ERISAatty

Any reason why an employer couldn't sponsor two separate Section 127 Plans? In this case, employer wants to implement a new tuition assistance plan to a narrow and specific (but nondiscriminatory) class of employees. But employer already has another plan in place. I don't see a problem with two Section 127 plans as long as all other compliance (reporting, disclosure, etc.) requirements are satisfied. Am I missing anything?

I have found other strings on here that discuss plan loan defaults, but none with just these facts, and none post PPA '06. So here goes, for any one who might have opinions/insight: -A 401(k) Plan provides that plan loans "will be repaid by payroll deduction." -Minnesota employee now wants to revoke authorization for payroll deduction (based in my research, employee must consent under state law to deduction, and has right to revoke authorization). -Employee has been told that taxes/penalties are involved if loan because a 'deemed distribution' and does not care; still wants to cease payroll deductions (and has no other plans to repay loan). -Employer does not want to permit cessation of loan repayment by payroll deduction. Questions are: -Is state law the final answer here? -I know that PPA amended ERISA to preempt state wage laws with respect to contributions to plans for automatic contributions - is there any chance that preemption could also apply here? - I spoke on the phone with an EBSA representative, and he didn't seem to have a concern that this kind of default, in an individual account setting, raises an 'adequate security' problem such as to jeopardize the plan loan prohibited transaction exemption. - The 1.72(p)-1 regs (see, e.g. Q&A 19(b)(3) anticipate that revocation of a payroll deduction authorization would result in a deemed distribution, although the example there is limited to subsequent [or second, post-default] loans, for which payroll deduction is mandatory). Since, per the plan terms, payroll deductions are mandatory here, too, I think this applies and anticipates that the employee has the right to revoke. Of course, these regs pre-date PPA '06, so I'm still not clear on if there's any chance of a preemption argument now. -What about not following the plan terms if the repayment stops. I guess at that point, loan is recharacterized as distribution, so plan terms aren't technically violated? Any thoughts on a clear answer about whether employer has to honor the request to stop the payroll deduction for repayment?

1.409A-3(b) provides in part: "A plan may provide for payment upon the earliest or latest of more than one event or time, provide that each event or time is" [a permissible payment event]. My question relates to a plan under which, if separation is on or after age 55, benefits commence withing 90 days of separation. If separation is before age 55, benefits commence within 75 days of attaining age 55. Is it a problem that someone might separate, say, 3 years before attaining age 55? In other words, is 'age 55' a specific enough designation that the commencement of benefits can continue to be deferred until attaining that date, even though payment is payable on account of the separation? In a way, even though the plan doesn't explicit say it, I guess you could argue that this design makes payment upon the earliest of termination or, if later, upon attainment of age 55. Maybe that satisfies the above-quoted provision just fine? I think I've been reading too much fine print. Any clarity or opinions are welcomed! Thanks!

Thank you all for your comments. And I'm happy to report that I just received a response to a blind call I had put into the DOL with their DFVCP department. They confirmed what you all already knew - no DFVCP or penalty is required here. Just an amended Form 5500 (since a Form 5500 WAS filed for 2005). They said that the amended Form 5500 should go to Lawrence, KS, as per usual procedure, and that a copy of the amended Form 5500 be sent to the IRS office that sent the inquiry. Always a good day when there's no penalty to pay! Thanks, so much, again, everyone. I appreciate your insights and your assistance!!!

I'm wondering if anyone can confirm that (a prompt) filing under the DFVC program is the correct approach given the following circumstances: -Client recently received a letter from the IRS inquiring about a 2006 Form 5500 filing for "Pension Plan A". -In fact, no 2006 Form 5500 was filed, because as of 12/31/05, "Pension Plan A" was merged into "Pension Plan B". The problem is that the "Pension Plan A" 2005 Form 5500 filing was not marked as a final return, and did not show zero assets. (It should have, as the merger date was 12/31/05; the Form Preparer apparently did not follow the correct procedure). The IRS inquiry letter provides a check box to be checked if the recipient (Client) is eligible for DFVC, and asks for the date on which a DFVC submission was made. Client is currently talking with their Form 5500 preparer about having a corrected 2005 Form prepared. What I'm not clear on is whether a corrected Form 5500 (marked final and showing zero assets) can just be submitted (with no penalty) or whether a DFVCP filing (and penalty) are necessary. My assumptions are that: 1. Client needs to submit a corrected 2005 Form 5500 under DFVCP (with $2,000 penalty) [i'm not certain DFVCP is really required, but I can also certainly see the case that it is; i.e. that an incorrect 5500 is treated as a failed 5500 and must be corrected]; 2. That having received the IRS inquiry letter does not make Client ineligible for DFVCP as, per the regulations, it is notification from the Department of Labor that could render an applicant ineligible; and 3. That the DFVCP should be submitted before, or by, the date on which a written response is due to the IRS. (Any idea what might happen if the DFVC submission goes in a few days later than the response to the IRS, so long as that proper date is provided in the response?) Can anyone confirm that these assumptions are correct? Of course, IRS response is due soon, so I'm hoping to finalize the response on this asap. Thanks to anyone with insights and/or who may have faced a similar situation.

