Santo Gold

An owner of a small 401k plan passed away. He was age 55. Divorced from his spouse so he named his 2 children as beneficiary. If both are under age 18, what distribution options are there? Can they legally make a decision in regard to this matter? Do they have the opportunity to have the account rolled over to an IRA? If one is under 18 and the other over 18 (assumed that they are 50/50 beneficiaries) we can treat 1 beneficiary different from the other, correct? To make things more interesting, the deceased participant had an outstanding loan in the plan, total still outstanding of $18,000. How does that factor into the mix? Thanks for any comments.

The IRS has rules regarding which 403(b) accounts "must" be included as part of the plan for compliance purposes. These are different from the DOL's rules on which participant accounts must be included on a Form 5500; where transition relief is a big factor when there aren't any additional deferrals being made to the contracts after 2008. Of course they are, given there are few exceptions to the universal availability rules on deferrals. Not now. A 'termination' is followed by a full distribution of assets within 12 months. 403(b) plans have historically had problems terminating because of this provision. Also, there is still some back and forth on distributing the accounts for several brokerage accounts under 403(b)(7) where the IRS rules allowing the employer to distribute the contract isn't necessarily supported by the state laws governing the brokerage accounts. I am not sure where this has evolved, but it appears to be a non-issue since the plan is not terminated. You're not going to move a participant's contract to a new provider without the participant's consent. Remember, the IRS has rules on which plans must be considered as part of the plan for compliance purposes. These contracts will likely continue as part of the new plan and will not move until the particpiant actually makes an election. Good Luck! Thank you for the in-depth reply. Unfortunately, it appears that they do not have much in the way of options. They cannot terminate the old plans and they cannot merge the old ones into the new one. Is there no way to get rid of a 403(b) plan? The assets are held with a large insurance/investment provider. One of their reps was suggesting having the assets converted into paid up annuities, which (somehow) would be beneficial. Do you know anything about why this would/would not work? Thanks

An employer has 2 "old" 403(b) plans. Both plans have around 60 participants with account balances but no new contributions have been made into the plan for years. I believe it was frozen to not allow new participants/deposits about 5+ years ago. The same employer sponsors a new 403(b) plan with different investments. I believe all employees are eligible to participate in this new plan. Can the employer terminate the two old plans and allow the participants to either (1) roll their balances into the new plan (2) take their account as a cash distribution, or (3) leave their account where it is but turn it into an IRA. Alternatively, can the ER merge these 2 old plans into the new plan, moving all the old money into the new plan without participant consent? Thanks

Thanks very much.

Controlled group exists between Company A and B Company A now wants to purchase Company B. Company A owned by Mr. X, Mr. Y, and Mr. Z. Company B also owned equally X, Y and Z. Can Company A, as part of the buy out, offer a non-qualified deferred compensation plan to Mr. X only, and not to Y and Z? Thanks for any replies

Last year, and the plan sponsor received a QDRO for a participant, who also happened to be the owner. QDRO was adhered to but incurred some significant legal expenses in handling the QDRO, which was paid from the plan. the assets are pooled so everyone was affected by this expense. The owner realizes now that wasn't really the best way to handle the expenses and wants to deposit the amount of the expenses into the plan from an employer account. (1) Can the employer do this? (2) if so, is it correct that the ER cannot make a deposit and treat it as an ER contribution for deductibility purposes (o/wise it woudl have to be allocated as an ER contribution) (3) Can the ER deposit the amount into the plan and claim it as a business expense? (4) If "No" to 2 and 3 above, can ER simply deposit the amount to make up for the expense and not take any expense/deduction for the deposit? thanks

4/17 it is. Thanks for all comments

We have a 6/30/2011 403(b) plan that was put on extension. The 5500 was completed over a week ago but the exec. director did not tell us that he would be out of the country and unavailable all last week through 4/16. He returns 4/17. We filed a 5558 back January. Not realizing that the extension period could go through until 4/17, we filed it with a requested extension deadline of 4/16. However, they received a confirmation back from the IRS, but it stated that the extension was good until 4/17. Given that it would be almost impossible for it to be signed today anyways, would you agree that we are OK filing this on 4/17? Thanks

We had an adopting ER of a plan take effect 1/1/2011. There are two 5% owners of the adopting ER, but they have no ownership in the plan sponsor's business. Are they Key/HCE in the plan? I think the answer is yes. But, since they have no ownership in the plan sponsor, maybe not? Thanks

Life insurance allowed in 403(b) plans? Does it matter whether it is an ERISA or non-ERISA plan? I thought the 2009 403(b) regs prohibited life insurance in these plans. Thanks

Answers: 1 Its permissible if the adoption agreement for the plan permits adoption of a discretionary formula. 2. Its valid as long it is not discriminatory in favor of HCEs under the rules of 401(a)(4). Always permissible as long as only NHCEs receive the additonal contribution. 3. see #2. If answer is no then employer can pay $5,000 bonus as W-2 income which employees can contribute as elective contribution to 403b plan or to a 457b plan. But there would be a problem if we did write the formula into the document and in a year in which an HCE were to receive this contribution, the plan would fail 401(a)($). Sure, the HCE could bonus the amount in via payroll reduction as you suggest, but the document still calls for this individual to receive a $5,000 ER contribution. I don't think we could simply not give the HCE the $5,000 while giving the $5,000 to however many NHCEs are eligible. That would violate the plan document, wouldn't it?

