Kevin C

Take a look at PLR 9729042. Sal's book also says it should be a reasonable interpretation of of 72(p) that if all you are changing is the frequency of the payment date due to a change in the payroll period, that "new loan" treatment would not be necessary. If you do a new promissory note, that looks like renegotiation of the loan to me.

Is Joe under age 50 as of 12/31/2008?

I was thinking it might be a fiduciary breach, too. Although with this being in the DB forum, it is unlikely the participants are directly affected by it. Andy, don't you mean a headline of "XYZ Agency Plan spent $$$ on an unnecessary audits"?

9/15 is the extended tax return deadline for an S-Corp. For the plan, if it is deposited by 10/15, it can still be counted as an annual addition for 2007. If you delay past 12/31, you violate the safe harbor rules. For the tax return, you may already have an issue. I have been told that under some accounting methods, you can't deduct contributions on a return if the contributions are not deposited before the return is filed. Check with their CPA to get an answer. The penalty question has already been answered.

With the 6 year cycle for pre-approved plans and the IRS's preference for interim amendments, I don't think they could require a restatement after 4 amendments. You wouldn't have a document available with the interim language until the new version receives IRS approval. When the new approved document is available, you will be restating shortly anyway. Our new EGTRRA pre-approved documents already have two interim amendments included.

Not all 403(b)'s are deferral only. Most of ours include employer contributions. If you had a choice between adopting an ERISA covered 403(b) with 130 participants and a 401(k) plan with 80 participants, which would you choose? Starting in 2009 the difference in administration fees would be substantial because of the audit requirement. Yes, there are other issues to consider, like ADP testing. All I am saying is that you shouldn't automatically assume a 403(b) is always a better choice.

Can you point me to the reg section that addresses borrowing from the ADP as opposed to shifting? I remember things better if I can see them in writing.

For a non-electing Church plan, yes. For some non-profits, a 401(k) may make more sense. Large 403(b)'s are proposed to be subject to the audit requirement for 2009. If they have a lot of turnover in the first year of employment, they could easily be in a situation where a 401(k) plan with 21 & 1yr eligibility has less than 100 participants, while a 403(b) could have well over 100. It's something to consider if they don't have an existing plan. Some of our clients are paying more for their audits than we charge for adminstration of the plan.

No. Look at the Form 5500 instructions. Large or small plan status is determined by the line 6 participant count. The instructions for line 6 are pretty clear about who has to be counted.

You are failing ADP, so you can't shift deferrals to the ACP test. 1.401(m)-2(a)(6)(ii) Elective contributions taken into account under the ACP test. --Elective contributions may be taken into account for the ACP test only if the cash or deferred arrangement under which the elective contributions are made is required to satisfy the ADP test in §1.401(k)-2(a)(1) and, then only to the extent that the cash or deferred arrangement would satisfy that test, including such elective contributions in the ADP for the plan year or applicable year. Thus, for example, elective deferrals made pursuant to a salary reduction agreement under an annuity described in section 403(b) are not permitted to be taken into account in an ACP test. Similarly, elective contributions under a cash or deferred arrangement that is using the section 401(k) safe harbor described in §1.401(k)-3 cannot be taken into account in an ACP test.

Is this "agency" a PEO? My first reaction from reading your post is that the person is likely still a common law employee of the employer.

Direct distributions of Employer Stock get favorable tax treatment. The distribution gets taxed based on the basis in the stock. The gain on the stock is taxed as capital gains when you sell the stock. The 20% required tax withholding may or may not be sufficient to cover your additional federal taxes. The federal 10% early withdrawal penalty won't apply to a distribution from a qualifed plan under a QDRO. These rules apply to distributions from a qualifed plan. If you rollover to an IRA, they won't apply when you later withdraw funds from the IRA.

If you want a cite for why you can't change the compensation definition used in the safe harbor contribution, look at 1.401(k)-3(e)(1): If I remember correctly, you will have to amend to provide for ADP/ACP testing for the entire year and you are stuck with current year testing.

Buckaroo, The preapproved documents I've seen allow the SH contribution to go to 1) all participants, 2) all NHCE's, or 3) all participants who are either NHCE or Non-Key. The third option should work going forward. But, the original post said this was for 2007.

I was thinking the withholding liability would be with either the Trustee or the ERISA Plan Administrator, not the plan. A quick search yielded the following: 35.3405-1T, Q&A 13 A-13. Q. Who must withhold? A. Generally, the payor of a designated distribution must withhold, and is liable for payment of, the tax required to be withheld. However, in the case of a distribution from a plan described in section 401(a) (relating to pension, profit-sharing, and stock bonus plans), section 403(a) (relating to certain annuity plans), or section 301(d) of the Tax Reduction Act of 1975 (relating to certain employee stock ownership plans, sometimes called "TRASOP's"), the plan administrator must withhold, and is liable for payment of, the withheld tax unless he directs the payor to withhold the tax and furnishes the payor with any information that may be required by the Secretary in forms or regulations. This provision applies to qualified plans as well as once qualified plans that are no longer qualified. For a description of the material that the plan administrator must furnish to the payor, see question E-3. I don't know if this has been updated. Yes, I would definitely put the brokerage firm on notice that they will be held liable if there are problems.

