chris

GBurns: That was sort of where I was headed in terms reflecting the proceeds on the 2014 5500 and then showing the same being paid out on the 2015 5500... I believe premiums were paid up in 2006.

Bird: To follow up on your second point above in your post on Sept 10. The TPA reviewed the 5500 for the year of distribution and there is a $1.00 amount shown as "other investments" at beginning and then $0.00 shown at year end. TPA believes that is the insurance policy and that it was considered distributed. Obviously, value was much more than $1.00. However, giving some thought to just showing the proceeds on the 5500 for year of receipt and then showing them distributed out to the participant's beneficiary. I would assume some limited info can be on the 5500 to explain as needed. However, I don't file 5500s so may not be that easy.

Bird: I believe the TPA was uncomfortable with just showing the death proceeds in 2014 and then having the payment made out of the Plan to the beneficiary because the participant upon whom the insurance was based was supposedly paid out in full back in 2006. Thus, going back to the first year after the year in which participant was paid out in full to show that, in fact, participant still had an asset inside the Plan, i.e., the life insurance policy. Accordingly, when payment made of the death benefit everyone can point to where it came from. hr for me: The policy's cash value was building up over time. TPA looking to include it somewhere on the 2007 5500 and bring it forward so that ultimate distribution of death benefit will not be entirely out of left field...

Just now heard back from TPA after months of silence. TPA willing to do amended 5500s to reflect the insurance, but wants to know how to reflect the adjustment of assets on the first amended 5500 -- either as a contribution or as earnings. Appears to me that referencing the value of the life insurance policy as "contributions" would call into question the §415© limit especially since the then cash value of the policy was a few hundred thousand dollars. Thus, appears that "earnings" would be the better route if those are my only two choices. The other issue raised is how far back to go to amend as it appears that the policy may never have been included on any 5500. The policy was issued in the mid-80's. The initial thought was to amend the 2007 5500 to include the life insurance policy going forward (since it was left inside Plan) and not to address years prior. While textbook approach may be to go all the way back to mid-80's to amend I believe starting with 2007 5500 probably the more practical approach.

Thanks Lou.

Safe Harbor 401k plan provides for the 3% nonelective contribution. Plan amended for 415 Final Regulations and thus includes adjustments for amounts paid post-severance for : 1) regular pay w/i 2 1/2 months or the end of the limitation year; 2) leave cashouts; and 3) deferred compensation (as described in the Reg.). Employment agreement provides for salary continuation to be paid to terminated employee over 36 month period. The salary continuation would not fall under the "regular pay" prong, nor the "leave cashout" prong. As for "deferred compensation" prong (as well as the "regular pay" prong), the amount would not have been paid if the participant had continued in employment. Thus, I do not see that the salary continuation is includible as compensation form purposes of computing the 3% non-elective safe harbor contribution. Any thoughts appreciated. Thanks.

In light of issues raised in prior posts above probably best to have this spin-off occur as of December 31, 2014 and have participating employer cease participation as of December 31, 2014? Thus, spun-off plan comes to life as of Jan 1, 2015? Or do you think the spin-off can take place at whatever point in time prior to December 31..? Thanks for your help.

QDROphile: I don't believe there has been a gap in contributions as I believe the participants are still deferring/participating in the "group" plan. If the portion of the plan that relates to the (to-be) non-participating employer is spun off at whatever point in time, how do you deal with the details of the underlying document, e.g., effective date, new plan vs. amendment/restatement, etc., where the (to-be) non-participating employer wants its own document in place? Thanks for your help.

Agreed as to the messiness..... I apologize for not having my facts straight. I do believe they/their employees are still actually participating in the prior plan. In light of the "successor plan" issue, then looks like the better approach may be for them to hang in the group plan through 12/31/14 and have a "new" plan to be effective Jan 1, 2015. Thus, have participation in the prior plan formally cease as of 12/31/14.... Thanks for helping me try to think through the mess....

As I understand it, majority shareholder in this entity owned a majority position in a number of similar entities. To try to simplify filings, each of those entities signed off to be participating employers on one entity's 401(k) plan. Majority shareholder in this specific entity sold all shares to minority shareholder earlier this year and now the sole shareholder is looking to have the entity set up and maintain its own 401(k) plan separate and apart from the others. To my knowledge all deferrals still in place and all contributions being remitted on a timely basis so technically the entity is still being treated as part of the group. Given that backdrop how would entity's plan going forward be considered? Assuming entity signs off on a document today mirroring all provisions of prior plan, when should the plan be deemed effective? Jan. 1 of 2014 so as to allow for all deferrals up through year end and going forward? Or have entity sit tight and stay in the group and have new arrangement effective Jan 1, 2015?

Participating employer ceased participation in safe harbor 401(k) earlier this year and wants to set up own 401(k) Plan mirroring all aspects of the prior plan. Would 401(k) Plan set up by now non-participating employer into which non-participating employer's employee/participants' assets will be transferred be considered a new plan or an amendment and restatement of the original 401(k) plan? Which way would be better --- consider it an amendment and restatement of the prior plan for purposes of the non-participating employer or consider it a new plan? Would seem practically speaking to be better to treat as amendment and restatement of the former participating employer's "portion" of the prior plan. Thanks for any guidance.

