FundeK

No one chose to answer this 3 years ago....hoping to have better luck now!! If a plan is subject to QJSA requirements, the distribution can not occur until at least 7 days after the notice requirements are given to employee/spouse (right?). Let's say the participant prints the distribution form off of the web today, Dec 3rd. Are we not able to process the lump sum distribution (spouse and participant sign form waiving 30 day notice period), until Dec 11th? If the form is printed off of the web, it could be mailed and received by the recordkeeper within a couple of days. Are you holding the forms until after the 7th day? Am I making sense? Thanks!

Is this a Profit Sharing/401(k) plan? If not, removing the deferrals from a 401(k) (that allows only deferrals and match) would be considered freezing or terminating the plan. Wouldn't it?

Does the loan policy state that the loan may never exceed 50% of the participant's account balance, or does it state that at the time the loan is issued, no more than 50% of the account balance can be used as security for the loan? In my experience, we have issued a loan to a participant for 50% of his vested account balance, and then the participant has taken out a hardship for the remaing amount available. At this point, the outstanding loan balance exceeds 50% of the vested account balance, but when the loan was originated, it did not. Also, due to market fluctuations, you could have a participant with an outstanding loan that is more than 50% of the vested account balance. I think you are fine and it probably does not violate the loan policy (Just my guess without reading the actual policy)

I thought the Joint Life table could only be used if the beneficiary was a spouse who is at least 10 years younger than the participant. This is a recap in the ERISA Outline book, Chapter 6, Section VII, Part D.3 Recap: Use the distribution period factor under the Uniform Lifetime Table in all of the following situations: (1) Designated beneficiary is a spouse who is older than the participant (2) Designated beneficiary is a spouse who is 10 or fewer years younger than the participant (3) Spouse is not the sole beneficiary, regardless of spouse™s age (4) Designated beneficiary is not the spouse (5) Participant has no designated beneficiary Use the joint life expectancy factor only if: Sole beneficiary is the participant™s spouse and the spouse is more than 10 years younger than the participant

Okay, I found the answer to my original question but now I have an additional question. Can someone please provide clarification on Treas Reg 1.402©-2 Q&A5? Q- 5. For purposes of determining whether a distribution is an eligible rollover distribution, how is it determined whether a series of payments is a series of substantially equal periodic payments over a period specified in section 402©(4)(A)? © Changes in the amount of payments or the distributee. If the amount (or, if applicable, the method of calculating the amount) of the payments changes so that subsequent payments are not substantially equal to prior payments, a new determination must be made as to whether the remaining payments are a series of substantially equal periodic payments over a period specified in Q&A-3(b)(1) of this section. This determination is made without taking into account payments made or the years of payment that elapsed prior to the change. However, a new determination is not made merely because, upon the death of the employee, the spouse or former spouse of the employee becomes the distributee. Thus, once distributions commence over a period that is at least as long as either the first annuitant's life or 10 years (e.g., as provided by a life annuity with a five-year or ten-year-certain guarantee), then substantially equal payments to the survivor are not eligible rollover distributions even though the payment period remaining after the death of the employee is or may be less than the period described in section 402©(4)(A). For example, substantially equal periodic payments made under a life annuity with a five-year term certain would not be an eligible rollover distribution even when paid after the death of the employee with three years remaining under the term certain. Does the bolded section imply that a spousal beneficiary can take intallment payments for any term (even less than 10 years), and the payments will be considered "ineligible for rollover", or does this mean that as long as the payments have started, the remaining payments (even if remaining payments are less than 10 years) will be considered "ineligible for rollover"?

70 1/2 distributions are not eligible for rollover so they are not subject to the mandatory 20% withholding. They are subject to 10% withholding unless the participant elects something different. Periodic payments (substantially equal) are not eligible for rollover either.

