John Feldt ERPA CPC QPA

If you believe that you are giving the required notice within a reasonable period of time before the beginning of the plan year, and if the IRS ever audits the issue and they also agree that timing of the notice included a reasonable period of time before the beginning of the year, then you are okay. Obviously, the deemed "okay" timing is 30 days - the IRS cannot question the timing of a notice given 30 days before the beginning of the plan year. So, is giving the notice today reasonable (27 days instead of 30)? Maybe. When is the first payroll in 2008 and what is its cutoff date for salary deferral changes? I would think that those are relevant factors. But no guarantee now that December 2nd has passed. This can be found at 1.401(k)-3(d) as shown: 1.401(k)-3(d) Notice requirement (1) General rule. --The notice requirement of this paragraph (d) is satisfied for a plan year if each eligible employee is given notice of the employee's rights and obligations under the plan and the notice satisfies the content requirement of paragraph (d)(2) of this section and the timing requirement of paragraph (d)(3) of this section. The notice must be in writing or in such other form as may be approved by the Commissioner. See §1.401(a)-21 of this chapter for rules permitting the use of electronic media to provide applicable notices to recipients with respect to retirement plans... (3) Timing requirement (i) General rule. --The timing requirement of this paragraph (d)(3) is satisfied if the notice is provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). The determination of whether a notice satisfies the timing requirement of this paragraph (d)(3) is based on all of the relevant facts and circumstances. (ii) Deemed satisfaction of timing requirement. --The timing requirement of this paragraph (d)(3) is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year. In the case of an employee who does not receive the notice within the period described in the previous sentence because the employee becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Thus, for example, the preceding sentence would apply in the case of any employee eligible for the first plan year under a newly established plan that provides for elective contributions, or would apply in the case of the first plan year in which an employee becomes eligible under an existing plan that provides for elective contributions. I hope this helps!

According to the rules, they could just wait until July 28 to give out the SMM. However, from an Employer-Employee relationship standpoint, wouldn't you rather communicate this right away?

I agree with JanetM. They would have to do that notice annually then. I don't see a problem with that. All it does is give them 404(c )(5) protection for those who were defaulted. If they know what their default fund has been, how much time would it take to see which participants still have any money in that investment? Of course some may have chosen that investment too, but I see no problem with giving a QDIA notice to everyone in the fund, as long as the wording in the notice is good. Assuming the default fund is truly a QDIA and rest of 404(c ) is satisfied, then you have fiduciary protection against investment return complaints related to the default fund; but you are only protected from participants who were defaulted into that fund as long as they were given the QDIA notice. Thus, their desire to get one out to everyone who might have been defaulted. On the flip-side, if they don't give each of those defaulted participants the QDIA notice, the fiduciary does not have 404(c )(5) protection. Instead, the normal ERISA prudency rules apply. Don't they feel comfortable that their default fund has been prudent enough? Does the cost of giving out this QDIA notice outweigh the risk associated to a participant complaint about the investment return? Also, IMHO, I think the cost of gaining this additional fiduciary protection should probably not be charged to the participant's accounts (the plan assets), since the plan assets are for the benefit of the participants and beneficiaries. I don't see exactly how those funds could be used to provide protection to the plan fiduciaries.

Or until the IRS changes their fee schedule!

$375 interim, for now.

PPA preempted State laws regarding deferral withholding without written participant consent. In order for the plan to benefit from that preemption, the plan would have to adopt EACA (I think). If you don't need that protection, then you could adopt the new safe harbor plan option (QACA) without using the EACA (so you also do not need to have a QDIA). But I don't see any 90 day withdrawal option without being taken into the EACA section. So, I guess I do not see how a plan can adopt the 90 day "oops - I want my money back" withdrawal provision if it does not adopt the EACA provsions. Is there a problem with adopting the EACA provisions? Is it the QDIA notice requirement?

1) Can existing paticipants with completed elections to not defer be enrolled at 3%? If the election you describe was completed by the employee longer than 30 days before the new automatic enrollment begins, then, yes, the plan may bump them up -- as long as proper notices are provided explaining that they will be automatically enrolled unless they make a new contrary election, how to do so, when their contrary elections need to be done, etc. 2) Can existing participants deferring less than 3% be automatically be brought up to 3%? Same answer Anybody else have thoughts on this?

