Wessex

The employee would remain eligible in year two. Once an employee has met the eligibility requirement, the employee would remain eligible. If the allocation of any employer contributions under the plan is conditioned on having at least 1000 hours during the plan year, the employee would not be receive an allocation even though the employee remained eligible to participate.

Section 1.410(B)-6(B)(2) provides that for a plan that has two or more different sets of age and service conditions, only employees who fail all sets of conditions are excludable. Keeping in mind that under the 410(B) regulations "plan" includes two or more plans that have been aggregated, this would mean that in this situation - becaues one set of conditions impose no age or service requirements - there are no excludable employees (unless there are bargaining unit employees or non-resident alien employees). I'm not sure I understand the numbers shown for the coverage data. Regardless of whether the plans are aggregated or not, total employees should be the total number of employees in the controlled group. If for illustration purposes the numbers are only as to the employees who could be eligible to be covered by each plan, who are the excludable employees for plan 2? Are there employees excludable for reasons other than failing to meet the age and service requirements? [This message has been edited by Wessex (edited 01-29-99).]

If the plan year has ended, it may not be possible to avoid a 411(d)(6) problem even if the last day requirement is eliminated altogether and the timing of the amendment would not favor HCEs. If the allocation formula is a specified percentage of compensation, it would probably be ok because the amount of the contribution for anyone who met the last day requirement would not be reduced; rather the $ amount of the total employer contribution would increase. Under any other allocation formula it would be likely that some people would get less. Even if it is a discretionary contribution that is allocated on the basis of compensation, unless there is a history of a specific percentage or method of determining the amount of a contribution, it is at least possible to argue that the $ amount of the contribution would have been the same $ amount if the amendment had not been adopted, and thus the people who met the last day requirement would get less. [This message has been edited by Wessex (edited 01-28-99).]

Interesting question! Return to work and eligibility for coverage under the plan as an active employee do not necessarily terminate COBRA rights; it is coverage "under any other group health plan" that can terminate COBRA rights. However, if the employee were back at work for a period beyond the grace period for paying COBRA premiums, it is likely that 102% of the premiums have not been paid and it may be possible to end his COBRA rights for that reason. If the subsequent termination was within the grace period so that COBRA premiums would be considered as timely paid, I believe that the employee would retain COBRA rights from the first suspension. Anyone else have any thoughts or actually dealt with this type of situation? Do the plan and SPD define what constitutes gross misconduct in other situations? If yes, are they clear that additional situations could constitute gross misconduct? Is it your consistent policy to fire anyone who fails a second drug test (or written policy if this is the first time this has happened)? If the documents simply say that a person whose employment is terminated because of gross misconduct is not eligible for COBRA, I would be reluctant to specify only one situation that would be considered gross misconduct. As I am sure you are well aware, termination for cause and termination for gross misconduct are not necessarily coextensive.

I'm not sure I agree with Marcus that "even though the plan may allow for immediate distributions the plan may only require a distribution to be made at the later of age 65, 10th anniv of plan participation, or termination date. Therefore, for most participants that terminate prior to age 65, you can charge the participant directly for this request." I don't believe that Section 401(a)(14) necessarily requires that payment be made at the specified time. Section 401(a)(14) mandates payment at that time "unless the participant elects otherwise." If a plan permits a participant to elect an earlier or later time, I see nothing to differentiate whether or not check processing fees can be deducted from payments made at any particular time. Under Marcus's analysis, it would seem that you could also charge participants who elect to delay beyond the 401(a)(14 date a check processing fee. This issue is also addressed in the message titled "1099 Reporting" last updated on 1/26/99. I took a look at the 5/19/97 issue of Pension & Benefits Week and the article reports on remarks attributed to Morton Klevan with the PBWA, although there were no direct quotes. The article states that "Processing distributions to participants who terminate employment is another example of a statutory right for which individuals cannot be charged. Mr. Klevan differentiated this from 'voluntary' plan features, such as participant loans and directed investment options, for which plans can charge reasonable expenses against a participant's account." Mr. Klevan's remarks were made at a conference, not in official PWBA guidance. It appears from the article that an IRS official was also at the conference and apparently did not voice any different opinion. I would like some more official sanction of check processing fees for distributions before I would advise that such fees were permissible.

