austin3515

Yes, this I can see...

Participant is a member of an excluded class in the document. After getting "promoted" to an eligible class, they are going to be eligible for a top-heavy minimum. Can I use comp while eligible in this scenario? What if they went the other direction, eligible class to an ineligible class? In other words, can I always limit the top-heavy contribution to compensation earned while not part of an excluded class? I tried to find a spot-on reference in the document and in the EOB but couldn't find anything...

http://www.federalreserve.gov/pubs/feds/2008/200842/200842pap.pdf Loan interest payments, on the other hand, can indeed be considered double-taxed under traditional consumption tax principles—since interest payments are like new contributions, they should be made with pre-tax dollars and then taxed upon withdrawal. In practice, however, the double-taxation of loan interest relative to a consumption tax is offset by the break borrowers get on the timing of their tax payments: recall that rather than paying taxes on loan proceeds when they are distributed (i.e., consumed), borrowers pay the taxes gradually over the following five years as they repay the loan with after-tax dollars. The time value of these delayed tax payments offsets the double taxation of interest—perfectly so, if the discount rate is the pre-tax rate of return; only partially if the discount rate is lower. An algebraic illustration of the taxation of 401(k) loans is provided in Appendix 1. Summary: Because you are not taxed on the loan proceeds when you receive them, and repay these untaxed proceeds with after-tax dollars, these repayments are akin to paying the taxes you owed. They're saying that your tax advantage of a loan is the use of pre-tax money without paying taxes. However, I have always said that the double taxation analysis is only relevant when compared with borrowing the money from another source outside the plan. If you took the same loan from that other source, and the rate of return is the same in your account is equal to the interest paid on the borrowing, you've still made the same total payments on the loan and still have the same amount of money in your 401(k) account. And as I wrote this down, I said to myself, "self, if that is true then really was no difference at all in either strategy and you truly pay no more taxes in either situation. So maybe double taxation really is as described - a very convincing mirage... And if we've just proven that borrowing from your 401k results in no additional taxes paid as compared to borrowing a bank then perhaps there really is no double taxation on the interest." Interesting...

Perhaps they forgot that the interest is actually taxed twice.

I'm down with everything you just said, I'm just trying to step into my clients shoes. They might be ok with a few more loans. I'm not sure there would be a "flood" on account of 1% more interest. Presumably people take the loans only when they need/want the money.

Have a new client that uses prime for the loan interest rate. It's a fairly big plan (few hundred actives) and a very active loan program. We're recommending that they go up to prime +1. Now when I have done this in the past we've just increased it, but I think this client is going to think this change is a big deal so what I am wondering is how have other people approached the transition, in terms of employee communications, and perhaps advance notice, etc (i.e., similar to a fee disclosure notice). I think the fee disclosures philosophy will be on the forefront of their minds...

EOB says look tot he promissory note, and that's exactly what the promissory note says. Loan balance is treated as a distribution actually paid on the date of default. Thanks!

That;s not what I'm saying at all. I'm saying those hyper-rare situations, wich I have never experienced, where the coverage ratio (i.e., from coverage testing) is less than the mid-point, then you would use the lower coverage ratio. Otherwise, can you explain what the above cite means?

Yes, for nondiscrimination/rate group testing (not for coverage).

(don;t worry about the future dates, just making an example). Participant A terminates on 3/3/2015 with a loan balance of $5,000. Participant is not eligible for a distribution from the Plan until after the end of the plan year (I..e, not until January 2016. Participant is rehired in December 2015, after the loan is defaulted, but before he is eligible for a distribution. Has there been a loan offset?

I know everything you just said and yet still have the same question? That;s just it - under item 2, the ratio %age might be less than the mid-point. HEre is a question, plan's ratio %age is 32, and the mid-point is 35. There is just 1 rate group. What must the ratio percentage for the rate group be to pass testing (assuming ALL other aspects of Avg Ben. are passed, including facts and circumstances)?

Thanks!