They should stop allowing the deferrals now. I don't know if it's in 2007-26 EPCRS as a self correction or not. Excerpts from the regulations: §1.401(k)-1 Certain cash or deferred arrangements (d) Distribution limitation (3) Rules applicable to hardship distributions (iv) Distribution necessary to satisfy financial need (E) Distribution deemed necessary to satisfy immediate and heavy financial need. --A distribution is deemed necessary to satisfy an immediate and heavy financial need of an employee if each of the following requirements are satisfied -- (1) The employee has obtained all other currently available distributions (including distribution of ESOP dividends under section 404(k), but not hardship distributions) and nontaxable (at the time of the loan) loans, under the plan and all other plans maintained by the employer; and (2) The employee is prohibited, under the terms of the plan or an otherwise legally enforceable agreement, from making elective contributions and employee contributions to the plan and all other plans maintained by the employer for at least 6 months after receipt of the hardship distribution.

Sully, Yes. The only time an amendment would be required earlier (by December 1st actually for a calendar year plan) would be in the case where the plan provided a "maybe" notice for the year, and now they decided that they actually will contribute the 3%. That amendment and the supplemental notice must get done no later than 30 days before the last day of the plan year. I've marked that in bold below. 1.401(k)-3(f) Plan amendments adopting safe harbor nonelective contributions (1) General rule. --Notwithstanding paragraph (e)(1) of this section, a plan that provides for the use of the current year testing method may be amended after the first day of the plan year and no later than 30 days before the last day of the plan year to adopt the safe harbor method of this section, effective as of the first day of the plan year, using nonelective contributions under paragraph (b) of this section, but only if the plan provides the contingent and follow-up notices described in this section. A plan amendment made pursuant to this paragraph (f)(1) for a plan year may provide for the use of the safe harbor method described in this section solely for that plan year and a plan sponsor is not limited in the number of years for which it is permitted to adopt an amendment providing for the safe harbor method of this section using nonelective contributions under paragraph (b) of this section and this paragraph (f). (2) Contingent notice provided. --A plan satisfies the requirement to provide the contingent notice under this paragraph (f)(2) if it provides a notice that would satisfy the requirements of paragraph (d) of this section, except that, in lieu of setting forth the safe harbor contributions used under the plan as set forth in paragraph (d)(2)(ii)(A) of this section, the notice specifies that the plan may be amended during the plan year to include the safe harbor nonelective contribution and that, if the plan is amended, a follow-up notice will be provided. (3) Follow-up notice requirement. --A plan satisfies the requirement to provide a follow-up notice under this paragraph (f)(3) if, no later than 30 days before the last day of the plan year, each eligible employee is given a notice that states that the safe harbor nonelective contributions will be made for the plan year. The notice must be in writing or in such other form as may be prescribed by the Commissioner and is permitted to be combined with a contingent notice provided under paragraph (f)(2) of this section for the next plan year.

A retirement age of 44? Hmmm. That could be ok, but you'll want to look at T.D. 9325, "Distributions From a Pension Plan Upon Attainment of Normal Retirement Age" from May 22, 2007. http://benefitslink.com/taxregs/E7-9643.pdf

It is allowable to do so, exclude some HCEs from SH and not others. Some prototype documents have a section where you name exclusions by contribution types and by employee class.

Locust. See page 15 of the pdf file, where it says "How will the money in the Plan be invested?" You will be able to direct ...

1.401(k)-3(e): (e) Plan year requirement (1) General rule. --Except as provided in this paragraph (e) or in paragraph (f) of this section, a plan will fail to satisfy the requirements of section 401(k)(12) and this section unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year and remain in effect for an entire 12-month plan year. In addition, except as provided in paragraph (g) of this section, a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of § 1.401(k)-1(b) if it is amended to change such provisions for that plan year. Moreover, if, as described under paragraph (h)(4) of this section, safe harbor matching or nonelective contributions will be made to another plan for a plan year, provisions under that other plan specifying that the safe harbor contributions will be made and providing that the contributions will be QNECs or QMACs must also be adopted before the first day of that plan year. Emphasis added. Seems fairly clear for Treasury writing.

