rosskeene

Thanks for these prompt responses. For furture reference, it looks like the guidance applicable to RMDs in the rollover context is in Treas. Reg. Section 1.401(a)(9)-7.

Terminated participant takes direct rollover distribution from 401(k) plan to IRA in year in which she attains age 70-1/2. Amount rolled over is net after RMD from plan, which is distributed to her in cash. Does she then have to take an RMD from the IRA for the year in which she took the RMD from the plan?

This can't be the first time a situation like this has come up. Anybody have even an opinion, whether it's backed up by any guidance or not?

No. It will be a multiple employer plan. Neither organization is a service organization, as defined in IRC 414(m)(3), and the principal business of neither organization is to provide management functions to the other. No ASG.

That sounds right to me. The regs say that for distribution purposes they have a severance from employment when they cease to be an employee of the employer maintaining the plan, which would be as of the date of the transaction. How you have to paper the withdrawal as a participating employer will depend on the terms of the Plan. Some plans would require an amendment, others might only require a resolution of the board of the sponsor, or a resolution of the board of the participating employer. Can somebody please help me out with how to conduct ADP/ACP tests for a plan that becomes a MEP mid-year?

HarleyBabe, your situation seems easier. Just have the sold-off company cease participating in the old plan and adopt a new plan. If they truly aren't related anymore then there's no reason to maintain a multiple employer plan. Under Treas. Reg. Section 1.401(k)-1(d)(2), as long as you don't do a plan to plan transfer, the employees of the sold-off company can take distributions and roll them into the new plan if they want (or buy a boat). Easy to test since they are entirely separate plans. My situation is tougher, because they companies will remain related (just not enough to be in the same controlled group) and for all other intents and purposes it will be business as usual. I really want to know how everybody thinks you test after a mid-year conversion to a multiple employer plan.

Or maybe there are two tests - P for all of 2013 (including S's employees prior to D day but excluding S's employees on and after D day), and S for all of 2013 (including P's employees prior to D day but excluding P's employees on and after D day).

So, here it is a year later, and I have this same situation. Parent (P) is restructuring a current wholly owned subsidiary (S) into a 50% owned joint venture with an unrelated co-owner. The restructuring date (D day) will be in the middle of the 2013. S is currently a participating employer in P's calendar year 401(k) plan. S's employees will all continue to be employed by S after the restructuring. Payroll services, etc. will continue to be provided by P. P's plan will be amended to provide that as of the date of the restructuring it is a multiple employer plan, with S as an adopting unaffiliated employer. How do we perform ADP/ACP testing for 2013? Are there two tests - P for all of 2013 (including S's employees prior to D day but excluding S's employees on and after D day, and S for its employees on and after D day through the end of 2013; or are there three tests - P + S for 2013 up to D day, P for the period from D day to the end of2013, and S for the period from D day to the end of 2013? Any help would be appreciated.

Thanks to all. I'm still not sure the Code and Regs clearly support the "once vested always vested" position. However, it clearly appears to be the consensus/conservative view. I'll shut up now.

Thanks, but that's not very helpful. What's your answer? Can the plan disregard service prior to 5 consecutive 1-year breaks if the participant elected a complete distribution? The Code sections you cited don't answer the question. Is a participant who was vested when he terminated considered a "nonvested participant" for purposes of Code Section 411(a) if he takes a complete distribution of his account balance before being rehired after 5 consecutive 1-year breaks in service? Code Section 411(a)(4)(D) allows a plan to disregard service "not required to be taken into acount under paragraph (6)." Code Section 411(a)(6)(D)(i) provides that "For purposes of paragraph (4), in the case of a nonvested participant, years of service with the employer or employers maintaining the plan before any period of consecutive 1-year breaks in service shall not be required to be taken into account if the number of consecutive 1-year breaks in service within such period equals or exceeds the greater of (I) 5, or (II) the aggregate number of years of service befor such period." Code Section 411(a)(6)(D)(ii) provides that "For purposes of clause (i), the term "nonvested participant" means a participant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contributions."

Code Section 411(a)(6)(D) provides that for purposes of determining a participant's vested percentage, a plan can disregard the prior service of a "nonvested particpant" after five consecutive one-year breaks in service. Code Section 411(a)(6)(D)(iii) defines "nonvested participant" as "a particpant who does not have any nonforfeitable right under the plan to an accrued benefit derived from employer contribuitons." Here's the question: If a participant is fully vested, but takes a complete distribution of his or her benefit under the plan (such that the participant no longer has "any nonforfeitable right unde the plan to an accrued benefit derived from employer contributions"), and is rehired after five consecutive one-year breaks in service, can the plan disregard his or her prior service in determining his or her vested percentage going forward? Sal Tipoldi's treatise subscribes to the "once vested always vested" view, but without any authority. Based on Treas. Reg. Section 1.411(a)-6©(1)(iii), it appears that whether a participant is "nonvested" should be measured at the end of the break in service priod, and not the beginning, which would argue for disregarding the prior service and making a rehire start over with zero years of service for vesting purposes. Any help with authority would be appreciated.

How do you figure that a terminated participant with no prospect for a future contribution is someone "on whose behalf an investment in a qualified default investment alternative may be made"? I would read the requirement to only apply to participants who will have QDIA investments made on their behalf on an ongoing basis. Therefore, a terminated participant with no further contributions being made need not receive the annual notice. Similarly, a participant who has made investment elections with respect to future contributions but has not directed the investment of funds previously defaulted to the QDIA, need not get the annual notice. Is there some other guidance that tells me I'm wrong?

I think it makes sense for plan administrators to use default 10% withholding, subject to election out of withholding with the notice in Section D-26 of Treas. Reg. 35.3405-1T., until the IRS issues more definitive guidance.

Ah yes, but, IRC 408A provides that "[e]xcept as provided in this section, a Roth IRA shall be treated for purposes of this title in the same manner as an individual retirement account." Nothing in IRC 408A would exclude a Roth IRA from the definition of "eligible retirement plan" in IRC 402©(8)(B). Furthermore, a Roth IRA would appear to meet the definition of an "individual retirement account" as defined in IRC 408(a). There are six criteria, and none excludes a Roth IRA. If you disagree, how so? Citing the regulations in this case is probematic in any event, as they were issued before PPA's enactment, and are thus superseded to the extent they conflict with the statute.

I don't think that the definition of "eligible retirement plan" in IRC 402©(8)(B) excludes Roth IRAs. The flush language at the end that subsection merely provides that if Roth funds are rolled over they may only be rolled to a Roth account or Roth IRA. It doesn't say anything about non-Roth funds, which are at issue here. Based on the language of the statute, I would think that no withholding is required. The fly in the ointment is that the legislative history provides that the rules for rollover to a Roth IRA should be the same as the rules for conversion of a traditional IRA to a Roth IRA, which appear to require 10% withholding (subject to election of no withholding after appropriate notice under IRC 3405).