PLAN MAN

I think your misunderstanding comes from your assumption right here. Are you saying that most hardships approve themselves and only a handful require a judgement to be made? I think whenever plan assets leave the plan there is a fiduciary responsibility to make sure the terms of the plan were followed. Who is a fiduciary and to what extent is determined by both the written service agreement and the actions taken. While your service agreement may place fiduciary responsibility with the client (by their sign off), the client may say they just followed your instructions and made no determination. What would the DOL or IRS think?

Update: Here's the latest communicaiton from the client. "Our plan attorneys were involved from the beginning and provided guidance on amendment & notification as well as dates. We followed their advice on procedures/notices/changes and it’s documented. They also researched the Safe Habor with IRS regulations and said it was okay to proceed. We originally wanted only a 3% match rate but the attorneys stated that would cause issues with the Safe Harbor. We changed to include a 50% match after 3% up-to 4% to stay in compliance." I guess the attorneys do know something I don't know. Maybe someone will ask the IRS at the ASPPA Conference for a definitive answer.

From a publication by J.P. Morgan Retirement Plan Services, March 26, 2009 Note that if the employer reduces the safe harbor matching formula (e.g. an enhanced matching formula) but the reduced formula still satisfies the safe harbor minimum contribution requirement, ADP/ACP testing applies for that plan year, because a uniform formula must be in effect for an entire plan year for the safe harbor requirements to be satisfied for that year.

Calendar year plan, revised safe harbor notice: 2. Contributions for the Plan Year Beginning January 1, 2009. b. Safe Harbor Matching Contribution effective for the Period January 1, 2009 through May 23, 2009. The Employer will make a Safe Harbor Matching Contribution equal to 100% of the amount of your 401(k) contributions that do not exceed 6% of your compensation. Compensation generally includes all taxable compensation paid to you during the Plan Year (or from the time you enter the Plan), plus your 401(k) and cafeteria plan contributions. If you terminate employment during the Plan Year, you will be eligible to receive the Safe Harbor Matching Contribution if you have made 401(k) contributions during the Plan Year. You are not required to be employed on the last day of the Plan Year to receive the Safe Harbor Matching Contribution. c. Safe Harbor Matching Contribution effective for the Period May 24, 2009 through December 31, 2009. The Employer will make a Safe Harbor Matching Contribution equal to (a) 100% of the amount of your Elective Deferral Contributions that do not exceed 3% of your compensation and (b) 50% of your Elective Deferral Contributions that exceed 3% of your compensation but that do not exceed 5% of your compensation. In other words, if your Elective Deferral Contribution equals or exceeds 5% of your compensation you will receive a Safe Harbor Matching Contribution equal to 4% of your compensation. If your Elective Deferral Contribution is equal to 3% or less of your compensation then you will receive a Safe Harbor Matching Contribution equal to the amount of your Elective Deferral Contributions. Compensation generally includes all taxable compensation paid to you during the Plan Year or from the time you enter the Plan, plus your Elective Deferral Contributions and cafeteria plan contributions (if any). If you terminate employment during the Plan Year, you will be eligible to receive the Safe Harbor Matching Contribution if you have made Elective Deferral Contributions during the Plan Year. There is neither an hours of service requirement nor a last day of the Plan Year employment requirement fr you to receive the Safe Harbor Matching Contribution. Is there any new guidance from the IRS on this? Does their attorney know something I don't know?

I agree with the accountant. If the plan has an allocation requirement that the participant must be employed on the last day of the plan year to receive the employer contribution, then they have not "earned" that money until the end of the plan year. I don't believe the plan document supports the employer's actions. I vote not valid. The employer cannot have it both ways - put money in during the year and restrict who receives it with the last day rule. I also agree with the suggestion to deposit the funds in a separate bank account outside the plan, then the employer has all the flexibility they want in determining the contribution amount each year. This can get ugly not only when there is a loss in the participant's account from which fund are being removed, but also, if the participant takes a distribution of these funds and then it turns out they are not eligible to receive them. How would you handle that situation? Tell the employer to remove the last day requirement if they insist on depositing contributions during the year.

If the plan's definition of compensation otherwise satisfies 414(s), does electing to exclude all post-severance compensation for salary deferrals, match and/or profit sharing contribution purposes take the definition out of safe harbor and require nondiscrimination testing of compensation?

Are you saying the employer did the "double-up" without the participant's election, or did the employer explain the situation and the participant chose to increase their deferral amount to make-up for the lost deferrals? I always thought the special rule for brief exclusions in Rev. Proc. 2008-50, Appendix B, Section 2.02 applied only if the participant is given the opportunity to increase their deferrals over the remainder of the plan year.

