J Simmons

My experience and practice as well.

You're right, amounts corresponding to the salary reductions are plan 'assets' in essence commingled with the ER's general account assets. However, the DoL has a non-enforcement policy yet in effect as to the requirement that these particular plan assets be held in a separate trust subject to ERISA audit and reporting rules. ERISA Technical Release 92-01, 57 Fed. Reg. 23272 (June 2, 1992). For a fact sensitive application, see Phelps v. CT Enterprises, No. 05-2071 (4th Cir. 08/09/2006). More problematic is whether also exempted would be as your title points out (a) the plan's net experience gains for a plan year from flex accounts, particularly to the extent such might exceed the plan's operational costs and past years' net experience losses, and (b) amounts paid by COBRA continuees for their coverage.

And who would know? Not the TPA/recordkeeper/custodian who sent it and is now preparing the Form 1099-R. What's a poor TPA/recordkeeper/custodian to do? Only send out distribution checks via certified mail, return receipt requested?

I recently came across a situation where the plan documents have for the plan's nearly 20 years of existence provided for profit sharing contributions, but not included a 401k feature, and called for trustee direction of investment of pooled accounts, but allowed for participant direction of investment. (The investment adviser when asked over the years would simply assure the ER that it could do these things because it is the ER's plan, so the ER could do what it wants--never mentioning the need to put those design choices into the plan documents.) Also, ADP testing has only been sporadically performed for the plan. I have been hired to prepare an EGTRRA restatement, and will add provisions to reflect the practice going forward. Of course, my concern at this point is the past. The different rates of returns that different employees have had since operationally being permitted to direct their investments presents a problem. Since the plan document has not allowed that, an employee whose rate of return has been lower than what the plan average has been could make a claim for more benefits than are in his account. And of course, any employee could make a claim against the trustees for investment underperformance if that is the case (I do not know). Has anyone approached the VCP or CAP units of the IRS with a similar situation and know what might be their inclination for remedying such a situation? Any experience sharing is greatly appreciated.

So, the mail box rule does not apply to issue of whether benefits payment has been made? Actual receipt is required?

Hey, David, It has been a while since I looked at the 415 regs, but that seems to comport with the lingering impressions that I have. It sounds like you have taken a more recent look. Do you think a plan provision that simply includes in the definition of compensation under the plan "pay for services rendered which would have been paid to the employee before a severance from employment if the employment had continued" would do the trick if paid by end of the plan year of termination or 2 1/2 months of severance from employment?

Sounds to me like another example of the law of unintended consequences. I know of no authority that would drive a different result.

Yes, and the plan TEEs would have two targets to do so: (a) the financial institution that handed over assets titled properly in the name of the plan trust, and (b) the IRS. It sounds as though others' experience has perhaps been different, but I have not known of a financial institution handing over qualified plan assets on a levy of the ER's assets even though the ER's EIN was used by the plan trust.

I agree it is cleaner to obtain and use an EIN for the plan trust separate from that of the ER. However, I do not think that the IRS would win on a levy against the ER as the taxpayer and the ER's assets. The qualified retirement plan trust document and proper titling of the account to show that it is part of the plan trust would satisfy any judge that I've been in front of. After all, it is not a rabbi trust that we're talking about. It is a true trust that is subject to and required to have an express provision reflecting the anti-alienation clause, that it is expressly for the benefit of the employees and their beneficiaries, and only allows reversions to the employer when assets exceed the promised benefits--in a DC plan such as a 401k plan (this forum), that's rare if ever.

I agree with Larry.

Belgarath, I can certainly see the issue. I've also had some (but not great) success in pushing back on the prototype document review team before I get my opinion letter. However, in pushing back against the reviewers of d-letter applications, I've had good success. For example, in the GUST II restatement period, I put in my X-tested amendments to the prototype a provision that after the year was ended, the employer could at the time of making a contribution declare by so labeling it a 'non-X-tested contribution' that would then be allocated per a permitted disparity formula. This was the fail safe. It was only used if X-testing did not look good for whatever reasons. If X-testing did look good, then per the same amendment the employer could declare it to be an 'X-testing contribution', and allocated per the rules set forth in the amendment for x-testing. Each time one of my d-letter applications went to an IRS office that had not seen this before, I was told that we could not do that. I then had readied my analysis of the definitely determinable formula requirement, including what was called the Gold memo (internal at the IRS on the issue). A few times I got a call from the reviewer or a superior, and I just kept talking until the reviewer wanted off the phone. A few weeks later in the mail would come the d-letter, but as I mentioned, each time it was the first such application to an IRS office that had not seen this amendment before, we got static and we just pushed back until they issued the d-letter. Now, for EGTRRA, they like language that permits post-year end determination of the rate groupings (even more liberal in light of the definitely determinable allocation formula requirement), even allowing it in prototypes. However, it is a bit more tricky now to get to use permitted disparity to demonstrate nondiscrimination if you have the LRM language for X-testing. In any event, I'd be ready to push back with the IRS if you get any static. To date, I've not run into any such static over the clause you refer to with regards to an X-tested plan for a sole prop.

