J Simmons

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.

Does the plan now specify that service with Company B (or other controlled group entity) counts for purposes of the plan and being a participant of the plan? If so, then yes, when he resumed/resumes being a participant. If the plan only recognizes service with "Company A" proper for purposes of being a plan participant, then likely no.

That would concern me as it does not necessarily follow from the EE having benefits in another QRP that he has withdrawn them and that such are the source of the indirect rollover. That appears sufficient. Yes, particularly if it indicates that the payment is a benefits distribution rather than perhaps loan proceeds or payment for services rendered to the plan. That ought to do, if specific that the assets have been paid as part of a distribution, specifying amount and date.

White & Case now reports that the FTC has informally confirmed that the red flag rules do not apply to 401k plan loans to active employees. Here's the White & Case link. The FTC, according to White & Case, would not confirm whether under the red flag rules, Flexible Spending Accounts would be considered 'creditors'.

Under the Internal Revenue Code, the dollars are considered employer contributions for tax purposes even though reduced from the paychecks at the employee's election. It's part of the fiction necessary under section 125 to avoid constructive receipt. Under ERISA if it applies to the 125 plan, those are participant/employee contributions.

Or asked this way: May a plan document deprive a federal court of jurisdiction where there is concurrent state court jurisdiction? I doubt it.

So, it seems that unless you fit within the preemption safe harbor of PPA '06 § 902(f) for automatic payroll reductions to a QRP, the PPA '06 Committee Report with regard to ERISA § 514(e) observation that "[n]o inference is intended as to the effect of conflicting State regulations prior to the date of enactment" is Congress's explicit recognition and preservation of uncertainty of ERISA preemption of state payroll laws with respect to default payroll reductions to fund any other ERISA benefits. Rather than clarify a point of law, Congress sought to dangle certainty in front of just those that would abide by a few new rules for automatic payroll reductions to a QRP. Outstanding work!

George, Thanks for the citation. It is interesting that the 1994 Advisory Opinion cited in the 2008 one for which you gave the citation, dealt with a New York law that required "written authorization for employee wage deductions of contributions or payments for 'insurance premiums, pension or health and welfare benefits,' and 'similar payments for the benefit of the employee,' clearly 'relates to' benefits provided under employee benefit plans in that it is specifically designed to affect employee benefit plans and seeks to restrict the choices of such plans with regard to the administration of their funding policies." Thus, the New York law was found to be preempted by ERISA. In the 2008 Advisory Opinion addressing Kentucky's anti-reduction payroll law, the statute did not specify that it applied to 'insurance premiums, pension or health and welfare benefits' or 'similar payments for the benefit of the employee', but the DoL nevertheless found preemption "to the extent that [the Kentucky statute] is interpreted to limit, prohibit, or regulate the funding of employee benefit plans covered" by ERISA. ERISA 514(a) provides that ERISA preempts "any and all State laws insofar as they may now or hereafter relate to any employee benefit plan". I seem to recall caselaw that does not preempt a general application of a state law in which ERISA plans are swept up in but not singled out for application of that state law.

Larry, Do you have a cite for that DoL position? The reason I ask is that Congress implicitly recognized that ERISA does not generally preempt state payroll laws when enacting § 902(f) of the Pension Protection Act of 2006. There, state wage laws are preempted for auto enrollment in a pension plan (albeit you are speaking of a welfare plan) only if certain conditions spelled out in § 902(f) are met.

Yes. I do not think it even rises to the level of a DRO (and thus may not be a QDRO). To that extent, the second to the last sentence of my prior post (#2) should read" "Given that the son was not the participant, however, I'm not sure the order can apply." The 'of a participant' provision that I was referring to is in IRC section 414(p)(1)(B)(i) that requires, for the order to be a DRO, that it "relate[] to the provision of child support, alimony payments, or marital property rights to a spouse, former spouse, child, or other dependent of a participant"--not to child support to a child of a child.

Larry, I don't know of anything ERISA that prohibits it, but you may want to check state payroll laws.

Does your plan require that a putative death beneficiary actually file a claim to in fact be the beneficiary? If so, what time frame or procedure before you proceed to the plan's next default beneficiary in the line so named? Unless the plan specifies otherwise, I think the son became the death beneficiary upon the employee's death. Given that the son was not the participant, however, I'm not sure the DRO can apply even if a QDRO. It is not based on a domestic relations law involving assets or an obligation of the participant.

Reg 1.401(a)(9)-5Q/A-1(a) "However the RMD amount will never exceed the entire account balance on the date of distribution" can you give me a link to this reg . I can find Reg 1.401(a)(9) but it stops at q3 Thanks Try this Link

yes, those are the otherwise excludables

Out of one ADP/ACP testing, you carve out just those NHCE otherwise excludables. No need to separately ADP/ACP test the NHCE otherwise excludables--they're all NHCEs and pass by definition.