RTK, Thanks for the suggestion. What do you do if the attorney ignores the QDRO procedure and prepares an order now assigning at say 8/1/2007 with gains and losses separately from 8/1/2007 forward? Do you reject the order as not being a QDRO?

If this is for 2007, you have to follow the terms of the document. It is too late to change anything for a 2007 calendar year. The safe harbor provisions have to be in the document by the beginning of the plan year and they may not be changed during the year. [1.401(k)-3(e)] The only exception would be if you did a conditional 3% SH notice. If your document had the safe harbor provisions at the beginning of 2008, it is too late to make any changes for 2008.

But if the distribution timing in relation to the distributable event is not protected, the right to a distribution is not set in stone. Why would a terminated participant be any different from an active one? It's either protected for all or for none. Loans and hardships are another matter. They are specifically listed as not being protected benefits. For PR reasons, I wouldn't want to eliminate them while one was in the works.

ERISAnut, this time you posted while I was writing. I think we will just have to agree to disagree. I don't see that creative wording should let you be able to do something that is otherwise prohibited by the regs. I am still curious to see how you would answer my last post. As for your plan year end distribution timing example, that is a good one. But there are differences. The short year 7/1 - 12/31 introduces another distribution date that is earlier than provided under the old plan provisions. Also, the change speeds up distributions for some, but delays it for others. Changing the valuation date to the end of the year would result in either the same or later distribution depending on the termination date.

I have a better hypothetical. The plan is a calendar year plan and the valuation date is quarterly. Distributions are paid as soon as feasible following the valuation date on or after termination of employment. I terminate employment on 3/1/2008. I receive my distribution paperwork on 4/15/2008, but I haven't done anything with it. The Plan is amended effective 5/1/2008 to change the valuation date to the last day of the plan year (i.e. annual valuations). When can I get paid?

Belgarath, You misread my post. I said the distribution amount is based on the valuation date preceding the distribution date. i.e. a distribution paid in 2008 from an annually valued calendar year plan is based on the 12/31/2007 vested balance. Neither the valuation date, nor the allocation date for gains/losses are protected. The timing of the distribution, however, is protected because differences in timing results in different optional forms of payment. Sieve, we still have annually valued plans and they still work the same way they always did. As you pointed out, there are disadvantages to annual valuations. No one has addressed my question:

Sorry, but I have to disagree, you follow the terms of the plan to the extent they are consistent with ERISA. See ERISA 404(a)(1)(D). The anti-cutback rules are also in ERISA 204(g). The question here is whether or not the distribution timing is being changed. You are arguing that it is not, because the timing is still the same period after the "Valuation Date" even though the definition of "Valuation Date" was changed. I disagree. Termination of employment is the distributable event. The timing of the distribution in relation to the distributable event is being changed. If you can change the timing of distributions merely by changing a definition in the plan, then the anti-cutback rules relating to optional forms of payment make no sense. What if the plan document said distributions are payable as soon as administratively feasible following the end of the calendar quarter in which the participant terminated employment? Do you still think they could change to annual distributions?

Yes, Valuation dates are not protected. The protected benefit here is the optional form of benefit. The optional form of benefit includes the timing of the payment of the benefit. The only change you can make to a lump sum optional form of benefit is a de minimis change in the timing. Also, look at Q&A 7: You can change the valuation date to annual and pay distributions based on the balance on the valuation date preceding the distribution date, but the timing of the distribution is protected. To me at least, the regs are pretty clear on that. You can change the timing for benefits not yet accrued, but not for existing balances. If you have been paying distributions soon after termination, the current employees know that. The first time you deny immediate payment, someone will be unhappy. Whether or not they contact the IRS and/or DOL depends on their personality. Personally, I don't enjoy IRS and DOL audits, so I try to avoid actions that dramatically increase the changes of having one. We had a DOL audit of an annually valued plan last year because a participant complained to the DOL that it was taking to long for him to get his distribution. We ended up with a no changes letter, but only after a prolonged disagreement with the agent over the timing of the deferral deposits. Sieve, ERISAnut and four01kman, how about if the plan only allowed payment at your normal retirement date and defined NRD as the 55th birthday. Could you amend to change the NRD to age 65 and require everyone with existing balances to wait until 65 before they can get paid?

I disagree. Changing to an annual valuation date is also changing the timing of the distributions. Distribution timing is a protected benefit. You are talking about more than a de minimis change (2 months), so you would be violating the anti-cutback rules. There is a recent similar thread that includes a cite.

You are only allowed to make de minimis changes in the timing of distributions. You can't change the timing more than 2 months. For in-service distributions, it's 6 months. Other than that, distribution timing is protected.