PLAN MAN

You should find the answer in the plan document. Does the plan have a provision to exclude prior years of service? Does the plan state that a rehired partcipant will enter the plan on their re-employment date? Does the plan require a particpant to earn a year of service before they are reinstated in the plan as of the rehire date? Look under Eligibility or a special section for rehired employees to see if any of these provisions are in the plan.

I'm hesitant to agree with broad statements like this. There may be circumstances or errors that would justify a correction and distribution to the employee. The plan administrator is responsible for operating the plan correctly and I don't think they can pass this responsibility on to the employee without proper justification. Just my thoughts

I think you need to look at the plan documents more closely. If this is a McKay Hochman prototype document I think is shoulc have several items that address forfeitures. The adoption agreement should say when forfeitures occur and are allocated (i.e., either in the plan year the forfeitures occur or in the plan year following), how forfeitures are applied (i.e., reallocated as additional contributions or reduce future contributions) and if forfeitures can be applied to pay plan administrative expenses. On the last point, the document should state further how any remaining forfeitures after paying plan expenses for the year are to be allocated. Usually it states that any remaining forfeitures are allocated as provided in the other election (reallocate or reduce). It is always our recommendation that the record keeper not lump all forfeitures together, but keep each year separate. That way forfeitures can be identified and used appropriately for each year and not carried forward indefinitely. Isn't there some old IRS guidance that says forfeitures must be used each year? It is my position if forfeitures are used to reduce a discretionary contribution, then in any year the contribution is determined to be $0 the forfeitures for that year are allocated as the only contribution.

How many of the employees with less than 1 year of service who are not participating have worked 1,000 hours or more during their initial year of employment? These employees will be counted as participants once they have met the entry requirements. You cannot amend the plan to remove participants who are not deferring if they have met the amended eligibility requirements.

Copied from PPA: [PPA §863] (a) In General- Section 101 of the Internal Revenue Code of 1986 (relating to certain death benefits) is amended by adding at the end the following new subsection: `(j) Treatment of Certain Employer-Owned Life Insurance Contracts- `(1) GENERAL RULE- In the case of an employer-owned life insurance contract, the amount excluded from gross income of an applicable policyholder by reason of paragraph (1) of subsection (a) shall not exceed an amount equal to the sum of the premiums and other amounts paid by the policyholder for the contract. `(2) EXCEPTIONS- In the case of an employer-owned life insurance contract with respect to which the notice and consent requirements of paragraph (4) are met, paragraph (1) shall not apply to any of the following: `(A) EXCEPTIONS BASED ON INSURED'S STATUS- Any amount received by reason of the death of an insured who, with respect to an applicable policyholder-- `(i) was an employee at any time during the 12-month period before the insured's death, or `(ii) is, at the time the contract is issued-- `(I) a director, `(II) a highly compensated employee within the meaning of section 414(q) (without regard to paragraph (1)(B)(ii) thereof), or `(III) a highly compensated individual within the meaning of section 105(h)(5), except that `35 percent' shall be substituted for `25 percent' in subparagraph © thereof. And Code Section 105(h)(5): (5) Highly compensated individual defined For purposes of this subsection, the term “highly compensated individual” means an individual who is— (A) one of the 5 highest paid officers, (B) a shareholder who owns (with the application of section 318) more than 10 percent in value of the stock of the employer, or © among the highest paid 25 percent of all employees (other than employees described in paragraph (3)(B) who are not participants). Just follow the trail.

I guess I'm missing the point. Why do you think your grandfather is entitled to keep the distribution if it is determined the spouse is the proper beneficiary?

In the past we have sent letters to the IRA provider informing them that there was an incorrect rollover and a portion of the amount may not be included in the account. We instructed the IRA provider to return to the plan the amount we determined to be the RMD. Upon return, we processed the RMD and issued correct tax forms for the transactions.

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Under the 401(k) safe harbor rules a 401(k) plan automatically satisfies the ADP and ACP tests if the employer makes nonelective contributions to the accounts of non-highly compensated employees in an amount equal to 3% of their compensation. If desired, nonelective contributions need not be made on behalf of highly compensated employees. If no other contributions are made (or forfeitures allocated) then the plan is not subject to the top heavy rules. In the plan years in which a contribution other than the safe harbor contribution is made, the plan would be subject to the top heavy rules. If the plan has a discretionary contribution that is allocated only to HCEs, I would think some kind of nondiscrimination testing would be required.

