TBob

Even if the plan allowed for post tax contributions, would it allow them for a terminated employee/participant...I doubt it.

I agree with MGB here. I think a close reading of the deferral agreement/form signed by the participant might help as well. The form could read..."deduct $$.$$ from my pay each month" in which case, not deducting from the bonus should be fine since the ER would probably have satisfied the $$.$$ from the regular paychecks that month. If, on the other hand, the form read..."deduct $$.$$ from each paycheck" then I don't see how the employer can not deduct from the bonus checks absent something elso on the form that says exempts the bonus payments. Of course, the plans definition of comp comes into play here as well as jhilliard pointed out.

Assuming the participant doesn't want to hand over a huge sum of money to the IRS for an RMD penalty, it should be pretty easy to go back and get consent to CYA.

I don't know what type of RK platform you are on but I am curious to know how you will implement this in your RK systems? Every system that I worked with in the past will roll the trading up to at least the plan level. Most fund companies have no idea what participants are in the fund and what their balances are. If you are on a system like this, will your system be able to restrict the future activity to just those that have a current balance? If a fund forced us to comply with this type of close, we would recommend to the trustee to remove the fund altogether and replace it.

I guess I didn't read that far into your post. The comments that we received on this in the past did deal with plans with more than one participant however, the LP's were held in the segregated, self-directed account of the sole owner. That may not make a difference for your situation.

We have been told by auditors in the past that they can not be valued at cost. In cases where the general partner could not provide a FMV we engaged an independant firm experienced with valuations of LP's for ERISA plan purposes. This firm would gather the information they needed from the LP and would send us a report telling us what to value it at. This has to be done each year. The cost of the service was not prohibitive and was charged back to the plan/participant. This is simply one of the costs of investing in the LP. In cases where the LP (general partner) would not provide enough information to the valuation firm, as I recall, they recommended reducing the value by a very significant amount. It is amazing how quickly information starts flowing when one of the owners in the LP see the value of their investment cut in half!

...assuming the plan does not exclude anyone. The plan could be written to exclude certain employees (ie. Division X, custodial staff, etc.). Coverage could still be an issue depending on plan provisions that we are not privy to.

As Blinky said, the full range of testing is complex and probably more than we want to try to cover in this one post. Can you be more specific about the plan design and the tests you are concerned about? Your original post does not give much information about the plan design which makes it more difficult to answer the question. A "design based safe harbor" could mean a lot of different things in this business depending on the context of the discussion. A few tests and/or limits that you may need to worry about are coverage, 402(g) deferral limit, 415 annual additions limit, deductability, BRF, and general non-descrimination for your non-elective contributions. A good plan design could eliminate most of the potential for failing some of these tests but that does not mean that you can skip them altogether.

I do not read this as saying the plan has a last day provision for receiving the profit sharing allocation. That is not to say that the plan does not have a last day provision. You still need to look in the SPD for something that says "you must be employed on the last day of the plan year to receive..."

I think the cite you are looking for is in the last paragraph of Reg 1.401(k)-1(d)(2)(iii)(B) The IRS uses an example regarding a residence loan. The financial need can not reasonably be satisfied if obtaining a plan loan would disqualify the employee from obtaining other necessary financing. For another example, if a participant is being evicted or forclosed upon because they can't make their payments, I think it makes sense that if they add payments for a plan loan to their already ugly financial load and further reduce their take home pay, it will probably make their hardship situation worse.

I would agree that 20% withholding applies to the portion of the distribution that is taxable (in this case the loan) since it is an eligible rollover distribution but how can you get blood from an turnip? When a participant elects a rollover of his account less the outstanding loan, he is asking for the cash portion to be rolled over and accepting that the loan will be taxable. If you process his rollover, there will be no cash left in the account to withhold. The 1099R for the loan will show X.XX as taxable with no withholding. We have always processed this way. This may not be the best approach but I have not seen a cite that tells me that the loan has to be taxed first and therefore the withholding preempts the rollover that he has requested.

