rlb64

Mike, Yes, it does lend more support. Thank you.

Tom, you're the moderator and can certainly end the conversation. But I don't think the question is whether the $600 will be considered catch-up for the next plan year. I think the question is, if this person stopped contributions by 12/31/06 contributing the full $20k (which he must to get the $600 catch-ups) and he is subject to an adp refund come 10/31/07 of say $1,000, would the $1,000 also be considered catch-up for plan year ending 10/31/07? I think this is rarely an issue because such a person is unlikely to be subject to a refund. We also don't normally see 401k plan years ending early in the year.

Boy, I would think the conservative position should be Buckaroo's position. The reg section Mike sited relates to "timing." It would seem to me that if the intent was to classify catch-ups only on a plan year basis, then couldn't we have simplified the 402g catch-up determination on a plan year end basis - w/o regard to the most recent calendar year end? The regs wouldn't have used the term "taxable years" to determine the catch-up limits. It's my vote that you need deferrals during a taxable year so that they may be classified as catch-ups.

TPA decided to take responsibility for corrective contributions due to mishandling ADP tests. TPA deposited corrective contributions directly to the trust. It's my understanding that corrective contributions are normally deductible contributions unless the correction is a "restorative" payment such as restoring investment losses. Can someone help me sort through the implications of the TPA making this nonrestorative correction on behalf of the employer?

2 related employers maintain their own calendar year 401k plans and the plans aren't aggregated for testing. Both don't have matching contributions. One employer has a safe harbor 3% and the other employer's plan is a nonsafe harbor plan subject to normal ADP testing. The employers now wish to merge the nonsafe harbor plan into the safe harbor plan before the end of the year. Can this be done? We assume the merger will allow short plan year ADP testing through date of merger for the nonsafe harbor plan. What are the issues?

The formula in this agreement is a little complex, but let's say this separate agreement provides 5% of pay. This HCE received 3% normal plus 5% additional or 8% of pay as a safe harbor allocation, while everyone else received 3%. They did this every year since 2002.

Employer established an agreement with one HCE that provided additional compensation each year calculated like a profit sharing allocation, but not intended to be deposited into their 401k. The purpose was to compensation the employee for the employer's decision to replace the plan's profit sharing with a straight 3% safe harbor. Safe harbor and this agreement was effective 2002. Staff misinterpretted the agreement and has been each year contributing this additional compensation as an additional safe harbor contribution to the 401k. Employer has approximately 300 participants Do we have to go VCP and $5,000 submission for this?

I don't understand this discussion. I thought the cash-out and automatic rollover rules don't apply to death benefits. You can force any death benefit amount in cash to a spouse or non-spouse (with exception to the QPSA rule of course).

Any effort to eliminate the employer as fiduciary over individual accounts is a step in the right direction. The relationship should be between the individual and a provider of choice. On the other hand, employers will want to continue the contribution, vesting and eligibility flexibility that they currently enjoy. I don't see the necessity of forcing a canned, simplified set of options. We should be able to create the technology to implement certain employer discretionary provisions/limitations. We've also seen many proposals recently to eliminate 401(a)(4) and average benefits testing, but I'm not hearing a good enough argument for this necessity. I agree with the Bush administration that we should work toward merging, 401k, 403b, 457(b), and IRA deferrals into two types (employer and self). Elimination of employer sponsored health plans is also a step in the right direction. Individuals ought to be able to manage their own health care with a provider, but any solution should allow employers the option to help with premiums. I would argue a better alternative to tax deductable premiums is to make the employer paid premiums includable as taxable income on W-2 (as though just regular taxable wages), and then allow employees manage deductibility of all premiums when employees fill out their 1040's.

Were they related employers during 2005? How can it possibly pass ACP if you're bringing in a whole bunch of 0's from the nonmatch plan into the ACP test?

I believe benefits, rights and features testing applies on a current basis, not looking at what occurred throughout a plan year. So, since BRF passed for each plan while they were unrelated, then there is no BRF testing for that plan year. On the other hand, I think there is a difference if you had 2 related employers merging their plans during the year. If they chose to aggregate for ADP/ACP testing, then I think there would be a BRF issue - for the portion of the year that each maintained separate plans with different match formulas.

Employers A and B are members in a controlled group. Both have separate 401k plans and separate recordkeepers. Employer A's plan passes coverage using average benefits testing with ratio % barely above safe harbor. Employer B's plan passes coverage easily w/ ratio above 70%. It has just dawned on one of these employers that they could pass ADP and ACP testing if they permissively aggregate the two plans. As the employer A recordkeeper, I asked them to send us a copy of the other plan document and noticed some plan differences such as different vesting, different deferral election limit, one has an early retirement age, one has an inservice provision and only one allows for auto rollovers. Since we're exploring permissive aggregation, it would appear the plan would become subject to BRF testing. The way I understand BRF, it appears the tests on these differences pass simply because both independent coverage tests have a ratio % greater than the safe harbor. That is, we don't have to do anything special for benefits, rights and features. Is this correct?