I agree with Dave Baker's analysis in the previous message, however, many loan documents provide that the loan is payable on demand. In that case, it would be possible to demand payment in full on the loan. Unless there are powerfull countervailing reasons, demanding payment seems very undesirable in light of the employee relations problems it would cause.

What sort of fee is being charged? I have heard of increasing numbers of providers charging or contemplating charging check processing fees to participants who receive distributions. I have always "understood" that this was not an appropriate fee. The only place that I have ever seen this officially addressed, however, is in PLR 8833043 dealing with whether a distribution was eligible for rollover. (I have never explicitly researched the issue, so there may be more!) PLR 8833043 provides that: "The Service notes that the information submitted by you in this case raises issues regarding the reduction of your vested account balance to pay certain plan administrative expenses [a $17.50 check processing fee]. However, such issues pertain to plan qualification under section 401(a) of the Code, and therefore are barred from consideration as part of a private ruling letter." Does anyone know of anything else dealing with this issue or had experience with the Service on this issue?

I am interpreting your question to be whether a plan is required to provide in-service distributions and/or to provide immediate distribution upon separation from service. The general answer is no. A plan is not required to provide for distribution of salary reduction contributions or vested employer contributions at any time prior to normal retirement age. Of course, a plan can provide for earlier distribution under circumstances permitted under the Internal Revenue Code. You should check your SPD and perhaps the plan document to see whether the plan provides for earlier distributions.

Post-tax contributions made to a 401(k) plan are not eligible for rollover. The earnings on the post-tax contributions would generally be eligible for rollover and, as described in the previous message, must go first to a traditional IRA before conversion to a Roth IRA.

Thanks B. Swift for the good news. [This message has been edited by Wessex (edited 12-14-98).]

I have always "understood" that when service is credited on a plan year computation period and there is a change in the plan year, employees must be given a year of service for the 12-month computation period corresponding to the old plan year and for the 12-month computation period beginning on the first day of the first new plan year if they are credited with 1000 hours (or lesser number if the plan so provides) in each of the computation periods. I have never been able to find anything that officially confirms this, although it logically flows from the concept of computation periods, and I have seen brief references to this requirement - without citations - in some secondary materials. I'd be interested to know what others have done.

No. Required minimum distributions should be made before a rollover. Unless a required minimum distribution of $30,000 is made from the regular IRA, the first $30,000 of the rollover will be treated as a required minimum distribution and thus not eligible for rollover. If not timely corrected, the $30,000 will also be subject to the 6% excise tax on excess contributions.

I don't believe the statute of limitations determines the required record retention period. Take a look at Section 209 of ERISA and DOL regulation Section 2530.209-2 -- "records ... shall be retained ... as long as any possibility exists that they might be relevant to a determination of benefit entitlements." I'm not sure how long this means in a particular situation, but taken to its logical extreme it could be argued that you could never get rid of records until a former employee were dead and it was established that there was no spouse, even for a non-vested participant; how else could you determine that the person was not vested and thus not entitled to benefits!

Does anyone have any thoughts (or even better, IRS input!) as to whether "negative elections" under a 401(k) plan could be implemented, say effective as of the first day of the next plan year, for current employees who have not elected to defer as well as for newly hired employees? I am inclined to say no, because those employees have, in effect, already made a “negative election” not to participate. The IRS guidance, of course, only discusses “negative elections” for new employees.

Section 1.410(B)-2(f)of the regulations briefly addresses the Section 410(B)(6)© rule regarding coverage after acquisitions or dispositions. The regulation adds an additional requirement -- there must have been no significant change in the PLAN or in the coverage of the plan.

I concur with the preceding comments regarding the same desk rule and 401(k)(10) distributions. However, keep in mind that even if the transaction met the requirements of 401(k)10) in all respects, there would be no distributable event unless the plan document provided for distributions pursuant to 401(k)(10). Many plans do provide for these distributions, but a plan is not required to provide them. [This message has been edited by Wessex (edited 11-20-98).]

I'm not sure, but this scheme may raise issues regarding the "exclusive benefit" requirement. Depending on the number of participants and former participants, it could make sense to amend the plan to increase benefits rather than having a reversion. Doctors generally have the lion's share (or more) of the benefits under their retirement plans.