I agree with GBurns theory as a good explanation of why this happens. But at a meeting of benefits practitioners, recently, I did hear one of them comment that the FreeErisa versions don't always match their own versions. Very odd, but probably explained by technology glitches.

OK, I found some earlier threads (see, e.g. http://benefitslink.com/boards/index.php?s...ent+match\ ) discussing the topic of a graded or non-uniform match formula, and now feel pretty comfortable that it's possible so long as ACP and 401(a)(4) are satisfied. I also feel sure that the rehired employees who previously had one year of service can't be put back into the 0% match category. They should either go back into the appropriate match 'grade' for their earned years of service, or into the basic match group, or into yet another level of match, if the employer is willing to have that new group tested, as well.

I have just discovered that a client's 401(k) (with matching contribtion) provides: 1. A basic matching formula (up to 2% of employee's comp per year, if they are deferring at least 4% into plan), and 2. (for certain employees who transferred in under a reorganization): an Enhanced Matching formula that works on a graded schedule so that the maximum match amount is obtained after nine (9) years. The first year percentage is 0%, however, and the amounts increase thereafter. I have found a problem with the terms that relate to rehired employees. Specifically, whoever drafted this Enhanced Matching formula also provided that "a Participant's period of service prior to his or her reimployment commencement date will not count for purposes of determining the Participant's employer matching contruction under the enhanced foumula (only such Particpant's period of service following his or her reemployment commencement date will count for puposes of determining the participant's employer matching contribution under the enhanced formula)." (Plan uses elapsed time method of counting service). The way I read IRC 410(a)(1)(A), so long as a rehired employee previously completed at least one year of service, then when rehired (unless they were 0% vested, made no elective deferrals, and at least five years have passed), they are immediately eligible to participate again. Employer's practice has been to reenter rehires at the 0% match level - although rehires are immediately eligible for elective deferrals. Having to reenter the 'enhanced match formula' and earn 0% for the first year of rehire seems a problem to me. I've told client that they can't do this, and that a rehired employee must at least qualify for the next highest level of match that is not zero. Although it seems to me that the rehired person should be credited with to appropriate years of service (five, for example) and earn the corresponding (i.e. five-year level) match amount on rehire, do you all agree that there could, alternately, be a separate, less rich match formula only for rehires so long as they pass if they pass ACP testing, and as long as the rehires with at least one year of prior service get more than a "0% match" in the first year after rehire? Thank you in advance for any guidance. This one has had me stumped. (I also realize that we may need to correct and make up for any rehire who should have gotten a higher match and didn't, after we identify who those people are). Thanks!

Thanks for your helpful responses!

This a new one on me. I have just discovered that client has had a long practice of requiring that an applicant for a Plan Loan demonstrate a financial hardship (and they use the safe-harbor definitions of hardship, i.e. 213(d) medical expenses costs, costs related to purchase of principle residence, costs for tuition, and expenses to prevent eviction). Now they want to expand the list of loan application criteria and asked about the risk of doing so. Since there are no such limitations required on plan loans, the only 'risk' I see is that they'll get more loan applications. But by making the loans more broadly available, I think they'll actually better comply with the requirement that loans be available on a 'reasonably equivalent basis.' Any thoughts? Has anyone else ever seen a plan limit loans using a 'hardship'-type test?

Follow this link to see that rarest of creatures - not only an ERISA cartoon, but a funny one. http://courtoons.wordpress.com/2009/03/19/erisa/

Well, let's here it for continuing to learn. I now believe that no 1099-R is necessary. That form is for reporting "Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.," and these amounts (never getting into a plan) are none of these. So I am advising employee to just pay through payroll (in 2009).

To clarify, the employer in question is a tax-exempt hospital, and the relationship with respect to the 403(b) has been simply to serve as a 'conduit'. The hospital just forwarded employee contributions to the fund custodian. I have not (yet) confirmed details on this particular fund (the fund that refused the post 1/1/09 contributions), but it could very well be a company that is getting out of the business of accepting new 403(b) contributions, altogether, given the final regs effective 1/1/09. I know of some companies that are taking that stance. In any event, I'm still thinking that these monies should be returned in '09 (net of normal payroll withholdings), and that a 1099-R should be issued (with respect to the employees' 2009 tax year). Thanks, all!

A client has a non-ERISA, employee contribution only 403(b) plan that become frozen effective 1/1/09. The employer forwarded on the employee contributions of four employees to a particular fund and these checks reached the fund custodian after 1/1/09. The fund custodian responded that, due to the freeze, they had a "hard deadline" and could not accept the contributions after 12/31/08 (so the money never got into the 403(b) Plan, per se). Checks have been returned to the employer. I advised employer that the returned money should be returned to employees and 'taxed accordingly.' Now client's payroll department wants details on whether 'taxed accordingly' means to pay through payroll and tax in '09, or whether W-2C's must be issued with respect to '08 (the latter answer would make client grumpy, not that I'm too worried about that). I'm not expert in this area, but is the right answer that the employer can simply pay the money through payroll in '09 (imposing tax in '09), and just needs to issue a 1099-R (by 1/31/10)? This is not an 'excess distribution,' as I understand it, because no 402(g) or 415, etc. limits have been surpassed, but it seems to make sense to return the amount as if it were an excess distribution (but without any excise tax, etc). Therefore, I have looked at Rev. Proc. 2008-50, Section 6.06(1) ["Treatment of Excess Amounts"], which refers, in turn, to Rev. Proc. 92-93 (which is where I saw the 1099-R reference). I believe that's correct, but I bet somebody on the boards knows for sure. Can you confirm (or redirect me?) Thanks!!

