MSN

Thank you all for the feedback. I spoke with Corbel with regards to this question. The document does permit the allocation to be determined on a payroll basis. The individual I spoke with was as skeptic as I am as to whether this is the "right design" for a plan, but it is permitted in that specific document nevertheless. He did caution that this particular design could have a difficult time passing the general test, which many of you have also pointed out.

Jim, Maybe and yes. There is an opinion letter and whether or not the plan allows it is the question I'm posing. Allocation conditions are not a concern on this particular plan. Let's suppose the sponsor uses his "discretion" to determine that the allocation rates for the first 6 months of the year will be 3% and then will be 10% for the last 6 months of the year. Only persons satisfying the allocation conditions would get the contribution, but allocation rates would vary. This may or may not be nondiscriminatory, but does the sponsor have the discretion to make the midyear change? Bird, The section in the AA specifically refers to nonelective contributions. There is another section with a similar election for the match. The specific wording in the AA is as follows: "In determining the amount of the Employer Nonelective Contributions to be allocated to an Eligible Participant under this Part 4C, Included Compensation is determined seperately for each: (a) Plan Year (b) Plan Year quarter © calendar month (d) payroll period" The Employer Nonelective Contribution is stated as "discretionary" without any meaningful commentary. I'm certainly capable of misinterpretation and open to what a correct interpretation might be here.

I have a feeling that this question has a really simple answer, but I haven't been able to find it yet so I hope someone out there has run into this before: A sponsor has a 401(k) PSP that allows for discretionary nonelective contributions. The applicable period for determining compensation is each payroll period. Would the sponsor have the ability to change the allocation rate for their profit sharing allocation each payroll period? I've always thought that the rate was discretionary on a plan year basis, not a payroll basis, but have been unable to substantiate this with the plan document or regulatory guidance. It seems to hinge on what "discretionary" really means, and it's not defined in the document. 401(a)(4) could obviously be a hurdle here, but is there any known guidance on whether this type of change is permitted in general? Any insight you might have on this would be appreciated. The plan uses the PPD N/S Prototype document if you are curious. Thanks!

For clarification, you can still have an automatic enrollment feature that does not meet EACA criteria, it just will not have the 90 day withdrawal window attached.

I would not consider the addition of a SIMPLE provision the same as the establishment of a new plan, but I suppose this could be open to interpretation.

Eligible Automatic Contribution Arrangement. This is different from the QACA, which would include the auto increases, contribution guidelines, etc... The EACA is defined for purposes of the permissive withdrawals as an arrangement: 1. That is part of a CODA 2. Which uses a negitive election provision 3. In which contributions are invested in accordance with DOL regs in the absence of participant direction and 4. That satisfies the annual notice requirement.

Even though the plan currently has an auto enrollment feature, it may not have an eligible automatic contribution arrangement. The permissible withdrawals are only for contributions made under an EACA. If the plan does have the EACA for 2007, then I would think that the withdrawals would be permitted in '08 for the contributions made on behalf of participants within the 90 day window extending back to Q4 '07. If you don't have an EACA in 2007, then you will not be permitted to withdraw '07 contributions when the withdrawal window becomes available in 2008.

1.410(k)-4(g) stipulates that the plan year of a SIMPLE (k) must be the entire calendar year. Your client doesn't have an option if they want the SIMPLE.

You might find the following article helpful. http://advisor.morningstar.com/articles/do...4299&pgNo=0

On 2A, the permissible withdrawals are only applicable to contributions that were made under the EACA. Once the participant makes an affirmative deferral election, any subsequent contributions made in accordence to that election would not be eligible for distribution without some distributable event.

