Randy Watson

What is really interesting is that this is a 404© plan. The participants received a 404© "notice" and an SPD containing general 404© informataion. So at this point we have about 72 pay stubs that showed no deferrals, the W-2s for 3 years showing no deferrals and no attempt to direct investments even though they were informed that they were responsible for their own investments. I find it hard to believe that these participants have no responsibility in this.

Assume an employee executes and submits a salary deferral agreement, but deferrals are never withheld from his compensation. Doesn't the employee have some responsibility to make sure deferrals are taken out and contributed to the plan? If this failure lasted for a 3 year period, it seems like the employer's liability should be limited to something less than 3 years...perhaps to the first year alone? Help!

We are terminating a DB plan. The annuity provider won't issue an annuity without the participant's signature (the provider claims that the annuity is too small). The participant won't sign. I believe you are permitted to treat unresponsive participants as missing participants for purposes of terminating a defined contribution plan. Is there a corresponding rule for DBs? I couldn't find one.

I know there are restrictions on sponsoring a SEP and a qualified plan. What about a 403(b)? Can you sponsor a SEP and a 403(b) that is purely a salary deferral arrangement?

Does an employer have to fill out a new 5305 each time the form is updated by the IRS or can the employer continue to use the original form assuming nothing has changed with regard to eligibity?

I'm aware of the penalties imposed for failing to issue 1099s. Does anyone have a sense as to whether there would be any liability to the recipients? For example, a participant receives a distribution, but did not receive a 1099 and does not report that amount on their personal return. Would the company be liable for the costs (and potentially additional tax owed) incurred by a participant? Granted, the participant knew they received a distribution, but did not report it. Is anyone aware of any caselaw on this? Thanks.

Yeah, the ramifications are a little ridiculous considering the individual pays the tax on the entire amount up front.

Meaning if it qualifies as a "plan asset" it needs to be bonded?

Assume a plan holds an interest in a private venture capital fund. Do the ERISA bonding requirements apply to those individuals who invest on behalf of that fund?

MJB, do you have any authority or commentary on making contributions by 12/31? It would be helpful to me if I could get my hands on that. Thanks.

I'm not sure what the rules are for gov't 457(b)s, but if this is a tax exempt 457(b) it is going to be an "unfunded" plan. The contributions will be made to a rabbi trust, if at all. I believe that any "funding" requirements would be imposed by the plan document or trust agreement.

Assume a 457(f) pays an annual benefit over a 10-year period. The participant is taxed on the full amount upon vesting, even though they won't receive the entire benefit for 10 years. Since the participant already recognized the entire benefit as income and paid the tax, it does not appear as though it would matter if payments were "accelerated" after vesting. Anyone comments?

I believe profit sharing plans are required to have a definite pre-determined formula, so the only decision that has to be made is whether to make a contribution and how much. With a discretionary matching contribution, I don't believe any formula is set forth in the plan...at least not in any of the plans I have seen. I guess my question is whether this pre-determined formula requirement applies to matching contributions, which would seem to require an amendment by the end of the year.

When does an employer have to decide whether it will make a discretionary matching contribution? I know when the match has to be made to get the deduction, but does the employer have to adopt an amendment or have a board resolution that provides for the match by the end of the plan year to which the match applies?

Someone please tell me if I'm wrong, but I thought that an irrevocable annuity contract purchased in conjunction with a plan termination was not a plan asset.

An employer plans on making a profit sharing contribution for the 2006 plan year. However, the plan will merge with a related employer's plan as of 1/1/07. Is it okay for the employer to make this profit sharing contribution after the merger of assets? It seems a little odd to be making a contribution to the merged plan on behalf of participants of a plan that no longer exists.

Assume the participant satisifies the requirements under 409A for changing the distribution date (makes the change 12 months prior, delays for 5 years etc...). Can you do that under 457(f)? Can the participant push the vesting date out under 457(f)?

Would a provision in a 457(f) plan that allows a participant to change the payment/vesting date result in a lapse of the substantial risk of forfeiture?

Assume that you have a controlled group that includes Company A (has a safe harbor match) and Company B (has a non-safe harbor with a modest match). Historically, Company B has passed 410(b) so it's plan can be tested separately. But what happens if Company B discovers in December that they no longer pass 410(b)? It's too late to make Company B's plan a safe harbor plan. Do you simply bump everyone's match up to the safe harbor level with 100% vesting? What about those who chose to limit their deferrals in Company B's plan to maximize the modest match? What a mess!

Providing notice 30 days prior is deemed to be reasonable, but 30 days is not required. I don't believe the timing of the notice is as critical with NECs as it is with matching contributions since the participant is going to get the NEC regardless of whether they decide to make deferrals. In other words, there is little the participant needs to consider with regard to the NEC so something less than 30 days may be reasonable.

I'm trying to figure out whether the new diversification notice due on 12/1/06 is necessary for a plan that has always allowed participants to freely diversify employer stock. Granted, these participants have never been eligible to exercise their right under ERISA 204(j) because 204(j) is not yet effective. On the other hand, the plan has never restricted diversification to the point where it would have violated 204(j) (if it were in existence). I'm leaning towards giving the notice since there is no harm that could come from providing it, but was looking for some input.

Through an acquisition, an otherwise ineligible employer adopted a company's SIMPLE 401(k) plan. Can the new sponsor freeze the SIMPLE 401(k) and continue to maintain that frozen plan beyond the time period permitted under Section 410(b)(6)©? The participants in the SIMPLE 401(k) will become participants in the employer's long standing "regular" 401(k) plan prior to the expiration of the transition period.

Any word on when the 2007 limits will be published?

Is there any authority out there for doing a top heavy determination on an accrual basis rather than a cash basis? For example, assume that a 401(k) plan is top heavy in 2004 but the employer did not make the top heavy contribution until 2006. Could the employer take this contribution made in 2006 into account in determining whether the plan is top heavy for 2006?

The following Q&A took place between the JCEB and Treasury in 2000: 401(k) – Cash or Deferred Arrangement Can an individual receive a distribution from a section 401(k) plan following termination of employment, even though the individual continues to receive payments from the employer pursuant to a severance agreement? If not, can the individual make section 401(k) contributions with respect to the payments made pursuant to the severance agreement? Proposed Answer: The individual can receive a distribution as long as there is a bona fide termination of employment. If there has been a termination of employment, though, no further elective contributions may be made by the individual pursuant to section 401(k). IRS Answer: The IRS agrees with the proposed answer. An employee who is no longer rendering service can receive a distribution, notwithstanding that the employer is continuing to pay the employee compensation, such as severance benefits.