OK, I found it. For what it's worth, in case anyone else is looking for it, the source is the IRS Winter 2009 Employee Benefits Newsletter. And a sidebar on page 3 reads as follows: New Address for EP Determination Forms 5307, 5300, 5310, 5310-A, and 8717 should be mailed to: Internal Revenue Service P.O. Box 12192 Covington, KY, 41012-0192. The P.O. Box has changed. Applications mailed prior to the change will be redirected to the correct address.

I can't find it ANYWHERE now, but I swear, I thought I'd seen that the IRS had recently revised the address to which Cycle C submissions should be mailed. Anyone else know about this, or am I officially crazy? Thanks!

Forgive my innocence (I prefer that word to ignorance). I didn't find a specific previous post addressing this question. I can't see any reason why an age 59 1/2 employee couldn't take a 403(b) distribution in the form of a rollover to the same employer's 401(k) (assuming 401(k) eligibility assuming the 401(k) accepts rollovers, and assuming only 'eligible' amounts are rolled over). But I'm new to 403(b)s. Am I missing something?

Great idea! I'm looking into it! Thank you.

I am trying to identify a possible speaker to give a one-hour presentation to a professional group of retirement-plan professionals (attorneys, actuaries, trustees, investment advisors) in Milwaukee in early to mid-December. Topic can be retirement plan related, or could be a broader topic, i.e. something of interest to professionals, the workplace, etc. Any recommendations welcome (please e-mail kelly.kuglitsch 'at' dbr.com). Thank you!

I am trying to identify a possible speaker to give a one-hour presentation to a professional group of retirement-plan professionals (attorneys, actuaries, trustees, investment advisors) in Milwaukee in early to mid-December. Topic can be retirement plan related, or could be a broader topic, i.e. something of interest to professionals, the workplace, etc. Any recommendations welcome (please e-mail kelly.kuglitsch 'at' dbr.com). Thank you!

Thanks for your comments, Don, but in my case, we were not dealing with a multiple employer situation - just a single employer in multiple states. I still disclaim, as above, any significant knowledge about MEWA rules, ( I think that was jhall's issue) but I appreciate the reference to Mr. Nepple, should such a need arise. (And by the way, in case anyone was wondering, yes, it is terribly cold in Wisconsin just now).

jhall, The situation I was involved with related to putting new assets into the (employer self-funded) VEBA, for the purpose of paying those portions of the wellness plan that we decided were permitted VEBA (and ERISA, per the terms of the trust agreement) benefits. In this case, we decided (1) that the wellness benefits were permitted VEBA "sick" and/or "other" benefits. Moreover, the actual wellness benefits turned out to be a de minimis percentage of the entire benefits paid annually through the trust, so in any event, we determined that paying wellness benefits through the VEBA was permitted, so long as the underlying wellness benefits could also be characterized as a permitted ERISA benefit. There was a DOL ruling from the late 80's saying that EAP-type (kind of a wellness plan precursor) programs provide 'medical' care within the meaning of ERISA 3(1). We decided that those parts of the wellness program (i.e. financial and or tangible property incentive items) that could not be characterized as medical/ERISA/VEBA benefits must be funded other than through the VEBA (i.e. from general employer assets). I have very little working knowledge of MEWAs, or about how those funds can be spent, (or if the individual state laws, and any related restrictions, would still apply) so I wouldn't want to comment on that aspect. Good luck!

Thanks, Don. For anyone else interested in this topic, I have found a nice cite (in which the IRS approved VEBA payment of a broad range of recreational and social benefits). See Private Letter Ruling 9802038 (January 1, 1998).

Vebaguru, I am currently looking at the same issue, i.e. funding wellness program costs through an exisiting VEBA. By 'subjecting' the benefits to the VEBA rules, I assume you are referring to the funding limits, if applicable, the no-inurement rules, and nondiscrimination rules correct? From my research, it seems that an employer may contribute to the VEBA the costs to be paid out for wellness expenses. I'm still looking into what to make of the fact that some wellness expenses are (i.e. non-prescription smoking cessation aids) are NOT 213(d) medical expenses, but my thought is that, while that may create a tax impact for the wellness program recipient, it shouldn't make VEBA funding impossible. Does that sound reasonable to you? (She asks, as a non veba guru) -Thank you

Thanks for the update. It's always interesting and informative to hear of other's experiences and perceptions. Glad the tale of woe is coming to an end.