masteff

We had an administrative practice get questioned on audit (had to do w/ how we were doing gross-ups on hardship w/drwls). The general impression I got was that safe harbor hardship reasons aren't "all or nothing" for the plan. It's just that by going outside the safe harbor list, you accept an element of risk that the Service will disagree w/ your analysis and that one w/drwl could then be a violation. If you had 20 other w/drwls during the year and they all met one of the safe harbor reasons, then they continue to be okay even if the one gets declared invalid. Going back to the OP... the question is what type of back taxes and what does the letter from the collecting authority say? Do they allow the person to apply to make payments over the course of a few years? Then it's not immediate and you have to deny it.

Just thinking aloud... if you have semi-annual entry dates, then it would only apply to the people who will be entering on July 1st (right?). They haven't entered the plan yet so they haven't acquired any rights yet? I wonder if there's there any reason against making the amendment future dated but still before year end? For example June 30th, the day before the mid-year entry? Those aren't suggestions... just thoughts to add to the mix.

Ah ha! Santo - you should look into the DOL's VFCP (Voluntary Fiduciary Correction Program). http://www.dol.gov/ebsa/compliance_assistance.html#section8 http://www.dol.gov/ebsa/newsroom/fs2006vfcp.html On the excise tax, it talks about a class exemption that applies to failure to timely remit participant contributions. If your client qualifies for it, I'd document the heck out of the correction and go w/ that. The client needs to fix the problem anyway, so if it can be done in a way that satisfies this, all the better.

I've seen plans where being "retirement eligible" made certain other withdrawal options available (such as taking partial withdrawals "as needed" versus all-or-nothing lump sums).

And the anti-cutback rules such as reg 1.411(d)–4, A–2(b)(2)(v) specifically allow amendments raising or lowering the limits for involuntary distributions made pursuant to code section 411(a)(11). So from that perspective, your idea is fine. Note that the automatic rollover rule is in code section 401(a)(31)(B) (which references 411(a)(11) but isn't controlled by it). See also Notice 2005-5 (on page 337 here).

Huh? I think that was addressing the OP's statement of "I'm afraid that the state will cut the percentage in the formula they are using by the time I retire."

Code Section 223© uses the word "covered" and not "eligible for".

One additional point of information that might be helpful is why 3% specifically.... such as is it the amount that gets full match? I previously worked w/ a very large plan that used 3% as a minimum for pre-tax contributions; 3% was the amount which resulted in full match. So I can state that under that fact and circumstance, the IRS and DOL had no problem w/ it.

Ah, I re-read the first sentence of the original post... all other contributions were funded, just not the owner's. I w/drw my previous question. I think it's time to send the owner to an ERISA atty.

Too true. And even if it was the very last $3000 of cash that the company had and they had no other cash after paying the expenses in question, was it a plan asset if it hadn't been separated from the company's general account?

Depending on which type of plan you're referring to, it's not so much that the plan is not subject to QJSA but rather that it meets an exception to QJSA thru certain requirements. Under 401(a)(11)(B)(iii) one of those requirements is that "... the participant’s nonforfeitable accrued benefit ... is payable in full, on the death of the participant, to the participant’s surviving spouse ..." So in the case of a DC plan (other than a money purchase plan), it's by meeting the exception to the QJSA rules that the spouse is the automatic 100% bene.

It's not a new in and of itself. Though I suppose it's possible that some training course has recently started pitching this to a wider number of brokers as a way to gain new business. We had an acquired plan at one location where some employee and/or broker figured this out (w/ respect to company money, that is) and it spread to a larger number of employees than we would have liked. Of course that was back in the tech bubble, so no idea how well/badly any of them did. Remember that the broker is solely motivated by the fees he hopes to earn. This is often at odds w/ your company's goal of helping workers build secure retirement savings.

Here's the DOL's amicus brief in Hecker et al v Deere. It doesn't speak directly to some of QDROphile's broader questions on application to windows (although partial answers could be inferred). It does illustrate the point Kevin made above about the DOL's position on selection and monitoring. See starting on document page 11, which is physical page 18. http://www.plansponsor.com/uploadfiles/dee...cker7thcirc.pdf

Please explain why short-term risk hedging activity is appropriate in a long-term investment vehicle.

