BeanCounterBlues

The plan permits hardships from other sources. It is a generous employer contribution plan on top of the 401k. Thanks for everyone's comments.

It's your standard safe harbor. My difficulty is that the language (to me anyway) is somewhat ambiguous as to exactly how far the plan admin has to reach to make these determinations. How far must the plan admin go to determine if other resources are available. I think in this particular case it's more clear cut because the participant presented me w/ a credit card stmt - proceeds of cash advance to pay medical procedure. EG the partic clearly demonstated alternative financial resources, hardship impermissible (even though partic is trying to assert they can't afford to pay the credit card). In general though - had the partic not come forth w/ the credit line info - the plan admin likely wouldn't have questioned the request. They would have reviewed the medical bill, determined that the Company's health plan of which the 401k participant is a participant in as well, wasn't covering the cost. Until the banking crisis - virtually anyone could get more credit than they could afford. Post bank crisis I personally still am offered and "advance approved for" (and I decline) far more credit than I can afford. Is the plan admin supposed to delve into all of that? Perhaps those are rhetorical questions

Thanks much - that was basically what I was anticipating (masteff - thank you for your comments!)

In an IRS Q&A there's a reference to hardships not being permitted if the participant has access to a commerical loan (eg take the proceeds and pay the bill). Facts: employee takes a hardship w/d about two times per year (this has been going on for years). Plan administrator requires hard proof of the hardship (eg does not just take the participant's word for it) eg copy of tuition bill, copy of uninsured medical bill etc. This participant has a child in college and various medical bills as many of us do. Thus hardships reasons have been easy to come by for this particular individual. Latest request is for an uninsured medical bill for which the participant incurred costs some time ago, and opened a VISA credit card account to pay the bill. Minimum payments approx $150 / monthly payment. Participant claims can no longer afford the monthly payments. Only proof that has been presented thus far is credit card stmts (plan admininistrator is in the process of asking for the actual medical bills). My guess is that if the participant were to forgo their monthly dishTV subscription they could pay the credit card (apologize for being harsh, am trying to stress a point). How far does the plan administrator have to go in determining if the participant does or does not have reasonable means to pay the bill? The 401k plan is used as a checking account in this situation. Had I not been presented w/ the history of the credit card account, I probably wouldn't have asked the question but I am concerned that the "exhausting of commerical credit lines" issue causes a problem here. Also - the participant already paid the medical bill w/ the credit card - so does that mean now that the participant is requesting funds for a credit card bill or is it a request for medical expenses? The only charges on the credit card are from the original medical bill - the card has not been used for any other purpose. If this hardship were granted would anyone out there be concerned the validity of the distribution would be called into question upon audit? The plan admin is interested in doing the right thing eg is not using the threat of an audit as the basis for making the decision. Appreciate any opinions, thank you.

Hi WDIK John Hancock 401k plan. Earnings are decreased by X basis points, which are paid by John Hancock to the commissioned agent for his / her services. Plan sponsor does not pay these fees, they are removed from the plan's assets by way of decreasing the posted earnings. Say my total earnings are $50. The commission is $0.50. JH will report on my account statement that I earned $49.50. They'll send $0.50 to the agent. $0.50 goes on Sch A on the 5500. TPA transaction fee also reduces the assets, but as separate line item (eg not "hidden" by running it through earnings). Both fee types reduce the assets. I have heard that repeatedly in seminars that if it's on Sch A then it does not go on Sch I - but always w/ a reference to the "agent commission". I am less clear on the TPA transaction fee. BOTH the commission, and the TPA fee, are reported by JH, on the Sch A. Commentators have stated in seminars that "they think" the TPA fee would be reported on Sch I and Sch A but there doesn't seem to be clear DOL guidance on this matter. I am just curious as to how others think this situation s/b handled. Report the TPA fee on Sch I or not? Again the goal is accurate reporting to DOL. Hope this is more clear, thanks.

I don't disagree but then why are commissions paid to agents and reported on Sch A exempt from Sch I reporting? The commissions do decrease the assets in the plans I work w/ but my understanding is that commissions to agents are nevertheless not Sch I reportable. Why not? And why no guidance on the TPA fees I describe? Those are probably all rhetorical questions.

A recent webcast speaker stated that Sch I is only intended to report fees paid from plan assets (repeated above I realize). My understanding of fees that are already reported on Sch A (like broker commission) do not have to be repeated on Sch I. Is that accurate? What about a TPA who charges transaction such as loan processing fees against the assets - which is also reported on Sch A. I hear some camps say that type of fee s/ then be repeated on Sch I, but not the commission to the broker. And others who disagree. Anyone know or have heard comments of how DOL wants this handled where w/ small plan filing Sch I, the Sch A reported items are to be reported or not reported again on Sch I? Am getting a lot of questions on this - not from the standpoint of being concerned about reporting it 2X, but from the standpoint of reporting items the way the DOL wishes (the latter being the goal).

