Pension Panda

In these set of facts, a RIF occurred but to only approximately 9% of the beginning number of employees. This was a large plan and more than half the terminations that year were "for cause" which was common in this client's industry. As less than 10% of the plan participants were terminated through RIF employer initiation, the IRS agreed no partial termination was deemed to have occurred and therefore no participants were required to be fully vested under partial termination rules.

A client received an IRS "compliance check" notice a few years ago indicating the participant count change from the beginning of the year to the end of the year on the Form 5500 indicated a partial termination may have occurred. The IRS letter invited the client to explain why there were terminated participants who were not fully vested at year end. A response letter was written to indicate a large majority of these terminated participants were actually let go for cause (attendance, in jail, failed drug test, etc.) which is why a partial termination should not be imposed on the plan. The reason for termination of each participant was in fact documented in every single personnel file and was pulled from storage by HR to determine this information. The IRS agreed in this case and no further action was required (meaning no partial termination was found to occur that year and no one fully vested due to termination). Interestingly enough, there was in fact an employer initiated layoff that year but nowhere near the 20% threshhold required to fully vest in a partial termination. Just wanted to mention that the IRS has been known to take a reasonable stance if there is back up for termination for cause, even if employer initiated.

QDROphile - you are right! Apparently there was a 2004 Q & A from the ABA in a divorce situation where the IRS was ok with a hardship to purchase the property away from the ex-spouse. Anyway, I find your response really interesting. I assumed (for exactly the same reasons K2 suggested) that the DRO was going to be better for the participant but it looks like you must have seen a situation where it was not.

A participant requested a hardship distribution to buy out his soon to be ex-spouse from their half of the principal residence. There is no DRO involved here at this point. The plan sponsor indicated they didn't see any problem with this request as a "purchase of principal residence" purpose for hardship. The Plan Sponsor believes this is a purchase of his principal residence from the other owner. I can't find anything anywhere to substantiate accepting or rejecting this request to use the funds to purchase a principal residence. I realize a DRO request is the way to go here instead for a lot of reasons, but my question is can a participant request and obtain a "hardship" withdrawal to buy out a second owner of a principal residence? He will be 100% owner at the end of the transaction. What do you think?

A good point indeed. Our fancy pension software makes certain we remember to go out to at least 4 decimal places with our percentages but I was using shorthand for the purpose of this message board. This pension group is awesome! Where else could you find 16 decimal places in a response?

Big Bucks the Owner is getting 13.21% to max out so 4.4% for the staff passed the gateway. It felt kind of squirrelly so I wanted to ask my expert pension friends. Definitely won't pass the reasonable classification test and it doesn't pass the rate group using the 70% ratio test so I'll tell them to give some to the participant and move on. You guys are the best!

We have a 401(k) plan with a profit sharing new comparability formula. 1000 hours & Last day requirement for the profit sharing contribution. It is not top heavy. There is no safe harbor nonelective or matching formula and it passes ADP just fine. The new comparability formula puts eligible Individuals into their own classification category for profit sharing allocation purposes. Owner wants the maximum so we gave all eligible employees with 1000+ hours & active on 12/31/16 a contribution of 1/3% of the owner to pass the gateway. Alas, one of these profit sharing eligible employees terminated in January 2017 so they don't want to give him a profit sharing contribution for 2016. It will still pass avg ben test & rate groups etc. if we give this otherwise eligible employee a "zero allocation" for the year. The document appears to restrict PS contributions from those who worked less than 1000 hours and/or were not employed on 12/31 but not actually require a PS contribution to everyone otherwise eligible if one is made for the year. Are we allowed to give this one employee a zero allocation for 2016 (for whatever reason) and give all other eligible EEs with 1000+ hours & active employment on 12/31 a PS contribution? What do you think?

Excellent advice. I contacted Sunguard Relius to find out. They responded "It needs to be restated prior to April 30, 2016 and it needs to have an effective date prior to April 30, 2016. 2017 is too late". Bummer.

