CO Bank

Sorry about that, will repost to 457 forum.

I am having a difficult time decoding how to distribute a loss. We have an employee who deferred $1,000 into his 457 plan. The plan allows $18K in contributions for the year, which can be a combination of employee and employer monies. In December we forecast that the employer contribution for the year would $18K. Our practice is to maximize the employer contribution first, thus we wanted to return to him his deferral amount. The $1,000 was returned to him via a negative contribution in December on his payroll. We did this in order for the w-2 to show that he did not contribute the $1,000. After the return we calculated the gain/loss, and found that the $1,000 deferral he put into his account had shrunk to $900. This $900 was moved out of his account into what we call the negative account at the recordkeeper. I understand that the excess deferral instructions state that the excess deferral plus any income allocable must be distributed out. We've taken a conservative view and determined that "income" includes losses as well as gains. In order to distribute the loss to the participant, my thought is that we now instruct the recordkeeper to move an extra $100 out of the account. This would in effect make the loss realized in his account, and thus would mean the loss was allocated (I think). Not sure if this is the best way, or only way, to administer. Would appreciate any insights. Thanks.

Let me clarify that this is a 457 plan, and the excess amount was returned prior to 12-31-2015. More detail: the plan allows a total contribution of $18,000, which is made up of employee and/or employer contributions. The employer contribution was calculated to be such that the sum of the employer contribution and employee contribution would be $19,000. This was how the $1,000 was calculated.

I am having a difficult time decoding how to distribute a loss. We have an employee with a $1,000 excess deferral. (I am using round numbers for sake of ease). We need to return this deferral to him along with any allocable income. Our ERISA attorney states that 'income' means losses as well as gains. The $1,000 excess was returned via a negative contribution on the payroll account. The rationale was that the w-2 needed to diminish his deferral by $1,000. The $1,000 deferral he put into his account shrunk to $900 as of the date of return. This $900 was moved out of his account into what we call the negative account at the recordkeeper. My thought is to now instruct the recordkeeper to move an extra $100 out of the account. This would in effect make the loss realized in his account, and thus would mean the loss was allocated (I think). Does this approach make sense?

An investment fund in our 401k plan is being liquidated on July 14th. We mailed a notice in early June, advising participants that assets in and elections to this fund will be mapped to another fund on July 14th. The new fund is already an investment option in our plan, but it is not the default investment option. While transmitting contributions today, it was discovered that though the fund's liquidation date is July 14th, the fund stopped accepting new monies on June 12th. The question now is what to do with these contributions. Should we direct them into the new fund, even though we informed participants the date was going to be July 14th? Or should we put it into the default investment option? On a broader view, we have met the 30 day notice requirement for the blackout and the mapping of assets to the new fund, but we did not provide a 30 day notice for the fund stopping contributions. Wondering what liability we face and what resolution to take.

I am reading a Plan Document that has Auto Enrollment for new hires; the Auto Enrollment occurs on the participant's entry date, which is defined as being the date of hire. Which means a new hire would immediately starts deferring, effective with the first paycheck. The Plan though has been operating by auto-enrolling new hires up to 45 days after hire date. This has been explained as due to an "Administrative Lag". The proces for deferring is a bit convoluted, as a TPA's website is used, where participants can elect their deferral percentage, and then this information is passed back to the company. If the participant does not visit the website, then after 45 days, the auto-enrollment kicks in. I have not heard of "Administrative Lag" as being a valid reason for not auto-enrolling a participant when first eligible. Is this an acceptable delay?

Yes, this was a home loan. I did hear from our TPA that the 50% rule is based on the date the loan calculation is made, not the date the loan is funded. I think the auditors will take their word for that. Thanks for the response.

Our 401k auditors discovered what they believe is a violation that needs to be corrected. Below is a chronology: May 10 2006: employee applies for the max available loan. May 15 2006: TPA calculates this amount as $10,500. May 23 2006: Due to market drop, participant’s balance is $20,728 – half of this is $10,364, which should be the maximum available loan. Custodian funds the loan for $10,500. Auditor is questioning what we will do to rectify. Loan is still outstanding, current principal is about $7500. Is this a violation? Hoping there might be a de minimus defense, or a defense that the amount was correct on the date of calculation. If we need to correct, would we simply ask participant to pay back $136 and reamortize the loan? Thank you!

