J Simmons

I agree with Sieve. I do think that since the K PSP existed for part of 2007, had the contribution been designated as to be made and allocated pursuant to its formula for that part of 2007 that it existed separate and apart from the ESOP, that the contribution would then go as designated. However, in the absence of any designation like that, the contribution was made at a time when the ER had only one plan, the post-merger ESOP. As Sieve pointed out, it would be the ESOP's requirements and allocation formula that would apply to an undesignated contribution.

I'm starting to feel dazed and confused with all those 70's pop icon references. I hope we won't start feeling rapid inflation and other factors of the 'misery index'.

I don't think so. IRC sec 72(t)(2)(A)(iv) excepts from the 10% early penalty tax "part of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary". If that would be a $10,000 payment per year over life expectancy, a $20,000 would undercut that. At $20,000 per year, that would run out in 1/2 of the person's life expectancy.

Check Prop Treas Reg § 1.125-5(d)--although this is in a proposed regulation, it is a reiteration of a longstanding rule.

Thanks, QDROphile. I don't suppose there's any authority to cite to that, just that $xx,xxx as of the 'date of separation' does lend itself to the level of certainty needed from the plan and PA's perspective to effectuate the award sought by the QDRO. If however you know of a cite, that would be great. There's no effort going on in the actual situation by the PA to manipulate the timing (or the market values), just an upset employee that has pointed out the impact to the balance of his remaining benefits because the award was in fact implemented (i.e., date of segregation) on March 9 and the employee has seen the bounce in the market values since that date. The employee has alluded that the PA was somehow timing the implementation for the best interests of the alternate payee. PA was hoping it could, in the future, insist in the name of needed clarity for an actual month, day and year for the valuation of the awarded portion.

Here's the situation. QDRO says that awarded to ex-spouse is $xx,xxx as of "date of segregation". Does that meet the "clear award" standard of IRC § 414(p)(2)(B)? My concern stems from shifts in the value of the employee's DC plan account one day to the next. The current market volatility makes this concern more vivid. It takes a plan administrator time to review and determine that a received order is a QDRO. Then there is a time lag for the implementation--the segregation--from the time the plan administrator sends its instruction to the recordkeeper/custodian. The speed in turning this around is relatively quite quick (a matter of 2 to 3 weeks). Given that the regulations specify a reasonable amount of time, no more than 18 months, a 2 to 3 week turnaround time seems reasonable. After all, the outside parameter mentioned by those regulations is 18 months. However, there’s a big difference in the proportion of the employee’s account that gets carved out if that was effected by recordkeeper/custodian on March 9 when the Dow Jones was around 6,400 as opposed to last Friday when it was around 7,700 hundred. That’s just a couple of weeks. My concern is the possibility of an employee pointing a finger at the plan administrator if the 'segregation' took place on March 9 when it would also have been within the reasonable turnaround time to have done effected the 'segregation' on March 27. What I do not like is the perception that could spawn out of the potential for market timing manipulation by the plan administrator, at least it might look that way from the employee’s perspective. Any thoughts on whether the Plan Administrator could insist on an exact date (e.g., April 5, 2009) rather than "date of segregation" in the name of needing that clarity per IRC § 414(p)(2)(B)?

yes.

It's probably been 12 or 13 years since I last researched it, but it seems that the research suggested that although there is a limited exemption for IRAs to be invested in certain U.S. coins, a QRP could not if the coins had any numismatic value beyond the value of the metal used in the coin.

Probably not unless a IRC section 410(d) election has been made or the church plan does not meet the definition of 'church plan' set forth in ERISA section 3(33). See ERISA section 4(b)(2) for the application of Title I of ERISA to church plans, which Title is what the Supreme Court was interpreting and applying in Kennedy.

For discretionary match, most plan documents anticipate the employer determining a total dollar amount and then the plan document supplies a formula for allocating that amount. Check your plan document before declaring the match, so you'll know what parameters might need to be specified in the declaration. Putting a cap might, as you suggest, prevent the re-allocation of all the match forfeitures.

Does the plan permit discretionary match despite the fixed match being reduced to zero? If not, the reduction to zero fixed match has created an impossibility for re-allocation, but for application of the match forfeitures against the plan costs. Since no one has accrued a right to re-allocation of the match forfeiture in question, perhaps you could amend the coding of the plan document to permit the match forfeiture to be applied as additional profit sharing contribution.

The reason for the indicia-of-ownership requirement is so that U.S. federal courts have jurisdictional authority over those in whose custody plan assets are entrusted as part of the plan's investments--so that the federal court can order appropriate relief if any impropriety should develop. It's a matter of U.S. federal courts having the ability to protect retirement savings of Americans. Who within the reach of the jurisdiction of a U.S. federal court is on the other end of the subscription agreement? Physically having in the U.S. a subscription agreement that would perhaps require the plan trustee going into a foreign court to enforce it against and retrieve assets from the other contracting party to that subscription agreement would not, in my opinion, do.

The only thing wrong with Sieve's memory is how long ago that PTE was--16 years. Prohibited Transaction Class Exemption 93-1, January 11, 1993 (58 FR 3567).

Given that when the question would ever be litigated the operational facts will then have occurred, I would prefer to defend a document (in light of whatever operational facts may or may not be) that is vague (merely states the intent is 404c compliance) than a document that detailed out how that compliance was intended. If the operational facts are at odds with a detailed 404c document, that could give the court an extra reason to find that the plan fiduciaries are not entitled to 404c relief. And there's also the problem that a discrepancy between operational facts and a detailed document could lead to an ERISA violation by the fiduciaries failing to operate the plan as written.

