lkpittman

You are not required to submit a Schedule Q with your application. It is optional and may be submitted if you WANT a determination as to 401(a)(4) (or any of the other options).

mbozek, I know I don't need to quote the law for you, but ERISA Section 514(a) provides that the provisions of ERISA "shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefit plan." The U.S. Supreme Court has held that state laws relate to an employee benefit plan "if it has any connection with or reference to such a plan." However, there have been many cases denying ERISA preemption on the grounds that the particular State law only had a "tenuous" relation to an ERISA covered plan. The general opinion is that the CA Labor Code provisions regarding wage withholding aren't specific enough to employee plans, so preemption is not guaranteed. I'd lean towards agreeing with Alf's opinion and "rely" on the opinions that are already out there, even if they don't relate specifically to CA, but as you know, when working with attys, you've got to cover all your bases. B) RCK--I agree that "automatic" enrollment sounds better than "negative" enrollment. In the end, our client is already providing a pretty generous match that is already 100% vested--I think we can persuade him to go to a safe harbor match that will satsify ADP and ACP. Thanks, everyone for your input.

Thanks for responding, mbozek. I was aware of the NY and PR opinions, but I'm pretty sure that a request for an opinion was submitted for California, too. I couldn't find anything by searching BenefitsLink, so I guess there's nothing yet. I'm assuming that most companies are opting to use the safe harbor options to satisfy ADP/ACP rather than negative elections. Any thoughts?

Has the DOL issued an opinion in response to a request regarding ERISA preemption of CA wage withholding law? Is that request still pending (from 1999)? Does anyone have any experience with a California employer implementing negative 401(k) elections?

Yes, I'm talking about amending the plan.

In order to keep NHCEs at a 3.5% allocation rate, employer wants to limit HCEs to 10.5%, BUT the formula the employer wants to use is: 3.5% of total compensation, plus 16% of compensation in excess of $100,000, if any. Would adding: "not to exceed a total overall allocation of 10.5% of compensation" cause any problems?

Thanks, I'll give that a try.

I've got a cross-tested plan where HCE max allocation rate is 10.5%. NHCE group is receiving 3.5%. Plan is also top heavy--my problem is that I've got quite a few employees who are receiving 3% TH minimum only (worked less than 1000 hours) during the current year, so the plan is showing failure of gateway. I want to bump those receiving only 3% TH to 3.5% to satisfy gateway, but I don't know how to do it unless I go in manually for each of those employees. There has got to be a better way? Any suggestions? I've coded screen 13 to indicate that minimum alloc to NHCEs is 3.5%, but this doesn't do anything for the employees receiving 3% TH only. Am I missing something?

The 401(k) hardship rules apply only to deferral money; however, the plan may be written so that matching contributions (and earnings thereon) may be withdrawn under the same circumstances, as well. With respect to the earnings on the deferrals, earnings may be distributed only if they were credited to the participant's account prior to 12/31/88.

We have a local gov't client that joined PERS and discontinued their existing DB plan. Benefits in the DB were transferred to the State system. Some participants (retired, terminated) were already in pay status and annuities were not purchased for them in connection with the merger. Now,their benefits are in the State system and they are no longer receiving their benefits. Client now wants to go back and "preserve" those benefits and continue payment to those particiapnts. How should this have been handled in the first place? How should this "merger" have been documented? How can we now correct?

Mike--I agree with you. I would like to know if anyone has submitted such an amendment (retroactive amendment to permit inclusion of ineligible employee--permitting only erroneously included employee to participate) with any luck or problems? Thanks.:confused:

Tom, in your post, you indicated that satisfaction of the gateway could be accomplished by "corrective amendment" and giving the NHCE an "extra contribution." I don't see why a corrective amendment is necessary, if the plan includes the minimum allocation gateway requirement language: "Notwithstanding anything to the contrary under this Section . . . any allocations made under this Section for Plan Years beginning on or after January 1, 2002 must satisfy the "Minimum Allocation Gateway" set forth under Section 1.401(a)(4)-8(B)(1)(vi) of the Treasury Regulations. . . . . [satisfaction of gateway requirement is set forth in detail in this paragraph]." For example, I've got a plan that provides for an allocation of 3% of compensation plus an additional amount equal to 5% of compensation in excess of $50,000. In 2002, this fails gateway and a 3.9% allocation is needed for NHCEs to satsify gateway. With the language I used regarding the gateway, I would think I could leave my allocation formula alone (no amendment required) and just put in the extra amount needed for the HCEs to pass gateway. Is there something wrong with this--do you think an amendment is needed which reflects the additional 9% for NHCEs?

A defaulted loan is a "deemed distribution" under the Regs, not an actual distribution. A deemed distribution is a taxable event only--not an actual distribution. No offset can be made unless there is a true distributable event (termination of employment, attainment of retirement age, inservice distribution, etc.) allowing distribution of amounts from the participant accounts.