Thank you all for your helpful replies. The resolution that was adopted by the Board during 2009, clearly states that the intended termination date is 12/31/09. It also clearly states in a separate sentence contained in the resolution, that the Plan Sponsor will NOT permit anymore contributions after 12/31/09 pay periods have closed. The plan's participants (both contributing and non-contributing) have been notified of this in writing and verbally via meetings etc - eg the communicatons have been many and the position of the employer has been made very clear w/ ample time for employees to decide where to place their funds (cash out, IRA etc). Does the language of the resolution (and the plan sponsor's responsible behavior) solidify a possible position that those zero balance people can excluded from the 1/1/2010 count or not make any difference? I realize in the end the Plan Sponsor and fiduciary have to make the decision they are most comfortable w/ based on the facts and circumstances. Thank you again for your opinions.

Actually both, sorry for not being clear. There are many eligibles who chose to never defer, they passed an entry date prior to 12/31/09. Do I have to count them for 1/1/2010 count purposes? Also - there are several people who would have (I mean will) become elig on 1/1/2010. But the Plan Sponsor has eliminated the ability to defer from 2010 pay periods - so those folks never would have had a deferral opportunity based on the circumstances. Thank you for your help.

Plan Sponsor adopts resolution during 2009, to terminate 401k plan. Employees will be able to salary defer on all pay periods through the end of 2009, w/ no 2010 pay periods eligible to be deferred from. Early 2010 plan sponsor plans to wind down affairs and process the distributions. Does an employee who met the eligibility req'ts prior to 12/31/09, but who has never had an account balance, count as of 1/1/2010 for the 2010 5500. Noone can "participate" in 2010. I realize those w/ balances certainly do count for the 5500. If yes, the plan count will be high enough to require an independent audit (the plan sponsor would like to avoid the expense if possible). I'm not locating anything definitive that answers this question. If anyone has any thoughts I would be very appreciative, thank you.

Below Ground - thank you, that's exactly what I was thinking (and yes would like to help this person who's going through tough time but you can only do so much). Regards.

Assume small TPA firm has services agreement with small 401k safe harbor plan to provide compliance testing, calculate contributions, and process 5500. Plan sponsor advises TPA that Plan Sponsor is undergoing bankruptcy. 2007 completed services, have not been paid for. 2008 5500 coming due soon (7/31/09). Relationship is good, no acrimony, and amount of past due invoice immaterial to TPA's practice and TPA willing to just let it go in order to not spend time trying to collect. TPA wishes to terminate agreement to provide services so as not have to complete 2008 work (eg knows won't be paid). Service agreement doesn't cover specific time periods and says that written notice may be provied by either party to terminate. Service agreement doesn't specifically state how much advance notice must be given. If notice were given now (eg May 2009) that services are terminated and the written notice states that the 2008 services will not be performed, does this alleviate the TPA from having to complete the 2008 work. I know technically this is a request for a legal opinion that but that is not what I am really after. I am more or less curious if others have run into this issue and how they have handled from a timing standpoint in terms of what is "reasonable notice." Thank you for any assistance.

Is it correct that mandatory e file is for plans beginning 1/1/09 or after. Thus for calendar year plans the first mandatory round of physical e file actually occurs in 2010. I've been receiving seminar materials from companies offering CPE stating that 2008 filings are the first mandatory E FILE year e.g. for those filings that we are submitting right now in 2009. I understand we need to start gearing up now but I thought the requirement didn't actually come into play until 2010 (for a calendar plan). Any helpful clarification would be appreciate, thank you!

From R: yes that's right. Asset protection is the goal. Will include the child to subject the plan to ERISA and thus the higher protection. P.C. owner does not want to have any staff but is seeking to get retirement assets out of IRA arrangement. Currently the owner contributes to a SEP for himself. If the 401k is installed he would simply make his contribs to the 401k. He would use 3% safe harbor in order to give the child some kind of account balance w/o the arrangement costing the owner an arm and leg in terms of contributions (eg avoids profit sharing allocation to child which could be more costly). The need for office help is valid and the child would be providing bona fide valuable services. The child is quite young however (not too young to provide the services). The business owner's concern is could someone try to assert that this arrangement really is a one person plan because the sole purpose of hiring the child was to get the plan subject to ERISA (and therefore its protections). We of course wouldn't divulge that to an attorney or auditor but it wouldn't be too hard to figure out. The business owner is not trying to "pull" anything and the work the child would do is completely valid. However, as we all know maintaining a 401k plan is a lot of work but in the opinion of the person who asked me the question is worth it for the asset protection. But if the mere act of hiring the child to accomplish the goal could be defeated by a court then what's the point of installing the 401k plan. Just wondered if anyone had any experience w/ this. Thanks again for any input.

