J Simmons

K2retire, true enough that regulators live in a different world than the rest of us. But at least one 3-judge panel of the 7th Circuit lives in the reality we do. The court decided the appeal of Hecker v Deere in a 33-page decision handed down on February 12, 2009. You will recall that Deere's plan offered EEs the choice of 26 funds and BrokerageLink (a look-through investment vehicle) to 2,500+ investment options. The asset based fees ranged from 0.07% to 1%. "Importantly, all of these funds were also offered to investors in the general public, and so the expense ratios necessarily were set against the backdrop of market competition." The court basically found that the range of investment options that Deere (in agreement with Fidelity) offered to its EEs for directing the investment of their 401k benefits was sufficiently broad that control over the risk of loss was shifted to the EEs. "If particular participants lost money or did not earn as much as they would have liked, that disappointing outcome was attributable to their individual choices. Given the numerous investment options, varied in type and fee, neither Deere nor Fidelity (assuming for the sake of argument that it somehow had fiduciary duties in this respect) can be held responsible for those choices." Earlier in the opinion, Judge Wood wrote that "[e]ven if § 1104© [ERISA § 404©] does not always shield a fiduciary from an imprudent selection of funds under every circumstance that can be imagined, it does protect a fiduciary that satisfies the criteria of § 1104© and includes a sufficient range of options so that the participants have control over the risk of loss." The 7th Circuit rejected the notion that under existing ERISA law that revenue sharing had to be disclosed. That is "not information the participants needed to know to keep from acting to their detriment." The info provided about total fund-level fees of each investment option, by referring EEs in the SPD to read and glean that fee information from the prospectus for each fund, was all the information that the EEs need to 'keep from acting to their detriment'. The court also rejected the notion that Fidelity was a functional fiduciary for merely playing a part in Deere's fund selection, since Deere retained the final authority to decide which funds would, and which would not, be offered under the plan to the EEs. In whole or in part, the 7th Circuit rejected the three main positions taken by the DoL in its amicus briefing, set forth in post #5.

I wouldn't place a plan's qualification in jeopardy on a hope that the IRS is loosening its hardship definitions, not before there's an actual pronouncement anyway. I would also suggest that the plan documents be reviewed carefully. It sounds as though you have a plan with the safe harbor 'immediate and heavy financial need' categories. Treas Reg § 1.401(k)-1(d)(3)(iii)(B). Plan fiduciaries need to follow the plan as written. If the plan document incorporates those safe harbor categories and you want to make this hardship, first amend the plan so that it does not use those safe harbor categories. But then be careful in making general definition determinations, and following the precedence set by earlier determinations when making later ones. All that being said, if you go the general definition route, the situation you describe about the EE needing a security deposit seems like a hardship to me. However, the 1st months rent? I don't think I could go that far.

There are EEs that do not qualify for the IRC 21 credit, but may use a day care flex account and benefit from it. Otherwise, why would the ER get involved in setting up and operating a day care flex account benefit if all EEs could benefit equally from the IRC 21 credit? If IRC 21 provided the same benefit for all EEs as a day care flex account option does, it would be much simpler for ERs not to offer that option and merely have the EEs claim it on their 1040s. Exactly the reason that an ER ought not to limit the $5k limit pro rata for the first, short plan year. There are EEs that do not qualify for the IRC 21 credit and have plenty of day care expenses during that short plan year to use the entire $5k. More prudent for the ER not to limit it pro rata. Expensive, yes. Avoidable by imposing a pro rata limit of the $5k limit? I don't think there's a litigation risk either way correlating to imposing a pro rata limit or not. I don't see how giving the EEs that do not qualify for the IRC 21 credit the full $5k opportunity for tax savings from just the short plan year places any onus or obligation on the plan sponsor.

That corrective amendment would not favor an HCE at the expense of NHCEs, so ought not be problematic from a discrimination point of view.

