ERISAnut

Yes. You should communicate such plan changes to all participants affected by the change. Basically, if there is any conceivable way this change would affect them, then they should be notified.

Let's all keep in mind that the error was a premature deposit of $50; which will self correct in the next cycle by merely withholding the amount from the employee's pay, but not funding an additional deposit. It is also important to keep in mind that this is one instance involving one employee. Had this been a payroll file with 10,000 employees, but the error happenend to 100 of them in relatively small amounts, you are looking at an event that will perfectly align itself on the next payroll. I do not think there is a huge issue given the relative insignificance compared to the number of errors over the number of transactions. I do think that we can get too analytical when the fact is that the participant involved may have lost funds due to the daily valuation of the early deposit. At some point, that becomes a hind-sight 20/20 issue; where the participant lost due to an oversight, but the loss is only ascertainable in hind-sight. The process remains, inherently, in tact with the offset of the following payroll. But, there is a decision that the employer must make when determining whether to pony up the resources to provide a full correction. I think the IRS (and know the DOL) has looked the other way on issues that were slightly more eggregious than this. But, I do agree that rules are rules and they are there for a reason. If not to be followed, then why?

If not doing it GBurns way, which I would arguably support then the only other alternative would be the make the employee account whole after a series of transactions. First, you correct for the amounts added to your recordkeeping system. This will be a dollar based transaction that moves one of the payments from the deferral source of funds. This will, of course, oversell in funds due to the market being down. However, when you calculate the difference between the funds that are actually sold to generate the $50 and the number of units that were originally purchased with the erroneous $50 deposit. That difference of units must be repurchased within the participants account. The resulting cash after those funds are used to purchased the units to make the participant's account whole will be either returned to the employer or offset the following payroll. The issue doing it this way (which certainly would make the participant's account whole), would be that $50 isn't being refunded to the employer. The tax reporting must be consistent.

I stand corrected. The 'benefit' in the header with the term 'contribution' withing the text threw me off. I do see the interpretation that 72(r ) is prescribing these amounts as 'benefits' that are derived from employee and employer contributions. Thanks, Gary Lesser, for this insight.

I saw a reverend on television many years ago telling a story intended to make a point about different personalities. For some reason, it created an impression in my mind that I still remember when determining my approach to everyday issues. I though I would share as it does provide some perspective on different approaches we take when addressing questions posed on the board. Here goes: There was a rich man living on a Mountain. He was seeking a chauffer to replace is long-time friend who had just retired. Upon narrowing his search down to three finalists, he posed a simple question to each; "How close to the cliff can you drive without falling over?" Driver 1 states, "I can drive within 2 feet of the cliff without driving over". Driver 2 states, "I can drive within 12 inches of the cliff without driving over." The third driver, taking a look out over the cliff and seeing the valleys below states, "I am not sure, I try to stay as far from it as possible". Sometimes, as consultants, we attempt to impress clients with getting them as close to certain cliffs as possible. When we get it wrong, the client pays in IRS penalties. Other consultants, while attempting to stay as far from the cliff as possible, deprive their clients out of safe leveraging opportunities for no other reason that to stay as far from the cliff as possible. This is not to say either approach is right or wrong, but certainly worth considering when formulating a position on any given issue. At any rate, it always help to develop a realistic idea of where the cliff actually is. Just keeping things in perspective.

You can write a best seller on this one alone. When looking at the system of interrelated parts that will be affected by a simple change strategy or direction, there is always a tendency to communicate 'hot buttons' or 'talking points' that always fail to account for every single part of the system. This, applied over a population of more than one, will certainly lead to disgreements on HOW it should be fixed. One thing is certain, the need to fix it is more evident now than ever. Time to put the politics aside and MOVE ON; a feat that will prove more complex than fixing Social Security.

It does come down to a judgement call. The question posed by the SIMPLE IRA is did any employees receive a contribution or accrue a benefit under a qualified plan. Based on the reading of 72®, the answer would be yes. Now, had 72® stated that they are not treated as contributions, but are counted against the 415 limit of other plans offered by the employer, then you could make an argument that they are not contributions. In such event, an argument would be how can you have a 415 addition without it being a contribution. But, that argument could be addressed by looking at other types of programs (such as certain health & welfare plans where benefits to Key Employees are treated as annual additions) where these would not constitute employer contributions; and the SIMPLE IRA remains unaffected because the 415 limits do not apply. Again, this is merely an observation of an alternative that could have been written within the rules, but wasn't. The rule states that they are treated as employee and employer contributions to a qualified plan. Without an additional caveat, this would imply for all purposes; including 415 limits and exclusive plan provisions for other plans. Hope this helps.