If you want to just pick the gateway issue, then go to 1.401(a)(4)-9. You can look specifically at: 1.401(a)(4)-9(b) Application of nondiscrimination requirements to DB/DC plans go to 1.401(a)(4)-9(b)(2)(v)(D)(1) and (2): (1) General rule. --A DB/DC plan satisfies the minimum aggregate allocation gateway if each NHCE has an aggregate normal allocation rate that is at least one third of the aggregate normal allocation rate of the HCE with the highest such rate (HCE rate), or, if less, 5% of the NHCE's compensation, provided that the HCE rate does not exceed 25% of compensation. If the HCE rate exceeds 25% of compensation, then the aggregate normal allocation rate for each NHCE must be at least 5% increased by one percentage point for each 5-percentage-point increment (or portion thereof) by which the HCE rate exceeds 25% (e.g., the NHCE minimum is 6% for an HCE rate that exceeds 25% but not 30%, and 7% for an HCE rate that exceeds 30% but not 35%). (2) Deemed satisfaction. --A plan is deemed to satisfy the minimum aggregate allocation gateway of this paragraph (b)(2)(v)(D) if the aggregate normal allocation rate for each NHCE is at least 7 1/2% of the NHCE's compensation within the meaning of section 415(c )(3), measured over a period of time permitted under the definition of plan year compensation. There's a lot more reading than that to do, but this may help.

Thank you!

This was at the end of the recent ASPPA ASAP: "In addition, the IRS says the new ERISA §101(j) notice (provided within 30 days after a limit under IRC §436 kicks in) will satisfy the ERISA §204(h) notice requirement for those changes." Probably a dumb question, but what is this saying?

Technically, I think they only apply to plans that are subject to ERISA.

I am not an attorney. Was this part of PPA 2006, thus no amendment is needed until 2009? Perhaps an SMM might be needed before the amendment even gets done?

If you are an independent contractor, it is still possible that a gov 457(b) plan allows you to be eligible for the plan.

What deduction method was established when the plan was first established? Did they deduct in the fiscal year in which the plan year started, ended, or pro-rata? I think that establishes the precedent for future years, but I could be wrong on that.

And, if you are over 50, then catch-up deferral contributions can be done to both also.

What do you think will satisfy this part: "You must describe the Plan’s QDIA, including its investment objectives, risk and return characteristics..." This will be specific to the default fund - I'm thinking we may need something like a morningstar report and and perhaps have the notice refer to that?

Ack!

Well it does, but not exactly. If you aggregate with another plan so that other plan can pass 401(a)(4), then that exception goes bye-bye. 1.401(a)(26)-1(b) Exceptions to section 401(a)(26): (1) Plans that do not benefit any highly compensated employees. --A plan, other than a frozen defined benefit plan as defined in §1.401(a)(26)-2(b), satisfies section 401(a)(26) for a plan year if the plan is not a top-heavy plan under section 416 and the plan meets the following requirements: (i) The plan benefits no highly compensated employee or highly compensated former employee of the employer; and (ii) The plan is not aggregated with any other plan of the employer to enable the other plan to satisfy section 401(a)(4) or 410(b). The plan may, however, be aggregated with the employer's other plans for purposes of the average benefit percentage test in section 410(b)(2)(A)(ii). So, the other plan's use of the 412i plan to pass 401(a)(4) removes this exception, as I see it.

You are referring to a 457(b) plan. As mjb pointed out at the end of the thread link below, a deferral is not counted for the $15,500 limit under a 457(b) plan until it is vested. http://benefitslink.com/boards/index.php?s...&hl=vesting So, the amounts that are not vested do not technically count against the limit until they become vested. If that "nonvested" amount has grown with earnings, and those earnings also become vested at the same time the deferral does, then those earnings also count against the limit at the time they too become vested. So, if an employee was already 100% vested at the beginning of the calendar year, then the total "deferral" amount subject to the limitation is the employee's deferral amount and all employer contributions (the "annual deferral"). The gains and losses no longer are not counted toward the limit. If the employee was only 80% vested, then the gains and losses on the nonvested portion would count against the limit at the time they became vested. So, in your example for 2006, if: 1. Employee elective = 12,000 2. ER contribution = 4,000. 3. the account was fully vested on 12-31-2005 4. Gains during 2006 are 2500 You are correct that the total is $16,000 and the excess is $1,000 (unless catch-up can be utilized). The refund deadline for that excess would depend on whether the employer is a government employer or a tax-exempt entity. "As soon as administratively practicable" for the government, or April 15th for the tax-exempt entity.