BTG

As it turns out, I just came across the answer to this: The period for making up missed contributions is NOT required to be tolled on account of a second period of military service (though an employer is permitted to voluntarily extend it). This is in the preamble to the final regs - 70 Fed Reg 75246, on pages 75281-75282.

For a DB plan with mandatory employee contributions, USERRA permits an employer to require the contributions to be made up before crediting service. It also requires that the employee be permitted to contribute makeup contributions during the period starting with the date of reemployment and continuing for up to three times the length of the employee's immediate past period of uniformed service, not to exceed five years. Is anyone aware of any guidance on whether this period is tolled if an employee is redeployed while making up payments for a previous period of qualified military service? Seems to me that it should be, but I haven't seen anything on it.

In support of QDROphile's argument that advising the PA on a QDRO does not make one a fiduciary, see Tripodi at 13B.37 (citing Hatteberg v. Red Adair Co. Employees' Profit Sharing Plan, 32 EBC 1755 (5th Cir. 2003)). That case stops short of excplicitly articulating QDROphile's second assertion (i.e., that if your action were sufficient by itself to cause implementation of the order, you would be a fiduciary), but the implication is certainly there and I would agree with that position. This distinction is exactly on point, as our client IS being asked to actually make the determination and implement the order, while we are suggesting that their role be limited to advising the PA. Thank you both. This discussion has been helpful.

Does anyone have any thoughts on whether someone responsible for determining if a DRO is a QDRO would be a plan fiduciary under ERISA? I would tend to think they would since this determination involves exercising discretionary authority in the administration of the plan, but just wondering if there is any black letter law or at least a consensus on the issue. Specifically, we represent an annuity provider who believes they might be responsible for making QDRO determinations with respect to ERISA 403(b) plans. I'm trying to explain to them that this should be the plan administrator's responsibility and it would be a bad idea for them to do it because it would make them a plan fiduciary. Any thoughts are appreciated. Thanks.

UPDATE: I spoke to an IRS agent this morning who indicated that the controlled group rules do apply for purposes of USERRA.

LibertyKid, I've been over Notice 2009-82 and commentaries on it several times looking for the answer to that very question, and so far I have come up empty-handed. The closest I've come is the portion of the Notice 2009-82 background section that states "some plans may contain distribution language that satisfies § 401(a)(9) without referencing this Code section and thus, arguably, would not be affected by § 401(a)(9)(H)." The use of "arguably" suggests to me that the IRS recognizes the confusion on this point, but has (frustratingly) declined to decide the issue. The remainder of that paragraph implies that a plan may unilaterally suspend 2009 RMDs or may give participants the choice. However, I haven't seen anything in Notice 2009-82 (or elsewhere) that specifically confirms or denies a plan sponsor's authority to unilaterally decide to continue making 2009 RMDs. I have a call in to the IRS on this issue and will update this post if I get an answer worth sharing.

Has anyone seen any guidance on whether the controlled group rules apply for purposes of USERRA reemployment rights? This seems like an easy issue, but I haven't been able to find any guidance on it. The USERRA definition of employer at 20 CFR 1002.5(d) does not seem particularly instructive.

A participant in a DB plan has been significantly overpaid. The participant is contacted and offers to pay back the amount of the overpayment, but requests to do so over a period of time spanning multiple years. Any thoughts on whether this is a permissible return of overpayment or whether it would instead be a prohibited extension of credit under Code Section 4975©(1)(B)? (By the way, the reduction of future benefits is not a feasible solution, because the actuarial value of all future payments is less than the overpayment.)

When is back pay taken into account as compensation under a defined benefit plan (specifically a cash balance plan)? The plan defines comp as W-2 comp, which leads me to believe that the back pay would be taken into account in the year received (since it would be taxed in that year). On the other hand, the award of the back pay requires that the employee "be made whole in all respects." This would seem to suggest that the back pay should be taken into account when it would have been paid, but for the unlawful termination. I know DOL Reg § 2530.200b-2©(3) requires hours of service attributable to back pay to be credited to the computation period(s) to which the back pay relates. However, I have not been able to find any similar guidance with respect to calculating compensation. On a related note, if the award of back pay contains any offsets (e.g., income from other employment), can the plan take those into account when calculating comp? I would think it could since those offsets would be reflected on the W-2.