Suppose that a sole practitioner professional P.C.-type entity wishes to create a 401k plan for protetction of assets. Practitioner doesn't have any ee's but could use some office help. Practitioner decides to hire minor child after school for bona fide employment purposes such as filing, and other tasks suited to the ability of the child. Assume no hazardous work / no violation of child labor laws. Assume work tasks are documented as well as the job description in writing and that a fair market hourly rate of pay is paid to child, with W-2 issued at year end, all proper payroll tax filings made, payroll taxes paid etc. 401k plan is safe harbor, offering 3% mandatory contribution. Plan complies w/ all applicable laws, written trust document, notice req'ts, filings, contribution deposits, the whole nine yards. Child is young (not too young to perform bona fide work) and works about 5 hours a week (assume plan offers immediate eligibility). Although everything about this situation appears to be legal and bona fide (and I know to be true based on the person who actually asked me this question) - has anyone ever seen someone (like IRS, an attorney, etc) try to and / or succeed in asserting that the plan is actually a one person plan and therefore not subject to ERISA (eg throws out the validity of the child hire)? Thanks for any input.

I agree - that's exactly the cite I read. So any guesses as to why the suggestion of a code B to go along w/ it? That doesn't really seem right to me but I hate to second guess what a big investment house is doing (eg w/ presumably a large in house legal and tax staff) w/o some support for my thoughts. Thanks for the response

Investment company is issuing 1099R for distribution processed from 401k plan w/ solely pre tax salary deferrals in the 401k account. Account is for terminated participant, who requested rollover to his Roth IRA of the entire amount. My question is on the 1099 code. Unless I've missed something IRS instructions appear to be somewhat unclear. I found a reference to using code G in box 7 and reporting the taxable amount in box 2a (along of course w/ the distr amount in box 1). This seems to make sense to me however the investment company that is issuing the 1099 states that they will use a code GB. The B is for distributions out of a Roth source 401k account (isn't it?). In the fact pattern above the money in the 401k plan is all pre tax. If the B code is used that seems to me would indicate to IRS that there isn't a taxable event (eg the B seems to indicate that the money came out of a Roth, and since it is going into Roth IRA there s/n/b any tax since the original deposited source was post-tax). This would be an incorrect taxation result w/ my fact pattern. Am I missing something? Anyone have experience w/ this fact pattern and if so what code(s) have you used? Thank you for any help.

Thank you both for your responses, that was my inclination as well (return to the Plan Sponsor, but please read on....). There's no risk to my knowledge that the Plan Sponsor would mis use the funds, the TPA just doesn't think it is right to keep the money - it really belongs to the participants because the TPA hadn't yet provided any services, but getting it back into the plan is going to be problematic. Is there a problem w/ the TPA just cutting the check to the Plan Sponsor? If it's paid to the Plan (which I realize is where the money s/ go) the Trustee probably won't be able to cash the check (eg the corporate bank won't take it and neither will the asset holder because the asset holder doesn't have a mechanism for coding the deposit as earnings rather than contribution). If the check is made payable to the Plan Sponsor then it will be off the TPA's books. Does the TPA really have to worry about what the Plan Sponsor ultimately does w/ the funds? The TPA is just trying to do the right thing and give back money the TPA is not entitled (ethically) to keep.

Suppose a TPA is hired by a plan whose asset holder (TPA is independent) pays asset-based fees to the TPA. TPA normally would offset those payments against the invoice TPA would generate for testing, Form 5500 etc. For various reasons, TPA and client part ways before any work is done. TPA has received payments from asset holder and wants to return them because no services were rendered. Investment holder will not accept the money. What is the best way to approach this - send it to the new TPA who is providing services? Send it to the client and instruct them to put it back in the plan as earnings (not sure the asset holder can accommodate a deposit that is earnings and not a contribution). Any suggestions? Predecessor TPA is not entitled to the funds and does not want to keep the money. No invoice rendered to client thus no billing available to offset. Thanks for any help.