(ii) Application of nondiscriminatory classification test. A rate group satisfies the nondiscriminatory classification test of § 1.410(b)-4 (including the reasonable classification requirement of § 1.410(b)-4(b)) if and only if the ratio percentage of the rate group is greater than or equal to the lesser of— (A) The midpoint between the safe and the unsafe harbor percentages applicable to the plan; and (B) The ratio percentage of the plan. I could never figure out the significance of B), but is the point that it is possible for a plan to pass coverage with a coverage ratio of less than the mid-point, assuming it can pass the facts and circumstances test? So the mid-point is 35, the coverage ratio is 32% (Avg Ben is passed of course), and therefore each rate group need only be 32%?

I didn't think this applied for some reason, I think I thought it was referencing a severance pay plan. I guess in a sense it is, but the point is, if you couple this with an additional requirement (i.e., future service) then that is only MORE substantial? "For this purpose, if a service provider’s entitlement to the amount is conditioned on the occurrence of the service provider’s involuntary separation from service without cause, the right is subject to a substantial risk of forfeiture if the possibility of forfeiture is substantial." So to hr 4 me's point, if the employee can intentional screw things up and therefore get fired, because that is within his control, perhaps that is where the substantial risk of forfeiture loses water. I was wondering why they specified "without cause" but I think I have my answer... Agreed?

That's what I like to hear, thanks QDRO! Is that in any published article that you've seen?

I did read that actually but it speaks only broad terms and did not address my specific question... But that was a good tip because it was one of the few documents specifically on point.

OK, but my first question is, would your suggesting satisfy the "substantial risk of forfeiture" requirement. It seems you are saying yes. And to your other point, I hear ya, believe me, but I could imagine a scenario where there would be enough trust that such a predicament is not a risk they feel the need to hedge against. And the Chariman's point (in this case) is as I had mentioned, he wants to provide the employee with an incentive to stay. If on the other hand it is the Organizations decision to let him go (for whatever reason) then he wants the employee to vest. This is one of those situations where the clients want what they want. Why do they want what they want? Sometimes I don't want to know. He was quite clear on this point though.

The whole point is HE quits, they want there to be a forfeiture. Besides if he could just quit to become vested, clearly there is a not substantial risk of forfeiture. I guess the point is the likelihood of not forfeiting needs to be "remote" (to use a word that I've read) that he will get the money before the future service component is met. So for example death and disability (God willing) should always be considered remote. Being fired for any reason at all, with or without cause?

Can anyone point me to something that says that the following works: Participant is vested if they continue employment on a substantially full time basis until age 65. Participant will be 100% vested immediately upon the occurrence of any of the following: death, disability, termination without cause. Can I say: termination with or without cause? I think the employer wants the incentive to be for the Participant to stay, but if on the other hand it is the employer who wants him to go, they want the participant to vest at that time.

If I can simplify your problem; X fails coverage because although Zs employees are covered by a 403b plan, they are not excludable for coverage purposes by virtue of that participation (even though the opposite is true with respect to the 403b plan). Just to make sure you know, universal availabiliy is applied employer by employer - there is no controlled group aggregation. I was stunned to learn this a few months back. But I agree you're up a creek w/o a paddle. I would submit to the IRS and say it would be ridiculous to put us do-gooders out of business over something so stupid, especially since every darn employee had the same opportunity to participate. Maybe do an anonymous...

Was there a Code G? That means they rolled it to an IRA. The taxable amount in box 2 should be zero. Sounds to me like the old plan was terminated and non-responders were transferred to your IRA. No recourse, they did everything by the book. But the good news is the distriubtion is not taxable (assuming Code G and box 2 = 0).

I can see the 2014 version is available, but when it the 2015 version available? Trying to decide if we should by it or just wait. I feel like the 2015 should be out soon, right?

Now why in the world would I ask the employer how they want their own plan designed? That's a strange question...

Can you give me the names of any providers that would include the rabbi-trust and would do a small 1/2 participant 457b? We've been doing our own rabbit trust because they always seem to end up in brokerage accounts. Thanks for the advice, it's been very helpful!

So QDRO, you'r saying just tell the custodian, "hey we're setting up a grantor trust account" without getting into the gruesome details? I agree why should they care what the funds will be used for.