After three straight months of reminding and calling we still had 2 clients with 2016 safe harbor contribution language in their prototype plan document who did not choose to sign their PPA 06 restated plan documents before December 31, 2015. As the restatements could have contained desired changes (had they responded before November 30th) they are no longer able to have those changes in 2016. We still need to restate these documents for PPA 06. If it were allowed, we would like to restate the entire PPA 06 Adoption Agreement effective January 1, 2017 with the desired changes. From everything I've read it appears we can only rely on the EGTRRA IRS opinion letter through April 30, 2016 so I suspect the answer is no. If no, we will have to create a PPA 06 restated document with no changes from EGTRRA to be effective retroactive January 1, 2016 and any prospective changes for 2017 could be made via amendment. Those amendments and SMMs are just so untidy! Question: Is the deadline of April 30, 2016 for signing the PPA 06 restatement or for the effective date of the PPA 06 restatement?

We have a multiple employer group 401(k) plan with a participating employer who will not pass the ADP test in 2012. There are 6 participants (2 HCE/4NHCEs) with only 1 HCE contributing in 2012 at this employer. Participating employer wants to terminate membership in this multiple employer plan, run a part-year ADP test, refund 100% of the excess contributions to the HCE during 2012 and set up a short year 2012 SIMPLE IRA. My question is: Would this be permitted under the "exclusive plan" SIMPLE rule for calendar year 2012 with the idea that no benefits accrued under the 401(k) plan in 2012 since 100% was refunded as excess contribution? Any thoughts?

The plan participant requests a hardship for the purchase of a principal residence. He signs all the paperwork, needs the check for the closing so the Plan Sponsor has the check cut from the plan with the understanding they would get the HUD statement as backup once the deal closed etc.. Participant gets to closing and the deal falls through! Now the participant wants to put the money back into the plan to avoid paying taxes and the 10% early withdrawal penalty, and wants to start contributing to the 401(k) again. Do you know of any "mistake in fact" allowances (or something) that would allow the reversal of this "hardship" withdrawal that should never have been approved? We can't find any guidance on this anywhere.

Client received a phone call from a DOL Investigator. Investigator indicated the 3 person profit sharing plan was being investigated in what she called a voluntary audit. Client chatted with Investigator for approx. 30 minutes and after giving her some additional contact information, hung up and gave us a call. A few days later, Investigator sent an email to Client with a standard list of items she wanted to look at: ERISA bond, copy of plan document, participant statements with SSNs removed, etc. etc. We are not accustomed to receiving a request for this type of information via email. We called Investigator using the phone number given in the email and were told DOL was trying to modernize their methods of conducting an investigation. She said they no longer use paper if email will work. Has anyone else encountered this as standard practice now, or did we encounter a particularly modernized government Investigator? Forgive the paranoia, but we like to see a formal DOL seal on the paper before we send off information to just anybody.

Can an employer stop the SIMPLE match midway during the year? We are getting bombarded with this question from brokers and accountants. Employers are just trying to keep their doors open, and the least of their problems right now is their retirement contribution. They don't want to reduce the match to 1% (IRC 408(p)(2)©), they want to stop it completely. The safe harbor match can be stopped with 30 days notice. What about the [not so] SIMPLE? Plan termination seems to be the only way. Does anyone have any other ideas??

This is the first year this charitable foundation will be required to make payments to an executive through their 457(f) plan. The plan appears to be written in a manner to comply with 409A. For 2008 W-2 reporting, in addition to Box 1, Box 3, Box 5, and Box 11, does the amount he becomes vested during 2008 get reported in Box 12 as Code Y? Code Z? At all? I'm really unsure about when Box 12 is required. I thinking it is only when 409A failures occur and not when normal vesting occurs after 5 years of substantial risk of forfeiture.

Yeah, I agree with you. Aside from the SEC insider reporting requirements, I couldn't find anything actually preventing him from purchasing the publicly traded stock for the plan. He's just a doctor who was asked to sit on the board of trustees at a local publicly traded bank and he called us and asked if he was allowed to buy some stock with plan money. I thought it should be a problem and I got paranoid when I couldn't find anything preventing the activity. Hence, the post to the message board.