lkpittman

I'm not sure what "SH NE source" is, but we've got a situation where an employee recieved post-88 earning with her hardship distribution. We're submitting under VCO (anonymous). Proposed method of correction is to request the money back from the participant (taking "reasonable steps" to have the $$ returned). The participant had already used all of the $$ to buy a home. Employer even suggested to her that she take out a loan from another source to repay the money. She claims her credit is "maxed out" after the purchase of her home and cannot repay the money. We're also asking that the employer not be required to repay the trust because "a corrective contribution of the improperly distributed amount to the Plan, would have the effect of restoring a benefit amount which was already paid to the participant and would result in a windfall to her." We haven't submitted this yet--it is with the client and should be going out soon. I'd be interested in any responses you get. Is you situation similar?

Thanks, Richard. So you're saying that it is really only necessary to get a determination as to ASG status if you are not sure whether you've got an ASG? That's pretty much the way we've been operating, but someone here thought that perhaps the ASG employers could not rely on the volume plan advisory letter (2001-77). It doesn't make sense to get a determination as to 414(m) if you know you've got an ASG and you're operating as such (single employer)--since it's an operational qualification issue, as is nondiscrimination (410(a)(4)) and coverage/participation (410(B))--those are now optional determinations.

Anyone have any insight on this? Maybe I'll ask it another way: When/why would an ASG or controlled group want to request a d.l. that includes a determination as to their status on 5300? The info regarding the ASG or CG is required to be disclosed when submitting a 5307--why? Thanks.

We have a client who adopted a volume plan in December 12/31/01. The employer assumed that the volume plan was pre-approved for GUST (pre-99 and post 98). Turns out, this volume plan was only approved for GUST I at the time of adoption. The advisory letter for full GUST was issued for this volume plan on in January 2002. Employer did not submit the first plan for a d.l. The Employer also has not executed any 2002-20 certification. Is this employer okay at this point to simply adopt the same volume submitter's plan? I'm a little confused as to why the volume sponsor didn't provide more information to the employer--i.e., inform him of the certification, etc.

Just for fun . . . JanetM and jaemmons . . . can you cite any authority for your position (primary or secondary, even). Thanks!!!!!!!

Ouch! I so wanted to go the way of Janet and jaemmons. Thanks for all your responses.

mbozek--thanks. I understand your 412 position--it would be "sticky," at best, to try for exemption. Yes, my original "problem" was whether I could amend this plan to eliminate the QJSA. But jaemmons' position is that I can distribute without annuity waiver/consent even with the QJSA provisions in the plan (right, jaemmons?). You disagree?

Thanks, Janet. You're right, he could have rolled the DB assets to an IRA, but he wanted to keep them in a qualified plan for "protection" purposes (he's a dr. and he was still practicing back then). Actually, the best thing would have been to put it in a PSP. But anyway, too late for that.

Okay--I expected the responses I got from pax and mbozek. Yes, pax, you are right, I wouldn't need to terminate the plan to allow distribution, but he's the only participant and once the $ is out, we'd have to "terminate" anyway. mbozek, good point on the actual "risk" involved. May be worth it--but why do you think that it is highly unlikely that the terminated plan will not be audited? We get terminated plans being audited quite often (although audits have slown down quite a bit of recent). What do you guys think of jaemmons' response? I like it, of course . . . .

Okay--bear with me on this one. We've got a client in a 1-man MPPP plan with substantial assets that wants to terminate the plan and roll to an IRA. He is 70. For reasons I won't go into here, he would like to avoid getting spousal consent, so we are trying to figure out a way to assert that the benefits are not subject to 417/annuity provisions. Chew on this: Assets were originally accrued in a DB plan back in the 80's/90s. Early 90's,the DB plan was terminated (determination letter received) and participant and spouse both executed the annuity waiver and elected to transfer the benefits to a newly established MPPP (by the way, this DB plan also survived the actuarial audit "witch hunt" back in the late 80's). This MPPP was set up to provide for a 0% contribution and no contributions were ever made to this plan. Now, the participant wants to terminate and roll the funds to an IRA without his spouse's consent. Okay--this may be far fetched--don't pummel me with the "rules" because I know them. But how about an argument that asserts that since this plan was set up with a 0% contribution, the plan is and never has been subject to 412? Thus, the plan would not be subject to the annuity requirements of 417? So . . . we could amend the plan under the 411(d) regs (1.411(d)-4) to eliminate the annuity provisions (remember, an annuity waiver/consent was already obtained back when the distribution/transfer occurred between the DB and the MP). I realize that this is pretty "creative," but I would like any comments . . . .

