TBob

A client had the old MPP and P/S combination. When they came to us in 2003 we froze the MPP contribution and merged the MPP into the PS Plan. We intended to do the final 5500 for the MPP for 2003 since all of the assets of the MPP were transferred to the PS in 2003. Now, in 2004, the prior TPA/Custodian sent is a small check for some trailing earnings attributable to the MPP plan. I assume that they received this shortly after the plans left their service but did not forward the money as timely as they should have. Can I still do the final 5500 for 2003 and just apply these additional earnings to the PS plan? Or should I hold the MPP open until the final earnings were deposited and show the final being 2004?

It seems to me, based on the information you provided that you do not have a pending DRO. Absent some additional information to the contrary, you have a divorced participant that is entitled to a distribution and no spousal consent is required. I am not an attorney but the only thing that I might questions is...Is a Divorce Decree from Africa valid in the US. I don't know if you have a duty to question it but I would be curious. My 2 cents worth...

It's been some time since I looked at this but I seem to recall that there was something in the instructions that said you didn't have to file at all for a 1 person plan with less than $100,000. There may have been other requirements as well. I am not sure if this still exists but if it does, it would be in the instructions. How much is in the plan?

I agree with Harwood. The individual at the EBSA gave you a very narrow answer to your question and really didn't answer the appropriate question. If you were to call back with the same question, you may just get a different answer each time you call...but enough EBSA bashing! Your client gave these employees the opportunity to participate and they elected to do so, however, the client then failed to act on that election. I would liken this situation to excluding an eligible employee from participating. The employer is going to need to give these employees a QNEC to make up for their missed contributions. See Rev. Proc. 2003-44 Appendix A, Item 05.... This spells out the correction method for exclusion of an eligible employee. Hope this helps!

I don't see any reason why he could not get another PR loan. I will assume that there are no problems with the first loan meaning that the loan was actually for a primary residence so going beyond the 5 years is ok. It seems reasonable that the participant could be trying to purchase another house at this time. Interest rates have definitely been favorable for convincing people to upgrade their domicile. I don't know if anything in the regs that would prevent it.

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Belgarath - We have been looking for the same thing. We have also tried several translator services on the web. Some of them are free as well but usually will not accept a document as big as an SPD. The usual translator software seems to be simple word or phrase replacement. Many of these programs or services don't handle the nuances of the different dialects, slang, and grammer differences between the two languages. We are looking at a couple of the services on the internet that will provide the electronic translation for free and then will have a person review it for proper format, meaning, grammer, etc. We got an estimate from one site of $2,500.00 to tranlate and review our SPD. We have not made a decision about a service and would welcome other's feedback on this.

I am having trouble (as are many others) finding a thread that I know has been beaten to death on this site. The employer forgot to start taking loan payments out of the participants check in repayment of the loan. It has been almost 6 months since the loan was issued (so we're past the cure period). Can the loan be reammortized to increase the payments so it's paid off within the original timeframe of the loan? Or, is the participant stuck with a deemed loan and the tax consequences because of the ER's goof? Any, thoughts would be helpful or if someone else can find the prior threads that discussed this and let me know where to find them I would greatly appreciate it!

I just got my hands on a copy of the amendment for the gateway language for PPD's Vol Sub. I basically says that you will give the eligible participants the gateway minimum without regard to the allocation requirements. Thanks all!

Unfortunately, giving the HCE only 9% doesn't get them to the maximum. It will take better than 15% so everyone else needs to get the 5% gateway. It looks like the doc is a Corbel (PPD) Vol Sub. Does the "snap-on" amendment allow the plan to ignore the allocation requirement for the gateway portion of the contribution and apply the allocation requirement for any profit sharing allocation above the gateway? AndyH...it sounds like your suggested amendment does the trick but I am curious if this is the standard approach to dealing with the allocation requirements that conflict with the gateway.

A 401(k) safe harbor plan is using the 3% SHNEC. The profit sharing uses cross testing. The document (from the prior TPA) has an allocation requirement in order to receive profit sharing (1000 hours). A participant with less than 1000 hours is going to get the SHNEC because they were eligible (met 1000 hours previously) but can't get any of the P/S because of the allocation requirement. Therefore the gateway is not met and the plan can't use cross testing. What is the best way to correct this plan design flaw? Can you amend the allocation requirement out of the plan (retroactively)? They are trying to allocate 2003.

Would changing this provision benefit HCE's or NHCE's? If the amendment benefits predominantly HCE's, you may have a problem.

MGB - Im' not sure that I follow your logic. ADMINREX said that the participant deferred 14,000 for 2003. That means that $2,000 is automatically a catch-up and is not included in the in the annual additions limit. He is now free to receive 28,000 from the ER. In your first scenario you would not cut back the employer contribution from 28,000 to 26,000 because 28,000 + 12,000 doesn't violate the 415 limit. The 2000 is already ignored by virtue of hitting the 12,000 limit. In the second scenario, it sounds like you are saying that the catch up does not come into play until you go over the 415 limit and have to refund deferrals. If the doc calls for deferrals to be refunded for a 415 violation, in this case you would have to refund them because you already used up the catch up limit. If I missed your point, please help me understand so I can disagree better.

My humble opinion is if the investment is worthless, you should get the appropriate documentation that it is worthless, write the value down to zero and remove the asset from the account before attempting to transfer to custodian. We did go down this road once before where the value of an asset was not technically worthless. It was a limited partnership and the partner had the potential to receive a small benefit from some pending litigation or sale or something or other (I can't remember exactly). We went through the motions of having an independant company do a formal valuation of the LP and with their recommendation, wrote the value of the LP down to 1.00. Then, as I recall, we did an In-kind distribution of the asset. The withholding was moot. You have to make sure that the participant is eligible to take a distribution under the provisions of the plan. Also check to make sure that there is no provision in the plan that prohibits in-kind distributions. My only other suggestion is to CYA! Document everything you do in triplicate!