Sure. If she was designated as beneficiary of the IRA by her mother, and the records available at the broker shows that, then there is no other alternative than to distribute the funds to her (under whatever methods available). If such designation was clear, then the broker would have had no authority to act on the attorneys instruction. Her case is with the broker, not the estate. The broker's case is with the estate in trying to recoup the funds that were improperly distributed. There would need to be clear documentation that your client, and not the estate, was beneficiary of the IRA.

Your reasoning is air tight. The difference here is that the 72® explicitly reference section 401(a) which effectively deems the tier 2 benefits as Qualified Plan Contributions. Remember, the SIMPLE IRA rule is not whether such other plan exists, but whether the employee actually receives a contribution or accrues a benefit under another qualified plan during the year. In such case, regardless of what the RR plan is, the employee is considered to have received contributions under a 401(a) plan. I would actually stand corrected, but had to make such call only one before. So, I would not qualify as an authority on this one. I merely formulated my approach to deal with actual contributions being made. That served as the tie breaker, because I did initially take the approach that the RR plan may not be a qualified plan.

You are both right. While he is a alien, he is a resident with US source income. Can you 'Discover' the difference?

You have a case. There is a distinct difference in investing prospective contributions into QDIA when there are no elections. However, to move funds that are already inside a particular investment into a more risky investment is beyond the scope of any reliance that the safe harbors offer. Notice the difference. If funds are not yet deposited and you fail to make an election, then the employer may default the funds. However, you had already made your choice of the fixed fund. There is no authority for them to arbitrarily move existing balances into any other option without your expressed consent. You should sue. Just call your local Department of Labor. There will be a local representative that would be happy to view your case. Any audit will reveal a fact pattern where it may have been in the best interested of the financial representative to have those funds moved into their 'target allocation option' for your age group. However, that is not appropriate for balances that are already existing inside of a fixed fund. While this type of case is civil in nature, you have a legitimate complaint and should be awarded damages.

Yes, It is IRC Section 72® that treats certain tier 2 amounts as if they are either employee or employer contributions to a plan under 401(a). A qualified plan is just that, a plan that meets the requirements of Section 401(a). Doesn't look good. The client is speeding 90/70. Wonder if they can get it back under the limit before being clocked by the highway patrol? Another measure of risk.

You cannot defer into the plan when you have no 'earned income'. This is not a 415 issue, but an elective deferral issue. You must have income in order to defer. The 415 issue comes into play when a participant defers into the plan, say $5,000 when he has only $5,000 in income. While he is at his deferral limit of 100% of compensation, he may receive another $5,000 in employer contribution. His 415 limit, including catchup, will become 10,000. But, you cannot achieve a catchup without an elective deferral. You cannot have an elective deferral that exceeds compensation. Hope this helps.

I did a search. It may take some calling around to these companies that once owned Frontier Trust to see if the accounts are there. Does your father ever remember doing business with a representative from AXA Financial?

In the event you are reimbursing the employer, the payment should be made to the employer, not the employee of the employer. So, the question of whether FICA should be paid in addition would be moot, as the expense is paid to the employer. Also, the individual hired by this employer do perform these services will ultimately become a participant in this plan. Again, do you want the plan issuing a check to a participant who is performing services to the plan? But, to answer your question, I think the debate would be weather a reimbursement of employee salary is a reasonable expense. I would argue that it is not. An important fact that is stated, however, is that this individual is working exclusively on the plan which would seem to support the notion that the expenses may be reasonable. But the first time this individual performs a duty that is not directly related to the plan becomes problem. My argument would be why to even cross that bridge.

No. There is mandatory disaggregation when testing amounts received while part of the union from those amounts received while not part of the union. While an employee may earn compensation as both union and nonunion during the year, the amounts are tested separately. Now, if this were a mere distinction between hourly and salaried employees (where that is no mandatory disaggregation), then you could test the employee within one group for the entire year (and this will be the group he was in on the last day of the plan year being tested). This is a no-go for union & nonunion. Hope this helps.

J Simmons, You and I are on the same page, I merely jumped ahead in assuming that it is not a 403(b) plan since the sponsor is a local government. Normally, it would be stated at a public shool in the question. This left the Governmental 457(b) and a Qualified Plan as the remaining alternatives. I merely assumed it to be a qualified plan since IWonder stated plan administrator. I absence of detail always gets us. I am merely assuming that this is likely a qualified plan, but do not know whether it is a DB or DC; not that this such a distinction would matter. I just assumed it is a QP from the fact pattern.

