Bird

Correct. This just allows beneficiaries to get money out of a plan and take RMDs from an IRA instead of from a plan. It could potentially allow for longer payouts (e.g. if the plan required lump sums to benes), but only in comparison to the old plan rules, not in comparison to an IRA.

I agree with RTK 100%. As for this... I think NW puts a hold on all distributions if the plan is term'd, but that's only to make sure that CDSCs are paid properly. They do process distributions. It's John Hancock that wants to send the money to the sponsor (or charge some exhorbitant amount to do what they should be doing anyway).

No. The thinking is that without the amendment to add participants, if you made the extra contribution, other (existing) participants would get more. If you do the amendment, then the existing participants will get less than they would have otherwise. It doesn't matter that you had a contribution of "X" in mind and want to increase it to "Y" by adding participants and money.

Yup. I can't provide a cite but have seen it referenced in a couple of summaries - it's part of the EGTRRA provisions that were made permanent.

I agree; it should not require a restatement. The final 401(k) reg amendment is the trickiest part right now; I think most document providers have such amendments available, but there's no guarantee that the IRS will accept them. It's probably best to submit on a 5310.

I think you're right on both counts.

Sorry, my earlier post above was flat wrong and I deleted it to avoid further confusion with later readers.

mjb-I've done a little more poking around, and it's pretty clear that they're trying to increase returns by going into these other investments, not reduce losses. But again, that seems to be more of an issue relating to DB plans, not the plan in question. However, there may have been some residual unhappiness with the performance of the DB investments that made this plan ripe for change simply because it's also a retirement plan. I get the general sense that it was just time to move to a daily-val'd environment for this plan. I'm not sure I disagree with that, but I think they could have done better. Not knowing who made proposals, I don't know if this is the best one or not.

Something's not making a lot of sense. mjb says "The state wanted to get out of the retirement plan asset managment business because state employees investing the state retirement funds managed to lose 20B in pension assets out of about 80B..." But this article: NY Times July 06 says "With a new emphasis on diversified investments like hedge funds, emerging markets and commodities rather than the traditional mix of stocks and bonds, the proposal will transform New Jersey from being one of the most conservative states to one of the most aggressive, along with New York, California and Oregon." which I find inconsistent with mjb's comment. However, the article also says " After the collapse of technology stocks in 2000, the value of the state’s fund shrank by about a third. Other state pension funds also lost money at that time, but many finance experts criticized New Jersey’s for being one of the few public retirement funds being managed by civil servants." which is more in line with mjb's comment. But, aren't we talking about a self-directed 457 plan which makes the funding status of the DB type plans irrelevant? I think Joel raises good questions. I don't know enough about the plan and how it was run to pass judgment.

Minor detail. You probably need to get a Form 945 in to the IRS to reconcile the withholding. I would have the client call to at least try to get the refund stopped. Also, as suggested, do a 1099-R now. Good luck and be prepared for some headaches.

No. But in my experience, you can ask for abatement of the penalties and get it. The last case we handled was, I think, two years ago, but I remember others saying they've had the same positive results more recently. I suggest the letter say that the client didn't know about the requirement, has voluntarily complied, and has taken steps to assure future compliance by hiring a TPA. If they ignore it or otherwise continue to ask for the penalty, don't give up; send it again.

jpod- Anything in writing is sufficient, IMO. An enrollment form looks the best, but I think it's perfectly OK to just scribble a note, as long as it covers the important points ($ or % to defer, for which pay period, plan name, employee name). I don't think it has to be notarized or even witnessed. And it doesn't have to go anywhere other than his/her own drawer. As for policy considerations...a lot of what we do seems (is) silly, yet this makes perfect sense to me. I can't explain that thinking.

