mariemonroe

First of all, thank you all for your comments. They have been helpful. Let me give you a few more facts. The employer has signed a consent to terminate and the plan has been submitted to the IRS. The IRS has approved the termination. The plan assets consist of 95% cash and 5% real estate. The plan has been trying to sell the real estate for ages with no takers. The plan intends to distribute the majority of the cash ASAP. The plan will retain some of the cash to pay for various real estate related expenses such as property tax, etc. After distributing a majority of the cash, can the plan (or trust?) continue to exist for purpose of holding and attempting to sell the real estate? The plan would continue to file 5500s until the real estate is sold and the proceeds distributed. Is there a problem with this? I should add that I am trying to avoid having the plan create a liquidating trust to hold the real estate and issuing certificates in such trust to the participants. Thanks again for your comments.

Has anyone ever terminated a plan and not immediately distributed all of the plan's assets? It has always been my understanding that a plan must complete distributions within an administratively feasible period of time following its termination or else it was considered to be an ongoing plan subject to qualification, funding and reporting requirements. Generally this means the plan must complete distributions within a year of its termination, but the plan may wait until it receives a favorable determination letter until making final distributions However, the instructions to Form 5500 seem to contemplate a situation in which a plan terminates but does not distribute all its assets within a year. Specifically, page 7 states: "If the plan was terminated but all plan assets were not distributed, a return/report must be filed for each year the plan has assets. The return/report must be filed by the plan administrator, if designated, or by the person or persons who actually control the plan's assets/property." Has anyone ever terminated a plan, but not distributed all of the assets? If so, how long have you kept assets in a plan after "terminating" the plan? Why did you keep some asset in the plan (were some assets illiquid)? Did the plan sponsor continue to keep the document up to date and file 5500s?

401(k) plan permits deferral of compensation. "Compensation" is defined to include salary and bonuses. Plan permits participants to defer salary, but not bonuses. Plan realizes error and, in 2006, allows participants to defer bonuses. Out of 400 or so participants, only 15 chose to defer bonuses. The error has gone on for more than 2 years so SCP in not available. Does anyone have any ideas as to how to fix?

I realize the IRS has said they are not issuing a good faith amendment for the new regs, but didn't they essentially give us the necessary language in the CODA LRMs found on their website? http://www.irs.gov/pub/irs-tege/coda_lrm0106.pdf

How do you fix a plan which has exceeded the incidental insurance benefits percentages (i.e. more than 49% of the amount of employer contributions for a participant have been used to pay premiums on an ordinary life insurance policy for that participant)?

The benefit formula is: 1% of final average monthly compensation times years of service after 6/30/92 plus 3% final average monthly compensation times years of service prior to 7/1/92, not to exceed 5 years of service This plan is general tested. Other plan document info: ...for purposes of determining the Employer's level annual contributions to the plan, it shall be presumed that the lump sum actuarial equivalent at NRD of the assumed pension benefit is based on the 1983 Group Annuity Mortality Table - Male, 7.5% interest and a single life annuity. It shall be further premued that to accumulate to such lump sum equivalent, the annual net average rate of return of the trust assets shall be 7.5%. The Employer's contributions for a participant shjall not be increased or decreased to reflect actual benefits. NRD is: Valuation Date coinciding with or next preceding the day on which the Participant attains his Normal Retirement Age (65), unless the Participant's employment is continued beyond such date in which case the Participant's Normal Retirement Date shall be the Valutation Date coinciding with or next preceding the day on which he actually retires. My understanding from the plan actuary is that once a participant reaches his theoretical reserve he is no longer entitled to a contribution regardless of what his actual account balance is.

The participants who are 65 have accrued their target benefit and therefore are receiving little or no additional contribution. They have no plans to stop working anytime soon and are not satisfied accruing little or no benefit. They are not interested in taking a distribution. Does anyone see any reason I could not convert this plan to a profit-sharing plan? I suppose I would have to issue a 204(h) notice. Thanks for all of your comments. They are very helpful.

I have a client with a target benefit plan with the target age of 65. Many of the employees are working past this age and are upset because they are not receiving any benefit from the plan. Is there any way to amend the plan to enable employees working past 65 to continue to accrue a benefit? My understanding of the target benefit plans is limited but I don't think it is as easy as just changing the target age to 70. I was thinking of suggesting that they amend and restate this plan as a profit-sharing plan (as no one can seem to remember why they have this type of plan in the first place). Has anyone encountered this situation with a target benefit plan before? Any advice? Many thanks.

I have a profit-sharing plan which was amended last year to provide that benefit accurals would cease effective August 31, 2004. Compensation earned up to August 31, 2004 will be considered in determining the amount of each participant's contribution. COntributions are allocated pro rata according to participants' compensation. The 2004 contribution is in the process of being allocated and I have been asked whether the $205,000 401(a)(17) compensation limit should be pro rated in determining the allocation. (This is a calendar year plan year so the pro-rated limit would be 8/12 or 2/3 of the $205,000 or $136,666). Does anyone have any thoughts?