I agree that you probably should not have the sponsor put money back into the plan if the participant refuses to, IF the participants benefits are accounted for separately. This would result in a windfall to the participant who is in this case an HCE. If this was a pooled account situation where all of the participants benefits would be affected, then I think you need to look at making the plan whole.

If the distribution that you are referring to is a hardship distribution, then it is not eligible for rollover.

Is this person receiving other benefits that a regular employee receives? For example...Health Insurance, Life Insurance, Disability Insurance, etc.?

How do you fix in the subsequent paycheck? Do you withhold double the next week? I thought that approach was generally frowned upon.

What about putting everyone (NHCE's and HCE's) in their own class? It sounds like this has the same effect as separating by name but I have heard that the IRS has approved some plan doc's doing it this way.

You are correct that it is not a "safe harbor". I used that term too loosely! I does somewhat have the appearance of a SH since going into the allocation the EBAR's should all be the same but that does not mean that I don't have to test the plan under a(4). I guess that answers my question too. The SHNEC is going to cause the EBAR's to be different and in my case the plan will fail. The plan was designed as age weighted because of the young HCE. Then the SH 3% was added as well and his EBAR will now be significantly higher than the only NHCE. If they switch to the SH match, that would fix the problem going forward correct?

I have read a few prior posts on this and want to confirm my understanding. Plan has 2 HCE's. One is very old (owner) and the other is very young (son) and one NHCE in the middle from an age standpoint. As I understand it, the SHNEC causes two problems with an age weighted plan. First, the EBAR will no longer be the same for all participants so they don't get the automatic pass on cross testing that a normal Age Weighted P/S would get, which forces me to perform the cross testing. Second, the plan will no longer meet the broadly available allocation rates so I will have to make sure they all get the gateway minimum. Is this correct? With all of that said, I still allocate the P/S contribution based on Comp * Actuarial Factor (disregarding the 3% SHNEC). Correct? Is this why they say that two safe harbors don't make a safe harbor?

Prior Thread

I stand corrected. I have never been involved in a situation where the plan actually has employees so I didn't think of that. I have always been on the TPA side of the fence and the finger usually gets pointed in that direction first! That doesn't change the point of my previous post. I would not recommend the plan try to help the participant with the tax hardship by "advancing" plan assets.

Whose mistake created the overpayment? Your post makes it sound like the plan made the mistake. I have tried to blame mistakes on "the plan" before but I have a hard time proving that the plan took an active role in the making of the mistake. Usually there is a TPA, Plan Sponsor, Custodian, Fiduciary, etc. behind the scenes that actually made the mistake. I would suggest that if someone (preferrably the party that made the mistake) is going to help out the poor participant with their financial hardship because of the tax liability, that it be done outside of the plan. It would seem that the risk of creating a PT or Fiduciary Breach by trying to help the participant with an advance of plan assets would definitely outweigh the benefits. Given the meager sum involved, I would think that it should be somewhat painless to put together an arrangement outside of the plan where the participant would repay the advance once the tax matter is settled. I agree that it would be a good story and the IRS/DOL will get a lot of enjoyment out of it!

PATA - In the daily-val world (which is usually on a cash basis) it is standard practice to not include deferrals or any other type of contribution that came in after the end of the period on the statements for that period. As far as testing is concerned, you do include the deferrals attributable the plan year in testing even if the $$ actually was deposited after the end of the period. Most Daily-val systems have some method of indicating that the deposit is attributable to the prior period.

I am not sure that I agree that the participant can't have the receivable. I do agree that when a participant terminates and therefore has a distributable event, that a valid election must be made before he is rehired or the event no longer exists. However, if the participant made a valid election, while terminated, and is then rehired, the election stands and he should get the distribution. In MMC's original post, he said that the participant received a distribution except for the receivable. I assume (maybe to my detriment) that he made an election for the distribution. I also assume that he elected to receive 100% of his benefit. The election should apply to the receivable as well should it not?

Our prototype document says that " A Loan Policy the Plan Administrator adopts under this Section XX.XX is part of the Plan...". I have always understood this to be a part of the plan document.

Thanks! ...but then again, what don't you know?