katieinny

I guess it's starting to make sense. A 403(B) plan is not set up as a trust, which makes a difference. If the prohibited transaction rules don't apply, then the Provider can make the loan directly to the annuitant, and the employer stays out of the whole thing. So is the contract the Provider's way of getting authorization to do these transactions with the annuitants because the employer set up the plan and the investments are with the Provider? Since the participants are referred to as annuitants, I'm thinking the assets are invested in annuities.

I just talked to a representative from the Provider. She says that the participant does everything through them and the employer doesn't get involved at all, and might never know about the loan. She also said that the original value of the certificate never changes. The Provider loans the money to the annuitant. Sounds like a prohibited transaction doesn't it? When I pointed out the language in the contract, she was puzzled and needs to check it out.

Yes, I've read the loan contract. The vocabulary is not familiar. When an annuitant applies for a loan, a loan "certificate is issued in consideration of a premium remitted" from the original certificate. To me, that says if a participant requests a $5,000 loan, a new account is established and money is transferred from the participant's account to a loan account. A loan is made to the annuitant with the issuance of the loan certificate. "Periodically, the portion of Accumulation under this Certificate that exceeds 110% of the Outstanding Loan Balance will be transferred to the" original certificate -- until the loan is finally repaid. I understand that the Provider is responsible to setting up the loan certificates, receiving payments and transferring funds back to the original certificate, etc., but why does this call for a contract between between the Provider and the Employer? Doesn't a bank or investment firm do the same thing for a 401(k) plan? I've never seen a contract in those situations.

Our client has a 403(B) Plan subject to ERISA. The document and investments are provided by one of the Big Providers. The plan permits loans. The Big Provider has asked the Employer to sign a loan contract that's between the Big Provider and the Employer. I don't understand why there needs to be a contract between the Big Provider and the Employer. In all our 401(k) plans there is a loan policy and supporting documents that are between the Employer and the Participant. There's no contract between the Employer and the brokerage firm that provides the document and the investments. Is this common for 403(B) Plans and why is it necessary?

I have an Employer (A) with a 401(k) plan. ER A is willing to count service with ER X for eligibility, vesting and allocations. However, ER X is part of a controlled group (ER Y and ER Z). Must ER A also count service with Y and Z if anyone should get hired from those companies? He only wants to count service with ER X, not the other two.

I was concerned because they are excluding some of their NHCEs, too. If coverage isn't an issue, an ER could include just a couple of people by putting everyone else in an excludable class.

If a plan excludes all HCEs, and also excludes some NHCEs, must coverage testing be done?

Thank you for your reply. I hope to get more details on Monday. It seems to me that someone (either the spouse or the insurance co. rep.) is mixing up an IRA with a qualified plan. I think a stepped up death benefit could be applicable if the account in question is part of a qualified plan, not an IRA.

Perhaps those of you who deal with annuities more than I do can offer some guidance. A spouse inherits her husbands IRA annuity and decides to roll it over to her own IRA. The insurance co. says that she can roll over the value as of the date of death, but she cannot rollover the "stepped up" death benefit. What is a "stepped up" death benefit?

A PS plan had a one year of service requirement. Then the ER adds a Safe Harbor 401(k) feature. If he allows everyone employed on June 1, 2002 to make elective deferral contributions, can he still require those same EEs to work 1 year to be eligible for the safe harbor contribution?

I would like to take this a step further -- I client has a nonstandardized Safe Harbor 401(k) plan. The client includes all classes of EEs in the elective deferral portion of the plan. One of the HCEs will be moving into a class of EEs called "light bulb changers." (I'm kidding of course, but you get the point.) He will still be able to make elective deferrals, but the ER is planning on excluding this class of EEs from receiving PS contributions. Can this class also be excluded from receiving Safe Harbor contributions?

Gary: It's looking like I will need to do the integration calculations for a SEP plan. I thought that the calculations for a SEP would be identical to those for a profit sharing plan. I haven't analyzed your numbers yet, but are you trying to say that the integration calculations are different for a SEP?

Thanks for clearing that up.

So, even if the money is rolled into a QP from a conduit IRA, it cannot be included in the plan balance for determining the amount available for a loan?

Okay, I see your point and agree that you are correct. So, I have another client with a profit sharing plan who refuses to permit distributions prior to retirement age, even though he understands that finding these people could be a nightmare. NRA is 65, but early retirement age is 55. I believe that the participants can request their distributions at early retirement age rather than waiting for NRA. But to avoid the 10% early withdrawal penalty the participant must have terminated service in the year he or she turns 55 (or older).

Does it make sense that penalty free withdrawals can be made at 55 if you terminate service, but not for in-service distributions?

No, there's been no mergers. Our goal is to permit in-service distributions from the MP plan at age 55, which means we need to set NRA at age 55. That's the lowest we can go to keep the 10% early withdrawal penalty from applying, and it's also a "reasonable age."

But, in the case of a money purchase plan, must NRA be at least 59 1/2 in order for participants to be able to take in-service distributions? I think not. I think age 55 would be acceptable, but I'm being told by another person in the office that it must be 59 1/2. We have a client for whom this issue is very important, so I want to be sure I give the correct answer.

Now I'm being told that in order for a participant to take an in-service distribution from a money purchase plan, NRA must be at least 59 1/2. What happened to the "reasonable age" for the type of business?must

The client wants to be able to include the IRA money as part of the plan balance for loan purposes. I don't think that "deemed IRA" money could be treated that way.

I understand that under EGTRRA qualified plans can accept rollovers of IRA money, even if the IRA did not meet the conduit IRA requirements. Would these rollovers come under the deemed IRA rules, or treated like rollovers from conduit IRAs?

I think we're beating a dead horse, but as long as we're this far into it, what's a little more. This is what I think you're asking --- An ER amends the plan to eliminate all annuity options as of 3/1/03. On some date before 3/1 an EE elects one of the annuity options. Let's say he chose the single life option. But before the distributions actually begin, the EE realizes the error of his ways and says to the ER, I should have chosen the J&S option. Does the ER have to honor the EEs request to switch options? Here's what I think. If the EE changes his mind prior to 3/1, I would say that the ER should permit the switch (again -- as long as payments have not already begun.) Prior to 3/1 the J&S option is still available. If the EE comes to the ER after 3/1, but still before payments have started, I believe that the ER has the right to say that the J&S option was eliminated and is no longer available. I think to do otherwise would establish a precedent that would effectively negate the ER's amendment to remove the annuity options.

When a sponsor of a PS plan decides to remove the annuity option from his plan, he would most likely remove all options that involve annuities (single life and joint life) at the same time. Why remove one without the other? Your comments indicate that a participant has already made a life annuity election. Therefore, that participant will receive his benefits in the form of a life annuity, even though on a going forward basis, other participants will not have an annuity option of any kind. For that one participant who already made the election, there is no waiver. He takes the benefit as elected. If payments had not already started, there might be some wiggle room if he's changed his mind.

Now I'm confused. I thought once a participant selected a life annuity as his form of payment, it could NOT be eliminated for that participant. The option to select a life annuity (single or J&S) could be eliminated in a PS plan going forward (assuming the requirements listed above are met), but not for anyone who had already made that payment election.

Wow -- I didn't expect to see an NRA as low as 30! However, becoming fully vested and able to take a distribution from the plan doesn't negate the early withdrawal penalty which would apply to distributions to participants under age 55 (unless taking substantially equal payments or rolling the money over).