AlbanyConsultant

My immediate concern was force-outs; the participant isn't handing back forms, so they're certainly not going to hand over a check!

A certain fund platform does not allow deductions from the participant accounts to pay for transactions such as loans or in-service withdrawals or distributions. A client on this platform does not want to pay our (very modest) fees for these transactions, feeling they should be borne by the participants. Fund company suggests that the client ask the participants to hand in a personal check with the completed distribution forms. Logically, this doesn't seem very different than deducting the fee on the way out of the plan, but has anyone been doing this? Is there any formal or informal regulatory guidance? What kind of up-front noticing do you give to the participants? I was thinking just an additional line on the Expense Policy. And, yes, I suggested that the client might want to change fund platforms if they feel this strongly about it... Thanks!

Sorry to exhume this thread, but something the OP said caught my attention, and I wanted to make sure I was understanding the process. For DC plans with QJ&SA, we provide them with an estimated annuity calculation based on their age and account balance. If a participant were to ever select this, I'd presume we'd have the broker and plan sponsor select annuity firm AF, and then send AF the check and let AF determine the exact benefit based on rates and circumstances (note that I have never actually seen this happen in 16 years!). At what point is the plan's (more specifically, the plan fiducary's) responsibility over? Do they need to compare insurance companies, review the calculations, etc.? Thanks.

Sorry for the zombie-thread, but... Are the automatic rollovers at plan termination allowed even if the plan doesn't allow them normally? The language in 1.411(a)-11(e)(1) seems to indicate so... thanks.

What kind of time frame do you usually allow to go through the FAB 2004-02 steps during a plan termination? Let's say the initial forms go out certified mail, so that doesn't have to be repeated. And the plan sponsor also attempts to contact the participants using beneficiaries to no avail. What's a "reasonable" time before sending something to the IRS or SSA letter-forwarding services? And, more importantly, what's "reasonable" before just sending the money to a Penchecks or Millennium Trust or someplace like that? I would think you'd want to have that decided up-front so you can put it in the initial letter: "If you don't respond by X, your money will be sent to Y." Thanks!

The plan has an alternate payee who elected to not take his distribution out of the plan at the time of the QDRO. Since then, the plan has increased the cashout limit to $5,000 (with automatic rollovers from $1,001 - $5,000). The AP's balance is <$5,000, so the Trustee wants to pay him out. Everything I see says that the automatic rollover is triggered by the termination of a Participant (with a capital "P"), but does AP fall under that umbrella for this purpose? Thanks.

We got a call from a client whose profit sharing plan has NRA of 60. They now want to increase it to age 65. Ignoring the fact that they want to do it because the owners are now 65 and they want to make everyone else wait for vesting (or maybe we can't ignore that?), is there anything inherently against anti-cutback rules on this? Pretty much everything we've found on the topic refers to "pension plans" (like 2007-69), so I'm not sure if that is meant to cover profit sharing plans as well. Thanks!

I just had a broker tell me that they have an extended date to get the 1099-R to participants of Feb. 15, and that he believes it extends to all 1099-Rs. I've searched for it and can't find anything. Has anyone else heard of this? Thx.

No, she's only 61 and the plan allows no in-service withdrawals except hardships BG5150, I agree that this is a breach - somehow. It's like it's setting off so many alarm bells, I can't figure out which one came first! I have to assume this isn't eligible for SCP, since 100% of plan assets isn't "insignificant". And I just read that the plan's default distribution method is QJ&S...

Owner has a pooled profit sharing plan. In mid-2008, she transfers all the money from the plan account into her personal IRA (which already had $300K in it) under the mistaken belief that she is the only participant remaining in the plan (why she believed this, I don't know). She presumably completed forms from the brokerage house, but nothing plan-specific. She moved ~$250K out which is now worth ~$200K. Clearly, this is all wrong and needs to be fixed. But why and how? I think the best-case scenario is to treat this as a loan that juuuuust slightly violates 72(p). So I'd have her return the amount taken to the plan (which means the company would have to find $50K) and also some reasonable rate of interest for the six months it was out of the plan. But this is a client who will need things airtight and in writing (and in excruciating detail), so I want to make sure I'm using the right methods to correct this. Are there any other alternatives? Thanks.