The problem with the indemnification and potential additional deposit to the account from the employer is that it would/should be treated as a contribution to the plan, and then it should be allocated to all participants according the plan terms. If it's a small amount, I am comfortable ignoring this and just having the employer expense it as admin cost or whatever...I don't think it's going to show up on the trust report at all, so it's unlikely to come up as an "issue" at a later date. I know that's not "right" but at some level you have to be practical and recognize that innocent mistakes can happen and you just fix them as best you can. (But was the withholding deposited already? If so, then it gets really ugly and I'm not sure I have an answer, practical or not, for undoing the whole distribution.)

Be careful on this one. When the mutual fund company says they want you to indemnify them, they mean that they will undo the transaction as of the original effective date, and if that means that the account would have been worth more as of the date the original money is returned, they'll send you a bill for the difference (i.e. the scenario that PIP noted - I apologize if this is obvious). It should be easy enough to just return the check and buy back shares at their current value; i.e. the participant bears all the risk, but in my experience, the fund companies won't do that - it must be undone as of the inception date. (Although it's worth a phone call to ask and clarify that point.) There must be withholding involved, right? Otherwise, if permitted, the participant might be able to just roll it back and start over.

Let's change the facts slightly and see if this makes anyone feel better. Assume it's an ongoing plan and this participant is still employed but is entitled to and has requested an in-service distribution. I don't think he's reached his required beginning date and therefore none of the distribution is a required minimum. See the reg cite below; "retires from employment" is the operative phrase and that hasn't happened. In my example, he's actually accelerating his RMDs by taking the money out (since RMDs will be required from an IRA in the following year if he rolls over; no RMDs if he leaves money in the plan). Pretty much the same logic applies to a plan termination, IMO. ______________________________________________________________________ Reg § 1.401(a)(9)-2, Q&A 2(a) Q-2. Pension For purposes of section 401(a)(9)©, what does the term required beginning date mean? A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph © of this A-2, the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 701/2 or the calendar year in which the employee retires from employment with the employer maintaining the plan.

I don't think he has an RMD from the plan at all as long as he is still employed. I don't recall anything about plan termination triggering an RMD.

It says not to use the 5305A-SEP "if you currently maintain another plan" and I'd be comfortable taking that literally - that is, terminate the SARSEP and start the new plan now. I would just make sure to monitor the 402(g) limit as you noted.

I can't quite remember a case to look it up, but I think if you're going to accrue the expense, you have to show it as an (other) expense and also show it as a liability, otherwise you won't reconcile.

I've never had a problem and can't imagine not getting it settled, quickly, if it's raised on audit. It's just plain wrong.

If the plan says that forfeitures can be used in the year in which they occur or a future year, we'll just leave them in suspense. If they have to be used in the current year, and the payment doesn't get made for one reason or another (gasp), we'll accrue an (administrative) expense which uses up the forfeitures, and creates a liability that goes away when the expense is paid in the following year.

Thanks for all the replies; this was helpful.

As a participant, you can have an allocation of 100% of compensation (net earned income), but as an employer, you can't deduct more than 25%, so that will be your limiting factor. If your profit before plan contributions is $30K, then you can make an employER contribution of roughly 20%, or $6,000, and a 401(k) (employEE) contribution of $20,000.

The plan sponsor will select the advisor. Thanks for the feedback so far.

I'm the TPA for a 401(k) plan that is considering changing their investments. They have about 25 participants, all with individual brokerage accounts (it's not as bad as it sounds, but obviously there's room for improvement). One of the things they're considering is using a fee-based advisor (hourly) to advise the participants and assist them with investments offered under a mutual fund platform. I always thought that this arrangement would make the advisor a fiduciary and that no one in their right mind would want that. But I thought I'd throw it out there for discussion - is this common/uncommon, problematic or not? I guess the new pension bill, if it ever gets passed, may have some relief in it, but I'm sure that this particular advisor is not even aware of the issue. Any comments welcome.

I think the idea is that you have a special amendment dictating how this one-time contribution is allocated. Yes, there are potential pitfalls with allocation requirements, document form (std prototype is not conducive to this situation), etc.