403(b) plan with a profit sharing component. There are 2 HCEs with around 120 NHCEs in the plan. The ER wants to add a provision in the document that in the 13th year of participation, a special $5,000 profit sharing contribution will be made to those individuals in their 13th year. I'm not sure if this is in addition to the regular PS contribution or, for those 13 year participants, this takes the place of their PS contribution for that year. (1) Can something like this be written into a prototype-style document? (2) Is this a valid contribution formula (3) What if in year 13 both HCEs are eligible and maybe only 5 NHCEs are eligible. Would that still fly? Thanks for any comments.

1 Life PS Plan with only the owner in the plan. He has $300,000 invested in mutual funds plus an insurance policy that has $100,000 in cash surrender value; everything is pre-tax. He wants to terminate the plan and roll over all assets into an IRA. I believe that the insurance cannot be rolled into and IRA. Therefore, the only options are to: (1) either cash in the policy (while still in the plan) and roll the cash value of the policy into the IRA along with the other non-insurance assets, or (2) take personal ownership of the policy outside of the plan. Questions I have in regard to Option #2: ** We are told that in order to avoid any tax consequence on the insurance, that the individual must contribute $100,000 in after tax-money into the plan. By doing so, this "balances" the idea that the cash value in the insurance policy, now held outside the plan, is not taxed now (at the time of distribution) nor at a later date when/if the participant wishes to terminate the policy and receive the cash value. In addition, the plan now has $400,000 in non-insurance assets in the plan and can roll the entire amount over into the IRA. Is this the correct way that these are handled? ** If the participant does not want to pay the $100,000 into the plan but still take personal ownership of the policy, he can do that, but the cash surrender value becomes fully taxable when the policy is transferred out of the plan. Does that sound right? Thanks for any replies.

I could really use some support on several questions I am receiving from a non-profit that sponsors a 403(b) plan. The answers seem obvious but to the individuals involved, they are taking a very basic look at things and are questioning everything. The plan is as follows: An ERISA calendary year 403(b) plan fiscal year = calendary year 21 & 1 with eligibility for ER contribution with monthly entry 1000 hours needed to share in the ER profit sharing contribution, but no last day requirement no match contribution individual accounts for all participants The questions center on: (1) What is the deadline for depositing the ER contribution? That is, for 2011 plan year, what is the latest that the organization has to deposit the ER contribution? Because this is a non-profit, the normal 3/15 deadline does not apply, correct? (2) Several individuals are asking why the ER contribution is not deposited on a more frequent basis, at times hinting that it gives the appearance of something not being legit in that the organization is holding onto the ER contribution for so long. Obviously the EE contributions go in immediately, but what support can I point to so as to demonstrate the ER contributions are treated differently from EE contributions and do not have the same deposit deadlines. The 1000 hour requirement is an obvious reason that they should not deposit quarterly since if they deposit for someone who doesn't reach 1000 hours, they have to end up removing those dollars. But their biggest concerns involve the ER deposit. The HR person deposits annually within 3 months after year-end. That seems perfectly fine, but others do not agree. Thanks for any comments

Thank you for all replies.

We have a small 3 person 401k plan. Husband and wife are owners with one other eligible NHCE. The plan year and fiscal year are calendar. Can the 2 owners delay depositing their personal 2011 401k contributions into the plan well into 2012? I know that sole props and partnerships have until 4/15 ((I think) to make that deposit, or at least until their income for the year is determined. Does something similar hold for S-Corp owners? Thanks

We had a participant recently pass away in a 401k plan. The individual was recently separately but did not remarry (not sure if he was divorced). We only have one beneficiary form completed by the deceased participant and he named his then-wife as the sole beneficiary. The new girlfriend is now calling up asking for the account balance because she is certain that the deceased named her beneficiary. When we explained that there is no paperwork to support her claim, she is getting upset and wants to know who is the beneficiary. Does she, or anyone else, have the right to know this information? I wouldn't think so, as we only really need to speak to her about this if she has some "proof" that she truly is the beneficiary. Is that correct? A similar question: what if the deceased individual was divorced and remarried, but never changed the beneficiary form. Would the new spouse still get nothing? Thanks

Any thoughts as to how to proceed on this are appreciated. 401(k) Plan was started in 2003. The plan used a national volume submitter document that has an IRS advisory/opinion letter. The document was timely amended and then in early 2010, restated to an EGTRRA. They were advised to file for a determination letter with the EGTRRA document. After a years review, the IRS reviewer noticed that they do not have a signed copy of their GUST (which was also their initial) plan document. No one can locate the signature pages for this document, neither are there any Minutes or a Resolution from 2003 showing that the plan was actually adopted. What options do they have now: I think they need to go through VCP as that would be the best remedy. However, in regard to the determination letter filing, what do we do now? The agent cannot issue a letter without the signed pages. Do we just ask that the D. Letter request be withdrawn and the IRS will let it go at that? Or do we now tie the VCP filing to the det. letter request? Alternatively, has anyone had any luck with drafting a letter from the current board stating that it was the Sponsor’s intent to adopt the amendment at the time, that the signed document cannot be located, and that the plan was operated in accordance with it since then. Thanks