Thank you, appreciate your help!

Scenario: Employee hired May 1st. Coverage under prior employer ended April 15th. Our health plan has a 90 day waiting period before coverage begins. Employee's health coverage with our company begins August 1st. Employee did not elect COBRA, and thus did not have any insurance coverage from April 15th to August 1st. Did employee incur a significant break in coverage? I read on this website that waiting periods are not counted as a signficant break in coverage: http://www.familiesusa.org/issues/private-...efinitions.html http://www.dol.gov/ebsa/regs/fedreg/final/2004028112.pdf But the term 'waiting period' seems ill defined. The employee has a pre-existing condition. They have a certficate of coverage from prior employer, which is not relevant if the significant break in coverage applies. Thoughts anyone?

Thanks, very helpful

I presume you're referring to the annual earnings test which applies to persons who receive SSA prior to attaining their SSA full retirement age. http://www.ssa.gov/OP_Home/handbook/handbo...dbook-1811.html http://www.ssa.gov/OP_Home/handbook/handbo...dbook-1812.html http://ssa.gov/pubs/10063.html

Our company has a Supplemental Executive Retirement Plan (SERP). This is a non-qualifed plan and benefits are paid from general assets. Upon retirement we pay participating executives either a lump sum or stream of payments over x years. My question: will a SERP payment impact SSA benefits? I called the SSA and they said no. They were not familiar with SERPs, so I explained it as being a non-qualifed retirement plan. They stated clearly that any retirement benefit is not considered earned income regardless of when paid out, and thus would not reduce SSA benefits. I spoke with our CPA who said otherwise, the SERP payments would reduce SSA benefits if the payouts were made prior to age 66. ???

For our health plan, we charge 100% of dependent premium to the employee. Employees with dependents naturally complain. We'd like to give them an option of foregoing part of the employer contribution - in exchange we'd charge them, say, 50% of the premium, with our paying the remaining 50%.

We have a rich 401k/profit sharing plan, and a middle-of-the-road health plan. The idea has been floated to give employees the option of choosing between receiving a full match/profit share or receiving a partial match/profit share, and in exchange we the employer will pay more towards their health care coverage. In preliminary discussions our TPA says this can be done; however they have no clients who do this right now. They can investigate further for a fee. Before we proceed, I'd like to know if anyone has or administers such a plan. We want to be innovative, but not bleeding edge. Thanks!

We have a rehire who took a distribution while terminated. At that time the nonvested monies were forfeited. Our plan document allows for the restoration of forfeitures, but only if the vested monies are repaid. My question is: does the repayment need to be from a pre-tax source, such as an IRA or other qualified plan? Thanks in advance!

Hi Patrick, We have a situation identical to yours. Did you ever receive a reply to your question? Thanks, Al Vanderhoeven Bank of the Cascades

An investment option in our K plan is company stock. Our plan allows in-kind distributions of the stock. The question we've been kicking around is how to determine the cost basis. I've received conflicting info from two large mutual fund companies and our outside attorney. I'd like to throw this out there and see if anyone else can shed light on this for us. Since April 2002 the stock has been held in a unitized fund. Participants do not own shares directly, rather they own units of the fund. These units have a mathematical relationship to the number of shares owned. The IRS in a private letter ruling states that “….if a security was earmarked for the account of a particular employee at the time it was purchased or contributed to the trust so that the cost or other basis of such security to the trust is reflected in the account of such employee, such cost or other basis shall be used.” I can send anyone who is interested the PLR mentioned above. One of the issues here is what does 'earmarked' mean? Does it mean that the participants need to own the shares directly? Or does it mean they can own units of a unitized fund, whose units translate into actual shares? This is an important question for us. Our 401k administrator holds the stock in a unitized fund. If we cannot use the actual cost basis described above, we need to average out the cost basis for the fund as a whole - which results in a very different number. I know many participants take in-kind distributions - would be interested to see how others determine the cost basis.