Have you vetted out the issue of whether the limitation described violates ADEA since in restricts a right (loans) based on age, and impacts those age 40 and older vis-a-vis those under age 40?

A copy of that notice would need to be sent to each last known address where the EE, spouse or other qualifying dependent resides. If the EE and spouse reside at the same residence, it must be addressed to each of them. It is not necessary to address the names of dependent children that also reside at that address. However, it may be simpler and easier, as noted in another thread not long ago, to simply address and mail out separate notices to each EE, spouse and dependent, even though that means multiple notices are sent to the same address.

Thank you, Bird!

The x-testing gateway may be 5%-of-pay or if less, 1/3 of the highest percentage-of-pay accrued by an HCE. The 3%-of-pay 401k safe harbor NEC is counted towards the gateway. Presuming that rate group and ABP testing will pass, may that 3%-of-pay 401k safe harbor NEC counted towards a gateway alone support accruals for HCEs if none of them accrues more than 9%-of-pay?

ER established DB SERPs for a few executives. It's top hat and unfunded. One of the benefits of the DB SERP is a death benefit equal to 4x annualized earnings in year executive dies while yet actively employed. As a hedge against the SERP obligations, the ER purchases COLI policies on these executives. The ER is the owner and the named death beneficiary. The SERP benefits are not keyed in any way to the CVA or death benefits of the policy the ER holds on the life of that executive. Unbeknownst to the Board of Directors, one of these executives contacts the insurer, signs on behalf of the ER, and effects a change of death beneficiary from ER to that executive's spouse. The executive did not have the corporate authority to do so for the ER, but the insurer nevertheless did this. At the time, the CVA is $180k. The Board learns of this 6 months later and instructs the insurer to change the death beneficiary back to the ER. The CVA value is then $120k. Would the amount taxable to the EE as economic benefit be just the 'pure term life' value of having death benefit coverage since, initially it appears, the rights to the CVA never transferred from the ER to the executive or spouse? If it turns out any rights to the CVA had transferred, would we yet be able to treat the CVA as a non-event, tax speaking, under the idea that since the executive's changing the policy was not authorized, any rights that the insurance company recognized the executive or spouse to have to the CVA were held in a constructive trust for the benefit of the ER (and thus, the only taxable event being the value of the death benefit coverage being the only economic benefit the executive received)?

I don't think your client would be the only one doing so. Per the proposed regs, you can until finalized and become effective either continue on old guidance or on the proposed regs.

And thank you, Peter, for that citation to Fleming where a nose-in-the-tent concern is recognized. Yes, I think that would be somewhat better protection for the ER--and so once again a law like ERISA designed to protect EEs has the effect of incentivizing an ER to take steps that might actually be against the EE's best interests.

The safe harbor match may be stopped mid-year on future elective deferrals, even though the cap on match is measured as a percentage of the entire year's compensation. Treas Reg § 1.401(k)-3(g)(1). The limit of 4% of compensation would yet be measured as specified in the plan, for the entire plan year on your question. For example, suppose that EE earns $10,000 a month, $120,000 a year for 2009. Of that $10,000 a month, EE electively defers $1,000 a month. The 30 day notice is timely prepared and given--and the other requirements of Treas Reg § 1.401(k)-3(g)(1)--to stop match effective 3/31/2009. As of that date, the EE has earned $30,000 compensation and electively deferred $3,000. EE would be entitled to matching contributions equal to $3,000 because that does not exceed $4,800 (4% of the 2009 earnings of $120,000). However, by stopping the match effective 3/31/2009, EE will not receive any match for elective deferrals after that date--not the other $1,800 ($4,800 - $3,000). Of course, stopping the safe harbor match mid-year, you'll have to pass ADP/ACP testing and make top heavy minimum contributions (if applicable) for the entire year.

Tauriffic, By your answer, are you saying that 409A has completely displaced 457f, and that if a situation is okay under 409A there is no need to comply also with 457f?