Thank you. Can advance contributions be made? Is the timing of the contribution deposit still the due date of the return including extensions? The deadline for the contribution deposit is still the due date of the return, including extensions. You may make contributions before the deadline. But there are excise taxes and other problems if you contribute in advance of the plan year for which the contribution is made.

Being an ERISA plan, there is no doubt that even if there have been no benefit accruals or contributions since 12/31/2008, you need a plan document, terminating amendment, distribution instructions, etc. (For non-ERISA 403b plans, there's at least an argument under the regulations that such might not been needed if no post-2008 contributions. But Rev Prov 2007-71 was drafted assuming any non-ERISA plan that has received contributions since 12/31/2004 would need duch documentation as well.) If the funding of the 403b plan you are dealing with is a single group annuity policy, then the employer (yet existing as a business entity though no longer a going concern) would likely have a contractual role in the group policy allowing the employer to direct when payouts will be made. If the funding is through individual 403b contracts, the employer might not have that authority. And the employer could perhaps be flummoxed in its attempt at termination. If the entity no longer has any employees, each 403b participant would have a distribution triggering event by reason of the end of employment. No one would need plan termination to permit distribution at this time. For a vendor and/or former employee unwilling to effect a 'distribution' incident to the employer's termination, the employer could perhaps set the 403b contract adrift from any plan and employer involvement by sending an assignment of any of its rights under the 403b contract over to the employee, and explaining that perhaps the employee is free to take a distribution whenever. It seems doubtful the DoL would have any problem from its perspective given that this method would terminate the ERISA 403b plan.

At the point the volume of over-the-counter meds for which HRA reimbursement is sought by the employee raises a reasonable suspicion about whether the employee (and if your HRA also covers, his spouse and health care dependents) are using all of the over-the-counter meds. As QDROphile suggests, it's not an easy call. I doubt there's substantiation beyond asking the employee to sign a statement that he (and his) are consuming all the over-the-counter meds. Documents are not generated incident to taking an aspirin from a bottle that has been purchased, just the purchase receipt which I assume you are already requiring be provided. Consequences to the plan? If--and that's a big IF--challenged by the IRS, it might want to disqualify the tax-free treatment of all other benefits that have been run through the HRA on the premise that the over-the-counter abuse is indicative that the HRA has been abused. A more moderate IRS approach would be to either contain the taxation of amounts reimbursed under the HRA to just the excess amounts for over-the-counter medications, or to just reimbursements to that employee.

In negotiating terms of an agreement allocating responsibility for performing administrative chores (Treas Reg § 1.403(b)-3(b)(3)(ii)) between an employer that sponsors a 403b plan funded with individual contracts and one of the 403b contract vendors, an issue has arisen over the administration of RMDs (required minimum distributions). The vendor does not want to agree that it will make the RMDs, but simply that it will notify the contract holder of the RMD requirement and amount for the year (as computed by the vendor). IRC § 403(b)(10), IRC § 401(a)(9) and Treas Reg § 1.403(b)-3(a)(6) requires each employee’s 403b contract to satisfy requirement minimum distribution requirements found in Internal Revenue Code § 401(a)(9) per rules otherwise applicable to IRAs set forth in Treas Reg § 1.408-8. If one 403b contract that is part of the funding for the employer's 403b plan does not provide by its terms that RMDs will be made, does that poison the whole 403b plan or just the 403b contract in question? Similarly, if in the 403b contract's language that RMD's will be made but a vendor does not, does that operational failure taint the entire 403b plan or just the 403b contract in question?

Following a foreclosure sale of his residence, EE signs a "short-term" note in favor of ER that gives $3,000 to EE to use to pay first and last months rent and security deposit on a rental home. The note provides "The funds may only be used as an initial payment on the rental home. It is expected that EE will withdraw the funds from his 401(k) in order to repay the loan. Requiring payments from EE's future payroll does not appear possible because those funds will be needed to sustain his family with the daily expense." Now, three months later, the ER has seeked assistance on the processing of the hardship withdrawal request by the EE so that he will have funds with which to repay the loan. The intervening note process is explained as having been need due to the last minute timing, and problems the EE had in trying to assemble the supporting documents to request a 401k hardship withdrawal at the time. The plan's hardship provisions are safe harbor. Thoughts on whether the 3 months since the loan was extended blows the possibility of this being a hardship for purposes of acquiring a principal residence?

Hi, Mike, Is your logic for such that the mid-year entrant was required to receive the SHNE for the first 6 months as well as the last 6 months of the plan year, and therefore the rule that requires an employee receiving any SHNE for the year triggers the gateway be provided the employee for that year also ought to require the gateway on compensation for all parts of the year as to which the SHNE applies?