austin3515

The Corbel document that we use allows us to use the 20 hour a week exclusion, so we are using it. Because let's be realistic, the entire country is using the exclusion, ERISA or not. We wouildn't have alot of clients if we told them all they couldn't do this or even if we recommend the two plan design (which by the way is very clever!). Can anyone vouch for what the other major providers did in their prototypes? Corbel: included the option for the 20 hour exclusion TIAA/Ascensus: Did NOT include the option Anyone know what Datair or McCay Hochman did? I'm wondering if TIAA is the only one that took that "conservative" position.

I just wrote this explanation for myself because it helps me to understand things by writing about them. What does evreyone think about my conclusions? I wanted to write this from TIAA's perspective. 1.403(b)-5(b)(4) states (more or less) if any one or more people that work less than 20 hours a week are allowed to defer than NO ONE can be subject to this exclusion (by reference to some 410b section). Therefore, ERISA covered plans could be interpreted to be ineligible for this exclusion across the board because any employee who meets ERISA eligibility is allowed to defer, even if they work less than 20 hours a week. Therefore, because there is a group of employees who ARE eligible to defer in spite of working less than 20 hours a week (i.e., someone who goes from full-time to part time), then EVERYONE in that group must be allowed to defer (i.e., anyone with < 20 hours per week). Because the plan DESIGN violates this requirement, it shouldn't matter whether or not a plan actually has anyone in this situation. For example, even if a 401k plan has never used profit sharing, it still cannot include a 5 year cliff vesting schedule. It cannot include a 2 year eligibility period on 401k for mailroom employees, even if the plan doesn't have anybody working in the mail room.

This ERISA/403b Reg conflict aside, I just got off of a very lengthy phone call with a "BIG" name industry person (often gives seminars, etc) who is adament that a) if you're document states that people with less than 20 hours a week are exlcuded, and b) you let one out of 30 such people into the Plan, the correction is that you refund the one person - you don't make a contribution for the others (assuming the one person did not meet ERISA eligiblity). He's siting EPCRS, inclusion of ineligible employees which addresses this issue and references 403b plans eligiblity for the correction methods indicated. I didn't see it with my own two eyes, but he is convinced the IRS is completely way off on this.

This is sort of a continuation of a previous thread, but a different question... OK, so ERISA Plans say that anyone who works 1,000 hours in 12 months must be eligible for the Plan, even if they subsequently drop below 20 hours. The question is (assumign the plan is using the 20 hours exclusion), will allowing this ERISA eligible employee (who now only works 10 hours a week) automatically violate the 1.403(b)-5(b)(4) "all or none" rule? Maybe THAT's why the TIAA document doesn't include the 20 hour a week exclusion?

Thanks! I seemed to recall that there was something that prohibited this beyond just the obvious PT rules. Thank you thank you thank you...

Client has no liquid assets and wants to make back 401k contributions in a non-cash asset that he has. We understand that this could give rise (or probably does give rise) to a PT, but I'm wondering if there is a broader prohibition on funding 401k with non-cash. In this case, it is a mortgage. We're trying to tell the client all of the reasons not to do this. It's a pooled acccount.

Without the 20 hour a week exclusion they are eligible for deferrals immediately because the only way to avoid immediate eligiblity for part-timers is the 20 hour a week exclusion. You can't have an eligiblity in a 403b that says "1,000 hours in 1st 12 months." At least not for deferrals.

The document I'm using is definitely an ERISA Plan, as is the TIAA CREF document I'm referrring to. But you seemed to suggest in an earlier statement that the 20 hour a week exlcusion should not be used in an ERISA Plan. Am I stating your thoughts correctly? I believe that it is still an effective way to limit participant counts. Are you suggesting that a plan with 125 active employees, including 30 people working 10 hours a week, should NOT use the 20 hour a week exclusion to remain below the audit threshhold?

The Corbel document that I am using does not ignore it. It says you can exclude people who normally work less than 20 hours; HOWEVER, if that person ever goes over 1,000 hours in a 12 month period, then they will always be eligible (and thereofre satisfies ERISA). Let's assume a client would never make a mistake - wouldn't you agree that this language reduces the participant count by 30 people in my example, as opposed to a plan that does not allow the 20 hour a week exclusion? But on an unrelated note, I think TIAA made a grave error not including this option, since many of their clients are operationally excluding them, not realizing that their document does not include this option. At least that's what I'm hearing from many different CPA auditors...