OMIT

401(k) Plan sponsor switches recordkeepers early in 2008. Old recordkeeper supplied prototype as part of service, new recordkeeper does not. Old recordkeeper was also TPA (bundled arrangement). Plan sponsor engages new independent TPA (new recordkeeper only "keeps the records" doesn't ADP test, offer prototype etc) who will assist with ADP testing etc and also fills out prototype based on plan sponsor's desired provisions (basically mapped from prototype of terminated recordkeeper). How much gap is permitted from the time the assets move from the terminated recordkeeper (assume that recordkeeper states as most do that prototype can no longer be used once assets are no longer w/ said recordkeeper) until the adoption of the restated prototype? If done w/in the same plan year is this okay? Thanks for any help.

Thank you both for your assistance. Whether the fees are investment related or not, the TPA in this case, who has nothing to do w/ the investments (the investment holder is the recordkeeper, and there is an independent investment agent who receives a commission from the assets) - is getting paid by the recordkeeper / investment holder. This TPA payment is deducted from the participant's account. Can it be considered investment related when the money is used to offset the TPA's invoice to the client for testing and 5500 work? This is not a bundled arrangement. If the recordkeeper says the funds paid to the TPA are "investment related" can the plan sponsor just go w/ that? Does it not matter that the TPA isn't providing investment related services? That seems to defeat the purpose of the regulation. Maybe I am overinterpreting. Just to clarify the first post made, the TPA is not trying to protect their fee. The TPA's default billing method is to have the plan sponsor just pay the entire TPA fee from plan sponsor funds, not from plan assets. The plan sponsor does not object to this method. The problem is - the TPA cannot decline the payment from the recordkeeper - so in order to be fair - offsets the plan sponsor's invoice for testing and 5500 (which is all the TPA does). To address another point - the TPA understands that it is ultimately the plan sponsor's responsibility to disclose what is necessary to the participants. However - the plan in question is very small w/ financially unsophisticated employer, who would rely on the TPA to make the disclosure that is necessary for the funds that the TPA is getting from the recordkeeper. The TPA simply wants to make this (whatever "this" is) as easy as possible for the plan sponsor and is more than willing to fully disclose every cent received to the affected participants. The problem is - the TPA can't get the information, because the recordkeeper refuses to provide it. Perhaps the recordkeeper is taking the position that the fees paid to the TPA are "investment related" - but in reality that is not what the TPA is performing in the way of services. This has the TPA very concerned about how to advise the plan sponsor - eg "here's what you, plan sponsor, need to do, but unfortunately the info to comply is not available, and here are the possible penalties, etc." Can the plan sponsor stay w/ this recordkeeper, disclose what it can to the particpants, and hope that the DOL would see it as good faith effort if reviewed on audit? Just wondering what others would do in this situation. Thank you again.

Very popular real-life 401k mutual fund recordkeeper / investment company (remaining nameless to protect its identity) pays TPA percentage of assets quarterly. TPA offset's client invoice for testing, 5500 etc for amounts paid by investment company to TPA. TPA confirms the payment is removed from the plan's assets, not the general assets of the recordkeeper. Remaining balance paid by plan sponsor to TPA (TPA is not related to or affiliated w/ recordkeeper). Recordkeeper tells TPA that recordkeeper has no mechanism and no plans to break out the paid quarterly fee by-participant. Dollar amount cannot be determined on a by-participant basis. TPA explains to recordkeeper that 408 requires disclosing the dollar amount charged against the account each quarter to each affected particiant. Recordkeeper reiterates its position (no help). TPA tries to decline payments altogether (w/ blessing of plan sponsor) to avoid the obvious participant reporting problem. Recordkeeper says there is no means of not giving this money to the TPA. What does the TPA do? Decline the business because the required 408 disclosure cannot be made? Send out a quarterly letter to all affected participants stating "here is the amount TPA received in total, a portion of which is charged to each participant account?" A statement of this type doesn't meet 408 based on my interpretation of the req'ts of 408. Any comments appreciated, thank you.

Say that a small company (three employees all eligible) sponsors a profit sharing plan and makes a generous annual contribution (doesn't matter just setting a hypothetical employer example up). The assets are trustee directed and the employees have no say in the investments. Some of the investments are in very conservative investments such as savings accounts. Let's say for example there are fees (minor but still they're there) charged for the mainenance of the savings account. It seems like 408 would require that the plan fiduciary have a written service agreement with the bank because technically the bank is getting a fee out of the plan's assets. Practically speaking I doubt the bank would be very interested in accommodating a service agreement (I could be wrong). First - is a service agreement required here (I'm not aware of any de minimus exceptions under 408). If the answer is technically "yes," - what advice would you give a plan in this situation, assuming they can't get an agreement w/ the bank. Close the account and put the money somewhere else? Hope the DOL would look kindly on the situation due immateriality? Thanks for any help.

thank you all for your help, greatly appreciated