Earl is correct. The participant get's two 2004 1099Rs. 1 with code P for the excess and the second with Code 8 for the earnings.

The 1099R for the excess amount that is distributed between January 1 and March 15th is not a 2003 1099R. It should be a 2004 1099R with a distribution code of P denoting the distribution as taxable in the prior year (2003). The 1099R is issued for the year in which the distribution actually occurrs. Therefore, the 1096 gets taken care of in 2005.

I hope they have errors and omissions coverage! Thanks!

Janet - you are right about the prior TPA! The prior TPA error in this case caused the Doc's account to be understated and the Ppt's account to be overstated. Her account was distributed and now the Doc's account is short. The problem that I have with classifying any part of the Doc's account as a loan or hardship is that the Doc is not paying back the money nor received any of the benefit of the money. The participant received the over payment and needs to pay back the money (which she can't do in a lump sum at this time but might be willing to make payments on it). Prior TPA's suggestion to hold a loan note in the doc's account, which the participant pays off does not work for me. Seems to me that this would constitute a loan from the Doc's account to the participant. My read of the prohibited transaction rules tells me that you can't secure a participant loan with someone else's accrued benefit. This also seems like a violation of the antiassignment rules as well. Prior TPA needs to make the plan whole and make arrangements with the participant outside of the plan.

Having the participant reclassify the distribution as a loan would be fine if the participants account balance supported the loan but since she took almost all of her money (and some of the Doctors) when the distribution was made, the loan would end up being more than 50% of her balance.

Since no one seems to want to weigh in on this one...I'll try to answer it myself and see if anyone shoots me down. The question is...can a loan be issued from participant A's account to Participant B and have B pay the loan back. Seems obvious but I need cites to back up the argument. 1.401(a)-13(d)(2) says..." 2) Benefits assigned or alienated as security for loans. (i) Notwithstanding paragraph (b)(1) of this section, a plan may provide for loans from the plan to a participant or a beneficiary to be secured (by whatever means) by the participant's accrued nonforfeitable benefit provided that the following conditions are met..." Seems to me that since the loan would be secured not by the participant accrued benefit but by the accrued benefit of another participant in the plan, it would violate the anti-assignment rules. Here's an excerpt from the loan policy of the plan..."SECURITY FOR LOAN. A participant must secure each loan with an irrevocable pledge and assignment of 50% of the nonforfeitable amount of the borrowing participants accrued benefit under the Plan. While this should be enough to convince the prior TPA that the best course of action is to put the funds into the plan (with earnings) and work out some arrangement outside of the plan, are there any other suggestions?

jquazza - as long as the written election does pop up...I don't care what drawer it was in. All I need is a copy for my files... It's funny how these things can materialize out of thin air when the owner's contribution is at stake. If the ink is still wet you might raise an eyebrow! That would be like having one your very elderly participants provide a Pre-Tefra election that was printed on a laser printer!

If you wait at least 90 days haven't you exceeded the time limit for the notice that you sent out? After 90 days the notice is now stale and you would have to send another one and wait another 30 days before forcing out. We wait approx 60 days give or take a couple of days.

I am curious to find out what others response to this is. We offer the same type of managed models. Participants have the ability to move their money in or out of the model at any time. The participants choose this type of investment because they do not want to manage the funds in their account themselves. We offer this to the participants and tell them up front that we will rebalance their account quarterly and may change the fund mix within the portfolio at any time. They also have the opportunity to allocate their investments within a diverse core fund line up of 10-12 mutual funds. What do others think? Are we exposing our clients to liability because of this?

Doctor A had a practice that employed two valuable employees. They had a 401(k). The doctor decided to terminate the practice and the 401(k) Plan. Employees were given distribution options. The doctor then joined as a partner in another practice and the two employees were hired by the new partnership. Money was rolled from the old plan to the new partnership's plan. In doing the final accounting of the old plan, the prior TPA made an error. Basically, one of the valuable employees got a sizeable chunk of the Doc's rollover account. She subsequently fell on hard times and took a distribution of the rollover balance in her new account and spent the money. The error was discovered by prior TPA after the money was distributed by the current TPA. The participant can't pay back the excess amount to the plan and there is a dispute (of course) as to who should pony up to make the Doc's account whole (seems pretty clear to me!). Doc and prior TPA are trying to come to an equitable solution so the participant can pay the $ back. Prior TPA suggested that the plan issue a promissory note from the Doc's account to the participant. The Doc's account could hold the note as the participant pays back the money with interest. I know that the Prior TPA should pay the amount that the Doc's account is short and go after the participant outside of the plan (or perhaps have the participant make installments to them rather than the plan). I know what the appropriate correction should be but, would the loan from the Doc's account be a prohibited transaction assuming the Doc would even agree to this? I have tried reading about PT's and the exemptions for participant loans but all the information I read talks about loans from the participant's own account rather than from someone elses account. Help?

mbozek - How do you suggest that this should be corrected? I understand your logic with regard to the check not being paid to the participant but I am at a loss as to how else you would handle this? I have always looked at this from the plan's perspective. The money was distributed. The first chunk of the amount distributed was an RMD. The rest was rollover. Sal suggests the same method in the 2003 Edition of the ERISA Outline, Chapter 6, Part G(3)(b).