Example- ERISA Plan excludes people who normally work less than 20 hours a week: Johnny (and 30 people just like him) work 10 hours a week every week forever. These people are NOT eligible for the Plan because a) they fit into the 20 hour a week exclusion, and b) they have never worked 1,000 hours in a 12 month period. So I've avoided having to count 30 people in the audit, giving 30 people enrollment materials, giving 30 people the SAR, etc. Steve, on the other hand, worked 10 hours a week for years, and then was hired full-time. He therefore met the statutory eligiblity and is in the Plan forever now, even if he drops below. So out of the 31 part-timers, we are able to exclude 30 using the 20 hours per week exclusion. Not bad... Example - TIAA-CREF's Document Same facts and circumstances, and now all 31 people in the prior example are all participants in the Plan. I totally agree that the consequences of misapplying this could be disastrous, but there are very compelling reasons to use this exclusion (again, the $10,000 audit fee being the biggest). But I admit I am just beginnign to comprehened these complexities, so if there is something I am missing, please do tell me...

My understanding is that the exclusion is still available ot ERISA Plans, HOWEVER, if an employee every breaks the 1,000 hour threshhold (in either their first 12 months or any subsequent plan year), then they can NEVER be excluded. A Non-ERISA Plan, soemone who drops below 20 hours could subsequently be considered ineligible. But of course, if your client operates an organization with a lot of people working 10 hours a week who will never hit 1,000 hours, then the 20 hour a week exclusion can still be quite valuable. My reading of TIAA-CREF's document is that this is not an option. Does everyone agree with that? As for switching over to 401(k), I agree that is an option, and perhaps if I was advising on a new plan I would steer them towards 401k. But they already have a 403b, and starting a 401k is a good sized project. A very good sized project.

And why, pray tell, are there different restrictions depending on the funding vehicle? Anyone? This is a strange new world (403b's)indeed...

100% owner of a business sells 100% of the stock to a new owner in 2010. Who signs the calendar 2009 Form 5500? The form is being filed AFTER the sale and it was a stock deal so the new owner "bought the plan too." My position is that the new owner signs, because the new owner is the Plan Administrator. Why should some unrelated 3rd party be filing a 5500? But of course the owner's valid point is "how can I sign as plan administrator if I wasn't the owner for that period?" Of course, if the prior owner refuses to sign, the new owner has no choice but to sign. But if the prior owner is willing to sign, does anyone see a problem?

Corbel's adption agreement doens't let you elect hardship distribution for non-deferral balances under a 403b7 contract, but DOES allow it under 403b1. Can anyone shed some light on why that is?

To save $10,000 a year in audit fees, for one!

We also do the RMD before paying someone out. We try not to be ridiculous about it, for example, if the distribution is $1,200 we wouldn't bother... But the RMD is definitely required. If I'm not mistaken, even if they terminated in February 2010, and they don't turn 70 1/2 until June of that year, I'm pretty sure that they still need to take their RMD even if they close their account in March 2010.

Was your client required to make a corrective contriubtion? I'm trying to decipher if it is irrefutable that the sole means of correcting this type of failure (i.e., document excludes ee's woith <20 hours per week, while operationnally a couple are allowed to defer) is to make a contribution. I like the idea of imposing the documents provisions regarding correcting inclusion of ineligible employees. Any sites, etc. would be very helpful...

1.403(b)-5(b)(4) Found it.

Could you kindly provide a site for the most insane rule I ever heard in my life?

If it's not compensation, than you can't defer from it, and it is ineligible deferrals. I'm not sure of the basis for allowing someone to defer from no compensation. Now, if they guy was paid a bonus and later you discovered he embezzled from the company so you want the bonus back, then it's a different story. But if you "forgot" to take him off payroll, or something like that, then it is not compensation, and the company should be legally entitled to get the money back from the Plan and from the individual.

Has anyone else noticed that TIAA-CREF's document does not include the "20 hours per week" exclusion? Is there any scoop as to why it's not there, and whether or not there are thousands of sponsors who THINK that this group is excludable when in their plan document they are really not?

If the person has no compensation, they are not eligible for defrrals so the deferrals should be forfeited. IF this is determined to be a mistake of fact, which it sounds like it is, it could actually be refunded to the company. If this is corrected, the plan would not be at risk. You should have someone familiar with EPCRS (the IRS correction program) advise on dotting i's and crossing t's...

a) The refund WAS processed b) The HCE had "constructive receipt" and therefore owes the taxes for the year in which the check was received. So I think you are OK.

If there were exclusions from the Plan, I agree it could go over the 25%.

I agree with that statement, 25% is the limit.