TBob

I disagree or did not understand your choice of words. As soon as the participants contributions hit any limit, deferrals can be classified as catch-ups. Those limits include 402(g), 415, or can be limited by the outcome of the ADP test. As an example...in 2005 a participant can defer $4000, receive a $42000 profit sharing contribution and classify the entire deferral as catchup. or am I missing something? I am not sure where the banannas came from but they don't taste very good with catchup.

Just wanted to get a few opinions on this. I have searched a lot of old posts that discuss settlor expenses. Many talk about the cost of doing a search for a new vendor. There were varying opinions on that one. I am wondering if the fees for conversion to a new TPA would be considered settlor expenses. The EO Book (2004) Chapter 3 Appendix B has a discussion regarding the hypothetical situations that the DOL has addressed. It seems to me that their response to situation # 6 regarding a decision to outsource administration is very similar. The opinion was that they were not settlor expenses and could be plan deducted. Does anyone have a differing opinion?

We have taken over administration of a 401(k) plan that allows for participant loans. The prior TPA told the plan sponsor, and a participant with an oustanding loan, that payments should come out of the participant paycheck on a Pre-tax basis. The plan sponsor had taken a number of payments out of the ee's paycheck on a pre-tax basis. Oops! I am having a hard time convincing the participant that the payments should be after tax. I can't find a cite in the code/regs that specifically says "repayments should be made on a post-tax basis". I read through the loan regs and, although they talk about creating basis when you are repaying a loan after it has been deemed, the participant doesn't understand. He needs something clear and preferably official. My latest response to him was "Have the prior TPA give you a cite that allows for loan repayments to be made pre-tax". I would like to provide something more concrete. Does anyone know how to win this argument before the participant, and possibly the plan sponsor, spend money on an attorney (not that I have anything against attorneys!) ? Any cites or articles???

The calculator mentioned above seems to work fairly easily but almost seems too easy. Has anyone used it in an actual correction of a late deferral? We generally calculate actual lost earnings based on fund performance and compare to the earnings using the federal rates. We give the participant the best of the two. Do we not need to do this? Also, the calculator figures the lost earnings well enough but it does not tell you how to allocate it back to the plan. I assume that you would allocate prorata to the participants whose deferrals were late? Just not warm and fuzzy yet.

I have searched prior threads about accepting rollovers for terminated employees. In most cases, they are not accepted by the current plan because the person rolling the money over is no longer an employee. Most plans limit rollovers into the plan to "employees". What do you do when the employee request the rollover from his prior employers plan and then terminates from his current employment while the money is in transit? Does the fact that the rollover was initiated while he was still an employee have any bearing on the issue? To accept or not accept, that is the question?

Beautiful!!! Thank you Harwood!

I am somewhat familiar with insurance policies within a retirement plan. I don't like insurance in retirement plans but it is something I am forced to deal with. PS58 costs for the year are reported on a 1099. A question came up today regarding a participant who is receiving Minimum Required Distributions each year and also has a policy in the plan. The question is...Does the PS 58 Cost satisfy all or a portion of the MRD requirement for the year? I want to say "no" but I don't have any backup for that conclusion and I am not sure where to start looking. Any help from all you insurance and tax guru's would be much appreciated.

I would think that you would need the official notice from the bankruptcy court before you would proceed to stop collection efforts including the payroll deductions. I am no attorney but I would wait for the bankruptcy court and not act on the letter from the attorney.

One Class Per Participant

Duh....missed the plan year dates!

Aside from the last day requirement issue, I think that the key is that there was no compensation earned in 2004. Even if the contribution is required for '04 the contribution would be 0 anyway.

With regard to the first part of your question, I agree that the 10% doesn't apply. Since the distribution within the first 2 1/2 months is taxable in the prior year, you can't withold in the current year for the prior year.

I would say stay late in QDRO land, TIVO the debate, skip 3 and 4 and become a Football fan! Signed: A disgruntled Cubs & Packers fan!

Paper Trail????? Is that when you have toilet paper stuck to your shoe when you leave the restroom? I agree with FundeK, allocate and then re-forfeit if the participant is 0% vested. Much cleaner. I have seen it done the other way but you need to document pretty clearly to avoid problems and prepare for the auditor. Just easier to go through the motions of allocating it.

