PLAN MAN

Am I missing something? You say the prior RK has been overstating employer contributions since 2004? How is this possible? It sounds like the prior RK was accruing a final matching contribution for the year. Is it possible you are accounting for contributions differently that the prior RK and some of the match for 2007 is really the accrued contribution from 2006? If the match is not really due, do you think it was included in the ACP test for 2006 - should that test be rerun?

The regulations under 410(b) define who is an union employee. See 1.410(b)-6(d)(2)(i): Treas. Reg. (2) Definition of collectively bargained employee —(i) In general. A collectively bargained employee is an employee who is included in a unit of employees covered by an agreement that the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and one or more employers, provided that there is evidence that retirement benefits were the subject of good faith bargaining between employee representatives and the employer or employers. An employee is a collectively bargained employee regardless of whether the employee benefits under any plan of the employer. See section 7701(a)(46) and §301.7701–17T of this chapter for additional requirements applicable to the collective bargaining agreement. An employee who performs hours of service during the plan year as both a collectively bargained employee and a noncollectively bargained employee is treated as a collectively bargained employee with respect to the hours of service performed as a collectively bargained employee and a noncollectively bargained employee with respect to the hours of service performed as a noncollectively bargained employee. See §1.410(b)–7© for disaggregation rules for plans benefiting collectively bargained and noncollectively bargained employees.

Do P and H sponsor the same retirement plan?

See IRS Publication 560 Pub 560

If the employer's tax year is the calendar year, then the deductible amount is $40,000, all of which must be allocated as a 2007 contribution. The employer cannot prefund the 2008 contribution in November 2007. The contribution must be deducted in the tax year in which it is deposited, with an exception for contributions deposited in the following year, but prior to the employer's tax filing deadline and allocated for the prior plan year.

See bulletpoint #6 on page 8: 6 After our grant of certiorari respondents filed a motion to dismiss the writ, contending that the case is moot because petitioner is no longer a participant in the Plan. While his withdrawal of funds from the Plan may have relevance to the proceedings on remand, we denied their motion because the case is not moot. A plan “participant,” as defined by §3(7) of ERISA, 29 U. S. C. §1002(7), may include a former employee with a colorable claim for benefits. See, e.g., Harzewski v. Guidant Corp., 489 F. 3d 799 (CA7 2007).

In listing them separately, would you list an occurance for 2002 six separate times - 2002, 2003, 2004, 2005, 2006 and until corrected in 2007, or just once for 2002-2007? Thanks for all your help.

Trying to help a client out, but I do not have any experience with the Form 5330. What is the correct way to report the interest amounts on multiple late deferral deposits over several years? The client settled with the DOL and was informed to file Form 5330 for the excise tax on the interest on the late deferrals. The interest amounts are very small, a total of $1,250. However, there are 34 separate occurances from 2002-2007. Is it acceptable to list the total on line 25(b) under column (d) on the Form and calculate the 15% excise tax on that amount, or must each occurance be listed separately? Or, a better way? Please help, I'm clueless about this! Thanks.

How is the employer treating her for other benefits? What is her status for medical coverage? I'd argue the employer-employee relationship ceased to exist sometime in 2007. Believing in her intention does not make a relationship! If she does not come back to work before 12/31/2007, she should take the RMD by 4/1/2008.

I am being told by a tax examiner with the state Dept. of Revenue that on eligible rollover distributions paid directly to participants, when the federal mandatory tax withholding is 20%, South Carolina requires 7% withholding. State tax withholding is voluntary on all other distributions. When I asked for a reference source for the required withholding, the examiner could not provide one. I have not been successful in locating any information on required tax withholding. The best I can tell is the 7% is the maximum tax rate. Does anyone have information on South Carolina's tax withholding requirements on periodic and nonperiodic distributions from retirement plans? Thanks for your help.

A retirement plan is for the exclusive benefit of the employees of the employer. If the employer does not want to hire these individuals as employees and pay them W-2 wages, then they cannot be included in the plan.

