AlbanyConsultant

QDROphile, while I agree with you that in cafeteria plans and the like this needs to be specified, I've never seen a 401(k) plan document that covers it. I've just today checked 3 different protoypes and 2 volume submitters and nothing is ever mentioned. If you're working with a document that spells it out, I'd love to see it so I can send it to our document providers. Let's edjumacate the idiots! WDIK, sure, the document language prevails, if it is mentioned. It's just that it's not.

A question we're debating in the office here: is there any requirement to have the participants update their elections annually (or some other frequency, I suppose)? We're considering things like an election to not purchase life insurance, 401(k) deferral percentage, investment election, beneficiary designation, etc. Most of us believe that such things are in force until changed by the participant. I can't find anything on it for or against, so I'm willing to take the silence as a "no"...

Just picked up a client that didn't make their 2000 ($30K) or 2001 ($9K) money purchase contributions. Luckily, the plan was converted to PS in early 2002, so there were no more required contributions. And now we want to make things as right as can be, given the circumstances. If I understand the pyramid-like way this is supposed to work, I think I submit the following Forms 5330 with the penalties like so: 2001: $30K * 10% = $3,000 2002: ($30K * 2 + $9K) * 10% = $6,900 2003: ($30K * 3 + $9K * 2) * 10% = $10,800 2004: ($30K * 4 + $9K * 3) * 10% = $14,700 2005: ($30K * 5 + $9K * 4) * 10% = $18,600 Total penalty due: $54,000 And don't even get me started on earnings calculations... unless, that is, they're counted in the accumulated funding deficiency (which I don't believe they are). Does this look right? I know I can't be the only one with a plan like this... thanks.

I thought I knew this until someone asked me directly... If you count the receivables in the BOY amount to determine the 20% threshhold, then (usually) you'll get a higher amount and thus a higher limit, so you may have less assets to report. But it seems sort of disingenuous to inflate the number that way, and so maybe that calculation is meant to be done on the actual cash assets at BOY. I can't find anything definitive to support it either way, so any direction is appreciated!

I've seen a few articles lately that reference the aggressive combo of automatic enrollments (or negative elections) and deferral step-ups. The first part (withholding deferrals from an participant's paycheck unless they say no) has been talked about at length for the past few years, but this is the first time I've heard of the step-up feature. Somewhere (presumably the SPD, but maybe also the document), the participant's are notified that at the beginning of each plan year, their deferral percentage will automatically be raised (the articles I saw didn't make it clear if the participant could opt out of the increase, though I presume a participant could change their withholding percentage at the next appropriate time) by 1/2% or 1% or whatever. There were very few details, so I was wondering if this is something that is just gaining momentum, or maybe I haven't found the articles against it yet. Has anybody heard about this, or actually implemented it? Obviously, this would be a great help to the non-safe harbor 401(k) plans, but I'm not wild about being the first on the block to recommend it! Thanks for your input.

Blinky, I realized this on the way home after posting, so, yeah, that's the way I'm going to go. Which means that there is no 945 filing, because there is no withholding to report. I've never seen a plan get in trouble for not withholding - has anyone else? Not that I'm going to advise my clients to stop doing it!

I've got a doctor who worked with his accountant to withdraw money from his PS plan several times last year. In each instance, instead of withholding 20% and remitting it through normal channels (and never mind filling out distribution forms!), he figured what the effect of the distribution would be on his total 2004 taxes and then sent in estimated taxes accordingly. [For example, if he's in a 30% tax bracket, and he took $40,000, he would have sent in $12,000. If the next distribution of $60,000 put him at at 40% tax bracket, he would have sent in $24,000.] Yeah, I had to pick my jaw up off the floor, too. And of course, I first learn of this on 2/7, and am asked to prepare the 1099-R, etc. So I will reflect the gross distributions in Box 1 of the 1099-R. And all taxable, since they were all cash payments. For withholding, I suppose that it would be the total of these amounts that were calculated, even though it will be more than 20%. And since he's 58 and termed, he meets the Code 2 exceptions for Box 7, so at least there's no additional 10% penalty. The questions I have are: 1. Is there a problem in general with withholding MORE than 20%? I can't imagine that the IRS would be upset with getting more money sooner. 2. How in the world is the money already sent to the IRS (presumably under the doctor's SSN and not the employer's EIN) going to get matched up? There's going to be an issue with the 945 showing a payment under the employer's EIN, but it not being there, and I expect it will only get resolved when the IRS sends a notice and really looks into it. 3. Assuming that this all did really happen on the accountant's advice, can I somehow justify grievous bodily harm to said accountant? Mental anguish or something? Thanks for all your replies.

Ah, SoCalActuary, if only that had been thought of before the alt payee had taken his money and run! Would you need to have that written into the QDRO, though? Especially since most of the times, the bills from us (TPA) and the lawyers don't come until after the distribution occurs. At this point, I think our advice is going to be that we recommend against it because there was no prior notification, but that if the Trustees REALLY want to charge the participant's account, it's their call, and they have to be ready to defend that in case the participant goes howling to the DOL. And then the next sentence is what kind of policy to put in place on a going-forward basis.

Now that we have an OK to pass the costs of a QDRO along to a participant, what sort of notifications should we have in place? A client of mine just had their first since this new attititude, and it's been a doozy; probably several thousand dollars of time when it's all added up. The document says that the plan can pay expenses from the trust. The SPD doesn't say anything about this, though it does mention that if a court finds that an action of a particular participant is detrimental to the plan as a whole (which I would say could potentially include trying to have the whole plan pay the costs of one participant's QDRO drafting/review), the plan can be ordered to offset your benefit by a court. Not exactly what I was looking for. But does the plan have enough justification to say that the plan document allows it, so we can do it? If the participants should be notified upfront, does that mean we have to re-write the SPD's of all our plans?