Bill: My understanding is that the Plan did so. I assume that the insurance agent notified the Plan once he learned participant was deceased and the appropriate paperwork was completed. Bird: Probably heading where you have described, ie, waivers/releases, and would seem that if Plan Trustees and Employer are comfortable that insurance monies are to flow to the deceased participant's account, then TPA would go along with their instructions. We will see how it shakes out once we gather all the records we can find.... Thanks for all replies.

Bird: I am assisting with the estate administration for the deceased participant. All parties I think are of the mind that the policy just did not get addressed, however, third party administrator wants proof of where the monies are supposed to go. I believe the third party admnistrator is reluctant as neither this participant nor the corresponding policy showed up on any Plan info they received when they took over administration in subsequent year. Thank you for your info re potential tax angles. Looks like obtaining deceased participant's tax return for the year distribution was taken may help somewhat if only to compare the dollar amount on the 1099-R versus the then value of the policy and other assets in participant's account. I will probably also contact the prior third party administrator as well and see if they cannot pull their records to help out.... Thanks

Lou: Insurance company cut the check based on their records as to who was to receive the proceeds. Their records show Plan was owner and beneficiary of the policy. Bill: I am in agreement as to if premiums are shown being drafted out of participant's segregated account, then participant was paying for the policy inside the Plan and thus the proceeds belong to participant/participant's account. But issue is that some parties believe it may be possible that participant obtained the economic benefit associated with the policy upon participant's taking distribution out of Plan in 2007 and that snafu was just not notifying the insurer. I am not steeped in knowledge as to the literal reporting aspects... but might there any notation on the 1099-R for year of distribution that would reveal whether or not insurance was in the mix? Would participant's individual income tax return covering year of distribution reveal reporting as to the insurance aspect of the distribution if in fact participant received any such benefit? Was considering filing a Form 4506 with the IRS to obtain a copy of participant's prior return and will look to see if there is a similar form in the 4506 series for the Form 5500 for the Plan. Again, looking for objective ways to show that participant got nothing at time of distribution associated with the policy. Thanks for your replies.

All: Participant previously maintained a segregated account in employer's PSP and retired in 2007 at which time distribution of account taken. Participant died earlier in 2014 and Plan has received a check for life insurance proceeds on life of former participant. Prior third party administrator says it has no records from 2007. Employer has scant records as well. Do have statements from participant's segregated account in PSP where premiums were paid on policy. Current third party administrator is saying it will pay out proceeds to former participant's beneficiary named on PSP beneficiary designation if it can be shown with objective facts that life insurance proceeds belong to deceased participant/deceased participant's named beneficiary and not to PSP. Trying to determine places from which can glean information to back up how insurance may have been handled/mishandled at time former participant took distribution of account. Would obtaining copy of Form 5500 help? Considering obtaining participant's income tax return for year in question to see what was reported. Considering leaning on prior third party administrator as well for whatever records they might have "in storage". Insurance policy appears to have been left out altogether at time of distribution as insurance company never received any change of ownership/change of beneficiary form. Again, looking for ways to objectively show how policy was handled/not handled at time of distribution. Any help/advice appreciated.

BG5150: So have an October 1 entry date with no documentation? I'd feel more comfortable having quarterly and then doing a short amendment solely to change the entry date provision. That way I would know all are in on Oct 1 without question. Kevin C: PSP has entry date for PSP as retro to first day of plan year. Language regarding eligibility in draft amended and restated doc is not as flexible as language you cite from your docs and is as follows (currently reflects dual entry for 401(k)): 3.1 CONDITIONS OF ELIGIBILITY (a) Eligibility. For all Plan purposes, any Eligible Employee who has completed one (1) Year of Service and has attained age 21 shall be eligible to participate hereunder as of the date such Employee has satisfied such requirements. However, any Employee who was a Participant in the Plan prior to the effective date of this amendment and restatement shall continue to participate in the Plan. 3.2 EFFECTIVE DATE OF PARTICIPATION (a) Effective date of participation - Elective Deferrals. For the Elective Deferral component, an Eligible Employee shall become a Participant effective as of the earlier of the first day of the Plan Year or the first day of the seventh month of such Plan Year coinciding with or next following the date such Employee met the eligibility requirements of Section 3.1, provided said Employee was still employed as of such date (or if not employed on such date, as of the date of rehire if a 1-Year Break in Service has not occurred or, if later, the date that the Employee would have otherwise entered the Elective Deferral component had the Employee not terminated employment). (b) Effective date of participation - Nonelective Contributions. For the Nonelective Contribution component, an Eligible Employee shall become a Participant effective as of the first day of the Plan Year in which such Employee met the eligibility requirements of Section 3.1.