Eric401k, I second Sieve's analysis and conclusions.

It sounds like the ER offers health flex accounts now, but would like to also add day care flex accounts mid-calendar plan year. The answer is yes. Plan documents would need to be amended to permit this. A special election would be conducted before the effective date for adding the day care flex accounts. These elections would only be for the balance of 2009. For 2010 and later years, the day care flex accounts would be elected alongside health flex accounts as part of the annual enrollment process.

No, ERISA protects only EEs from adverse employment decisions that are benefits motivated, not non-employee applicants. See Becker v Mack Trucks, 281 F3d 372 (CA3 2002).

Yes. I would think that the Plan Administrator could simply insist on the death certificate of the employee, where for most states the marital status at the time of death is listed, before determining if the designation has been revoked by a divorce. For the date of the divorce in relation to the designation, the Plan Administrator would need to dig deeper.

As a spin off, the history from the time part of the 401k plan (and the MPPP's separate existence before the old merger) ought to supply the permanency and contributions requirements.

So the timing of payment of promised plan benefits would not be altered, just that the funding source, a rabbi trust (aka a sieve), would be capable of being revoked after the change from irrevocable to revocable. Is that correct? That would not appear to be, off the top, something that would run afoul of 409A. As you noted, the increase of risk ought not be a problem from an income tax timing perspective. I'm curious what you have left if a rabbi trust is made revocable? A regular trust places the fund off limits to the grantor and its creditors. An "irrevocable" rabbi trust places the fund off limits to the grantor but not its creditors. A "revocable" rabbi trust would place the fund off limits from neither the grantor nor its creditors. That sounds like just an account held in the name of the grantor, period. No trust about it. One other note. In my state at least, you have to get court approval to change an irrevocable trust. You might want to check out the procedure in the state where the trust is located.[Edit in light of QDROphile's subsequent post: in my state, you have to show that the original purpose of the trust would be thwarted, but for the change that the petitioner seeks the court to approve--and as a practical matter, always the approval of any impacted beneficiary.]

I don't see why the IRS should get all worked up about it, unless you wanted to start a new money purchase pension plan right away. The QJSA rights would all have to be dealt with, but those rights preserved in the process. An employee and spouse would either waive QJSA and allow rollovers, or the benefits used to purchase QJSAs. All employees would be 100% vested by reason of the termination, if they were not already. The only thing you are actually accomplishing is a distribution triggering event now, while those employees are yet in service. However, by having merged those MPP benefits into the PSP in the first place, you postponed the eventual payout that would have taken place had you terminated that MPPP rather than merge it at that time. I however have no direct knowledge of the IRS' response to spinning off the MPP benefits into a new plan and then terminating it.

The comparability provision does not apply to contributions to an HSA made as a cafeteria plan election by the EE. If the ER is giving cafeteria credits that the EEs may choose to be contributed to an HSA (or apply to pay for other selected benefits or take as extra cash), there are nondiscrimination rules that would make picking and choosing difficult if it favors any who are highly compensated EEs.

Don't know about the functionalities of Relius, but forfeiture as a pension law concept would not occur until the former employee is cashed out entirely or incurs a forfeiture break in service.

There are ways, as QDROphile suggested, and they do require face-to-face professional advice. I'm still trying to get my head around what the advantages are that would justify all the trouble--and cost.

I hate to dash your hopes, Chippy, but I'm confused. So I think the particpant is due the difference between the vested balances at 12/31/2006 and 12/31/2007, $100 on your example. But I do not think you want to make this individual suffer any 2008 investment losses on the $100 that were sustained after the date he was paid the rest of his vested benefits. It wasn't his mistake that led to those dollars yet being in the plan after the others were paid out.

Could the match remain in the plan and be re-applied to the fixed match to elective deferrals of another employee? The employer yet gets the benefit, and you do not then need to deal with mistake of fact hurdles to get a refund.