To meet the "available ona reasonably equivalent basis" requirements , the plan can institute a minimum loan amount up to $1,000. See DOL Reg. 2550.408b-1(b)(2). (copied and pasted below) A participant loan program will not fail the requirement of paragraph (b)(1) of this section or §2550.408b-1© if the program establishes a minimum loan amount of up to $1,000, provided that the loans granted meet the requirements of §2550.408b-1(f) .

Participant (age 65) would like to change installment amount from $300 to $600 monthly. current balance is $14,000. Can the payments be considered installment payments (0% tax withheld) after the change in $ amount, or are they now taxable as "eligble for rollover" (20% mandatory withholding). I think I found in my reading that the new payment amount must qualify as an installment (life of participant or 10 years) ignoring all previous payments. In this case, the payments would not extend 10 years, and the participant is only age 65. Or, is there something I am missing because the participant is over the age of 59 1/2? Thanks!!

Is this the J Hilliard from that big glass building off of I-480?

I agree. It should definitely be set up as bi-weekly. Especially if the loan policy states that payments are to be made via payroll deduction. Also, if the recordkeeping system was set up as monthly(24 pmts), and payroll is deducted bi-weekly(26 pmts), you are going to have some months that they submit 3 payments, which won't match the amortization schedule and throw the loan off (paid off early). This causes a number of problems if you don't allow partial payments.

If the distribution is less than $200, I would pay it out without withholding and the participant can choose to rollover the funds if he so chooses. The problem I see with processing a residual to a rollover company is that you do not have a guarantee that the participant still has a rollover account at that company. It was our company (last employer) policy to always get a new distribution form when the election was a rollover if the form was more than 90 days old, but we allowed a longer time frame if the participant chose a direct payment (assuming they would not move addresses)

No, you can not use the $1,000 for 2002. The ERISA Outline book,states, "The portion of the elective deferrals treated by the plan as catch-up contributions are subject to the catch-up limit for the calendar year in which the plan year year ends and affect the remaining catch-up limit for that year. So, $2000 would be classified as catch-up for 2003, and you must return the remainder. I have an excellent example from the ERISA Outline book, but it is from a Sal seminar, so I am not sure where it is in the Outline book. If you would like a copy, please let me know. (it is under the "ADP testing under plan that includes catch up contribution features" section.)

Not sure if this will help, but at my previous company, we would not distribute any funds until we had an authorized signer and all amendments had been completed. We had a couple of plans that were in the process of terminating for years, but did not have a plan sponsor. It was terrible because the participant's balances were getting eaten up by recordkeeping fees, and they weren't able to make any future contributions. It doesn't seem fair to the participants to hold the assets in the plan pending the DOL assigning a fiduciary. I guess the recordkeeper could waive all fees, but that isn't really fair either, but then again, when is life really fair!

I have seen plans written to allow in-service distributions of after tax dollars only. Would he then be able to roll over only the after tax $? (If it is not a hardship distrbution of course)

Forgive my ingorance, but how does a loan from a qualified plan get issued to a company? I am just thinking from a recordkeeper's point of view and we would only issue a loan to a specific individual. Would a check be issued payable to the company? Also, how long could the loan be outstanding before the plan is disqualified? (I know we are supposed to answer the post, not post additional questions, but this one is very interesting to me).

Does anyone out there do refinancings? If so, do you allow the participant to do a refinance when the loan policy states only one loan outstanding at a time?

I found this in Sal's 2002 edition too. Chapter 7, Section IX (9) "If an employee goes on a leave of absence, will the loan payment obligation be suspended? The §72(p)regulations establish some conditions for loan suspensions due to leaves of absence, in order to avoid tax consequences under §72(p). See Part C.5. and Part C.6. of this section. The plan™s loan program must set the parameters for loan suspensions. In addition, the plan might provide for less flexibility with respect to loan suspensions that the §72(p) regulations permit." He is of the opinion that it must be in the loan program. Of course, there is no cite for his opinion. You probably already saw this too, but I thought I would throw it out there anyway.