Agreed. If the PA delegates a task to another, and that other makes an error that amounts to a lack of prudence/acting in the sole interests of the participants and beneficiary, then either the PA or the other has committed a fiduciary breach. Which one? That's where I'd argue the agreement between them becomes crucial. Analytically, I think you start with the PA, a plan document specified fiduciary. If the PA can demonstrate that (a) it contracted away that task with no reserved supervisory role by the PA (and in practice, did not supervise each performance), and (b) the PA had no reason prior to the act in question to suspect that the service provider was incapable or not responsible to carry out the act appropriately, then I think the PA is off the hook. In that instance, the service provider is a fiduciary to the extent performing the task involves discretion, and failure to act prudently/exclusively is a breach of that fiduciary duty. If the service contract/arrangement is that the service provider will do the preliminary work and assessment--such as with a hardship request--but the PA then reviews and approves/denies, then the PA is the fiduciary, not the service provider. I think if the agreement calls for such a role by the PA but the PA fails to do the reviews and merely signs off on anything, I yet think the PA is the breaching fiduciary, and not the service provider. This is my opinion even if the service provider knows that the PA has basically abdicated its role in this regard and is signing off on anything that the service provider puts under the PA's nose. The reason is that is the division of responsibility per the service agreement. If the service provider fulfills its agreed-to role, it does not become a fiduciary simply because it knows the PA is failing properly to perform its reserved function and role. So I think that the service agreement, and in particular its division of responsibilities, is critically important to whether the service provider may be tagged to be a fiduciary (but I agree that if those responsibilities for the service provider render it to be a fiduciary, a self-serving clause elsewhere in the agreement that the service provider shall not be an ERISA fiduciary will not carry the day in most courts). I agree, it does not necessarily apply, but it is a closely related issue. You only bond ERISA fiduciaries, and so the bonding regs defining what is an ERISA fiduciary (that needs to be bonded) and which were issued by the same agency (DoL) as part of its interpretation of the same act (ERISA) would seem to carry a fair amount of weight with most judges. Also, Larry, I wholeheartedly agree with the notions that you've discussed that fiduciary (or not) is on an act by act basis, not a label for the person for all purposes (unless named as PA, TEE or named fiduciary in the plan documents) and that it is extremely fact/situation sensitive. In sum, I would suggest that a service provider (a) get a well drafted service agreement that yet calls for the PA to review and make all decisions on matters that might be prepared for the PA's review, and (b) nevertheless act prudently at all times.

Since the plan trust is already using the ER's EIN, one EIN option that is accepted by the IRS, I would not engender the confusion mid-stream that would go along with now getting a separate EIN for the plan trust. Also, you might have quite a time getting the investment institutions to change the ownership on the accounts.

I think you meant to include this post in the 401k thread, not the 409A one. Anyway, if they children never became eligible for the 401k plan, they should not be included in the ADP/ACP testing as contributing 0%. If they did become eligible to make elective deferrals before the plan year being tested ended, and those children did not make any elective deferrals, then you should include them as 0% in the testing.

Larry, if I am understanding what you are saying in these two statements is that if the act is clerical and correct, the actor is not a fiduciary, but if the act is clerical and wrong (even inadvertently) the actor by reason of performing it wrong becomes a fiduciary. I would think that whether an act is or is not fiduciary is not dependent on whether the person performed the act correctly, but depends on the nature of the act undertaken in the first place. I.e., whether the act involves discretion. If it is a fiduciary act and the actor gets it wrong, then I think that there has been a fiduciary breach. But I don't see it as one who makes a clerical mistake thereby becoming a fiduciary. In the ERISA bonding context, handling plan funds has been fleshed out further. DoL Reg § 2580.412-6(a)(2) provides in relevant part: "... a given duty or relationship to funds or other property shall not be considered 'handling,' and bonding is not required, where it occurs under conditions and circumstances in which the risk that a loss will occur through fraud or dishonesty is negligible. This may be the case where the risk of mishandling is precluded by the nature of the funds or other property (e.g., checks, securities or title papers which can not be negotiated by the persons performing duties with respect to them). It may also be the case where significant risk of mishandling in the performance of duties of an essentially clerical character is precluded by fiscal controls." DoL Reg § 2580.412-6(a)(2) also provides: "Physical contact with cash, checks or similar property generally constitutes 'handling.' However, persons who from time to time perform counting, packaging, tabulating, messenger or similar duties of an essentially clerical character involving physical contact with funds or other property would not be 'handling' when they perform these duties under conditions and circumstances where risk of loss is negligible because of factors such as close supervision and control or the nature of the property."