Aren't you concerned about the contributions made in 2007 for the 2006 year, too? You should check the plan document to determine if there is language that requires the accrued contributions to be included in the account balance for RMD calculations. I believe under the current IRS regulations a plan may, but is not required to, include these contributions. This IRS regulation may be helpful: § 1.401(a)(9)-5 Required minimum distributions from defined contribution plans. Q–3. What is the amount of the account of an employee used for determining the employee's required minimum distribution in the case of an individual account? A–3. (a) In the case of an individual account, the benefit used in determining the required minimum distribution for a distribution calendar year is the account balance as of the last valuation date in the calendar year immediately preceding that distribution calendar year (valuation calendar year) adjusted in accordance with paragraphs (b) and © of this A–3. (b) The account balance is increased by the amount of any contributions or forfeitures allocated to the account balance as of dates in the valuation calendar year after the valuation date. For this purpose, contributions that are allocated to the account balance as of dates in the valuation calendar year after the valuation date, but that are not actually made during the valuation calendar year, are permitted to be excluded.

The RMD for 2007, due by 4/1/2008, is based on the participant's account balance on 12/31/2006, for a calendar year plan. The RMD for 2008, due no later than 12/31/2008, will be based on the account balance on 12/31/2007.

In paragraph (e)(4)(v)(A) dealing with investments in a default fund prior to Dec. 24, 2007, the DOL uses language that states "an investment product or fund designed to guarantee principal and a rate of return generally consistent with that earned on intermediate investment grade bonds" - I'm being told by investments folks that the rates of return on stable value funds would not be as high as the rates for intermediate grade bonds. What is the DOL trying to say with this provision?

Tom, why did you assume the change would only benefit an HCE? Keeping the same safe harbor match formula and changing the calculation period from pay period to annual would benefit any employee who does not defer consistently during the year. With an annual match a true up must be calculated. I think this amendment is more generous, so it should be okay. Going the other way could be a problem.

We do our allocations based first on participation comp (if the plan allows). If there are people who only had partial year compensation, and the allcoation was less than 3% using participation comp, we up them to 3%. Are you saying if the participant's allocation is more than 3% of participation comp. you do not compare that amount to 3% of full year comp. to determine if the top-heavy minimum is satisfied? The participant should receive the greater amount.

Do you provide participant benefit statements for this plan? If you know there are outstanding deposits due the plan, do you include these amounts in the total contributions reported? For the terminated participants, I would think you could show a remaining balance in their accounts.

Great job providing that information, jevd. Some form of this question seems to come up each year with our clients. Here's how we explain it: as of January 1 each year they should determine if any employees will be 70-1/2 or older at any time during that calendar year, then they should require if such employee wants to take a distribution to take the RMD before being able to rollover their account balance. Satisfy the RMD in the initial distribution for the year. I agree, in this situation, the IRA should not have rolled over the entire account, but should have paid the RMD first.

So many reasons not to do this. You mentioned they take the contribution and income out of the participants' account and use the money to offset the next matching dollar required. Does this offset include the income or just the original contribution? I don't think the employer can use income earned in the plan to offset their contribution. The earnings should be allocated to eligible participants based on a nondiscriminatory formula. What if there is a loss on the match dollars in the account? I agree, showing particpants the match in their account when they have not yet accrued it - looks like a problem. If a participant terminates and takes a distribution during the year, is the plan sure they are taking back the match for that year before the distribution is paid? It would be easy to pay the participant the full amount in their account. How does the plan calculate amounts available for loans, hardships, or other in-service withdrawals with the match in the account? This method should not be allowed to continue.

What exactly do you mean by "corrective contributions"? What corretion is being made here? Did participants receive refunds of excess contributions due to the results of the flawed APD tests?

