Bird

I agree. If that's a problem, and you wanted to cease all contributions sooner rather than later, I think you could adopt an amendment doing so, and then formally terminate the plan later, along with the final required amendments. (Yes, I know that ceasing contributions is probably effectively terminating the plan, but I believe that would be primarily for vesting purposes and does not mean that a later amendment for required provisions would be "too late.")

To expand on my earlier point, I would rather say to an employee: "Gee, I'm sorry, the last form we had on file said to withhold 3%, so we did. You can change it to zero now if you want to." than "Gee, I'm sorry, when you were rehired we assumed you didn't want any contributions made and re-set your deferrals to 0%. What's that, you want us to put money in for you because we didn't follow the instructions on your last enrollment form? Well, uh..."

I ignored this as "too messy" the first time I saw it, but since it has reappeared I'll comment for the sake of discussion. I don't think I would necessarily accept the partner's assertion that her earned income is $85,000. Her approach of running the partnership income through a Schedule C is probably inappropriate, and while it's not my place to tell her she can't do it, it's my place (as the TPA working for the partnership) to say that her Schedule C is irrelevant for my plan calcs. There are certain expenses that can be claimed by a partner, and we ask for them (or, more typically, find that they are not significant enough to reduce comp below the limit). If they are properly claimed and reported to us we'll use them. If not, well, that's not the plan's problem.

I started to say that I don't think the 7-day safe harbor has any applicability to SIMPLE IRAs. But then I looked at Notice 98-4, in which the IRS says that the DOL has indicated that most SIMPLE IRA plans are covered by ERISA, so I guess the new safe harbor would extend to SIMPLE IRAs, at least as the DOL sees it. But I think J Simmons said it perfectly - it's just a safe harbor, so the old rules still apply. And they are indeed still in the regs; the safe harbor was a new subsection.

Exclude. When in doubt, I try to interpret the questions in the most literal way possible, even if it's not exactly logical.

The participant has a form on file saying to withhold "x" and the company withholds "x." While it might be preferred to get a new form when someone is rehired, I don't see a problem here.

I'm pretty much ok with your proposed solution. (The idea that accidentally putting too much into someone's account means that you have to go to EPCRS is just dumb.) The only thing that gives me pause is putting the excess contributions in the suspense account and using it as a slush fund for future contributions and expenses. If all contributions are truly fixed, and not discretionary, then I don't think it's ok to just hold them over from year to year. If you can use them in the same year, fine, but I don't think 2007 deposits can be held and used for 2008 in that scenario. But using them for expenses would be ok, I think, even if it carries over...but I'd accrue them in the year paid.

I agree, doing the "right" thing is going to raise more problems than it is worth. Getting it to the participants and doing it even half-right is likely to cost more than the funds that appeared. You might want to consider having the money paid to the service provider as an expense, the theory being that the net assets all along were $0. And if that windfall makes anyone uncomfortable, then the service provider can turn it over to a charity.

Does anyone have thoughts on whether buying out an ex's share of a house meets the safe harbor definition for purchasing a principal residence? I think it does but figured it was worth a post.

Oh. Sorry, I don't have any cites either way. Not sure what to tell you, but maybe the auditor would be content to just write a scolding cavat of some kind? It really is just impossible to fix.

Unless you have a time machine, it's not really fixable in any remotely practical way. And nobody affected seems to care. I would just turn the page.

It's worth noting that... "Before the effective date of the final safe harbor regulation, the Department will not assert a violation of ERISA based on the general rule that participant contributions or loan repayments become plan assets on the earliest date on which they can reasonably be segregated from the employer's general assets, so long as such contributions or repayments to a plan with fewer than 100 participants have been transferred to the plan in accordance with the 7-business day safe harbor period in this proposal." Full text of proposed rule: http://www.dol.gov/ebsa/regs/fedreg/proposed/02292008.htm

...and assets, and retirement plan assets usually don't count. The system is messed up, but that's way off topic.