A small company (15 employees) has all union employees (all CBA). The CBA provised retirement benefits for all individuals through a larger, multi-ER plan. This includes the 2 owners, who are also in the union and participate in this union plan. Can the owners still establish a separate retirement plan for themselves? If they craft the eligible class of employees to exclude all CBA employees, except for owners, that would work in the document. In fact, since they are owners and not really employees, we could probably leave it as simply excluding all CBA employees. But would this work in reality? Since the rank and file can be statutorily excluded, can we play mix and match to bring make the 2 owners eligible and not have to worry that we are not bringing in any of the rank and file? Thanks

If she is taking the entire 10 as a taxable distribution she will be subect to 20% withholding tax on the $2000k pre tax earnings or 400. She could then roll over $2000 to the new employers plan using $400 of her own funds and convert $8000 to the roth. She could also reduce her w-2 witholding for the rest of 2011 to offest the $400 taxes withheld. This solutuon assumes that her entire distribution from the 403b plan consists of $2000 in pre tax funds and $8000 in after tax contributions. It also assumes that the plan treats the amount contributed as after tax contributions as a separate plan from any employer contributions for distribution purposes. There is no 10% penalty tax if all taxable funds are rolled over. What if she wants to take the after-tax just in cash. Is it correct then that out of the $10,000 distribution, she would receive a check for $9,600, with $400 going towards taxes. What is the 10% early distribution tax applied to, $10,000 or $2,000?

Participant age 49 has both 403(b) and after-tax (non-Roth) ee money in a 403(b) plan. She has left employment and now wants to roll the money from old employer to new employer. New employer will accept the 403(b) and employer money, but not the after-tax. What can she do with the after-tax money? She doesn't need the money right now and does not really want to take a cash distribution. A roth IRA might be a good fit. But she would be taxed on her after-tax plan earnings, correct? I'm not sure how much we are talking about, but lets say the earnigns amount to $2,000 and that her overall after-tax account has $10,000. So if she rolls to a Roth IRA, She rolls the entire $10,000, but is taxed on $2,000? In other words, she has to pay tax on money that she really will not get her hands on? That's a little tough. Is the alternative to roll $8,000, take $2,000 in cash and pay tax on the $2,000, but you now have money for the tax (because you are taking $2,000 in cash)? Finally, due to her age, is there a 10% early distribution tax and if so, how does putting money in the Roth affect that? If she put the entire $10,000 into the Roth, would she avoid the 10% tax? If she took $2,000 in cash, is only that portion subject to 10%? Is nothing subject to the 10% because it is after-tax regardless of what she does with the after-tax monies? Thanks for any comments.

Sieve - that is informative, but can you clarify by what is meant by "climbing aboard by 10/31/2011"? Does the 10/31 deadline apply to plan sponsors who apply for a determination letter for their specific plan, or is this more, for example, for a TPA firm that uses a Corbel document but has the document in their name? If the latter, what is it that must be signed, sealed and delivered by 10/31? Thanks

We have a larger employer who has well over 500 employees and who sponsors a 403(b) Plan. However, about 80% of those employees have less than 1000 hours. Since 1000 hours is roughly the difference between being over/under 20 hours/week, is it safe to say that the employer could simply exclude all of these individuals from the plan, even the employee 403(b) contribution? I assume that when these individuals are hired, a determination has to be made (and applied consistently) as to whether the individual will be over/under 20 hours/week in order to determine if they are in the plan. Is this how it is handled? Thanks

A participant in a 403(b) plan passed away some time ago. We obtained the death certificate and the spouse is listed (Mrs. A). However, we have a copy of the enrollment form from when the individual first enrolled in the plan (many years ago) and a different individual is listed as beneficiary (we're not sure but it appears to be his first wife, we'll call her Mrs. B). Is this as clear cut as I think it is? Unless Mrs. A signed a waiver of beneficiary form, she is the rightful beneficiary, no questions asked, correct? Mrs. B may be listed as the beneficiary and may have been his spouse at one time. But that automatically goes away when he married Mrs. A? Do you see any reason why we should not pay out Mrs. A? Thanks

50 life 403(b) plan with 2 HCEs. They failed the ACP test pretty badly and both HCEs will need to take distributions of the excess match contributions. But the match is a 100% fully vested match. If this were a 401(k) plan, I could test the match together with 401(k) contributions in the ADP test and maybe get a combined passing result. Is that option available with the 403(b)? Since there is no ADP test for a 403(b) test, I simply combine the 403(b) elective deferrals with the fully vested match. Now the match is not subject to testing and voila, no 401(m) test or problems. I'm sure this won't fly but was hoping someone could confirm one way or the other.