E as in ERISA

I assume that you are concerned because you can only exceed the 5-year requirement if it is a principal residence loan. There are tracing rules in Q&A 7 of the 72(p) regulations. LINK: http://www.benefitslink.com/taxregs/72p-final.shtml . They say you have to meet the tracing rules of 163(h)(3(B).

Investments can be eliminated -- its done all the time. But the decision to eliminate certain investments is an exercise of fiduciary responsibility subject to ERISA 404. And participants sue for breach of fiduciary responsibility all the time.

The 414(p) QDRO rules don't apply to them. But I wouldn't be surprised if a judge issued a "nonqualified" domestic relations order involving one.

Send her a link to this message board.

It's difficult to prove a negative. Tell the employee to show you where that's a required provision. Or maybe you could show the employee Section 2.07(2) of Rev. Proc. 2002-47 that indicates that it’s an operational failure to make hardship distributions if the plan doesn’t provide for them? (But be careful because the correction method is to amend the plan to provide hardships. She will probably say that it requires you to amend!).

The greatest risk of a claim is often in that first thousand or two. Sometimes the decrease in premiums is very close to the increase in deductible. Would this employer could consider doing something like putting $250 into an FSA for each employee instead? Do underwriters consider employer contributions to an FSA? They may be used for dental or vision or dependent care benefits...or premium payments so they don't necessarily affect the use of medical care. Under the old method or new proposal, those who spend their own money to eat right and keep fit and never miss a day of work will miss out on the $750 from the employer (and may be aggravated seeing certain hypochondriac co-workers get an extra $750 for all the medications they spend half the day talking about). These employees could use the $250 in the FSA to pay part of their premiums or unreimbursed vision or dental claims -- or maybe even dependent care). They will be getting a pay increase and will be happy. A majority of the other employees probably have health claims of $500 or less. They would get reimbursement from the employer for the other $250 under any of the three methods (old, new or mine). Many in the group with claims over $500 only have such claims in limited years (due to acute illness in one year, pregnancy, etc.) In other years, they will fit in the first or second category. So over a period of years they may come out even or close to even. The only ones who would benefit more by the $750 reimbursement are those who routinely incur expenses due to either chronic illness or chronic hypochondria. The former is probably a very limited group. They would lose out under my method. The employer would have to decide whether a pay raise was appropriate to keep them happy. Under my method, the employer could even consider raising the deductible to $2,000.... I'm waiting for the day when some of those plaintiffs lawyers figure out that it might be worth their while to start a class action discrimination suit on behalf of healthy single employees who are forced work long hours and do more travel than other employees and who make a lot less per hour than other employees (based on combined pay and benefits).

What type of changes are involved? Will you actually be expected to give legal interpretations or just give explanations or provide other support? How much time will you be alloted to explain your "recommendations"? If the CFO is asking you to assist him in checking the boxes in regard to EGTRRA good faith amendments or other standard choices, then you can probably provide a lot of help just by explaining what the most common choices are, running calculations, explaining straightforward plan language, and explaining how the choices affect administration, etc. You can look good just providing lots of knowledge (without giving advice). If they are custom amendments and he wants you to make the decisions, then it may be more risky. I would also want to know how much time will be alloted. If he is giving you sufficient time for you to explain background information to him until he understands, then you may have less risk (unless he doesn't have any aptitude for benefits). If he is giving you five minutes to tell him what to do but doesn't want to listen to recommendations, then it's risky. He is passing the buck and he is not fulfilling his fiduciary responsibility.

Q&A 21 of the 2000 72(p) regs which provides that a participant has "basis" in any payments made on a deemed loan. It is more likely that the plan does not allow "aftertax contributions" (as opposed to "aftertax money").

That's the way I've seen it done most of the time. (In other cases, they don't even record the payable in the money purchase plan, but I don't recommend that).

Reywal -- It was clear to me that we were discussing active participant status for an IRA. I was just responding to Appleby's comment that Mary Kay was thinking of a DB plan. She clearly stated she was talking about 401(k) plans. I was just noting that hers is a very, very common error among people who work with 401(k) plans but don't work with W-2 reporting and/or IRAs.

I am saying that the employee continues to vest in plan A after the transfer to B! So after another three years with B, then there are no non-vested amounts in plan A.

Mary Kay's conclusion that the person is a participant is correct for almost all other purposes -- except this question about being an "active participant" for IRA purposes.

Are more than 5% of the assets in the LLC? If more than 5% of the assets of a small plan are in assets that aren't "qualifying" then there are special bonding and/or audit rules (to address the concerns you have with this type of investment).

It depends on whether the 403(B) arrangement is an employer plan for ERISA purposes. Is there a plan document? Does the employer limit the investment options? Does the employer make contributions? See Labor Regulations Section 2510.3-2(f).

Is it a small plan that is not otherwise audited? Did you check Labor Regulations Section 2520.104-46 to see whether an audit is now required?

I would set it up as a separate 132(f) arrangement so that it qualifies under 132(f). There aren't significant document requirements, but I would want to have the basics in writing. (And there are no discrimination requirements, so you don't have to worry about who is in which arrangement.

With limited exceptions, all service within the controlled group counts for eligibility and vesting purposes (its just not counted for accrual of benefits or allocation of contributions). The employees' service with B is counted for purposes of plan A.

Do they have an independent TRUSTEE? Did you try to contact the trustee? The trustee should have cut the check for the $3,500 to your wife. They may have an incorrect address for you. And it may be sitting in its accounts.

My FSA always required a copy of the EOB to prove that the medical claims weren't covered by insurance. For items that weren't covered by the medical plan (e.g., eyeglasses), no EOB was required.

If there is a 401(k) account in plan, it is subject to various restrictions (no distributions until hardship, 59-1/2, etc). However, if 401(k) money from another plan is rolled over, then it is not subject to those restrictions in the acquiring plan. I think that the difference between IRA rollover money and deemed IRAs would be similar: the latter would be subject to rules to which the former is not subject.

Regulations Section 1.401(a)(4)-4(e)(3)(iii)(G) indicates that each rate of match is a benefit, right or feature. So the rate of match on bonuses must be nondiscriminatory.

Section 408(q) is for deemed IRAs.

Are you sure you want to resist? Are you considering the consequences?

I don't know if there is a cite to prove they are not excluded -- this might be one of those cases where the answer is based on the fact there is no cite authorizing one to exclude them. In his ERISA Outline Book, Sal Tripodi has an example very similar to this case. He concludes that an employee who is eligible for the 401(k) portion but not the matching and profit sharing contribution is entitled to a top heavy minimum allocation. But he doesn't provide a cite (which suggests that there may not be a direct cite). When you have multiple forms of contributions and different eligibility requirements, the main way to avoid this is to have separate plans (and that doesn't work in all cases).

When participants are considering moving assets to an IRA, I would also remind them (1) that an IRA may not have the protection from creditors that a qualified plan does and (2) loans cannot be taken from an IRA. (These are only factors to weigh in making the decision -- many times the investment options still weigh in favor of the IRA).