chris

Employer was in the midst of doing an interim valuation of plan assets of a PSP and a MPPP. Participant requested distribution of his account balance 2/28/01. Broker moved the funds based on the anniversary date (9/30/00) balance of participant's account. Interim valuation recently completed and participant presumably would have received less. Does plan have a responsibility to look to participant for the difference?

Employer currently has a PSP. Employer has provided employees with a Safe Harbor Notice regarding the 401(k) which is to be effective April 1, 2001. Safe harbor notice basically says that 401(k) will be effective April 1, 2001, and that Employer will satisfy the safe harbor by making the 3% nonelective contribution. Employer now has run into administrative problems as far as finding an investment manager to handle the investment of the deferrals and the 3% safe harbor contribution. Current investment manager says it can be in place by June 1, 2001. Can employer now tell employees that the 401(k) (and the safe harbor contribution) will not begin until June 1, 2001 and send out a new safe harbor notice before May 1, 2001?

I am in the midst of terminating client's PSP. The PSP is the survivor of a plan merger with client's former MPPP in 1991. No 204(h) notice was distributed when the plans merged. I am aware of a small number of court cases which seem to say that a 204(h) notice would be required in the merger context. I am considering the extent to which I may need to address the 204(h) notice issue with respect to the termination of the PSP. Specifically, if a 204(h) notice was required upon the merger, then technically the MPPP is still alive. Giving a 204(h) notice with respect to the termination of the PSP would seem to at least cut off the obligation under the MPPP as of the termination date. I understand that giving the notice may invite participant questions. Anyone dealt with this before or have any comments???? Thanks.

Is there any notice that is required to be given to a terminated participant who has requested a distribution that the plan assets have been revalued as of a certain date? Our current administrative forms do provide for informing the participant that "as of _________ (date), the value of your account under the XYZ Plan was $??????" . I would think that it would be sufficient to reflect the interim valuation date within that blank and answer any participant questions that may arise rather than notifying all participants that an interim valuation was done as of ???? date and for the following reasons: 1,2,3,4,5,.... Anyone have any comments? Thanks in advance.

I am trying to find a prototype 401(k) plan document sponsored by Continental Benefit Administrators, Inc. of Atlanta. I understand that that corporation is currently in the process of dissolution. Does anyone have a client who may have adopted their document and who would have a copy of the prototype document and Opinion/Notification Letter?

Anyone dealt with Continental Benefit Administrators Inc. out of Atlanta?

The interim valuation would not only be done in loss situations. An interim valuation would be done when there is a significant change in the value of the trust assets, up or down. The issue is how broad or how narrow the procedure requiring an interim valuation should be. As to the participants affected as a result of performing an interim valuation, you will always have participants who will be affected, plus or minus. I guess what I am trying to say is that any time you institute a different procedure someone will be affected whether it be positively or negatively.

I understand your general point regarding fairness and participants' benefitting, or not benefitting, from the prior annual valuation procedure. However, it seems that since the very nature of an interim valuation procedure is to address the fairness issue (on a smaller scale) as it relates to a large gain or loss which occurs between the annual valuation date and the date of distribution, that is an appropriate alternative in this situation. Also, I don't know that the plan sponsor wants to go on the hook for monthly or quarterly valuations. The plan sponsor solely wants to minimize the loss to the plan which would occur in this situation and in future similar situations.

Brian, The plan document does allow for interim valuations. The objective is to minimize the loss to the remaining plan participants which would otherwise occur if the terminated participant receives the distribution based on the 9/30 valuation. There's no ill-will on the part of the trustees or the employer. The issue is how to put an interim valuation procedure in place which will minimize the loss while at the same time not be overly burdensome going forward. For example, ".....for distribution purposes, accounts will be revalued if the DJIA increases/decreases 500 points in any given plan year quarter...." I know there's more to it than that, but just as an example. Thanks for your response.

