david shipp

The "profit sharing" exemption from QJSA requirements (401(a)(11)(b)(iii))provides that the QJSA requirements don't apply to defined contributions plans that are not subject to minimum funding requirements if several conditions are met. One condition is that the participant does not elect a life annuity. Most prototypes contain this exemption and provide that lump sum is the normal form under the plan while also offereing a full range of other benefit forms including annuities. In this instance, the QJSA requirements only kick in if the participant elects a life annuity form of benefit. A participant can elect lump sum or installments without spousal consent.

Given a terminating money purchase plan with truly lost participants, has anyone found an insurance company willing to sell deferred annuities without participant signature?

Let me pose a fairly standard situation. The plan limits deferrals to 15%. The plan offers catch-up contributions through a good-faith EGTRRA amendment that simply says catch-ups may be made in accordance with 414(v). The plan operates the 15% limit on an annual basis (not payroll-by-payroll). In this instance it doesn't appear that an amendment is necessary. The plan has a 15% limit, the EGTRRA amendment says, through reference, that catch-up contributions can be made in excess of the plan limit. The Corbel example, on the other hand indicates that the plan limit specifically applies to both normal and catch-up contributions. Agree?

In a plan that unitizes employer stock, rather than accounting on a share basis, how would the section 16 "reporting person" know how many shares are involved in a transaction? Different question - will the Sarbanes-Oxley reporting changes practically mean the section 16 reporting persons really shouldn't invest in employer stock through a retirement plan such as 401(k)? The relaxed reporting date provided in the recent SEC regs are helpful, but will still require changes in the procedures of most administrators.

Yes, I am assuming that a benefit is due the individual, that the SSN is incorrect and that it is unlikely that the plan will ever be able to find the participant, illegal or not. Even some "legal" folks just don't want to be found and fake SSNs may be part of the pattern. Once you arrive at this point, by whatever means, what do you do with a vested benefit? And just to make it more urgent, assume the plan is terminating.

With respect to what constitutes a "power of attorney" for Form 5558 purposes, must a Form 2848 be used or would a statement included in the annual data collection package (signed by the plan administrator) to the effect that the TPA has the authority to sign the 5558 suffice?

How does a plan handle false SSNs when the worker is gone (just ahead of the INS)? One suggestion above was to ask the IRS. Has anyone had any experience?

Going back to Notice 89-32, which still appears to be controlling: Given a $1000 excess deferal with a $100 loss and distribution is made in year following deferral - $900 distribution made to participant 1099R reflects $900 distribution with code P Participant must be given a statement to the effect that $1000 is to be reported as income on 1040 for year of deferral (89-32 says on line 7). Statement should also indicate that "the loss may be roported as a bracketed item on the Other Income line, Form 1040, for the approprpriate year (. . . ., the distribution year for corrective distributions after April 17, 1989)." There is no separate reporting of the loss on any 1099R. The correlation of the deferral amount ( including the excess) that is reported on W-2 along with the net 1099R appears to be the substantiation of the loss (along with the statment given to the participant). If anyone has found anything that updates Notice 89-32, please chime in.

Since a plan will have catch-up language that will, in effect override plan limits, I have assumed that no special catch-up election is required. The participant elects to defer an amount. At year end, the various limits are applied, including catch-up if available and appropriate action is taken. This assumes that the recordkeeping system will first run through the various limits for catch-up eligible participants to determine if there are catch-ups. If an amount is a catch-up, the system "flags" it in a manner that indicates it is not tested (i.e. the deferral amount of the participant is reduced for testing purposes). If the catch-up is not to be matched, any attributable match has to be handled. Testing then proceeds. Anybody have any thoughts on this course of action? The big question mark at this point is what the system will actually do. So many choices!

Unless the new schedule is better at every point, participants with 3 YOS must be given the option of which schedule they want. I would suggest that the graded schedule be reduced to 5 years as follows - 2/20, 3/40, 4/60, 5/100. This schedule is better at every point than 5 yr cliff so no participant election is required (1.411(a)-8(B))

MGB - If an off-calendar year plan is not amended to allow catch-ups until the 2002-2003 plan year, wouldn't the participant still have the capability of having catch-ups based on 402(g) excess for the 2002 calendar year even though the plan would not be able to invoke catch-ups for ADP or plan excesses for the 2001-2002 plan year? At a more basic level, is the amendment allowing catch-ups something that has to be in place before a contribution is considered a catch-up or can the catch-up cabability simply be included in the EGTRRA good-faith amendment and be adopted by the appropriate deadine?

According to the catch-up regs., 414(v) applies to "contributions in taxable years beginning on or after 1/1/02." The reference is to taxable years (i.e., calendar year for individuals) and not plan years so it appears that catch-up contributions are available for plan years that end in 2002. To the extent an ADP test is failed for a plan year ending in 2002, it appears that catch-ups could be invoked.

Several different issues here. First, employer match that is not QMAC is non-401(k) money. The posts seem to indicate that the withdrawal of non-QMAC match is restricted and that is the source of confusion, if I am interpreting correctly. Second, if the plan says only elective deferrals are available, only $900 is available and the participant has $100 of "basis" available for hardship withdrawal in the future if the elective deferral account ever goes positive. (Note that this $100 would be added to future deferrals for purposes of determining available hardship w/d amounts.) Third, if matching contributions were available under the plan for hardship withdrawal, the participant could get the full $1,000, but there would really be no "borrowing." As in the above item, he would still have $100 of elective deferral "basis" for later withdrawal.

Rev Rul 71-224 is still the general rule for hardship withdrawals. Although it is pre-ERISA, it has not been revoked or superceeded. The 401(k) regs override RR71-224 to the extent of elective deferrals, QNECs and QMACs. The 401(k) regs do not address "non-401(k)" types of contributions and thus do not override RR 74-224 in that regard. Also, take a look at any number of prototypes which allow hardship w/d of non-401(k) amounts and offer the option of applying 401(k) hardship restrictions or using "old" 71-224 rules for those amounts.

The regulations under §1.411(a)-7(d)(4)(iv) are silent with respect to the source of money used as a buyback contribution. The issue has been raised at least twice at ABA Employee Benefits Committee section meetings where the IRS has responded that after-tax buyback contributions are acceptable (and possibly considered the norm) and that the participant will have a basis in his account equal to the buyback amount. In 1996 the Service directly answered a question dealing with the use of conduit IRA assets to make the buyback contribution and responded as follows: "Funds in a conduit IRA can be used to buyback benefits, but it is not mandated that conduit IRA funds be used. An employee can use other funds and therefore have basis in the buyback but such contribution would not have to be tested under 401(m) or 415. The employer may ask the employee if the funds are from an IRA in order to correctly treat the funds as basis or not."