david rigby

So you contend that the "negative deduction" is a distribution? Is that in all cases, or only when it is done in anticipation of passing the discrimination test? For example, it is easy to imagine that the payroll dept. made a mistake and deducted $2000 from a paycheck instead of the correct $200. Would you have a problem if this clerical error were corrected by altering the subsequent deduction, say by using a negative $1600? I probably need to do some reading on this point, but it seems to me to be a very impractical perspective to say that we cannot correct something in advance when we know it will need to be corrected later. I take the approach that there is no excess until the end of the plan year, so if I can fix the problem before it is a problem, then the plan (and the entire administration process) is better off. Although I have just skimmed the regs, it looks to me like the correction described in 1.401(k)-1(f) is based entirely on the assumption that the year-end has passed, as does the definition in 1.401(k)-1(g)(7). But I continue to read. Any other opinions or comments would be welcome. [This message has been edited by pax (edited 12-03-1999).]

somewhat. do you have specific areas or questions?

Ouch, you have a difficult problem. The generic answer is to use search service, or the IRS forwarding program, or the commercial locator services, etc. But you have problem if you don't have SSn and if the beneficiary does not have any knowledge of the possible benefit. The only other thing that comes to mind is an intenet search by name. SSN probably would not do any good there anyway.

No it is not customary. In fact, my understanding is that it is possible for an accrued benefit to go down if compensation goes down. Normally, the accrued benefit is defined in a formula which is based on service and final avg comp. The formula need not contain any reference to "last year's accrued benefit", etc. However, the benefit at NRD cannot be less than the benefit payable at any ERD. Also be careful with plan amendments. [This message has been edited by pax (edited 12-01-1999).]

Are you asking about "negative elections"? [This message has been edited by pax (edited 12-01-1999).]

I believe that correcting during the year of deferral such as by the use of a negative deduction in the payroll, in order to not fail the ADP test, is not a distribution. Anyone have a different opinion? [This message has been edited by pax (edited 12-01-1999).]

Sorry if this seems too trivial, but make sure there is no QDRO that may have an impact.

Another good source is the ERISA Outline Book, published by http://cyberisa.com./ [This message has been edited by david rigby (edited 12-03-1999).]

There have been several discussion threads on this topic. Try a search of the message boards.

If you are "refunding the excess during the plan year", then you are not "refunding" anything. You are correcting. There is no need for a "refund" until the plan year is over, so if you can correct it, you should do because you may avoid the (more cumbersome) refund process.

No expert I, but that sounds to me like an IRS transition. Perhaps we should just be thankful.

Maybe the retiree simply failed to report her 18K pension on her 1040. Is that too simple?

No expert on 401k admin, I offer a comment. It is my observation that most decent payroll systems will accept a negative amount as a deduction, and that most recordkeeping systems will also recognize a negative deduction. If so, then you have the option of making the correction directly in the payroll system BEFORE the end of the year. This seems to me to be ideal. It may not be exact, or perfect, but it holds open the possibility of simplifying the process. Probably others can offer more details. [This message has been edited by pax (edited 11-29-1999).]

Interesting comments. Could you elaborate on your "public policy" comment?

And why? What are you trying to accomplish?

It is also on BenefitsLink: http://www.benefitslink.com/IRS/ir99-80.shtml

Sorry, bad phrasing. I do not mean that this "academic discussion" is bad policy. I was trying to state that it is not part of the EE comunications of the plan because it does not matter. My "free money" analogy (oversimplification) was an attempt to illustrate that the plan (typically any DB plan) is a single entity, not two separate "accounts". The "options" available are a design decision. If the primary purpose of a DB plan is to provide reirement income, then it may be counterproductive to include an unlimited lump sum option in such a plan. If jlf is disappointed that he does not have such option, or even any input into what the options are, then that seems to me to be a personnel policy issue more than a benefits issue. Perhaps employees who feel strongly should request such input; you sure won't get the opportunity without asking. If he feels that the portion of the total he is "paying" is high, he may have a legitimate gripe. I hope he gripes to the right people and shares with us how that goes. However, I still return to the "primary purpose" of the plan and to who is making the promise and committment. It seems that the ER is making the promise of a lifetime retirement income (in the case that jlf describes, it is the taxpayers who are making the promise). That promise has nothing to do with the assets available, thus the ER is taking the entire investment risk. To me, that is a very significant feature of the entire plan structure. (Others may not care, but they would care if asset yields over the past 15 years had been similar to the prior 15 years.) [This message has been edited by pax (edited 11-23-1999).]

timing is important. In the original message, you state "in 2000, the plan will have been amended..." What do you mean by that? Do you intend that to be retroactive? If the plan is actually amended on 1/6/2000, then the rehire on 1/5/2000 probably should not wait until 1/1/2001.

It is bad policy to discuss it at all. That is not the purpose of the plan! If you insist on viewing the 300K as "yours" (it is not), then perhaps you should consider that you are getting free money. That is, for putting up 30K per year, are getting that back with an additional 11K annual bonus.

You might be able to accomplish the same thing by reverting to the life annuity as the normal form, but then define the conversion factors for optional forms. For example, the J&50%S form could be defined as 99% of the life annuity. The J&100%S form could be defined as 98% of the life annuity. If you have to do any 401(a)(4) testing, then you will have to pay attention to the "most valuable" benefit, but if you have a safe harbor plan, it should not matter.

I've seen that before, or something similar. I think it is OK as long as you have passed the "effective availability" test. Anyone else?

Be careful there. How is he being paid? If it is thru regular payroll for which he will receive a W2, having FICA tax withheld, etc., then that might imply that he has "hours worked". Anyone know if this is a problem or if I am being too concerned?

I'll try. Yes, it is possible that the 1/1/2000 asset values will be different for determining the min contribution (412) and deductible limit(404). I'm not sure that it matters whether the sponsor files an extension for tax purposes for the 1999 FY. It also may be that both the 2000 min and max are not within the 60-80K range you are seeking. Not likely to be a 10% excise tax on the scenario you describe as long as you don't contribute *before* the beginning of the applicable FY.

Can't you use elapsed time method for vesting, or am I confused?

Why is it not disclosed? Simple, because it doesn't matter. The plan is not promising to "make up" any difference. It is promising to pay a benefit, probably for the life of the retiree. If the investment of the funds is good, then more of the total cost is "paid" by investment earnings. If the investment of the funds is not so good, then more of the total cost is "paid" by the plan sponsor in the form of increased annual contributions. In either case, the EEs are paying a fixed amount, based on a percent of comp. [This message has been edited by pax (edited 11-16-1999).]