FundeK

Sorry to beat a dead horse here...But I just found out the facts are a little different than first reported. The participant on disability was actually sending payments (personal check) to the company to be transmitted with their payroll files and deposited into the trust. Would you treat this the same as you would if the payments were payroll deducted. I would assume so, but I just wanted your expert opinions. Thanks

I can't see how you could do anything but forfeit the earnings and match. It definitely won't be sent to the participant. Can't send to the company (reversion of assets). Wouldn't call it a mistake of fact.... I thought I read somewhere or attended a seminar were they discussed a correction method where you could amend retroactively to include only the affected participant by actually stating the participant's name in the amendment. Has anyone heard of this?

Thanks, the responses helped greatly. Do you know where I could find this in the regs? What will you do when a loan is issued, no payroll is withheld for 6 months. You find out the participant cashed the check, but never mentioned to payroll that withholding didn't start. Will you deem in that instance since there weren't any payroll deductions started?

Participant went out on disability 2 years ago. ER has been withholding loan payments but never sent them to the recordkeeper. Just discovered this. Would you deem the loan and have the ER return the loan payments to the participant? Would you apply the loan payments and then deem the loan? I know the regs are very clear on the fact that a loan needs to be deemed or offset after the cure period has expired. How are you handling administrative errors such as this?

It's actually a doula.

Here are my opinions.... 1. I am also very hesitant to use a "mistake of fact" as a reason for distribution. If the employer's payroll calculated the match incorrectly, then yes, I would say it is a mistake of fact. If the payroll assumed the match formula was "A", but it was really "B", then no, that is not a mistake of fact; the PLR you mentioned specifically says assumptions are not mistake of facts. I would always err on the side of caution and forfeit the money. Convincing the ER to do this is always a challenge. 2. I would not have the plan distribute to the participant. A 1099 should not be issued in this case. This money needs to run through payroll and be taxed appropriately. Here is a link to a previous discussion about an ineligible employee deferring. http://benefitslink.com/boards/index.php?showtopic=22511

Why not have the employer make one final ER contribution that is the exact same amount as the forfeitures and use the forfeitures to reduce ER funding? At my previous employer, we also reviewed (at ERs direction) all accounts that we paid out in the past 6 months to a year and often credited back the forfeitures to the people who forfeited during that time frame. This often used up the majority of the forfeitures.

Can someone please clarify for me?.... This is a general question, I do not have a plan in mind when asking the questions. Say we have a DC plan subject to QJSA/QPSA requirements. Would a participant only need to sign the waiver if he is choosing to name someone other than his spouse as the beneficiary, at which point the spouse would have to consent? Why would he sign the waiver if his spouse is the beneficiary? Thanks! Editing to clarify question.

One more item to mention. If the participant's compensation was $10,000 he could not defer more than the $10,000. He can not defer more than his compensation. Example, Participant defers $7,000, matched $3,000. He hit his 415 limit so he could defer an additional $3,000 to be classified as catch-up. Example, Participant defers $10,000, no company contribution. He can not defer any additional funds to be classified as catch-up because he would exceed his compensation.

I would have to agree with you. The participant has exceeded the 402(g) limit so $3,000 of the deferrals would be classified as catch-up contribution. Participant's 415 limit is 100% of compensation ($18,000) so he could receive the $13,000 deferral + $540 shnec + $4,460 PS contribution = $18,000. Same logic would apply if the participant deferred $12,000 was matched $6,000. He would hit the 415 limit first. He could then defer an additional $3,000 to be classified as catch-up contribution.

Please bear with me.... So, in the situation I currently have, the participant passed away. Participant's daughter would like to maintain tax deferred status. She is asking whether she can transfer the account balance into her retirement plan account. I am really confused because the voluntary transfer language is only mentioned in connection with the elimination of an optional form of benefit. Does the plan need to be amending to eliminate an optional form of benefit for the participant or beneficiary to have the ability to transfer the funds to another retirement plan, or can they do it at any time there is a distributable event that is not eligible for rollover? Thanks for your assistance!!

Treas. Reg 1.72-16(b)(2) states I interpret this to mean that as long as the money used to purchase the premiums is tax deferred, you must send a 1099 for those costs. For estate tax planning purposes, he may not want to maintain the policy in the plan, but I am not an estate planner so I will stop now.