It's my understanding that timing would be tax return due date if the employer wants it deductible for the tax year that corresponds with the plan year. However, if the employer misses the deadline, the contribution could still be made and be in compliance as long as 415 limits aren't violated. It's just that it's deductible in the next tax year.

What are the employer's options as far as implementing auto enroll? Obviously, the employer can apply auto enroll to new hires. But, how can it be rolled to those who already met eligibility? What about those who previously elected out or elected a % less than the default...can we make them reenroll?

In general, I understand the due date for the final 401k regulations amendment is the employer's tax return date for calendar year plans. On the other hand, plans are required to amend by end of plan year if the amendment is discretionary. Would the election of the additional safe harbor reasons for hardship withdrawals be considered a "discretionary" amendment? If a client's final 401k amendment contains these new reasons, is that piece of the amendment considered late?

I have the same situation. The ERISA Outline book refers to Q&A-38 of the IRS’ Q&A session at the 2005 ASPPA Annual Conference held in Washington, D.C. Where can I get a copy of that? I'm an ASPPA member and don't see it on the website? Anyone know?

Plan's revenue sharing $ have been used to offset monthly admin fees paid by the employer. The admin fees are based on # of participants and total participant assets. Client changed its mind and has decided to begin charging terminated employees the per participant and asset fee. They choose to only pay admin fees for the active employees. However, revenue sharing $ will continue to offset the employer's charges. My concern with this arrangement is that the terminated participants will essentially pay inflated admin fees because their assets are being used to fund a portion of the active participant fees (via revenue sharing) and again used to fund the terminated participant admin fees. We are not crediting any portion of the revenue sharing $ back to the terminated participants. Any problem with this?

I'm surprised that we haven't gotten sophisticated enough to see more trading flexibility as we see in IRA's, especially in light of web technology. I realize a plan can have brokerage accounts, but why can't we have daily val recordkeeping covering any number of mutual funds and stocks, without the need for a side account? Why can't I choose a fund I liked before my employer changed recordkeepers if it may also be traded by the new custodian? Why can't investment election forms allow the choice among the 1000's of mutual funds that might be available? I would personally like to see our future 401k plans change the definition of a plan's fund menu to a list of suggestions, not limited options. If my E-trade account can value each of my 5 different brokerage accounts all linked together under my name (on a daily basis with no custodial fees), 401k plans should be able to offer the same technology for each of my 401k sources. My E-trade account also allows me to choose investment advice from E-trade. Why can't I choose to pay my 401k custodian or any other investment professional for that matter for investment advice for my 401k accounts - without running into fiduciary liability concerns? My account can just be linked to any investment professional given access by me! I also find it interesting that all plan sponsors have to go through the expense of 5500 audits when I don't believe E-trade has to go through any type of finanial reporting for its daily valuation. Why can't the 5500 Schedule H be limited to one audited filing by the recordkeeper for all participants/employers? I think if we see more separation from fiduciary control and liability, the more people will appreciate 401k plans. These are the questions I would add to this economics paper...

This new guidance just makes this calc even more burdensome. It makes no sense to have one calc for determining the penalty and another for corrections. It also doesn't make any sense that corrections under VFCP may rely on the DOL calculator, but not corrections via the 5330 route. It also drives us nuts trying to calculate lost earnings on employer contributions, such as the match on these late deferrals. One has to refer to EPCRS for guidance for that which says use plan rate only, but no losses. I think all of this is insane. Does anyone else? Why can't we just say the DOL calculator can be used for any earnings adjustments and penalties and be done with it???

If the plan administrator merely forgets to hand a 401(k) enrollment form and spd at time of entry to a new participant, does the IRS view this is an operational failure, subject to the required employer QNEC. The participant didn't know her rights under the plan, but she was never denied the opportunity to enroll.

Is there any benefit to using a standardized adoption agreement anymore as opposed to having the exact same provisions on a non-standard agreement?

They want to encourage 401(k) deferrals.

Client contributes 7.5% profit sharing to NHCE's and around 12% for certain HCE's. They wish to add a safe harbor match to remove adp testing, but they still want everyone to have at least 7.5% total employer contributions. They through out the idea of the profit sharing offset by safe harbor matching contributions. Any suggestions?

What is the account balance for determining maximum loans in a balanced forward plan if a participant has been paying on a current loan? Is the participant's loan interest paid as of the most recent valuation date added to the account value on this valuation date? Loans are a participant directed fund.

Absent any IRS/plan guidance, I don't see the risk of disregarding earnings and just accepting the participant's withdrawal request of the excess amount. The amount will be paid prior to 4/15 which I would think avoids the double taxation.