Would the PEO's use of the prototype mean that the PEO has an individually designed plan document (rather than a prototype), but at least has a plan document? That would affect the restatement cycle, but if the language of the prototype specifies the prototype-level sponsor the ability to amend and that amendments apply to the PEO's adoption, you'd have the updates as well if made by the prototype-sponsor.

The plan docs will say for the FSAs what the run-out period is. See Prop Treas Reg § 1.125-1(f) HSAs? the employer shouldn't be involved in HSA expense reimbursement. The employee takes a withdrawal from the HSA, and then includes as taxable income only what he or she cannot justify as taken for qualifying medical expenses. If by HSA you meant HRA, then check the plan document.

The trustee may have a legal claim based on contract and other business theories against the investment adviser (and annuity provider), but based on my experience, the investment adviser and annuity provider likely have disclaimers--perhaps even signed by the trustee. As for an ERISA claim, the trustee's theory would hinge on being able to snag the investment adviser into the loop of ERISA fiduciaries to the plan, and that the investment adviser breached that duty. Hopefully, no more than 3 years have passed for that one since the trustee knew or had reason to know of the improper investment product. See Browning v Tiger's Eye Benefits Consulting, 4th Cir #06-1404, Feb 26, 2009 (unpublished opinion). Is the trustee liable? It doesn't sound like he acted very prudently signing up to invest the plan assets into an investment product (i.e., annuity) that he did not understand.

The forfeitures would be restored to those employees, current and mostly former, that were paid out only part of their accrued benefits. Then the plan would need to process and pay out those as 'tailings' distributions.

#1: Yes, I think the $300,000 would need to be restored. #2: The plan exam guidelines suggest that the absence of profits in the years for which no contributions were made might not count towards the facts-and-circumstances test of whether there has been a de facto plan termination due to discontinuance of contributions. I would suggest to the ER that it needs to flag the position as part of its submission of Form 5310 that there has been no de facto termination until a termination amendment is now prepared and signed--but brace the ER for the IRS taking the contrary position despite its audit guidelines, and requiring another $300,000 be contributed to restore those forfeitures from 2006-08. #3: Same answer as #2 above.

Do you remember the "Adopt Me Now or Tokyo is Toast" Chicken named EGTRRA by Dave Berry? See attached.

Thanks, Jim and Tom. There's always seemed something not quite right with that preamble statement or at least the secondary interpretation of it that Tom no doubt accurately relays (as the preambles are merely some level of interpretation of the regulations themselves). It would seem that there are three requirements for safe harbor for a plan year: (1) plan language that the safe harbor applies and whether the required contribution will be match or non-elective, (2) a timely safe harbor notice provided to employees before the plan year begins, and (3) the employer makes the contribution. To give efficacy to the notice requirement, it is understandable that a plan would not be permitted to provide that the ADP will apply to a year for which a notice is given but then no contribution actually made, i.e. the contribution being a requirement of the safe harbor. A notice could be given before the year begins, but then later if it looks like the ADP would pass (or pass with a QNEC, for example, less than the safe harbor contribution described in the notice) the employer simply doesn't make the contribution. (Albeit there being Title I issues separate from the tax regs.) To safe harbor or not is to be decided before a plan year begins, and the employer not to have wiggle room after that to get out of its decision for that year. The broader interpretation that 'requirements for the safe harbor' mentioned in the preamble go beyond making the contribution promised in a safe harbor notice given and includes the requirement of the safe harbor notice itself serves what functional purpose? In such a plan, for the ADP to apply to a year, the employer has not given the notice, not promised the contribution, and has thereby committed to the ADP applying before the plan year even began. Nor are employees misled by language in the plan that says that safe harbor only applies to plan years that the notice is timely given. And if the 'requirements of the safe harbor' is interpreted beyond the actual making of that contribution when it has been noticed up, what prevents that clause of the preamble from reaching even the safe harbor requirement that a plan document specify that it is safe harbor? If so interpreted, then no 401k plan could specify how the ADP rules will apply and be satisfied. A non-safe harbor 401k plan could not specify ADP rules applying because that plan fails to have a requirement of the safe harbor, i.e., it does not have a plan provision specifying it is a safe harbor. Following the broader interpretation then to its logical conclusion, even a 401k plan designed not to be safe harbor could not specify that ADP will apply (or how it will be applied and handled).

IRS National Office issued a favorable opinion letter for 401k prototype (EGTRRA version) that provides: "If section X of the Adoption Agreement indicates that the 401k Safe Harbor applies, then for a Plan Year as to which a timely 401k Safe Harbor Notice is provided to each Participant, the Plan is treated as meeting the requirements of IRC section 401(k)(3)(A)(ii). If section X of the Adoption Agreement indicates that the 401k Safe Harbor does not apply, or no 401k Safe Harbor Notice is timely posted for a Plan Year, then the 401k Safe Harbor does not apply to the Plan Year." This is different than the more common language in other prototypes that read in essence that the plan is for a plan year a 401k safe harbor if the adoption agreement provides, not hinging also on whether a 401k safe harbor notice was in fact timely provided for the plan year. I'm interested in what comments there might be for toggling in and out of 401k safe harbor plan year to plan year solely on the basis of a timely 401k safe harbor notice (or not) for the plan year, if the plan adopts the prototype with the language quoted 2 paragraphs and does not 'amend' from year to year. Perhaps asked another way, do those that have heard the unofficial comments of IRS representatives that there need also be an amendment think that such applies to all 401k safe harbor plans or just those that use the more common language? [EDIT: typo]

Why's that?

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In my experience, no. You could use EPCRS document failure correction. The initial document for a plan is a bit difficult because without it, arguably there was no plan until the first document you can produce took effect. You want to piece together what evidence you can of the initial document having existed, what it provided and when it took effect, despite not being able to produce a copy at this time. You might first try a 'John Doe' call to the IRS about what its EPCRS position might be before actually submitting.