withdrawal, rather than forcing a 6 month waiting period. What's the purpose of the waiting period and is there a way around it?

Yes, I asked the Provider's rep why the contract is necessary. That's one of the things she's checking into. Given her uncertainty and my own, I want to get as much information as I can from those who know about these things before I talk with her again.