Employer with current PSP (no 401(k) provisions) wants to add safe harbor 401(k) as of Oct 1. Eligibility will be age 21 and 1 YOS. Employer wants all current participants of PSP to be able to participate in 401(k) upon its adoption, i.e., as of Oct 1. So that all such participants can enter the 401(k) portion of the Plan any problems with having quarterly entry dates for 401(k) (which means Oct 1 will be an entry date and all current participants of PSP will enter as of Oct 1) upon its adoption and then amending plan anytime prior to Dec 31 to provide for dual entry dates? Thanks in advance for your replies.

Thanks to both of you for your replies.

Understood. Thanks for your reply. "Early retirement" under the plan requires age 55 and 6 years of service. Plan sponsor's issue is that the participant didn't in fact retire in the normal sense of the word, but rather went to work for the competitor across the street and, thus, plan sponsor is of the mind that the waiver of the last day of the plan year requirement for an allocation does not operate because the participant did not "retire". Document is a Sungard/Corbel IDP Volume Submitter PSP document.

Does provision regarding early retirement in a profit sharing plan subsume an otherwise regular termination of employment for purposes of allocation conditions? Participant quits job mid-year and goes to work for another employer and participant happens to satisfy the age/service provisions for "early retirement" under the PSP. PSP is a calendar year end plan and has a last day of the plan year employment requirement, however, it waives such requirement for death, disability and retirement (early, normal and late). Based on the facts, it appears that participant terminated employment but did not "retire" and thus would not be entitled to an allocation of the PSP contribution. Any thoughts? Thanks.

PSP provides for cross-testing and has various defined groups of participants, e.g., Group A = "Employees who work in location x", Group B = "Employees who work in location y", etc. An employee who works in location x has been relocated mid-year and now works in location y. Question raised as to which allocation group employee will be in. Plan doc has "a year of service and employment on last day of the plan year" requirement for sharing in allocations of contributions. Allocations are to be made as of the anniversary date, ie, last day of the plan year. Plan year is Dec 31. It would seem that determination of which group an employee is in would be made as of last day of the plan year (Dec 31, 2013) given that is the date for making allocations. Thus, the employee who relocated mid-year from location x to location y would be in Group B as the determination would be made as of last day of the plan year. Appreciate any thoughts regarding the above. Thanks.

What I meant was that there are already corporate resolutions in place reflecting a contribution amount in each year and those resolutions have been reviewed and relied upon by third parties, e.g., CPA handling plan audit, etc. Thus, would be awkward to have two different resolutions floating around and would seem to call attention to the issue. May be best to make sure employer is clear going forward as to contribution amount and how to correctly describe/determine it. Would have to rely on argument discussed above as to contribution being discretionary and employer's intent to make the "net" contribution if issue were to arise..... Thanks for your help...

Unfortunately, not that simple as plan has been audited by CPA for a number of years and it currently has in excess of 150 participants. Guess only hope for easy fix is that the resolutions show the "net" number and the overall numbers are such that minimum gateway is satisfied in all events.... If CPA auditing has not caught it, then low likelihood any issue would develop....

I understand what you are saying. Document does not have set percentages hard-wired for each group/class. But somewhere in the process Employer would have communicated to Trustee that it would fund a certain dollar amount/certain percentage of compensation to each of the classes of participants. Would seem that at that moment the amount of the contribution to be allocated would have been decided and then need to be correctly allocated. From the total plan perspective, Employer has a formal resolution for each year that states that Employer has directed the appropriate Officers of the Employer to make a total contribution of $x to the PSP for the plan year ending December 31, 20XX. I guess it is a matter of whether that number in the resolution is gross or net of forfeitures? So, if it ends up it is the gross number (e.g., $100) and forfeitures are $10 and employer wrote a check to the PSP for $90, then it would still seem there is a problem. From the participant angle, argument would be that the employer contribution was to be $100 and employer incorrectly used forfeitures ($10) to offset and only kicked in $90 and is $10 short in it's contribution. If the number in the resolution is the "net" number, then no problem? Again, maybe I am making more out of it than need be.... Thanks for your help on this....

The plan is a cross-tested plan with various groups/classes of participants. Presumably, testing was done each year to determine the appropriate funding for each of the groups/classes. The allocations section of the plan document provides that forfeitures are "to be added to any employer contributions for the plan year and apportioned to each group in proportion to the nonelective contribution made for each group, as made or determined by by the employer." Seems to me that TPA would provide the employer with the bottom line number of what employer would need to contribute to satisfy the gateway contribution requirement and then employer would make a determination as to how much additional each group/class of participants was to receive within testing limits. At that point, TPA presumably told employer that forfeitures can be used to reduce the contribution Employer just decided to make and Employer then kicked in only the difference. Looks to me that example of the issue is that employer decided to contribute $100 in plan year x, but only put $90 in the PSP because TPA advised that the $10 of forfeitures in plan year x could be used to reduce employer's contribution. Plan document provides that forfeitures are to be allocated along with employer contributions (not used to reduce employer contributions). I understand that a PSP is discretionary, but looks like there would be a problem. Otherwise, what's the point of having the choice of forfeitures either: 1) reducing employer contributions; or 2) being added to employer contributions within a PSP? Maybe I am making more out of this than there is..... Thanks for any help....