No. The plan provides for hardship distributions. But the participant who is requesting the distribution does not meet the safe harbor for immediate and heavy financial need (i.e. not for payment of medical expenses, educational expenses, payment for primary residence or to prevent eviction or foreclosure). Therefore the plan would base its decision to make the hardship distribution on whether the participant meets the facts and circumstances test. I am trying to determine the consequences to the plan if it decides to make the hardship distribution (under the facts and circumstances test) and it is later determined (on audit) that the distribution was improper. Basically I want to advise the plan of its exposure if it decides to make the distribution without the benefit of the safe harbor. Could the plan be disqualified?

I have a 401(k) plan that provides for hardship distributions. They have a participant who wants a distribution which does not meet the safe harbor events test (i.e. it is not for payment of medical, educational expenses, payment of residence or to prevent foreclosure). If they make the distribution and it is discovered that it does not meet the facts and circumstances test (for example, if the plan was audited) , what are the consequences?

401(k) plan document defines compensation to include bonuses. Many participants earn bonuses on a weekly or monthly basis. The employer has never applied participants deferral percentages to their bonuses. The employer now realizes its error and wants to start applying the deferral percentages to bonuses. Enrollment is coming up and participants will sign new forms in which they will elect to defer and elect a deferral percentage. They will be told that this percentage applies to all compensation including bonuses. My concern is that if the plan is ever audited, the auditor may discover that the plan was not operated in accordance with the plan document in the past. Does anyone have any idea how to fix this?

I have just converted a profit-sharing plan to a safe harbor 401(k) plan in the middle of a plan year. The safe harbor 401(k) plan provides for a non-elective 3% contribution based on an employee's compensation for the plan year. The language of the plan implies the compensation taken into account is the employee's compensation for the entire plan year (1/1 - 12/31) even though the plan became a safe harbor 401(k) plan on 6/1. Has anyone had any experience with this before? What have you advised clients to do in calculating the safe harbor contribution in such a circumstance? Thanks

I am drafting a Safe harbor 401(k) with 3% non-elective contribution. The employer wants to include an in service withdrawal provision to allow participants who are 60 and still employed to make withdrawals from their accounts. Our document is set up to list the accounts from which they can withdraw funds. Is there anything preventing withdrawal of safe harbor contributions? Thanks.

Is it possible to have a one person C corporation medical reimbursement plan?

I have just restated a profit-sharing plan which received a favroable determination letter for GUST to add 401(k) provisions. Both are volume submitter documents. My question: should I submit the 401(k) plan for a favorable determination letter now or should I wait til it must be updated and submitted in the new proposed staggered remedial amendment period?

I don't think it's the investment options that the employees are concerned with. I think it is their comfort level with the company in charge of administering the plan. i don't know how to define the groups. I suspect there would be a coverage issue that would require constant monitoring. any thoughts?

We have an employer who would like to offer two 403(b) plans. One would be through TIAA-CREF and the other would be administered by a local company. The employer wants to do this because half of its employees prefer TIAA-CREF while the other half is more comfortable with the local company. Is there any reason (besides the obvious administrative hassle) that would prevent them from being able to do this?

Some answers and a little background: There is no Collective Bargaining Agreement. The employer pays for work for the entire month on the 15th of the month so technically the participant was paid for 8/31 but I think the employer could ask that the participant return the payment for that day. (The participant wanted his last day to be 8/30 because he had a new job beginning on 8/31 but we are not poitive he actually began working for his new employer on that day) The plan document requires 1000 hours of service and employment on last day of plan year to receive an allocation (except for death, disability and normal retirement age which don't apply here) and hours of service are defined to include hours of days when an active employee is on vacation. We are working with the employer to figure out what there policies are - I suspect they either don't have one or have a very lax policy. My feeling is that if you quit, you quit and don't get to take vacation. However, because we don't have anything written from the employee as to his termination date, I was hoping there was some rule out there which we could hang our hat on. Does this spark any ideas? By the way, thanks for all of your responses.

A plan participant announced he was terminating employment as of 8/30/04. He did not give a written notice to this effect. The plan has a 8/31/04 plan year end and requires participants to be employed on the last day to receive an allocation of employer contributions. The participant is stating that he should get an allocation because he had unused vacation days. Any thoughts?

I have a situation where the plan sponsor of a 125 plan, health FSA and dependent care FSA is merging with another organization on 9/1/04. I am trying to figure out what happens to the participants' FSA account balances after 9/1/04. I have read the regulations and they don't seem to address what happens in this circumstance. See prop reg 1.125-2 Q&A 7(b)(3) and (b)(8): The period of coverage for a FSA must be 12 months or, in the case of a short first plan year or a short plan year of a cafeteria plan where the plan year is being changed, the entire short plan year. A short plan year due to termination of the plan because the sponsor is being acquired is not addressed. So do participant's lose their account balances on 9/1 or can they still spend the account balances (to the extent they have deferred as of 9/1) for health and dependent care expenses incurred for the remainder of the plan year (til 12/31)? Are there any risks to allowing participants to do this? The plan document does not address this at all. Thanks for any help, Marie