Is there a way to make after tax contributions (not Roth contributions, but the old, "employee voluntary" kind) into a safe harbor for the ACP test? A broker called with a not-for-profit where the PS allocation is set pretty low. They're down to one active participant now (from 3), so she wants me to add an after tax provision to the plan so the director can put away the max out of her pocket and then roll it to a Roth IRA when she retires after 2009. At the moment, this sounds OK (based on my limited following of IRA rules), but there are other employees, and I foresee the day when one becomes eligible and doesn't put in any after tax money. Massive ACP failure - I'd have to refund the entire year's contribution for the director. I don't think the ACP safe harbor applies here because that's for a company match, not voluntary contributions, right? Is there any way this can be considered safe harbor? Otherwise, it's an interesting idea for a very very limited situation that would have to be monitored very very closely.

What he said. I may as well tell the annuity story: the plan was invested in a managed account, and as I was reconciling one year I noticed that the previous year's deposit never hit. The broker was mystified, too. I called the client, and it turns out that he had overheard at a party that a retirement plan had to invest in annuities, so the next day he called an insurance company and deposited the contribution receivable into an annuity. If that's not a prudent Trustee, I don't know what is. WDIK: the broker claims that he is employing one investment strategy, and the platform is splitting that pro rata to all the participants. So the answer to your initial question seems to be "yes". I know, now you can sleep easy.

La la la la la, I can't hear you...

Hmmm... I have enough difficulty getting information from this particular annuity company (oh, and that's a story in and of itself! ) an on annual basis. I don't relish the idea of trying to re-reconcile every time someone wants a payout. Plus, the employer certainly won't want to pay for the extra work! The broker sold them on the fact that they needed this daily platform to provide another layer of review of the assets. To which I said to the broker, "Isn't that your job?" He was not amused. I counseled against it, but if I wanted to keep the case, I had to give in.

This PS-only plan has a trustee-directed pooled account and trustee-directed individual accounts that are updated as if they were truly daily (up until last week it was fully pooled trustee-directed). The participants are unaware that the accounts are split like this; they only get an annual statement that gives them their total balance as of the anniversary date. Leaving aside how ridiculous this whole set-up is... The plan's written document says that distributions are made as soon as adminstratively feasible after the anniversary date, but in practice they've paid out most of the participant's balance right after DOT (usually ~75%) so the participants didn't whine at them and then the rest after the annual valuation was complete. Now with this new set up, we're looking to make the document/SPD match what they do (and they're willing to change what they do a little to work with the document, how nice). They also want all associated distribution fees to be paid by the participant (since this is new, I know I've got to provide some kind of disclosure to the participants). So here are my problems: 1. I believe I need to change the document to allow for certain assets to be valued daily (as opposed to all annual), and then I can make the distribution date to be as soon as feasible after the valuation date - this allows the individual account portion to be paid right after termination, which is sort of what they've been doing (the individual accounts are about 2/3 of the total account balance). If this is "material" enough to warrant an SMM, what would it say? The whole idea in the client's mind is that since the participant's don't control 'their' accounts, they shouldn't even know about them, but wouldn't anything in say in the SMM kind of tip them off that something was up? 2. I'm going to end up with two distributions for each person: one from the individual account in the year after they terminate, and one from the pooled account within a month after termination. That means two sets of distribution fees (since there will be separate 1099-R's). Is that unreasonable? Luckily, the plan has a YOS/last day requirement for a contribution and passes 410(b) easily, so a third distribution is extremely unlikely. Thanks for your assistance.

My real issue is that with the availability of 100%+ loans (OK, maybe not as many as there were 6 months ago), how does a participant "prove" that they have no other way to finance the house? The participant may not want to take a 103% loan, but since it is available, does the Trustee have to acknowledge it somehow? Thx.

My client "P" was purchased by "S". P still exists and pays its remaining two employees, both NHCEs (one was the former owner of P until it was purchased) and has a 401(k) profit sharing plan. S has no plan at all. I'm trying to figure out if I'll actually need to pry S's information from them (they've been terribly tight so far) in order to run coverage tests (the grace period is running out). Won't it automatically pass because no HCE's are benefitting? I'm just having trouble wrapping my head around this. Thanks. And... just thinking ahead, it will cause a world of complications if S decides to put in a plan just for the S (that is, those who don't work at P) employees, right?