Anyone have any ideas as to what to include in an interim valuation procedure? Profit sharing plan has an Anniversary date of 9/30. Participant(HCE) terminated employment as of 9/30. Participant wants distribution of her account as soon as possible. Value of participant's account now is about 70% of what the value was on 9/30. I think there is a recent case regarding plan trustee's obligation to do an interim valuation in such a case. I need to draft the interim valuation procedure such that discrimination will not be an issue(e.g., later on, if DOW goes up, a terminated participant could get account valued under the interim valuation procedure to the detriment of remaining plan participants). Initial thought is to tie it to fluctuations in the DOW and have it apply to all distributions without pegging it to distributions of a certain size. I understand that the interim valuation procedure can cut both ways. I appreciate any comments... Thanks.

RCK, As to 3. above, I definitely agree that it would be cheaper to distribute the excess to the HCE, but it seems that doing so would not be in keeping with Sec. 6.02(B) Correction Principles and Rules of General Applicability (the language of which is the same in both Rev. Proc. 2000-16 and Rev. Proc. 2001-17). Section 6.02(B) states that "...Similarly, the correction of a failure to satisfy the requirements of 401(k)(3), 401(m)(2), or 401(m)(9) (relating to nondiscrimination), solely by distributing excess amounts to highly compensated employees would not be a typical means of correcting such failure." I guess the language in 6.02(B) doesn't necessarily preclude distribution of the excess to HCE's in all cases... Any feedback on this? Thanks.

One other issue re Walk-In CAP is the fee for correction... Rev. Proc. 2000-16 says that the IRS can go as high as 40% of the "maximum payment amount" if it finds the errors to be "egregious" and thus it does not have to stick to the range as listed in the Rev. Proc. As I posted earlier, the trustee who was also the sole shareholder of the Company did not respond well to the DOL audit. In fact, he didn't respond at all. Also, it appears that the TPA's notified him of the plan's failing the tests and, as with DOL, he did nothing to correct the problems. In all years, he was the only HCE. The excess amounts are minimal (e.g., $1800 or less) in the big picture, but he was the only HCE. Any comments on what the IRS has found to be "egregious" in other cases? Also, it appears that we've got 4979 10% excise tax issues to address as well as digging up the earlier DOL audit issue. Regarding the DOL's finding of violations of ERISA 404,406, and 412, the DOL letter states that further action by DOL is not warranted. It goes on to describe 4975 of the Internal Revenue Code....and states that DOL will forward the matter to the IRS. Employer has heard nothing since the 1998 DOL letter.

Has anyone obtained a copy from the IRS of a plan sponsor's prototype document? My client adopted a prototype 401(k) plan sponsored by Continental Benefits Administrators, Inc. ("CBA") out of Atlanta. CBA went out of business in 2000. My client is in need of Walk-In CAP, but does not have a copy of the plan document as required in 2000-16. So far I have been unsuccessful in getting a copy of the document from the attorney handling the winding up of CBA. I am going to try to contact someone at the IRS to help me out with getting a copy of the prototype document that was submitted by CBA for approval. Just wondering if anyone has run into this situation before...... Thanks.

Thanks for your comments...

Client adopted a Jefferson-Pilot Standardized Prototype 401(k) in 1991. Plan year is June-May. Jefferson-Pilot ("JP") notified client it would no longer be sponsoring the plan. Somehow client wound up with Continental Benefit Administrators, Inc. ("CBA")in Atlanta. Client adopted CBA's prototype 401(k) plan in April of 1997 with the effective date of the amendment and restatement being June 1, 1996. JP's adoption agreement provided for joint & survivior annuities. CBA's adoption agreement provides that joint & survivor annuities are not allowed. This appears to be a 411(d)(6). Any ideas on how this might be remedied via Walk-In CAP? The plan has failed 401(k) and (m) for 1995, 1996, and 1997 and no corrections have been made. There are also a number of defaulted loans and loans made in excess of statutory limits that have not been addressed in any manner. It appears that DOL audited the plan in 1997 and sent the trustee (who was also the sole shareholder of the corporation)a letter notifying him of violations of various provisions of ERISA. The letter mentioned that DOL would forward the case to the IRS. Trustee basically told DOL to get lost. No action since then from DOL or IRS. Surviving spouse (who inherited all of husband's stock) wants to get the plan cleaned up. Hence, the possibility of going Walk-In CAP to fix whatever can be fixed. Comments???? Thanks.

