davef

We administer a number of dual plan situations where deferrals are made under a 401(k) plan and the match is made under a MP plan. The adoption agreements for both plans coordinate between each other regarding the match. Also, on several occasions we have had to explain the definitely determinable issue with the IRS and have cited Rev. Rul. 74-385 and GCM 35745 as support.

We have been using tack on GUST amendments for plan terminations without any problems from the IRS.

Can you rely on IRC 4972©(3) to support the return of matching contributions to the employer (assuming the plan document conditions contributions on deductibility)? I realize there is an issue as to whether the IRS has to formally disallow the deduction, but the only rulings on this issue have dealt with DB plans. The IRS has never issued guidance on how to request ruling on disallowing a deduction under a DC plan.

Am I correct in my reading of Notice 2000-3 that a 401(k) plan with an existing match cannot be amended after May 1, 2000 to provide a safe harbor match for this year? And that to make a 401(k) plan with an existing match a safe harbor plan (for 2000) after that date, you must use the 3% nonelective contribution?

Look at Reg. 1.415-8(d)(1). Based on these aggregation rules, it looks like the Dr. would need to combine the plans for 415 purposes.

There was a pretty comprehensive article in the RIA Pension & Benefits Week Newsletter from 8/2/99, entitled "Anticipating Employers' ERISA and Tax Consequences from Health Insurance Company Demutualizations."

If a QDRO awards the alternate payee the entire amount of a participant's account, EXCEPT for the outstanding loan, am I correct in assuming that there is now an "adequate security" problem? If the plan does not permit collateral other than the account balance, could this be a reason for rejecting the QDRO on the grounds that this would be contrary to the plan document by requiring outside assets to be used as security for the loan?

If you have the CCH Online Service for the Pension Plan Guide, the Rev. Proc. was posted under the Daily Dcoument Updates last Friday.

Many states have wage-hour laws that prohibit an employer from withholding from a person's pay without consent. If a participant changes his/her mind about having the loan repaid through salary deduction, is this a way to default on the loan? Regarding the deemed distribution issue, could the taxes be avoided if a loan is taken from pre-87 grandfathered employee contributions? Wouldn't the deemed distribution be a non-taxable event? If the deemed distribution was not taxed, then the 10% penalty would not apply as well. I realize that this would not be a common situation, but it could happen. Also, this does not avoid any PT issues mentioned above.

GBurns, I read the case you cited, and I don't really think it affects how the COE contributions operate under the plans I work with. 1. The plans I deal with impose the COE requirement BEFORE the person is hired -- so the employee clearly knows what he/she is getting in to, and can decline employment if the COE contribution does not suit them. In the Garrett case, the employer tried to reduce the employee's salary to offset the contribution several years after she was hired and basically said "take it or find another job." 2. In the Garrett case, the appellate court specifically said that there was NO ERISA 510 violation. This was primarily because the employer's SEP contribution was discretionary. (One can infer that if the contribution was not discretionary, there might have been an ERISA 510 violation, but that was not specifically addressed by the court.) 3. As John A. pointed out, many government employers require employees to contribute as a condition of employment. Also, COE contributions can be found in 403(B) TSA programs (as is evidenced in the IRS' Examiniation Guidelines). Finally, the prototype plan I work with has been approved twice by the IRS, with the COE contribution feature being fully disclosed. So, I've got a fairly high level of comfort that it is permissible.

Hoard, the condition of employment contributions are made as QNECs, not elective deferrals. The employer basically says up front to a prospective employee that, as a requirement for being employed, they must contribute a minimum percentage of pay to the 401(k) plan (or money purchase plan, on an after tax-basis).

I don't think that the employees need to be given the option of leaving their money in the old plan. You just need to be concerned about preserving any 411(d)(6) protected benefits. See Reg. Sec. 1.411(d)-4, Q-3. Giving employees the option is a requirement only if the transfer is "elective."

pax, what if the plan is terminated and paid out within the same plan year? Would this make a difference as to how much comp is counted for purposes of the T-H minimum contribution?

If a top-heavy defined contribution plan terminates prior to the end of the plan year, is the 3% top-heavy minimum contribution for the year of termination based on compensation for the entire year, or just the portion of the year prior to the termination date? The T-H regulations define compensation as either 415 comp or W-2, neither of which is prorated during the year of termination. Also, the IRS has stated (1995 EA Meeting) that compensation for the entire year is used if a person was a participant in a T-H plan at anytime during the year. Based on this, it seems like a full years's comp is to be used. Is this what others are doing?