While the plan is not subject to ERISA, the assets must still remain for the exclusive benefit of participants and their beneficiaries. This is reinforced in Sections 401(a)(2) and 401(a)(13); making this an IRS enforcement issue. What appears to happen here is that the employer (local government) is using the plan assets to pay for an employee of the local government. Regardless of who is making the payments to the individual managing the plan, the individual appears to be a common law employee (see Rev. Rul. 87-41) of the local government. The local government is, therefore, responsible for this persons salary. Why would the plan pay this? If paid, why would it be paid on a W-2, as the plan does not appear to be the common-law employer. I hope it works out for you.

You are correct. The document will also include a method for allocating earnings. This method will likely be a Beginning of Year method that does not include contributions for the year in calculating the basis for earnings. Therefore, the year end receivable for the first year participant is the balance that will be paid out (until the plan is valued again on 3/31/2009 where the $3,000 would be his beginning of the year balance for the allocation purposes). This is a typical balance forward plan. As to whether the plan administrator may arbitrarily decide on the valuation date, I do not agree. However, the plan administrator may, in it's decretion, decide to amend the plan to provide for other valuation dates (ie. quarterly or even daily). As it stands, it appears that you have a cookie cutter balance forward plan. Just pay out the $3,000 from the plan (assuming he is vested in the entire amount). However, you should verify the language within your document (as always) prior to doing this. Everyone on this board agrees with this, because the absence of this plan document language always begins the guessing game. So, keep in mind, my comments are only my guess of what how this document would read based on my experience with balance forward plans.

It is a cutback as it relates to distribution timing upon a stated event. It will likely take a compilation of arguments to piece it together. Also, the term 'disability' would be defined by the plan for this purpose. That definition would, arguably, be subject to the cutback provision as well. I would not want to open that can of worms, but then again, why not?

Probably not a good idea to correct a failure to follow the written terms of the plan with another failure to follow the written terms of the plan. If an ineligible employee was allowed to defer, then that should be cleared up under a mistake of fact. But to actually provide additional employer contributions to employees who are not eligible would appear to compound the problem. You should explore the different corrective measures available under EPCRS (specifically SCP) prior to making suggestions to further fund ineligible employees. Just a thought.

I am not understanding your question, but I will attempt to illustrate by scenario. The plan allows for salary deferral elections from each regular payroll (i.e. weekly or bi-weekly). Also, several employees receive one-time bonuses at certain points during the year (subject to different withholding rules, typically at 40%). A participant elects to have 10% withheld from his regular payroll. This continues to happen. Now comes bonus time. The participant is given a separate election form and the understanding that nothing done on this separate form will impact his election for regular payroll. This separate form will apply ONLY to the bonus amount he is about to receive. He elects to defer 20% of his bonus. This 20%, gets withheld from the bonus check only while the regular payroll continues at 10%. Let's suppose instead that the participant states that he wants nothing withheld from the bonus check. Then 0 is withheld from the bonus, but 10% continues to get withheld from regular payroll. Anything else isn't worth the effort, because this is how the system is designed to work. If I have a large bonus coming at want to defer 100% of it, but it happens to occur at the same time as a regular payroll, why should I miss my mortgage payment for having my entire bonus and entire payroll withheld for that pay period. I am interested in deferring 100% of the bonus only (because the IRS is withholding 40% of it anyway). So, it would behoove me to make the maximum deferral from this one-time payment without having it interfere with any other elections I have with other regular payroll streams. Again, Anything else isn't worth the effort, because this is the advantage employers offer to their employees who receive bonuses. It's supposed to be a good thing, not a controversial thing. Hope this helps. Sorry, J Simmons jumped in ahead of my. It took a while to type my response.

Your plan document will address this. You are paying out the amount as of the "LAST VALUATION DATE" prior to payment. If the plan states payment is immediate after termination, then you are paying out based on the value as of the last valuation date stated in the plan (i.e. Last day of the Plan Year). The participants' accounts do not fluxuate merely because the investement values in the trust changed. On the valuation date (especially those other than daily) there would be a allocation of the earnings (and contributions during the year) to the participants' accounts. The recordkeeper will perform this function and walk you through it. The forfeiture will be handled under the plan as well. It appears that you have a 'traditional' plan (commonly referred to as balance forward). This appears to be the root of your confusion. Hope this helps.

It's not ERISA. 403(b)s have been running non-compliant for years. The IRS merely stepped in to apply controls to the abuses and began to hold the Employer responsible for what the IRS has failed to do for years. Hence, the majority of the new rules are imposed by the IRS; and should not be construed to change the position that the DOL has maintained for years. It's not ERISA. The Control in with the employee. The employer's involvment is very limited to activities that are ministerial in nature.

Section 318 of the IRC. You own what your parents own for HCE purposes.