Humor me on this. I think I know the answer, but need to "prove" it to someone . . . We have a rather large employer (partnership) with many partners--such that no partner owns 5% (largest ownership % is 2.6%). Do any of these working partners who are 70 1/2 or older need to take RMDs?

Did they sign the waivers before the CODA was added (you stated that the "old" plan was just a PSP)? You could argue that the waiver did not apply to the CODA portion, but I think you're stuck on the PS portion. One option would be to set up a NEW 401(k) and merge the two plans. This is just "off the cuff" . . . anyone have any comments?

RTK is right on. Also keep in mind that several letter rulings support a de minimus increase in the annual amount for cost of living purposes (usually 3%). Also, once the participant has reached age 59 1/2, the annual amount may be changed, so long as distributions have been going on for at least 5 years. Finally, you might want to check out Rev Rul 2002-62. This recent ruling modifies Notice 89-25 and provides guidance on how the method for determining the substantially equal periodic payments (and the amount of the payment) may be changed. In addition, 2002-62 prescribes a specific mortality table and puts and upper limit on the interst rate that can be used for the annuity method.

Thanks, QDROphile. That's pretty much what I wanted to hear--that's how we wanted to proceed. The attorney representing the plan administrator (company) doesn't understand what is so hard about the segregation and doesn't know why the trustee can't do it.

Let's boil it down to this. DRO already determined to be a QDRO by the Plan/Employer (employer's attorney) and all parties have been notified. TPA is given the QDRO to segregate the account and they say they can't do it (even though they looked at it before and gave it the "green light"). What are the options? I wouldn't think you'd have to get a new QDRO, but it may be the best thing to do, to clarify the segregation. And no, QDROphile, I wasn't suggesting that the P and AP agree to a modification--I was simply suggesting that they agree to the amounts determined by the employer/attorney (under the terms of the QDRO)--then the numbers can be given to the TPA (thus simplifying the whole thing for the confused TPA). What d'ya think?

Okay--it's a fairly complicated segregation, but it is legal and "do-able"--I won't go into the gory details. Attorney for plan gave it his blessing and actually provided some revised language to the attorney for P to clarify some points. Third Party Administrator/Trustee consulted its legal dept and also confirmed it was fine. Now the DRO is signed by all parties and entered in the court. Attorney for the Plan received the DRO and notified all parties that it was qualified. The plan then directed the 3rd Party Administrator/Trustee to segregate the accounts. 3rd Party Administrator now says that it is not administratively feasible/possible to do it as set forth in the QDRO. Now what? Can we now reject the QDRO and ask for revisions? Or, can we go to the P and the AP and have them sign something which indicates the actual dollar amounts (determined in accordance with the QDRO) they are to receive? Trustee will proceed with dollar amounts. They just don't "get" the segregation formula. Otherwise, Trustee wants a new QDRO. Help?

If you've got a terminated ee who has elected to keep his or her account in the plan, you still have a "distributable event" and can "distribute" the loan amount by issuance of a 1099-R (that reflects and actual distribution, rather than a deemed distribution).

Right--that was our reasoning. Not taking into consideration any losses would be to the participant's detriment. But with all of the argument going on with losses for 415 corrections, I wanted someone else to agree with us. I couldn't find much (nothing, actually) that provides more guidance on corrective reductions to accounts. Thanks!

Tom--makes sense to take into consideration a loss when reducing the ees accounts for this correction; however, Example 19 in 2001-17 (and 2002-47) only provide for adjustment for earnings. I can't find anything in 2001-17 or 2001-47 (or other secondary sources) that specifically says adjustment for loss under the reduction in account balance correction method (our client's failure is right on point with this post). There are plenty of threads on 415 correction and whether or not to include adjustment for loss, but can you tell me how you got to the point of including losses on the reduction?

Prior TPA, who also drafted the plan, is out of business. This one's a mess--missed the GUST deadline, so we're restating and submitting under 2002-35. Anyway, I did a little more "research" and called the Taxpayer's Assistance "hotline" (1-877-829-5500) and they are faxing me a copy of the TRA '86 d.l. Quick service! Thank god this client has a TRA '86 d.l.!!!!

Years ago, we used to request copies of determination letters from the IRS if client could not produce one and didn't know whether they had one, etc. Seems there was a "local" address here in L.A. for such requests back when we submitted applications to Monterey Park. Now that the submissions are all going to Cincinnati, can anyone give me an address or contact person at the IRS that would be able to provide a copy of the TRA 86 d.l. (or confirm that one was never issued?).

Can anyone give me a green light on this? Employer provides a match that is stated in the plan as 100% of the first 4% of comp deferred, plus 50% of the next 2%. Employer has always based this formula on total comp, rather than the 401(a)(17) comp. In other words, with $210,000 total comp and maximum deferral of $10,500, under this formula, the match would be $10,500. If you use $170,000, match would be limited to $8,500. Of course, $170,000 is used for testing, etc. Any comments?