Good morning, Belgarath, I have received favorable d-letters for the sole proprietor X-tested plans where the sole prop is in a grouping all by him/herself.

I agree you do need a 125 plan document that provides for the premium payments. Section 125 says so. It can be added to your FSA document, or you could have a separate 125 document just for the premium payments. These documents do not need to be redone every year, but they do need to be kept up to date for changes in the applicable statutes, regulations and rulings. Of course, when changes are made, you need amendments. What you do need for each new plan year is an open enrollment period before the new plan year begins. For the premium payment portion, your plan document can provide that an existing election will be continued from one plan year into the next in the absence of a new election during the open enrollment period for the new plan year. However, for FSAs, an employee must make a new election before each new plan year begins if he or she wants to have an FSA for the new plan year--this is so regardless of whether he had an FSA of that type during the ending plan year, or what the amount of it may have been.

If in the context of a given situation, the plan terms are specific enough that following them requires no judgment call--then you'd be acting 'clerically'. If in the context of a given situation, the plan terms are a bit vague and a decision has to be made which way to go, then I think the person making that decision has fiduciary duty to do so with prudence, solely in the interests of the plan participants and beneficiaries. So why do you think John Hancock requires the HR rep to sign off rather than John Hancock just making the distribution without an HR rep sign off? What constitutes a sufficient 'eviction' notice? Judgment call in many cases, as sometimes the mortgage holder's letters after the employee falls behind on 3 or 4 payments sound pretty threatening to the employee, but stop short of being a formal notice of foreclosure that starts the foreclosure process in that state. If the participant loan program specifies, e.g., that the interest rate is to be the WSJ Prime plus 1 as of the date the loan application is signed, then I don't think someone who merely looks up the WSJ Prime rate on the date of application and adds one point to 'set the interest rate' is a fiduciary. However, if the loan program is vague (requiring, for example, nothing more than a "commercially reasonable rate"), then how to go about determining that rate and actually determining it from the info collected is fiduciary. In my opinion, I think that virtually every one involved in plan administration has come across situations where the terms of the plan were not sufficiently clear that applying them was a mere matter of rote, clerical application, but have in fact made discretionary decisions--that is, acted as a fiduciary.

Not quite either. Take a look at your 2005 d-letter. In the body of the letter, it mentions the dates of the documents that were approved by the 2005 d-letter. It might be for documents the latest of which was dated 12/13/2004, for example. For Line 3b, you'd want to include all amendments made to the plan since 12/13/2004, under that example.

An ER has a 401k plan that has received both elective deferrals and profit sharing contributions. The plan only permits in-service distributions once an EE reaches NRA. The plan documentation is by way of the ER's adoption of a pre-approved prototype. ER would like to adopt an amendment that will allow in-service distributions of profit sharing for the rest of 2010, but not thereafter, and then only for those who would be having the payout rolled into a Roth IRA. The amendment would 'sunset' the in-service distribution opportunity at the end of 2010. 1) May an ER restrict the types of in-service distributions it decides to permit to just Roth IRA rollovers? 2) Is the sunset at the end of 2010 a prohibited cutback of a protected benefit? or since it was an aspect written into the very amendment by which in-service distributions is allowed, is it okay? 3) Would the prototype plan be considered a individually designed plan for just 2010, and return to prototype status come 1/1/2011? 4) Any other problems?

Larry, I should have known we were playing Jeopardy! and phrased them all as questions.

What are you recommending ERs do with their restated EGTRRA plan documents using an IRS-approved prototype, regarding whether to apply for an IRS determination letter?

I would say no based on the highlighted word below: Treas. Reg. 1.401(k)-1(d)(3)(iii)(B)(5): (5) Payments for burial or funeral expenses for the employee's deceased parent, spouse, children or dependents (as defined in section 152, and, for taxable years beginning on or after January 1, 2005, without regard to section 152(d)(1)(B)); or I agree with Laura. Keep in mind when interpreting the hardship provisions that they are an exception to the general rule against in-service distributions. As an exception, the hardship rules should be read narrowly. So no 'broad' reading of deceased parent to include one yet alive.

does anyone know of an online source for codes for old 5500s? (1997-current)

Hi, George, I would assume that since making contributions to an HSA requires HDHP coverage, by "HSA premiums" what is perhaps meant are premiums for the HDHP coverage. If that is what is meant by term, then I would agree with leevena's answer.