Has anyone dealt with the situation where the actuarial value of the remaining distributions to a DB plan participant is not sufficient to recoup an overpayment? Our participant has been overpaid by almost $30k. The actuarial value of the remaining distributions is only enough cover about half of that. I know EPCRS generally permits a fiduciary to recoup overpayments by reducing future benefit payments, but does this include reducing them to $0? If not, any thoughts on where the floor is? Our options seem to be either: (1) start paying the correct benefit amount and try to recover the $30k from the participant, or (2) cease paying benefits altogether and try to recover the $16k from the participant. Thoughts?

I know this is asking for the obvious, but does anyone have any authority for the position that 1.401(a)(4)-4© only requires that a benefit right or feature be available on a non-discriminatory basis, and that there is no requirement that any NHCEs actually take advantage of the BRF, as long as it is available to them and they knew about it? We have a situation where self-direction was available to all participants and it was in the SPD, but no NHCEs took advantage of it, so we're getting heat from the reviewing IRS agent.

The plan doc sets forth formulas for calculating all J&S forms of benefit, including the QJSA. The formulas call for reductions to be made to the monthly benefit payable based upon the survivor percentage elected and the age difference between the spouse and the participant. However, because the reductions are not based on actuarial equivalence factors (in violation of 417(b)(2)), there is the potential that the QJSA form of payment could be less valuable (on an actuarial equivalent basis) than other forms of payment (in violation of 1.401(a)-20, Q&A-16). In other words, some married participants are receiving QJSAs that are worth less (actuarially) than a straight-life annuity. The plan has a determination letter approving the formulas, so there wouldn't seem to be a threat of disqualification. However, I'm not sure that a determination letter could be used as a defense against claims by affected participants. (I know such claims may be unlikely, but I just want our client to be able to make an informed decision on how to best deal with this.)

Has anyone seen any examples of how to correct a violation of Code Section 417(b)(2), which provides that a plan's QJSA must be actuarially equivalent to its straight-life annuity, or 1.401-(a)-20, Q&A-16, which provides that a plan's QJSA must be at least as valuable as any other form of benefit for married participants?

Let's change the facts a bit. In my situation, we have a profit sharing only plan. The employer missed an eligible participant with respect to employer nonelective contributions in 2008. The missed contributions have been made up, but we need to determine if any gains or losses are required. The plan, like virtually all other plans, suffered significant losses last year. Do the rules governing crediting gains/losses on missed deferrals also apply to employer nonelectives? Thanks, everybody. Very helpful line of responses! PJ, Since Rev. Proc. 2008-50 Section 6.02(4)(e) states that it applies to corrective contributions "in the case of a DC plan," I see no reason to make a distinction between a pure profit sharing plan and one with a 401(k) feature (or a stand alone 401(k), for that matter). All of them are DC plans.

Assuming that WDIK is right, and you're talking about excluding an eligible employee from making elective deferrals under the plan, Section .05 of Appendix A to Rev. Proc. 2008-50 (EPCRS) describes the correction methods generally available. As far as earnings go, Rev. Proc. 2008-50 Section 6.02(4)(e) provides that "In the case of a defined contribution plan, a corrective contricution or distribution should be adjusted for earnings (including losses) from the date of the failure...."

Originally posted in the "Correction of Plan Defects" forum, but appropriate for this forum as well...

First, my apologies for interrupting the NCAA tournament. A participant in a cash balance plan requested a lump sum rollover to an IRA. The plan custodian cut the check and it was accepted by her IRA provider. Shortly after the check was cashed, however, the participant informed her IRA provider that she had changed her mind and directed the provider to reverse the rollover. The IRA provider wrote a check back to the plan, which, unfortunately, the custodian accepted without mentioning any of this to the employer. The custodian then issued a Form 1099-R, showing that the participant had rolled over her entire account balance in 2008 (notwithstanding the fact that the plan again has possession of the funds). Nothing in the plan document would have allowed the rollover back into the plan, because the plan does not have rollover accounts. My thoughts/questions: (1) One option would be to treat this as a cancelled rollover election, and to issue a corrected 1099-R showing that no amounts had been rolled over in 2008. This seems like an extremely aggressive (if not disingenuous) position, since the check was actually cashed and the amount actually went into the IRA. Does anyone disagree? (2) A better option (in my mind), would be to acknowledge that a rollover did occur in 2008 and that the plan improperly accepted a return of the funds from the former participant. Presumably, this would be an operational error that needs to be corrected under EPCRS and the amount must somehow get back into an IRA for the former participant. But I'm not clear on how the corrective distribution should be structured... Can this amount properly be characterized as an eligible rollover distribution? Does the amount need to be credited with interest at the plan's stated rate from the date of improper acceptance to the date of distribution? How should these transactions be reflected on the Form 1099-R? Any thoughts would be greatly appreciated.