According to the Form 5500 instructions: Mergers/Consolidations A final/return/report should be filed for the plan year (12 months or less) that ends when all plan assets were legally transferred to the control of another plan. In which plan will the money purchase contribution be deposited?

Were the money purchase plan assets merged at a later date? You might be able to use the date the assets moved as the final date.

According to the DOL: the assets of a plan included amounts (other than union dues) that a participant or beneficiary pays to an employer, or amounts that a participant has withheld from his or her wages by an employer, for contribution to a plan, as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets Is there really any doubt these funds are considered a plan asset as soon as the other amounts were deposited in the plan?

What does the plan document say? The employer may not have a choice based on the way the plan is written.

Each mutual fund company was required to file a distribution plan with the SEC. You should first review that to see if it includes a specific allocation methodology for plan participants. If not included then according to the guidance from the DOL, the plan fiduciaries are responsible for deciding on a reasonable and fair distribution method.

What about vesting? Is the profit sharing contribution subject to a vesting schedule? Are you saying it is possible some safe harbor profit sharing contributions may be included in an account subject to vesting? I think you should look at the bigger picture to address all the issues.

What does the plan document and/or the loan administration policy say about this? If it is discussed in one of these documents, you should have your answer. I think ERISA permits an employee who is not a full participant in the plan to take a loan under the party in interest definition. See section 3(14)

What reason did the client provide for wanting to pre-fund the contribution before allocating it to participants' accounts? This is unusual, but not unheard of. I don't see a benefit here, the client cannot reclaim the contribution once it is deposited in the plan. Is this a maximum contribution? What happens if they calculated too high? I see a bigger problem if the contribution was invested before being allocated and there was a loss. How would you allocate the loss?

The best approach would be to declare a transfer date and do a full plan valuation as of the transfer date. Then move the money as soon as possible after that is completed. Any additional gain/loss would be allocated proportionately based on account balances as of the valuation date. If you can't perform the valuation as of the transfer date, I'd suggest calculating each participants share of the plan value on 12/31/2007, add in any contributions, subtract any distributions and allocate the funds based on the each participant's percentage of the plan value.

This situation seems to be the type for which the hold-out rule under the break in service rules is designed. The plan is allowed to temporarily ignore the employee's prior service until that employee earns a year of service after their break in service. Once the employee earns the year of service they would be reinstated in the plan as of the first day of the eligibility computation period in which they were credited with the year of service. This retroactive reinstatement can be difficult to administer. I asked if the plan was top-heavy, because the difficulity arises when an employee is reinstated back to the previous plan year and they are due a top-heavy contribution for that year.

Are there any salary deferrals to consider or is this a straight profit sharing only plan? Is the plan top-heavy? These are things to consider.

Does changing the dates change anyone's answer? Employee's entry date is January 1, 2008 Pay date is January 4, 2008 Payroll period is December 21, 2007 - December 28, 2007

Check the SPD, it might have specific language. Here is what I found in our SPD: Your elective deferral agreement will be effective on the first day of the pay period following your entry date. If it is not clear, then this is something the Plan Administrator should address and set a uniform policy for the plan.

Does the selling agreement for ABC Corporation say anything about the new owner's responsibilities and liabilities for the existing retirement plan?

I found this in Notice 84-11: A-5. A leased employee is any person who performs services for a recipient if: (1) such services are provided pursuant to an agreement between the recipient and any other person (the "leasing organization"), ... Q-6. Must the agreement referred to in paragraph (1) of A-5 between the recipient an the leasing organization be in writing? A-6. No, an oral contract between the recipient and the leasing organization will satisfy the "agreement" requirement.

I thought the employer could establish a procedure for making this determination. Do the temporary regulations under 414(q) still apply? Here is the section of the regulations I was remembering: 26 C.F.R. § 1.414(q)-1T Highly compensated employee (temporary) - under answer 3 (b) Rounding and tie-breaking rules. In making the look-back year and determination year calculations for a determination year, it may be necessary for an employer to adopt a rule for rounding calculations (e.g., in determining the number of employees in the top-paid group). In addition, it may be necessary to adopt a rule breaking ties among two or more employees (e.g., in identifying those particular employees who are in the top-paid group or who are among the 100 most highly compensated employees). In such cases, the employer may adopt any rounding or tie-breaking rules it desires, so long as such rules are reasonable, nondiscriminatory, and uniformly and consistently applied.