Why not? While normal contributions to IRAs have to be in cash, you can rollover property distributed from a qualified plan. And since gold bullion is one of the exceptions for investments in collectibles in IRAs then the IRA could hold it once it was there. See page 28 of IRS pub 590 http://www.irs.gov/pub/irs-pdf/p590.pdf (Also page 27 of pub 575 http://www.irs.gov/pub/irs-pdf/p575.pdf ) Is there some other restriction to rollovers of property that I'm missing? (I'm happy to be corrected if I'm offbase as I'm more of a qualified plan person than an IRA person.)

This board usually avoids giving specific investment advice as it's really more focused to employee benefit plans. Motley Fool is a good investment education website. They have plenty of good free information and an active discussion board. They have daily and weekly articles, a few of which are even published in some local newspapers. http://www.fool.com/ If you're comfortable w/ E-Trade, then that might be place to start (I don't have an account w/ them but don't know any reason why it would be a bad choice). They also have investment information on their website and have listings of the mutual funds they offer, including their own index funds.

If you have the money and can start at age 18, you would have a tremendous head start on your retirement savings. You mention that you have scholarships, which I take to mean you are not taking out student loans, so you would not be borrowing from one place to invest in another (leveraged investing would make the answer much more complicated). Bank vs investment company The real question is long term rate of return. The larger the average return, the greater the effect of compounding. A bank is likely to offer CDs which might average 3-5%. A diversified selection of mutual funds is likely to average 5-8%. (Results might be higher or lower, but those are realistic numbers.) As you have many years until you reach retirement, you want to give your investments a good chance to grow. And you especially want to be sure those investments stay ahead of inflation, which is sometimes a risk in CDs and money market accounts. Stocks vs mutual funds I'd encourage you to read websites like Motley Fool. One common bit of advice you'll find is that for an average investor who doesn't have a large amount of money to invest, mutual funds are often a better choice. They require you to spend less time doing research and they can have less risk than individual stocks. One concept you'll learn about is diversification; an easy way to explain it is w/ the saying "don't put all your eggs in one basket". A mutual fund has many stocks in it, so if one stock goes really bad, it doesn't destroy your entire savings. Your savings will still go up and down w/ the market, but over the many years you have until retirement, the market should go up overall. A safe historical stock market average is 8%. If you wanted a reasonable mutual fund choice until you learn more about investing, you might start with one or two "index" funds. Perhaps one based on the S&P 500 index and one based on the Nasdaq index. As you learn more about investing, you'll likely move to different funds, but as an initial investment, an index fund would give you diversification and market exposure w/out some of the higher risk that some other funds might have before you fully understand them. And learning to watch the indexes will help you to gain a broader understanding of the market, which will help you if you do pursue a degree in finance. Future value function in Excel Excel has a function that helps you to see the value of compounding. Set up a spreadsheet as follows: Cell A1: 5000 {this is your annual contribution} Cell A2: 5% {this is the rate of return} Cell A3: 65 {this is your age at retirement} Cell A4: 18 {this is your age when you start making contributions} Cell A5: =FV(A2,A3-A4,-A1) Now, play with changing the rate of return (say, from 3% up to 8%) and the age you start making contributions (say, from 18 to 25).

Here's an older but not out of date article off of Findlaw. http://library.findlaw.com/1999/Sep/1/128801.html It raises some good issues to consider. QDROphile raises what I recall as a key question... is this a prudent investment option or should a brokerage window be restricted from the more inherently risky securities like options and futures as those generally-speaking should only be traded by sophisticated investors? It's a genuine fiduciary question and not just a philosophical one.

but 410b is a regulatory matter for the IRS not for a lawyer because there is no private right of action for violation of the rules for qualification. Also you stated that "All you need is for 1 year when one group does better than another" MJB - slow down your argument mode. The person who just posted is not the person to whom you were asking your question to further above.

