Randy Watson

Employer has a 401(k) plan. Employees are paid a low base wage and also collect tips. Although the full amount of the tips are reported as income, the employer allows the employees to take cash tips home with them the day they are earned. This leaves very little actual compensation for purposes of elective deferrals and the payment of participant loans. In a case where there is insufficient compensation to make the deferrals AND the loan payment, I believe the employer is responsible to contribute the compensation toward the deferral first. Anything left over would then be used to pay the loan. Someone is telling us that if there isn't enough compensation to make the full deferral that the employer is responsible to make up the difference. This makes absolutely no sense to me. Does anyone have any thoughts on this?

Okay. I guess that is my question then....whether someone who is treated as a statutory employee can still be considered a sole proprietor as to the remuneration they receive as a statutory employee and thus sponsor their own 401(k). Based on 3121(d)(3) of the Code, "statutory employees" are only "employees" for purposes of FICA and FUTA withholding (no obligation for the employer to withhold for income tax). They are essentially independent contractors who fall within certain parameters that require the service recipient to withhold FICA and FUTA. If they can also fit into the definition of "self employed" (i.e., have earned income) then I believe they can establish their own plan. What do you think?

No, 401(k) plans. What did I write that made you think I was referring to Keogh plans?

I've read through the Code, Regs etc.. and I believe that a "statutory employee" could also be considered "self employed" and thus sponsor their own plan (other than certain life insurance salesmen). Could someone please confirm whether I am correct and let me know whether there are any special issues related to this odd situation that I should know about? Thanks.

That's very good to know and certainly helps our situation. What about my original question? Was there a time in say 1997 or 1998 when the 15th day following the month was permissible? I know the DOL presently takes the position that the 15th day "deadline" is almost never acceptable.

ERISAnut, do you know of any legal authority or commentary that would support rolling over a portion of the benefit to an IRA and take periodic distributions from the IRA?

Two questions, how far back do we need to go to correct late deposits and was there a time when the DOL was okay with deposits being made by the 15th of the month following rather than the earliest date they can be segregated? For example, I'm sure that it was more reasonable to contribute deposits near the 15th of the month following back in 1994 than it is today because of the technolgical advances since that time.

Cafeteria plan has health FSA, DCAP and pre-tax contributions for health plan premiums. Am I correct that we look at each benefit individually to determine whether we exceed the 100-participant filing requirement?

Could a designated beneficiary be changed after a participant's death?

Is the plan subject to 409A?

Can an employer withdraw from a multiemployer plan for any or no reason at all? Is the ability to withdraw typically addressed in the CBA?

Right, they're not interested in a participant loan. I share your view on phony terminations. Thanks.

This individual is well below age 55 and simply needs cash now.

An owner/participant in a DB plan would like to take distributions and avoid the 10% early withdrawal penalty. He will continue to work, so we will have to figure out a way to separate him from service, but that is another issue. Assume that there is a distribution event. Based on the facts, it appears that the only reasonable way to do this is to use the period payment exception to 72(t). The problem is that the owner/participant does not want to receive periodic payments based on their entire benefit; they just want to receive periodic payments based on a portion of their benefit. The three approved methods of distribution seem to take the entire benefit into account: (1) RMD; (2) fixed amortization; (3) fixed annuitization. Is it permissible to base the periodic payments on only a portion of the benefit for purposes of the period payment exception to 72(t)?

Are you sure you have a qualification failure? In this case, you only have an operational failure if the amounts were not deposited in accordance with the plan document. Do the late deposits violate the terms of the plan?

Good advice. I like those ideas. Thanks.

Our loan policy nor the plan states what will happen to a participant loan upon termination of the plan. Any recommendations on what can/should be done?

Why would Company B have to adopt the plan?

Company A's plan just says that employees of affiliates are eligible to participate.

Company A's 401(k) permits the employees of Company A's affiliates to participate in the plan. Company B (an affiliate of A) was formed in 2004 and it adopted a 401(k) plan of its own with a more generous match than Company A's plan. However, employees of Company B were never offered participation in Company A's plan (by mistake of course). Does this have to be corrected? The reason why I ask is because the benefit that the Company B employees received was better (matching contribution) than the benefit they would have received under Company A's plan. There is just no way that deferring under Company A's plan would be better. If there was no harm, can't we just amend Company A's plan to exclude Company B employees prospectively? Would it make a difference if Company A's plan permitted hardships or had more distribution options than B's?

I think I have a pretty good grasp of the case law with respect to SPDs that are inconsistent with plan documents, which often times results in the SPD controlling. But what happens when an offer letter includes incorrect information about an ERISA plan? My first impression is that the employer may have some liability, but since the offer letter is not a plan related document that any liability would stem from a state breach of contract claim rather than an ERISA claim. Any thoughts?

I agree that it's not clear. 1.409A-3(g)(h)(3)(iii) and (iv) (on anti-acceleration)

I don't believe that there is a need to delink your wrap plan as the 409A regulations do not cap amounts deferred under the nonqualified plan in the type of pour over arrangement you are talking about. In this type of arrangement, the amounts are first contributed to the nonqualified plan and then poured out to the qualified plan. As long as your nonqualifed and qualifed elections are made prior to the taxable year for which services will be performed your only concern under the 409A regulations (with respect to linked plans) would be the anti-acceleration rules since you will be transfering assets out of the nonqualified plan. Those rules provide that you do not have an acceleration under the nonqualified plan as long as the action or inaction of the service provider does not result in a decrease in the amounts in the nonqualifed plan in excess of the 402(g) limit.

Company A sponsors a 401(k) plan. On January 1 most of Company A's assets are sold to Company B and former employees of Company A begin working for Company B (same job, same location etc..). Company B adopts Company A's 401(k) plan and the employees of Company B begin participating in Company A's plan again. If Company B eventually terminates the participation agreement with Company A's 401(k) will Company B's employees be able to take a distribution from the plan on the grounds that they had a separation from service with Company A? Keep in mind that they are still working for Company B. Would the distribution be limited to the amount they contributed as Company A employees since they are still working for Company B?

That's fine, but does that somehow "correct" the MRD/qualification failure?