Section 4.07 of Rev. Proc. 2008-50 provides that "Correction of Qualification Failures in a terminated plan may be made under VCP and Audit CAP, whether or not the plan trust is still in existence." Any opinions out there on whether this should be read to exclude terminated plans from participation in SCP? i.e., is this a case of expressio unius est exclusio alterius?

No, SIMPLE IRAs must be maintained on a whole-calendar-year basis. http://www.irs.gov/retirement/article/0,,i...tml#termination

Do you mean what if the 2009 notice wasn't sent out? In my opinion, the notice or lack thereof, wouldn't make a difference IF the plan is amended before the beginning of the plan year. The contribution is required if the document says it is required. If you don't amend before the beginning of the plan year, then you have to follow the mid-year amendment rules. But, as I said before, I think there is more than one reasonable interpretation of the rules in this case. If you want to follow the mid-year amendment rules even though the amendment is adopted before the beginning of the year, that is a reasonable interpretation, too. John, Would it affect your answer if the 2009 notice had not been sent? Sorry, I should have been more clear in my original question. The plan provides for SHNEC. No SH notice was provided at the end of 2007 for the 2008 plan year. Prior to the end of 2008, the employer wants to amend the plan (effective 1/1/2008) to eliminate the safe harbor and go through the testing. I know that if a plan provides that it is a SH plan, the failure to provide the notice does not result in the plan simply defaulting to testing. But what if the plan is actually amended to eliminate the SH provisions? Arguably, it is then not a SH plan. Is that permissible, or is it just an unsuccessful attempt at avoiding the issue?

What if the safe harbor notice for 2008 was never provided? Kevin, I agree that the article you linked to in Post # 9 offers one solution. But does this preclude the employer's ability to amend the plan before the beginning of the 2009 plan year to eliminate the SHNEC?

The Tripodi Book I mentioned in a prior post discusses both of these possibilities (i.e., paying out of the employer's pocket vs. paying out of the plan). Apparently, the IRS has informally expressed a preference for out-of-pocket payments. I agree that this is the cleaner method. I can also see how there is arguably an exclusive benefit/purpose issue with refunding contributions directly from the plan. Do you agree, though, that this issue is avoided by making out-of-pocket payments and leaving the contributions in the plan to reduce the next employer contribution?

Thanks for your thoughts. In our case an amendent isn't really a practicable solution for a variety of reasons unique to the sponsor. Sieve, I like your solution of refunding the employee contributions with interest. We were thinking along these lines, and Sal Tripodi's ERISA Outline Book, at page 15.544 (of the 2005 Edition - we need to update), recommends a similar solution (though mainly in the context of a 401(k) plan).

BG and K2, thank you for your responses. Yes, the plan does have a hierarchy: Forfeitures are first, used to reduce Employer contributions; second, used to offset the Employer’s Plan administrative costs; and third, any remaining forfeitures are allocated to Participants. If there were no employer contributions for the year or they were less than forfeitures, they would move down the hierachy. I agree with you that this would be the case any time that forfeitures cannot be used to offset the employer contribution. However, is it the case that forfeitures cannot be applied to reduce employer contributions that have already been made? Don't get me wrong, I'm certainly not advocating this position from a prospective planning perspective. In our case, the client (suprise, suprise) came to us after the fact. They have already made all of the contributions out of pocket and now they want to know whether they can get reimbursed. I don't disagree that this is far from best practices; I'm just trying to figure out whether it's defensible.

Our client has discovered a situation where an ineligible individual has been participating in a DB plan with mandatory ee contributions... for almost 20 years. I am aware of the EPCRS correction procedure in Sec. 2.07 of Appx. B for early inclusion of an otherwise eligible employee, but this individual is not in an eligible class of employees at all. Is anyone aware of an EPCRS correction procedure for the inclusion of a completely ineligible employee (as distinguished from an employee that was simply let in prematurely)?? I assumed this would be a common problem but I haven't been able to find anything on it in EPCRS or elsewhere.