BTG

As a follow up question to this (very) old post: Why is it that the $1000 of forfeitures discussed in the OP could not be used to reimburse the employer for the employer match already paid into the plan? Would this not be using forfeitures to reduce employer contributions? Thanks.

If the plan doc provides that forfeitures will be used to reduce employer contributions and pay administrative expenses, is there any reason why a plan sponsor couldn't pay for them out of pocket up front and then get reimbursed from the forfeitures account at the end of the plan year? Any thoughts are appreciated. Thanks.

QDROphile, thanks for the speedy response. Is there any chance you might know the name of that decision or where to find the DOL's position?

What obligation does a plan have to restrict payment of benefits to a participant when the plan has been put on notice that a QDRO is forthcoming? One of our clients has a plan with a participant who is about to come into pay status, but the attorney for her ex called us and told us that he will be submitting a QDRO. Does the plan have any obligation to put a hold on her benefit until the QDRO is received? Could the plan face any liability for doing so?

Thanks all for your replies. I don't deal with SIMPLE IRAs much and that clarification helps a lot.

Gary, thanks for your reply. I agree that the 25% penalty technically stems from the distribution rather than the termination, but doesn't termination of a plan require distribution of all the plan's assets?

Lately, I've been struggling with the two-year rule for SIMPLE IRA rollovers (i.e., the prohibition on rolling over amounts in a SIMPLE IRA to a plan other than a SIMPLE IRA within the first two years). Is anyone aware of any waiver of this rule where the SIMPLE IRA is terminating because the employer is disolving? For employees who are younger than 59 1/2, this rule kicks the early distribution penalty up to 25%. These employees end up losing a quarter of their accounts in a forced distribution, because the plan had to be terminated based on a dissolution they had no control over. This doesn't seem fair, but I can't find anything that would alter the result. Any thoughts?

Does anyone know where I can find of list of which provisions of 415 can be incorporated by reference or which cannot? I'm hoping for something beyond the guidance in 1.415(a)-1 of the final regs.

Is there a requirement that an employer must actually have a custodial agreement in place with the custodian in order to have a custodial account under 403(b)(7)? Common sense would suggest that it is required - i.e., how can you have a custodian without a custodial agreement? However, we are hearing from a client that at least one provider purports to offer a custodial account without such an agreement. The definition of "custodial account" in the final regs (1.403(b)-8(d)(2)) does not appear to address the issue. Any thoughts?

Mr. Simmons, one of our clients is facing a virtually identical set of circumstances. Would you mind sharing how you ultimately came out on this issue and your rationale? I see merit to both of the arguments you laid out in your original post, and I keep flip-flopping.

And what about the portion of the participant's accrued benefit that was carved out for the AP? If the QDRO is silent on the matter, would that revert to the participant or would the AP's portion of the benefit simply be forfeited? I appreciate the help.

Thanks for the help, mjb. The plan is silent as to an AP designating a beneficiary. It doesn't pay any death benefits other than to a spouse in the case of the QPSA (or the J&S options for post-retirement distribution). I was thinking that the AP should be treated as a participant for purposes of the QPSA, with benefits payable to the new spouse? If that isn't the case, is the AP's share of the benefit forfeited or does it revert to the participant? There is no reversionary language in the QDRO itself, the only language dealing with survivorship states: "The AP shall have the right to designate the beneficiary of any survivor benefits from the AP's interest payable after the AP's death."

What about a DB plan with a seperate interest QDRO that allows the AP to name a beneficiary? I know that the Shelstead court left the possibility open, but I haven't seen any definite authority one way or the other. AP died pre-distribution.

Earlier this week, I came across a QDRO that was approved, but shouldn't have been. It was a shared payment order, but gave the AP an election to come into pay status anytime after the P's early retirement date. On our advice, letters were sent to the parties approving the order as a QDRO back in 2004. We have six years before the P hits early retirement age. Should we tell the parties to go back to court to revise the order? Does the plan or our firm have any liability exposure for getting it wrong the first time? Any thoughts on the best course of action would be appreciated. Thanks.

By "active," I was referring to current employees who participate in the plan. I agree with you that employees with frozen benefits who continue to receive vesting credit would have to be included. I am wondering if participants who are former employees are counted in the denominator of the turnover rate fraction.

Revenue Ruling 2007-43 clarified that both vested and non-vested participating employees are taken into account for the partial termination calculation. Is it safe to assume that participating employees means that only active participants are taken into account? It would seem to me that such an interpretation is more in keeping with the spirit of the rule.

If a non-qualified plan makes a gross-up payment to a specified employee for federal income taxes owing because of participation in the plan, is the plan required to wait six-months because of the delay requirement for specified employees? I see that payments on account of state, local, and foreign taxes are subject to the six month delay (1.409A-3(i)(2)(i) doesn't exempt them as it does payments of FICA taxes). However, I don't see a provision similar to 1.409A-3(j)(4)(xi) (relating to state, local and foreign tax payments) that deals with federal income taxes. Any ideas? Am I failing to see the forest through the trees?

We have a client with a strange provision in its plan that credits participants with an extra year of service for each five years of actual service they complete. Is this a protected benefit under Code Section 411? Technically, the "extra year" doesn't accrue until the participant has completed each 5 year segment, but from a practical standpoint it seems pretty harsh to yank this benefit from someone with 4 years and 6 months of service. Any thoughts?

Along these same lines, has anyone seen any guidance regarding how to determine the parameters of the "industry in which the covered workforce is employed?" i.e., must an employer examine the industry on a national level? Can the employer narrow the scope of the "industry" to that industry in its home state?

Does anybody know how to go about using EPCRS to fix an impermissable premature distribution of a participant's 401(k) account? This is #5 on the IRS's list of top ten failures found in the VCP, but I can't find any discussion of how to solve the problem under Rev. Proc. 2006-27. I'm assuming the solution is repayment of the amount and a VCP filing, but I'd appreciate any authority. Thanks.

Assume a company aquires a subsidiary and the contracts with the employees of that subsidiary promise to amend the parent's plan to include service with that subsidiary prior to acquistion. Does an employee who terminates nine months later, before the amendment is actually made, become a participant in the plan (assuming their pre-acquistion service with the subsidiary would have been sufficient)? Any citations would be appreciated - Thanks!

Along these lines, assume a company aquires a subsidiary and the contracts with the employees of that subsidiary promise to amend the plan to include service with that subsidiary prior to acquistion. Does an employee who terminates before the amendment is actually made become a participant in the plan (assuming their pre-acquistion service with the subsidiary would have been sufficient)?

When does a plan need to make an application for an determination letter regarding initial qualification status under the new staggered remedial amendment periods of Rev. Proc. 2005-66? May the plan wait to file for an initial determination until the first cycle corresponding to the plan sponsor's EIN? Or does the plan need to file for initial qualification immediately, and then re-file in the first cycle corresponding to the plan sponsor's EIN?

Does anyone know of any authority making it permissible to merge a subsidiary's 403(b) plan (it is a 403(b)(7) custodial account) into the parent corporation's 403(b) Plan? We would like to be able to keep all the money in the same pot when the subsidiary's plan is discontinued. Thanks!!