Nice try, but I think it's a stretch. If the plan was effective 1/1, and participants satisfied eligibility on that date, I think you have to say they are participants on that date. (Especially if there is a profit sharing feature, used or not.)

I stand corrected!

They were never different (salary deferral vs. PS) for purposes of rollover. Hardships (in general) were eligible for rollover before RRA 98. [Wrong! Note correction in later post.]

I wouldn't be concerned. I'd rather the plan say that forfeitures occurred upon distribution, instead of the end of the year, but the physical moving of money during the year instead of at the end isn't a problem, at least in my opinion.

Definitely the plan; the way it is supposed to work is that the plan issues a 1099-R for the taxable/non-rollable amount, and the IRA issues a 1099-R indicating a refund of excess contributions (non-taxable, ignoring earnings) so there's one taxable event. In this case, it's not clear if the 1099s from the plan are to be issued for this year or some prior year, and if for a prior year, isn't it too late for a distribution of excess? And if for this year, but the money was rolled in a prior year, I don't know that the IRA custodian will let it come out as a return of excess if there was no actual contribution for the year in which the excess supposedly occurred.

An employer allowing an employee to stop plan loan payments through payroll deduction is not forgiving the loan. I hesitated before posting the sob story, because I don't think that this decision has anything to do with facts and circumstances. But as an employer who refused to stop withholding loan payments, I wouldn't want to be sued by someone in that circumstance (I think I'd lose). I suppose if your loan agreement language is so strong that it says you must continue loan payments under any and all conditions, then you're ok, but again, I doubt it says that. (Mine says "Payroll Deduction. Payments will be made through payroll deduction from each regular paycheck.") But why should it be that strong (that you can never stop)? Who cares? Loan defaults happen. As long as the Plan Administrator makes a reasonable effort to collect, that should be good enough.

I don't know what your documents say, but I imagine they say "I will make these payments by payroll deduction." I don't think that means "I will make these payments by payroll deduction forever." I think it means "any payments I make will be by payroll deduction." I guess, but how is such a loan enforced? By asking for it, or seizing collateral, right? In the case of a participant loan, there is a mechanism to enforce the loan if it is not paid, and that is to default it. Have you considered that the Plan Administrator is not necessarily the Plan Sponsor? That is, the PA doesn't necessarily have control over the payroll function. Try this: a participant has a loan that is being repaid by payroll deduction. The participant runs into trouble, and cannot afford those payments - if they are continued, the participant will be evicted from their house. Are you going to advise the employer to continue to withhold loan payments?

I disagree. The first statement is not unique to payroll deduction repayments. And I don't know how the second statement can be backed up. IMO, the payroll deduction nature of the loan repayments is an administrative convenience, so the sponsor doesn't have to process checks from participants. I don't think it has anything to do with forcing payments to be continued, unless the election was irrevocable. I'm not saying it's ok to process a loan with the understanding that payments will be stopped. But I don't see how you can prevent someone from making a change to a voluntary payroll election.

Definitely. In this case, not much help, since it appears the sponsor wants a plan for employee contributions. But SEPs and 401(k)s can coexist.

Me too. I'd argue that it's not a liability until 1/1/08. Just because it arose as a result of a 2007 test doesn't make it a 2007 liability (any more than someone terminating in 2007 and being eligible for a distribution in 2008 creates a 2007 liability). Frankly, I think it's flat-out wrong to treat it as a 2007 event.

I agree. The money left the plan, therefore the RMD from the plan was satisfied. But, it was not eligible for rollover, so the proper correction is to issue a revised 1099-R showing the RMD as not being eligible for rollover. It's happened to us once, maybe twice, although I think we've always caught it before issuing the 1099-R and simply filed it correctly in the first place (and of course notified the participant and told them to take the money out). It's really not that big of a deal.

Problems? What problems? Haven't you heard the Fidelity radio commercial where some guy goes to Fidelity and rolls over his 401(k) over his lunch break?