I've always operated under the rule once the $ is in the plan it must stay there unless the IRS determines the contribution cannot be deducted by the plan sponsor. A former TPA with owner-only and really small plans, allowed the plan sponsor to request a return of any amount over the maximum deductible amount for the year. If the plan sponsor or CPA miscalulated, they got the money back. I never agreed with this approach.

What is in the plan's amendment for the final 415 regulations? It may include compensation paid through the later of 2-1/2 months following termination or the end of the limitation year of termination.

One school of thought is participants accrue a benefit once they work over 500 hours for the year. Also, what does the plan say about employees who retire, die or become disabled during the year? Are they required to work any specific number of hours to receive a contribution?

First, determine what the $89.20 represents. Is it a deferral that should have been allocated as of the previous year? Is there a discrepancy between how payroll is accouting for salary deferrals on the W-2 and how you are record keeping them? Did the employer make a mistake? I don't see how you can assume it is an overpayment and not determine the cause.

I agree, the compensation to include for Suzy7 will be determined by the provisions of the plan. Either plan year compensation (full year) or compensation only while a participant (from 7/1/08 - 12/31/08). However, the compensation to include for Jeff1 is full year salary, because he initially became a participant on his entry date of 1/1/08. When he completed paperwork has no bearing on this determination.

Help me out here, I'm having difficulty following the plan design. Does the plan have any actual restrictions on who is eligible to receive a matching contribution? In other words, are all employees eligible to defer also eligible to receive a match? Or, does the plan say to be eligible to receive a matching contribution, a participant must defer at least 4%? This should determine who is included as eligible for 410(b) testing. If everyone who can defer is eligile for a match, then coverage is passed and the ACP test includes them all, with the required zero percentages. If only eligible with a 4% deferral, then coverage must be tested and passed before the ACP test. Here's a thought, how do you handle a participant who elects to defer 4% at the beginning of the plan year, but stops during the year so their annual deferral rate is less than 4%, when the match is earned each payroll period? Now on to the match, how is the matching contribution formula stated in the plan? Discretionary or a fixd tier formula? Either way, is the formula stated similar to 0% on less than 4% deferrals and 100% on deferrals of 4% or greater? The ACP test is used to determine if the matching formula is discriminary.

Are you saying the 401(k) portion of the plan was amended to require 2 years of service? A 401(k) arrangement cannot exceed 1 year of service.

Do these custodians receive W-2 wages? If yes, what employer is identified on the W-2? Who takes a deduction for the wages paid?

How's this for certainty? The new EGTRRA restatment document provides for an automatic revocation of spousal designation by stating a divorce decree, or a decree of legal separation, revokes the participant's prior designation, if any, of his/her spouse or former spouse as his/her beneficiary under the plan unless a QDRO provides otherwise. Nowhere does it state the divorce decree or decree of legal separation must be provided to the Plan Administrator for the revocation to take place. So, in operation, do you think the Plan Administrator must now determine if such a decree exists before paying any benefits to the named beneficiary, if that beneficiary is or was a spouse? How else will they know if the beneficiary designation is revoked?

Good luck trying to enforce the "30 days" if a participant challenges an error. The plan administrator is responsible for the accuracy of plan transactions and by extension, the TPA depending on what is outlined in the service agreement.

See IRS 401(k) Resource Guide - Plan Participants - Plan Termination

Don't forget to evaluate the terminations to consider if a partial plan termination occurred with respect to the terminated employees.

I agree, without the plan document spelling things out there is not any specific guidance out there. Here are some thoughts: What triggers the annual salary deferral increase? Must the employee be employed at a particular time, accrue any hours of service or just have their service recognized under the plan? What does the plan document say about when/how a participant satisfies the requiremens for the annual salary deferral increase? Upon rehire, if the employee's prior service is counted for eligiblility purposes, may it be counted for automatic increase purposes? I think the plan administrator should take some time now and establish written procedures for handling this, so they can apply it equally to all situations. This will take some thinking and interpretation of the plan document.

How does taking a loan lead to further hardship? I'm not following you.

Have the funds been taken out of the participant's account? If not, then there is not a distribution to report on the 1099-R or the 5500. The trust cannot make a distribution directly to the plan sponsor. The participant is entitled to the funds in their plan account and the plan must make a distribution payable to the participant. The plan sponsor should request the initial payment back from the participant and distribute the funds correctly through the plan.

How are you accounting for the forfeitures? How are forfeitures to be used?

Thanks, we'll review and discuss.

What about a PS plan (without the MPP money) that provides for a QJSA of 50% as it normal form of distribution? Must this plan also provide for a QOSA of 75%?