Forgive my stupidity, but what kind of DC plan does not have a segregated account for all participants?

What does the plan document say? Does the plan document state that life insurance can only be held by active participants? Does is state that upon termination the participant must remove the policy from the plan?

Yes, they do. That means they need to allow beneficiaries the opportunity to direct investments, correct? Will they lose 404© benefits if they don't allow the investment direction?

Thank you! Is there somewhere I could access the Conference Committee Report online?

Can any of you share your procedures pertaining to beneficiaries? I realize it should all be covered in the plan document, but I am wondering what the majority of plans allow. Do you leave the funds under the participant's SS# or do you move the funds to a new account under the beneficiary's SS#? Do you allow beneficiaries to direct investments? If so, do you require direction from the plan sponsor to allow this? Any thoughts are appreciated.

Can anyone comment on the following excerpt from Sal's ERISA Outline book? Chapter 7: Taxation Rules - Section XIV (Death benefits): Part D (Rollover by surviving spouse) If I am reading this correctly, a non-spousal beneficiary could potentially (if allowed in plan documents, and all other requirements are met) transfer their inherited benefit to their own qualified plan and avoid tax consequences. It doesn't seem right to me. I attended NUMEROUS EGTRRA recap sessions, and I don't remember this coming up once. I would think it would have been big news. I obviously need some help understanding this one!

If the plan amended their document to state that HCEs are able to defer up to 17.5% of their compensation, the deferrals above 17.5% would be treated as catch up contributions. Deferrals are treated as catch up contributions when they have either exceeded a plan imposed limit or a statutory limit. The document must allow a way for the catch-up eligible participant to make the contribution. I would the plan imposed limit up to the catch-up limit in any given year would be sufficient. _________Compensation_______Deferrals__________________Catch-Up HCE1____$200,000____________$13,000 (Hits 402(g) first)___$3,000 HCE2____$100,000____________$13,000 (Hits 402(g) first)___$3,000 HCE3____$40,000_____________$7,000 (Plan imposed)_____$3,000 HCE4 ____$10,000_____________$1,750 (Plan imposed)_____$3,000 Does this make sense?

Why would you increase from 25% to 40%?

See the ERISA Outline book, Chapter 11, Section XI, B which states Just throwing Sal's perspective in the mix.

Okay, you are winning me over. IF the plan sponsor writes a check to themselves (cash advance on the credit card), deposits it into their company checking account(thus commingling funds), and then pays for the employer contribution with a company check, there would be no PT. You wouldn't be able tell if the cash advance was used to fund the contribution or pay the sewer bill. Would you feel differently if the plan sponsor wrote the cash advance check directly to the plan?

See Treas. Reg 1.414(v)-1(b)(1)(ii) which states In order to be taken into account for catch-up contributions, a plan-imposed limit must be prescribed by the plan document, which in your case I don't believe it is. (without reading the exact wording in the document) Either way, your question asks if $7,000 would be included in the test, or $10,000. This has me a little confused as $10,000 is 25% of the participant's salary. Even if the plan was expressly written to limit a participant's deferrals to 25% of pay, the entire $10,000 would be included in the test. Anything above $10,000, up to the catch-up limit, would be classified as catch-up contributions and excluded from the test. I would say no. Administrative limits on deferrals are not plan imposed limits. In this case, no deferrals would be classified as catch-up contributions until a statutory limit has been met. Is the plan failing the test? If so, do they allow the corrective distribution to be classified as catch-up?

Isn't there something that prohibits the plan sponsor from receving kickbacks? (points, miles)? The plan is supposed to be operated for the benefit of the participants. How do the participants benefit from the miles or points?

What should be done with the funds once you forfeit the participant? What if the document states that forfeitures are to be used to reduce future employer contributions? Or reallocate? If this is the last participant and the plan states to reallocate, would you reallocate pennies to all of the participants and then pay them all out again? Hopefully in this case forfeitures are used to pay expenses. If not, can you amend to charge the final recordkeeping fees to the plan (i.e., the remaining participant)? How much are we talking about anyway?