I have to say that you lost me there. Are you saying that a safe harbor plan that makes 'other' discretionary match contributions throughout the year will not qualify as a SH as a result of depositing the discretionary funds into participant accounts before the end of the year, since they will never satisfy the ADP SH? This seems like an odd consequence if I'm interpreting your comment correctly. Have I misinterpreted? When I read Q-2, it seems like the last sentence is referencing the timing of matching deposits if the plan 1) uses the payroll period method and 2) makes matching contributions throughout the year. In other words, if your making regular match contributions for a plan through the year and the match on Q3 deferrals is made after the end of Q4 due to some oversight, then you have failed to satisfy both the ADP and ACP safe harbors. I could be wrong here though.

Maybe I didn't explain the situation as well as I should have here. The idea isn't to give a huge contribution in week 1 and then discontinue the "discretionary" match for the rest of the year. I'm thinking of more subtle changes, but maybe the same rules would be applicable... Let's suppose that when the safe harbor notice is given out in 11/2006 for a calendar year plan using the 3% non-elective contribution, the notice references that the plan may provide a discretionary match. In literature given to participants throughout the year (ie. at open enrollment sessions, payroll stuffers, intranet, etc...) the client informs the participants of the current match formula in place. Let's say that match is 50% up to 6% of compensation. In October, the sponsor decides that they only want to match 25% up to 5% of compensation. Would you consider this a reduction in the match that would disallow the safe harbor for the year? I think this makes sense from a reasoning perspective, but I cannot seem to find any guidance supporting that position. Thanks!

Can a plan sponsor of a safe harbor plan decide to change the discretionary match formula midyear and still satisfy the safe harbor requirements? From reading the regs, it seems like this is permitted, but I'm having trouble rationalizing this. Most plans that I have seen make the "discretionary" match with each payroll, and the participants know ahead of time what the match formula is from enrollment meetings or highlight sheets of some sort. How does this differ from the concept of a fixed match, which you cannot amend midyear? How are other practicioners dealing with this? Do you allow sponsors to make this change midyear? If not, what authority are you reliant on to disallow the requested amendment? Thanks for the help!

I have a client in Arkansas who employs several work release prisoners. The sponsor has informed me that under Arkansas law, incarcerated employees are not permitted to make 401(k) contributions. I know that ERISA generally preempts state laws with regards to benefit plans, but am not familiar with the exceptions. If anyone is familiar with this law or knows where I can research this topic independently I would appreciate the help! Thanks!

I know that a SIMPLE(k) can be amended to revoke the SIMPLE election, but I'm having trouble finding any kind of citation to this effect. If anyone can point me in the right direction, I'd appreciate it. Thanks!

In my opinion, refunding the deferrals, plus any matching contributions that resulted from it, adjusted for earnings would be a reasonable correction method. I also think that starting the 6 month clock a bit late might also be appropriate (not to mention easier all around), depending on the situation.

Unfortunately, billing the client doesn't fix the balancing issue....and neither would resigning altogether, which we have done. We are billing significant sums of money for the correction and immediately disabling participant web/VRU access to prevent additional problems, but would like to figure out how to eliminate this issue altogether. Any ideas on how to prevent the issue would be great!

I work for a TPA that has relationships with a number of fund companies. We handle recordkeeping for our clients and send trade instructions to the fund companies when requests are made through our voice response or websites. As long as requests are made through our systems, everything works fine. Some sponsors and/or their financial advisors have found a way to send trades directly to the fund company for purchases, withdrawals and exchanges. When this happens, our recordkeeping system is obviously out of balance until we can figure out whose account the trade is attributable to. Does this happen to other TPAs? If so, how do you handle these situations? If not, what are you doing to avoid these situations? Thoughts? Thanks!

We resigned from administration of a 401(k) plan about 3 months ago due to nonpayment of fees. We have not received instructions to transfer assets or records to another provider to date. When we resigned, we specifically stated the last date we would process any contributions or distributions from the plan. A participant terminated and wishes to take a distribution from the plan. As we are no longer the service provider, I don't feel like we have any authority to act on the request of either the sponsor or the participants. Do we have any responsibility to process this request, even though we have resigned as a provider?