One thing I liked in the ASPA brief was the attempt to distinguish between "application" of "clear legal rules" and "questions of law". It's not unlike this board where some answers are clear cut and some provoke a quick "you really need ERISA counsel". Of course the issue you're raising is the ones that fall in the middle. Where is that grey area? I think when we find ourselves in those grey areas, we have to 1) use our expert judgement as to how much we can speak to w/out crossing the line and 2) take steps to make sure we're not "holding ourselves out" as being in practice. As a CPA who works in industry, I do not have a permit to practice, meaning I can't hold myself out to the public. Therefore, I make sure when I'm the grey area to add those little disclaimers: "for discussion purposes only", "this is not a legal opinion", "please review this with your attorney", etc. Peanut Butter Man provides us an interesting example above w/ the plan writer who won't sign certain things. I would believe that a simple individually-designed plan would fall into ASPA's theory of application of clear legal rules. Once you've seen enough plans, it's pretty clear what constitutes a valid basic plan design. But we could quickly come up with enough customized features that we move from "clear legal rules" to "questions of law" (like several recent discussions here on beneficiary designations and variances thereto). And that's where (hopefully) the plan writer has to excersize judgement on when a change should be blessed by an attorney.

Yes. And keep in mind that among the rights and features of beneficiaries that QDROphile was referring to are an exception to the 10% early withdrawal penalty and different withdrawal restrictions. So on the off chance that the spouse might need access to the money, it might be better done from a beneficiary account (depending on her specific facts and circumstances).

Just make sure that the extra paydown is generally made to the plan as one or two lump sums, not as a regular recurring extra amount. This keeps from violating the substantially level payments requirement. And some plans do provide in their loan rules that the participant has the option to reamortize the loan over remainder of the original term. So a quick review of the plan's loan rules would be good.

This is the reason that follow up reporting on participants who take full distribution is now mandatory. The SSA is tired of getting grief for all the "false positives" that their bad records create. We're not being callous or blowing off the spouse. We're saying that if all the evidence suggests that no benefit remains with the company and after the company makes an effort to search their records, then it's reasonable to conclude that this is another "false positive". If we didn't know for fact that this is a common problem, then it would be a different situation entirely. One important piece of evidence that no benefit remains is that it's a terminated plan. The due diligence is for the company to look for evidence whether annuities were purchased and then contact that vendor. If the company can't find anything proving annuities were purchased, and if they don't find anything to show something irregular happened w/ this specific employee, then they stop there because the proof of distribution is the termination of the plan. (Which is why you suggested and I agreed that they should take some basic steps to verify the plan termination.)

I'd bet $5 that he's really contributing 10%, 5% that's matched and 5% that's unmatched. Paystub descriptions are notoriously confusing due the limited space and the nearsightedness of those who create them. For whatever reason, their payroll system must calculate employee contributions in two pieces; the most likely reason being that they have a complex match calc and it was easier to make it work that way. EDIT: Aw, GMK beat me to it.

I'd send the client digging thru the files. Any boxes of benefits related documents from the acquired company. Any employee benefit / HR files of acquired employees (if not lucky enough to have that specific employee, maybe some clues can be found in others who were acquired). Maybe look in any boxes w/ tax filings to see if 5500 related documents might have been filed there. Next step would be as Andy suggested about PBGC and Free Erisa for evidence of plan termination and any clues to disposition of assets. Then if the client doesn't find anything, they can tell the person "we looked but didn't find anything to make us believe the benefit was not paid out at or before the plan termination". I usually added some words in denial letters like this about "one of the jobs of the SSA is to help workers keep track of benefits at former employers, because the SSA didn't previously require plans to report when benefits were paid out some of the records at SSA are inaccurate, this results in some people such as yourself getting notices about benefits that are no longer valid". I worked at a large oil company that has acquired/predecessor plans. While not routine, I did have my share of SSA notices about long past reported benefits. I never had anyone fight as long as we could honestly say we dug out all the boxes and files and looked as best we could. I remember some even saying after the fact "well I didn't think there was anything there still but wanted to make sure since I got this notice".