Thanks for the comments. The adviser does not choose which investment options to include in the plan. After that choice is made by the plan committee, the adviser creates the asset allocation models. The adviser states that the model portfolios are illustrations only and are not intended as investment advice or recommendations for any individual. The models have been developed as general examples for investors with various age and risk profiles. On the enrollment form the participant signs a declaration that their investment choices are their own, and they were not recommended by the adviser or any other organization affiliated with the adviser. I understand using asset allocation models as education tools and being able to use the actual investment options of the plan instead of asset classes or categories. What I'm concerned about is the participant making an investment election for a particular model by checking a box. I'm much more comfortable if the participant fills out the investment options and percentages and uses the model as a guide, but the participant is still making the investment elections. QDROphile, are you saying that placing the asset allocation model on the enrollment form as an investment option makes the adviser who created the model a fiduciary for that investment option? What responsibilities would they have?

An investment advisor created nine asset allocation models based on age and risk using the existing funds in the plan. The advisor worked with the Record Keeper to put the models on the enrollment form as an investment choice by participants. You just check one box and your investment allocation is divided among the funds based on the model. Is this still just education? Has the advisor crossed the line over to advice? Are they making a recommendation of which funds and what percentages to invest in? Does anyone have a similar situation? Should the advisor accept fiduciary responsibility for the investment choices made based on the models? Thanks.

The statement is the same in the 2007 edition of The ERISA Outline Book. And that is the way I always understood eligibility. Does anyone operate under the interpretation made by McKay Hochman? It would seem to be in direct conflict with Sal Tripodi's statment. I previously found an error in McKay Hochman's information, could this be another error? Eligibility is such a key piece of a plan's compliance with IRS regulations, I think it is important to make sure accurate information is provided and understood. Can anyone confirm or discredit the McKay Hochman information? Thanks.

McKay_Hochman___Commentary.htm This example was provided today by McKay Hochman in their E-mail Alert FAQ. Do you agree with their conclusion? Under the statutory rules does an employee lose their service (if initially employed less than 12 months) when they incur a break-in-service? This seems like a different interpretation of the regulations than I've been taught. Following is the information from the e-mail: How does the statutory eligibility rule (one year and 1,000 hours of service) apply when an employee works 1,000 hours, leaves before completing 12 months of service, and is then rehired? 09/12/07 E-mail Alert 2007-12 The answer depends directly on when the individual is rehired. The following fact set and examples will clarify the rules. Plan design fact set for the examples: Calendar year 401(k) plan Plan eligibility: 1 year: 1,000 hours Plan entry date: monthly This plan counts all employee service. Example 3 Employee DOH: March 26, 2006 Employee DOT: January 9, 2007, with 1,600 hours of service Employee DOR: March 29, 2009 Although the employee satisfied the 1,000-hour requirement, the employee left without completing 12 months of service necessary to satisfy the one-year portion of the statutory rule and then incurred a break-in-service. Therefore, upon rehire after the break-in-service, the employee starts over as a new employee and would not get credit for the previous service. The answer would be different if 1,000 hours AND 12 months of service had been completed and then the employee had terminated before the plan's entry entry date. In such a case, though there was a break-in-service, because the employee satisfied the statutory eligibility requirements before severing service, upon rehire the employee would become a participant. What do you think?

I agree, under a common sense approach, this would seem to be a mistake in fact. However, I'm not sure the IRS would view it this way. According to the IRS, all the facts and circumstances of the situation must be considered before it can be determined to be a mistake in fact. I think the IRS could see this as an operational error because the system the employer set up to deposit employee deferrals does not work properly. As you pointed out, the amounts deposited do not necessarily correspond to the salary deferrals withheld from participants' paychecks. What funds are sitting in the checking account? Were salary deferrals from other participants deposited into this participant's account? Is this employer money deposited - which can only go in as an employer contribution. The system does not have a check to stop deferrals over the statutory limit. But, this is not a simple case of excess deferrals. Will the employer be making any matching or profit sharing contributions? The IRS does not make it easy for the employer to receive money back from the plan.