Have you been calculating your SSLI option using an interest rate that does not exceed the PBGC or GATT interest rates, and if the GATT rates are in effect for the plan, the mandated mortality table? If not, there is a problem. Most SSLI options that I have seen were using the general interest rate and mortality table applicable under the plan to calculation of annuity equivalencies.

Keep in mind that you must make the rollover within 60 days of the date you received the distribution. Was the distribution check payable to you or to your new employer's plan? If the latter, you may have problems getting it reissued and should act as promptly as possible. Good luck! [This message has been edited by Wessex (edited 10-15-98).]

Although I am not sure on what basis, I agree that a change in the definition of Total Disability should not apply to a pending claim. If the basis on which claims would be paid under any kind of plan/policy could be changed for pending claims, few expensive claims would ever be paid. Seems to me that doing this is just asking to get sued. In the context of a defined benefit plan, whether Section 411(d)(6) would apply depends on whether under the plan the disability benefit is part of the accrued benefit or is an ancillary benefit. Regardless of whether or not the disability benefit is ancillary, if disability is a full vesting event, changing the definition of disability would probably be a change in the vesting schedule, giving participants with 3 or more years of service the right to elect to use the prior vesting schedule (i.e., total disability definition.)

Subsequent to posting the above message, I found some PLRs in which the IRS ruled that a surviving spouse over age 70 1/2 a the time of the IRA owner's death after the required beginning date can have a Designated Beneficiary. In the case of a survivivng spouse over age 70 1/2 who elects in the year following the IRA owner's death to treat the IRA as his or her own or roll over the IRA to an IRA of his or her own, the surviving spouse can have a Designated Beneficiary provided that the designation is made prior to December 31 of the year following the year in which the election or rollover is made.

In my fairly recent experience, IRS National Office personnel have expressed a different view in informal telephone conferences. That is, that deferrals must stop once the 401(a)(17) limit is reached regardless of the percentage of compensation actually deferred. Of course, the IRS could have changed its position, and, as pointed out in the prior message, the plan document definition of compensation may require that result.

Facts: A spouse is the designated beneficiary of an IRA owner. Owner dies when both owner and spouse are over age 70 1/2. If the spouse elects to treat the account as her own or to rollover the account to an IRA of her own, can she have a designated beneficiary? If her required beginning date is April 1 of the calendar year in which she attained age 70 1/2 (years ago) she would not have had a designated beneficiary on that date. Thus, only her remaining life expectancy (owner was recaluculating) can be used for determining required minimum distributions. The spouse can designate a beneficiary, but that beneficiary would not be a designated beneficiary. Can anyone confirm that this is the right analysis or point me to a Code or regulation provision that would permit a spouse beneficiary over age 70 1/2 to have a designated beneficiary? Thanks.

As I read the Code and the regulations, the plan administrator, not the plan sponsor, is responsible for providing COBRA notices. (In many cases, of course, the plan administrator and the plan sponsor are the same.) Although there may be a few cases decided to the contrary, I believe that a plan sponsor which is also the plan administrator has 44 days, not 14, within which to provide the notices. Similarly, under HIPAA, both the insurance provider AND the plan are responsible for providing notice; however, the plan is deemed to have complied with the requirement to furnish a certificate if the insurance provider does furnish a certificate. The plan will not be subject to penalties if neither the plan nor the insurance provider gives a HIPAA certificate, provided that there is an agreement between the plan and the insurance provider that the insurance provider will be the responsible party. Of course, compliance with these provisions does not guarantee that the plan administrator would not be sued.

As I read the Code and the regulations, the plan administrator, not the plan sponsor, is responsible for providing COBRA notices. (In many cases, of course, the plan administrator and the plan sponsor are the same.) Although there may be a few cases decided to the contrary, I believe that a plan sponsor which is also the plan administrator has 44 days, not 14, within which to provide the notices. Similarly, under HIPAA, both the insurance provider AND the plan are responsible for providing notice; however, the plan is deemed to have complied with the requirement to furnish a certificate if the insurance provider does furnish a certificate. The plan will not be subject to penalties if neither the plan nor the insurance provider gives a HIPAA certificate, provided that there is an agreement between the plan and the insurance provider that the insurance provider will be the responsible party. Of course, compliance with these provisions does not guarantee that the plan administrator would not be sued.