According to Sal's book, "extensions for leave of absences are not available unless included in the plan provision (or written policy). However, when I read Reg 1.72(p)-1, it leads me to believe that it does not necessarily need to be in the loan policy, but is always applied. Q- 9. Does the level amortization requirement of section 72(p)(2)© apply when a participant is on a leave of absence without pay? A- 9. (a) Leave of absence. The level amortization requirement of section 72(p)(2)© does not apply for a period, not longer than one year (or such longer period as may apply under section 414(u) and paragraph (b) of this Q&A-9), that a participant is on a bona fide leave of absence, either without pay from the employer or at a rate of pay (after applicable employment tax withholdings) that is less than the amount of the installment payments required under the terms of the loan. However, the loan (including interest that accrues during the leave of absence) must be repaid by the latest permissible term of the loan and the amount of the installments due after the leave ends must not be less than the amount required under the terms of the original loan. This probably hasn't helped much at all (sorry). Our standard loan policy does include leave of absence language that is very specific.

If a loan policy states "only one loan per participant may be outstanding at a time", can the plan allow the participant to do a refinance to increase $ and extend the loan beyond the 5 year maximum term? (assuming the participant's balance is adequate to cover the new loan). Under the new regs, if a participant is refinancing to extend the terms of the loan beyond the original 5 years, both the replaced loan and the replacement loan must be considered outstanding at the time the new loan is issued. Since they are both considered outstanding at the same time, does this violate the terms of the policy, which states only outstanding loan is allowed per participant? The policy does allow for refinancing. The policy probably should be written to say that multiple loans are allowed for a limited time due to refinancing, but at this point it does not state that.

IF the employer does an extensive plan/price comparison and finds that this bank truly does offer the best deal for the plan, how could it be a prohibited transaction? They would be choosing the provider because it is in the best interest of the plan/participants. Of course, they would need detailed documentation showing what they were looking for and what they found at each provider they looked at, as well as why they chose this provider. An additional hypothetical question.....Let's say you have a corporate banking relationship with Bank ABC, you transfer your PS plan to Bank ABC and get a discount due to having multiple relationships with the bank. That isn't a prohibited transaction is it?

I am having a little trouble with this issue because I am being told that you can not return funds once they have been deposited in the trust because it would be a reversion of assets (which I am not sure I agree with). I am being told that unless it qualifies as a mistake of fact (which isn't all that clear what qualifies) then the money has to remain in the trust. My other question is, would you allow them to deposit the money into the forfeiture account if forfeitures are used to reduce funding of future contributions? What if forfeitures are reallocated to participants?

Can anyone please let me know what you do when an employer wires too much money and it is deposited into the trust account. For example, the payroll file is for $200,000 but the empoyer accidently has $220,000 wired to the trust. Do you force the employer to short their next wire because you can not take money out of the trust account once it is in there, or would you send the money back to the employer? Anything you could cite would be greatly appreciated!

I know you posted for answers, but I have a couple of questions (hope you don't mind) How long can you leave a person on disability before considering them terminated and giving the a termination date. Also, when a participant goes on long term disability aren't they considered terminated? I guess in my experience, after one year, the ER would put the person on long term disability and give us an official termination date. The termination would be a distributable event at which point the loan would be offset against the participants account. I did read through the some final loan regs and found nothing about a loan repayments being suspended beyond one year in any circumstance other than military leave; therefore, I would deem the loan if the participant does not have another distributable event.

You have probably read Treas. Reg 1.72(p)-1, Q&A-9, but I thought I throw it out there anyway. It specifically states the loan repayments can be suspended for one year if not on military leave. It never mentions anything about disability allowing the loan payments to be suspended for greater than one year. What exactly are you taking away from the participant by defaulting the loan? The right to repay the loan?

Sounds to me like the prohibited transaction has already occurred (the employer paying the benefits from their own account is the loan from the employer to the plan). Distributing the funds from the 401(k) would correct the prohibited transaction right?