Will a safe harbor 401(k) plan automatically pass the ACP test if it provides the basic matching formula (100% on first 3%, 50% on next 2%), plus a discretionary match that does not exceed an extra 2% -- so that the overall match does not exceed 6% of pay? My reading of Notice 98-52 (Sec. VI.B.1. and 2.) says that the discretionary match will take the plan out of the ACP test safe harbor.

This involves the payment of a death benefit from a qualified plan. John, are you saying that you can do a trustee-to-trustee transfer from a qualified plan to an IRA, without a distribution/rollover occurring? I've seen transfers between like types of plans (IRA to IRA, or qualified plan to qualified plan), but not between a qualified plan and an IRA. Thanks for any input.

Code Sec. 401(k)(4)(B)(i) says that "any organization exempt from tax under this subtitle..." can maintain a plan with a cash or deferred arrangement. The term "this subtitle" refers to Subtitle A (Income Taxes) of the Internal Revenue Code. Since sec. 501 is under Subtitle A, a 501©(4) organization would be eligible for a 401(k) plan. For other discussions on tax-exempt organizations, see IRS Notice 92-36 (relating to the delayed effective date for the nondiscrimination regs) and IRS Notice 96-64.

April 15 is the deadline for returning excess deferrals under 402(g). If they are not returned by that date, you've got a qualification problem (plus the double taxation issue you mentioned). It can be corrected through APRSC or VCR/SVP (see Rev. Proc. 98-22)

Has anyone heard of a way to allow a nonspouse beneficiary under a qualified plan to make a tax-free rollover to an IRA? I've always thought that this wasn't allowed, but have heard that several insurance and investment companies are allowing rollovers to IRAs in the name of the beneficiary.

Employees of federal credit unions should be treated the same as anyone else who is employed by a tax-exempt entity. They can be covered under any type of qualified plan (prior to '97 they couldn't have a 401(k) plan unless they were grandfathered under the pre-TRA'86 rules). Nonqualified benefits have to fall under 457 rules. The FCU is not eligible to have a 403(b) TSA program because it is not a 501©(3) organization. They also cannot have a SARSEP because they are tax-exempt. Hope this helps.

We have an approved prototype plan that allows for condition of employment (COE) contributions under a 401(k) plan. These contributions are not treated as elective deferrals, but rather as QNECs. By characterizing them as QNECs, you run into some interesting issues. For example: 1. They are not subject to the 402(g) limits. But they are counted as deferrals for ADP purposes. Amounts deferred above the COE amount would be treated as elective deferrals. 2. They are counted as annual additions, but not added back in to 415 compensation (as would be the case with true elective deferrals). 3. They need to pass 401(a)(4) if they are not uniform (we have some plans that increase the COE contribution as service increases)

The prototype document adds back in COE contributions to compensation for purposes of calculating contributions. We do not treat COE contributions as FICA wages. Although I'm not 100% sure, but I suspect that the employers are counting the COE contributions as part of compensation for overtime and other benefit purposes.

If an employee switches employers mid-year, and that employee is covered under 457(B) plans of both employers (who are unrelated), can he/she have two $8,000 deferral limits? It appears that the 457 (B) limits are on a plan-by-plan basis, which would mean that a person could have multiple deferral limits during a year. Based on the above, if the contribution under the first 457(B) plan was offset by a deferral under a 403(B) plan, will that offset also apply to the limit under the second 457(B) plan? It appears so, because the offset rules are based on what the individual has been able to exclude from income. Am I missing anything?

The only authority I have ever seen on this issue is Technical Info. Release 1334, which was issued around the time ERISA was enacted. (See Q&A P-3, relating to minimum participation standards) I am reluctant to rely solely on this provision as authority that you can't have an hours requirement for less than 12 months of service. The key point is that the document should also provide language which states that the employee will still be eligible to participate if he/she completes 1,000 hours in a 12 month period. I have seen this approach taken in several IRS-approved prototype plans.

I believe you are correct. Although there isn't much "official" guidance in this area, most practitioners are treating LLCs similar to partnerships or S corporations for purposes of the plan loan rules. Thus, if the partner's loan continues to be outstanding after the conversion, there is a prohibited transaction.