To clarify my previous post on the subject... SoCal...Cross testing is not a new concept to me although I do not consider myself an expert nor am I an actuary or a lawyer. I have worked with many cross tested plans over the past few years and feel that I have a good grasp of the basics and a fair understanding of the more complex issues, yet I learn more every day from you experts! (not being sarcastic!) I am also not making value judgements regarding plan design or the amount of the allocation going to the big dogs in the company. My job is not to write the laws that protect the NHCE but to provide the best allocation per my clients wishes that stays within the boundaries of those laws. If my cleint's goal is to maximize the HCE's while minimizing the NHCEs, then I gladly calculate the best way to do that within the boundaries of 401(a)(4). Anyway...off the soap box... Regarding Age Discrim...I sat in a teleconference with a lawyer whose firm had claimed to have pioneered the idea that you could put every participant into their own class for cross testing. He suggested that a plan sponsor that uses this design should take care to document very thoroughly the criteria they used to determine the allocation to each NHCE. Since a greater allocation to younger, lower paid NHCE's will raise their EBAR more than the same contribution to older higher paid ones, he felt that giving the younger NHCE's more just to pass the test could become age discrimination. Again, I'm not an attorney, just passing along what I've heard in the past.

While I have not worked on any plans that are using this method, I have heard that there is a high potential for age discrimination with this design. It seems like a no-brainer to give the youngest participant(s) a higher contribution in order to pass. This would seem like age discrimination absent some carefully documented reasoning why they received a higher allocation than others. My 2 cents worth...

I think you are looking for Rev. Proc. rather than Rev. Ruling. 2003-44

Are you possibly getting confused with requirements to transfer withholding via EFT?

Does anyone have experience with amending a 5500 multiple times? Our concern is that this will cause a red flag for an audit for this plan. There were several errors that were made by the prior recordkeeper that we have discovered. The 5500 has already been amended once. Does this kind of situation ever cause an audit? We are confident that if there was an audit, there would be no problems however we don't want to cause problems for this sponsor.

I have found that the 3% SHNEC and age weighted plans don't go well together. Consider the advantages of an age weighted plan. First, since you are allocating based on age adjusted compensation, the EBARs should all be the same which means you should pass a(4) testing. The Second advantage is broadly available allocation rates which means that you don't have to worry about the gateway minimum contribution. You have already satisfied the gateway requirement by having broadly avail alloc rates. Now, throw another non-elective contribution (SHNEC) into the mix. Because you are giving everyone 3% on top of the Age Weighted allocation, the EBARs are no longer the same for every person. Depending on your demographics, you may fail the general test. You also probably loose the broadly available allocation rates and are back to meeting the minimum gateway contribution. The SHNEC defeats the advantages of the age weighted plan. It may still work out ok for you depending on your specific situation but I usually recommend the SH match with age weighted plans.

I think the pooled accounts that you are referring to that are not subject to the notice requirements are plan accounts that don't allow for participant direction of the investments. Generally, an investment manager invests the entire plan as one pool and the participants have no say in the investment process. In my experience, these types of plans are more often than not operated in a "Balance Forward" environment. Since the participants do not have the ability to direct these types of accounts, they won't be missing this ability anyway so why give them a notice. You mentioned above that the participants could direct their investments to the fund of their choice in the pooled account. It sounds like you will be taking away this ability during the blackout period and they need to receive a notice because of this. Remember that the notice is also required when the participants are restricted from their abilities (as Brian mentioned) to access their accounts for other reasons like distributions, loans, etc.

I understand that Schwab RT has enhanced their system to be able to track the STRF at the participant level. I still have some questions about how the flow of $$ will work with the fund companies but I need to do some more reading. Sounds like they may be a little ahead of the game. I have a question for the Conversion Guru's out there and for those of you who are selling your TPA/RK services. It is standard practice in our shop when a plan is converting in to our system to map their funds to like investments until we receive the participant breakdown from the prior TPA. This has been considered preferable to putting the entire plan in a MM fund and exposing the plan to market risk while the prior TPA takes their time sending the final ppt accounting. Once we receive the participant breakdown (which can take a couple days to several weeks) we set up the participants account balances, allocate any earnings from the conversion period and then realign the participants accounts to their new investment elections. This is all communicated to the participants and they sign new election forms indicating their elections and the fact that they want their entire account balance realigned after the conversion. This is where the STRF comes into play. When we realign the entire plan after the conversion, we are selling out some big positions that were only held for a couple of days/weeks and are getting hit with some big fees. What are others doing at conversion time to avoid this if at all? Are your conversion processes different? Sorry if I was too verbose but I wanted to be specific. Any advice appreciated. Anxiously awaiting some kind of legislation or guidance...

WDIK... You assumed correctly. I hadn't intended to derail the original discussion about the distribution fees but 20% W/H and MRD's don't often collide in the same sentence. FWIW, count me in with Blinky, Maverick, Pax (et al). I do understand that constructive receipt is more about control or use than physical possesion, but I don't buy the argument the participant is in constructive receipt of the fee amount. Accepting the consequences of taking a distribution (the fee) does not equate to constructive receipt. In our little corner of the world, our participants are not given the option to choose to have a fee taken from their account as a result of their distribution.

Would it matter if she got half of the company in the divorce? She would still be an owner.

Since when are RMD's subject to 20% withholding? (a little off the subject but I couldn't resist!)