I've finally had a participant die where he hasn't terminated and cashed in the policy first... and I've realized that I have almost no idea how to handle it. The face value of the policy is $72,000, and the cash vaue at the time of death was $16,000. If I'm getting all this straight, this means that $56K is due to the beneficiary (which is its own problem, but... well, that's a separate problem) tax-free, and the $16K is taxable, able to be rolled into an IRA with the rest of the "regular" balance. Is this correct? Thanks!

According to the 2007 ERISA Outline Book (Ch 11, Sect XIV, Part I.2.c), the 12/29/04 regulations give us the answer. There are two options, based on whether there is a business transaction or hardship, of which there is neither in this case, so let's stick with Option #1 (2.c.1). See the attached document for a copy of the relevent section. This seems to imply that if the plan is terminated on 12/31/07, then 2007 is treated as not being a safe harbor year (depending on your reading of "during the plan year", I suppose), so the safe play would be to make the plan termination effective 1/1/08. And between this and the 1.401(k)-3 regs themselves, only the safe harbor match is noted as requiring a notice for the cessation of the safe harbor contribution. Therefore, I'd conclude that if they'd wanted the non-elective to have a notice requirement as well, it would be somewhere in that section(s). Since it isn't, there's nothing required, the plan has no earned compensation as of 1/1/08 (the new date of termination) so there's nothing to even argue about should there be a 3% contribution on. And I've got a Datair prototype with the neat feature that essentially says that in a year you make the safe harbor contribution, you're a safe harbor plan, and in the years you don't, you're not (the IRS has said that they didn't catch that earlier, so I suspect they'll close that convenient loophole with the EGTRRA restatements!), so there's no worry about amending the plan provisions. I'm agreeing with rcline. At least, that's the way I see it today. Not the most conservative approach, perhaps... thanks for everyone's input. 2007_ERISA_Outline_Book_Ch_11_Sect_XIV_Part_I.2.c.doc

I got a call today from a client who wants to terminate their 401(k) safe harbor [3% non-elective] plan as of 12/31/07. The company is not going out of business; the employees/participants will still be employed on 1/1/08. Everything I can fund says that you have to give notification if it is the safe harbor match that you are eliminating, but nothing specifically speaks to the non-elective contribution. The plan gave the required notice in November 2007 that they were committing to a 3% plan contribution for 2008. Doesn't that create some sense of obligation on behalf of the participants? Or at least something with respect to the document that it is a safe harbor plan? If we have to run an ADP test for 2008 that's OK because with no one deferring, it can't fail, but isn't there a "bigger" issue here? Thanks...

I wasn't sure what to call them initially; I started with 414(n) because it seemed like a good starting place. But I think you've made it clear that they aren't "leased" at all. Thanks to all - I've dumped this all back on the client's lap and recommended they hire an ERISA attny to sort this out - we can write the doc to fit however the attny calls it.

Over the weekend, I found Derrin Watson's "Who's the Employer (3rd ed.)" on-line. Chapter 4 seems to indicate that these employees are in general to be considered employees of the recipient organization (the plan sponsor) - see especially Q 4:43. Though Q 4:7 - 4:9 do seem to make a distinction between a "leased" employee and a "worksite" employee, I think his point about having to count all the compensation and service is still the same.

The way I read 414(n), the employee has to be employed for 12 months as a leased employee in order to be considered as an employee of the plan sponsor. The employees in this case don't make it that long as leased, they become "real" after 180 days at most. So I can't just say "immediate entry and leased employees are included". Do you have a different interpretation?

A client hires professional employees on a temp-to-perm basis, and would like to have them covered by their very generous plan from the day they start as "leased" employees (they want it to be a selling point to attract the employees). That's in quotes because these employees are (almost always) hired as "real" employees usually 90 - 180 days from the day they walk in the front door. So... while these employees are employed by the employement agency, they are not employees of the sponsoring employer, so they can't be in the plan. And I can't call them "leased" employees because they don't meet the 1 year discussed in 414(n)(2). Is there anyway to get these employees (or should that be in quotes?) into the plan? The company is trying to be more generous, and is shocked that it is so difficult to do so. Thanks.

I've got a related question: what does it mean that the plan is not following the hardship safe harbor rules? For example, I just had a client (for whom we only do annual administration) tell me that they've not stopped deferrals on hardships since the new HR person took over that area at the client (she didn't know that rule). Are there any real consequences? OK, there's the plan violation of not following the plan document, but what if the document doesn't "force" them to use the safe harbor requirements in the first place?