I think the IRS would assert that you've got a PT in 2001 and since it has not been "corrected" under the PT rules (correction is achieved by "undoing" the transaction to the extent possible--placing the plan in a financial position no worse than the position it would have been in had the transaction not occurred). I think you have a PT for the portion of 2002 during which the loan is not repaid or otherwise "corrected." I don't think that EGTRRA "corrects" your PT. I think you need to get the loan repaid and then start over. Participant is now allowed to have a loan under EGTRRA, so a new loan in 2002 would be fine. It should be a separate transaction, however (not a refinance or replacement, since the 2001 transaction is not really considered a valid participant loan). You also have the other issue of an "operational error" (not following terms of the plan in 2001 by allowing shareholder/employee to receive a loan) and potential disqualification if not corrected under EPCRS (separate from PT correction). Good luck!

We've got a few HCE only employer/plans with self directed accounts. Some are affiliated service groups, but still only have HCEs (for example, incorporated dr. groups). I cannot find any exemption for such plans for the 10%/$500,000 bonding requirement in the DOL Regs, but it seems silly that these plans would require bonding (I am not referring to the newer small plan audit/non-qualified asset bonding rules). We don't ask these clients to obtain bonds--but does anyone have a cite or other authority that confirms this (or your analysis of 412 that would confirm exemption for such plans)? Thanks.

Wouldn't this be a prohibited assignment of benefits? I think the account would have to be in the name of the spouse, who is now the account owner. Whether she can now designate a beneficiary is another matter--a designated beneficiary would not be named on title to the account . . . .

Wouldn't you think that if the IRS were to analyze such a plan (on audit) that they may deem that a CODA doesn't exist if no one is allowed to defer? (Similar to IRS asserting that a CODA exists where a class based cross-tested formula changes year to year, etc.) Also, if maximum deferral stated in plan is 0% of comp, seems that no one is "eligible" to defer and therefore would not be eligible to contribute catch-up. Thoughts?

How do the consent rules of 401(a)(11)/417 now apply to 457(B) plans? Is consent of participant required for distributions in excess of $5000 or at all?

We've got an ASG and each ER in the group is adopting a 401(k)--using a pre-approved volume plan, with no deviations from the pre-approved document. Can the members of the group rely on the volume plan advisory letter (under Ann 2001-77), or is there some reason why they must or should file a 5300 for the adoption of the volume plan to include a determination as to ASG status? Any comments?

Thanks for all your input. Document does provide that deferrals are the first to be returned in the event of 415 issues, so I think we're okay.

PJK: 1.414(v)-1(B)(i) states that an "applicable limit" includes a statutory limit, which specifically includes a limit on anual additions with respect to an employee under section 415. I read 1.414(v)-1(B)(2) as including the section 415 limit on annual additions as an "applicable limit." Just because the employee hasn't hit one of the applicable limits (402(g), as in your example), it doesn't mean that none of the other "applicable limits" will apply. Help anyone?

PJK: Under the proposed regs, deferrals aren't to be categorized as "additional" or "catch-ups" when the election is made by the participant. Whether the deferral is a "catch-up" deferral or not is determined as of the end of a plan year, when applying the applicable limits. So, the correct way to do it would be for the participants to simply elect $1,000 for their elective deferral. At the end of the year, the 415 limit would be reached with the employer contribution, so, the $1,000 would have to be designated as "catch-up." That's what we're planning, anyway.

No, Phil. I just meant that there would be no "regular" (other than catch-up) deferrals. The physicians would elect to defer only $1,000. Thanks for the input.

Consider this. We've got a client that employs HCEs only (physicians). They've currently got a PSP and they contribute the max each year. We are restating their plan to include a CODA to take advantage of the catch-up amounts, but they do not intend to contribute any funds by salary deferral. They will continue to hit the 415 limit with employer contributions each year,thus hitting the 415 limit as of the last day of the limitation year (as required under the proposed regs), so deferrals will only be $1,000 for each eligible over 50 participants. Any comments?

Yep. Once an employee becomes a Participant under the Plan (whether or not he has met eligibility for employer contributions), he or she is a participant for top heavy purposes. Also, watch out for plans that use comp from date of entry (for example, someone who enters at 7/1 and plan states that comp for allocation purposes is 7/1-12/31 comp). The employee will get a 3% top heavy on entire year (415) comp. We've had plans that have been implemented without taking these things into consideration and plan sponsor isn't happy!

Neither, really. A rabbi trust is established by an employer to provide a source of funds that can be used to satisfy the obligation to employees under one or more nonqualified plans (usually a "top hat" plan or SERP). The underlying plan is an "unfunded" plan and the assets in the trust are subject to the claims of the employer's creditor's. This is just a very simple explanation that only skims the top of the rabbi trust world. But a rabbi trust is not used in connection with a 401(k)--maybe you'll get some expert responses if you ask the question under a different forum (I'm not sure whether there a forum here for nonqualified plans?).

MWeddell, Thanks for your input! I think the employer (successor, in light of the death of the sole shareholder) would rather not put in the 3%--but I think they're stuck, or they've got a bigger "correction" problem--as you've indicated.

hitt24: There is a good article in the March-April issue of Profit Sharing, published by the PSCA on this very subject. The article provides some good, usable guidance, in light of the fact that there are currently no real guidelines or rules on this. I'm not sure whether this article is on line at www.PSCA.org but you might give that a try. Good luck.