Participant in a profit sharing plan terminated employment shortly prior to the Anniversary Date of the Plan. Participant's entire account balance was self-directed by participant. Plan document (a Corbel doc) provides for valuation of the trust assets as of the Anniversary Date. Plan has a reasonable amount of time before it must distribute the participant's account balance. Plan document provides, as you would expect, that self-directed accounts will be separate from the plan trust and will not share in the income, gain, loss, etc... of the plan trust, but rather will have its own income, gain, loss, etc... Participant is saying that he is entitled to the value of his self-directed account as of the Anniversary Date and not as of the distribution date, i.e., up to 180 days after Anniversary Date. Thus, given the stock market's performance, the value as of the Anniversary Date is somewhat greater than the value now. Seems to me participant would get whatever's in the self-directed account at the date of distribution and not as of the Anniversary Date. Anyone have any comments or observations? Thanks for your input.

Two years ago I filed under the SVP to correct an employer's excluding approximately 45 employees over the then past seven years. With respect to the SVP, you must explain how/why it happened, procedures in place when it happened, measures taken to keep it from happening again..... In my case, I cited miscommunication problems between the e/er and the CPA making the determination of who's in and who's out. Also, put in place a procedure outling in detail the steps the e/er's personnel should take to verfiy DOH, # hours,........with respect to every e/ee hired. I included that in the SVP Request. The only communication I had with the IRS at the time had to do with how we actually calculated the back-allocations due the excluded employees. Other than that and the receipt of the "you've corrected the problem and we won't disqualify the plan" letter, I have not heard anything else from the IRS. Going through with the SVP won't preclude a possible audit, but I would think that as long as the e/er shows good faith that it is truly trying to fix the problem, it shouldn't get referred to audit. Just make sure you've caught all of the excluded persons who are due allocations, benefits, etc. Also, make sure you catch any other problems while you're there. Additional problems, depending on their type, may cause you to be ineligible for SVP.

Any update on necessity of amending cafeteria plans prior to 1/1/2001? Are there compliance issues if no amendment is made or is it the employer's choice as to making the amendment?? Thanks, Chris

To what extent are SEP-IRA's protected from a participant's creditors (judgment or otherwise)? To what extent, if any, does 401(a)(13) apply to SEP-IRA's? I would think that the normal IRA rules would apply. I have a small medical practice considering going from a profit sharing plan to SEP-IRA's and the issue has come up. I have already pointed out the other differences, e.g., 100% vesting, comp to comp allocation, etc.. but this one is the important one to the doc's.

After further checking it appears that the IRS issued PLR 9241063 about a year later as a replacement to PLR 9135060. PLR 9241063 held the 72(t) penalty inapplicable based on the substantially equal periodic payments exception. Oh well..... ------------------

I ran across PLR 9135060 in which participant retired at age 50 and waited until age 55 to take a distribution. PLR stated that the distribution was not subkect to 72(t) 10% penalty. I know that PLR's cannot be cited as precedent and are only good for the specific taxpayer who requested it....... The PLR doesn't provide much in the way of reasoning, but it does get to the right result (per the participant). Anybody run across this situation or PLR before? ------------------

From a review of the adoption agreement for the prototype as well as corporate minutes from 79-80, the plan was initially effective Nov 1, 1979. ------------------

I'm reviewing a prototype doc where plan year and employer's fiscal year is Nov 1 - Oct 31. The adoption agreement provides for a fractional year of service of 10/12 with respect to eligibility/participation. I haven't run across the use of a fractional year before. Can anyone give me some background on when/why a fractional might be used? Thanks. ------------------

How do you verfiy that an annuity contract complies with the consent requirements, etc of 401(a)(11), 417, and related sections? Is it just a matter of finding the language within the contract? And if no language, get the insurance company to amend it as such????

The plan is a profit sharing plan that is the result of a merger of a profit sharing plan and a money purchase pension plan which occurred in 1991. Almost all of the funds used to purchase the annuity were from the MPPP. The plan doc allows for in-service distributions; however, that provision would not be allowed with respect to the MPPP flavored assets. The participant will be 70 1/2 towards the end of 2000. The annuity payments started in mid 1999. Possible to deem the payments as part of participant's required minimum distribution?