lkpittman

Tom Poje is right...all that you mentioned are HCEs due to attribution and will be included as such in the testing. We've classified as follows in some situations: 1. Shareholders, defined as any employee of the corporation who owns ____% (fill in desired amount) or more of the stock in any corporation adopting the plan, without regard to the attribution rules of Sec. 318. 2. All other employees. ------------------ LKP

DennisT: We've submitted delinquent returns on behalf of a client through DOL DFVCP (along with required sanction amounts). Then, we submitted copies to IRS, with attachments which were, in effect, statements under Reg. 301.6652-3(B)(3) requesting waiver of the penalty due to reasonable cause. Be sure to cite compliance under the DOL program as a "good faith effort" to comply. I'm not guaranteeing anything, but we've had pretty good luck in general in getting IRS to waive late filing penalties this way. . . . GOOD LUCK. ------------------ LKP

pax: Rev Rul 80-314 and Reg. 1.416-1 QT-13 provide guidance on whether or not a non-owner employee can be considered "key." The answer revolves around whether or not they can be considered an "officer." Partnerships can have officers, too. Another problem, however, is that the number of employees that can be considered officers is equal to 10 percent of all employees, or three, whichever is greater. In no case, however, can the total number of officers exceed 50. ------------------ LKP

susand: I am an ERISA paralegal for a mid-sized law firm in CA and am involved with compliance and testing issues with our own plan, as well as compliance/testing issues for some client law firm plans. Same as ytours, our plan (and some clien'ts') only allows associates to particpate in salary deferrals (partners, other ees all receive discretionary employer contribution--based on an aggressive cross-tested tiered formula, by the way--and match). The only potential "problem" that we have run into is if the plan is top-heavy. If you cannot justify that your associates are "key employees," they will be required to receive the top heavy minimum, even if they are not eligible for the employer contribution. In any event, I don't know if this info helps you--I don't know how "common" it still is to allow associates only to defer, but we're still doing it, and so are some of our clients. Hope this helps! ------------------ LKP

I agree with Becky. In fact, during audit examination, we've had IRS auditors ask specifically for documentation to verify the CSV of any insurance values to support the values reported on the 5500. CSV should be reported as value. ------------------ LKP

John A, it is my understanding that a loan is in default as of the date a scheduled payment is missed. The "grace period" is an allowable time period provided by the employer within which the default may be corrected prior to the loan becoming a deemed distribution under the proposed regulations. Also, since a deemed distribution is not an actual distribution, the accrued benefit of the particpant still includes the value of the defaulted loan, plus interest which continues to accrue (until repaid or an actual distribution can occur). I think that it is still considered a defaulted loan and should be reported as such, even after the deemed distribution, although the accrual of additional interest each year does not constitute another deemed distribution under the proposed regs. ------------------ LKP [This message has been edited by lkpittman (edited 09-30-1999).]

I dug deeper into the regs--1.411(d)-4, Q&A-1(d) answers my question . . . . ------------------ LKP

Would an amendment to eliminate provisions in a 401(k) PSP allowing voluntary employee (after-tax) contributions be a violation of the anti-cutback rules under 411(d)(6) and regs? Attorney says he thinks its okay to eliminate voluntary contributions, but can't point to definitive section in regs . . . Any help? ------------------ LKP

Thank you--this was just the sort of information I was looking for. You are right, the match is not a QMAC. I knew it was probably okay, but wanted something to go on!

We have a client that has set up a 401(a) plan to receive matching contributions(410(m)) (they match elective deferrals under a separate 403(B) plan). They have drafted the plan to allow "hardship" distributions, using the 401(k) rules for allowing such hardship distributions. The plan does not contain 401(k) provisions, however. The plan also specifically precludes any "pre-retirement distributions". This seems weird to me--but I suppose it's okay to utilize the 401(k) rules relating to hardship distributions for deferral amounts and apply them to 401(m) amounts? They don't need to put such stringent restrictions on the 401(m) amounts, for pre-retirement distributions, but I don't see anything wrong with it? Any thoughts?

There is nothing that would prohibit distribution to participants prior to the issuance of the determination letter. We'll do it in some cases--usually when we are pretty sure that the determination letter will be issued without any problems (but never in the case of a db plan). Be sure that terminated participants are 100% vested. ------------------ LKP

Again, thanks for your input--the atty I work for is considering the options . . . . ------------------ LKP

Thanks for your input. After more research, I am in agreement that this would be a violation. We may, however, rely on Rev. Rul. 91-4, 1991-1 CB 57 for the current year and go ahead and "reimburse" the forfeiture amount; but amend the plan so that in subsequent years the forfeiture is simply allocation in addition to the match. Rev. Rul. provides that A plan may provide for the return of a contribution made by an employer to the plan if the contribution is made by reason of a mistake of fact. The amount that may be returned to the employer is the excess of: 1) the amount contributed, over 2) either (a) the amount that would have been contributed had no mistake of fact been made, or (B) the amount that would have been contributed had the contribution been limited to the amount that is deductible after any disallowance by IRS (whichever of (a) or (B) is applicable). We may be going out on a limb here . . . but this is a takeover plan and we "uncovered" the problem on our first year of review. The employer had NO IDEA that forfeitures were supposed to be used to reduce contribution. It's unclear what prior TPA was doing with forfeitures (we think simply allocating them along with earnings--their accountings are a mess). Any thoughts? ------------------ LKP

I have sample notice language. Send me your e-mails . . . . lkpittman@bbklaw.com

I know someone who is amending (rather than restating) for terminating plans, but for an ongoing plan, I think it would be better to restate, although I'm not sure that that's necessarily required. ------------------ LKP

We have an gov't employer with a qualified pension plan that provides for employee contributions and an employer match. The plan also provides that any forfeitures of the match be applied to reduce the matching contribution amount. Because they contribute match each payroll with the employee contributions, they contend that it would be too difficult adminstratively to offset the matching amount with the forfeitures and would like to instead go ahead and contribute the full match on a payroll basis and receive a "reimbursement" at the close of the year of the matching forfeiture amount which should have been used to reduce the amount they are putting in on a payroll basis. Any thoughts as to whether this might be considered a "reversion" or other violation of the exclusive benefit rule? ------------------ LKP

Okay, let's say the individuals are not disqualified persons. If these 2 individuals are plan participants, the "loans" must meet the requirements of Sec. 72(p) (which includes the 5-year repayment rule, with an exception for certain home loans). If those requirements are not met, the "loan" is not a loan at all--it is considered a taxable distribution. It will either be a "deemed distribution" or an actual distribution (or offset, if the individuals are otherwise entitled to a distribution of their benefits under the plan) under the proposed regulations under Sec. 72(p). ------------------ LKP

Thanks--I agree with you. By the way, the DL issued (TRA 86) was issued stating that 401(a)(4) and 410(b) were satisfied based on the fact that no HCEs were benefiting. This clearly isn't the case; and there are no exclusions in the plan, so with a PSP/401(k), I don't know how this squeaked by the IRS (well, I take that back. . . it's the IRS). ------------------ LKP

Is anyone concerned about the fact that you probably won't have ERISA 404©protection for these negative election amounts (since the ee presumably won't make an election as to where the funds will go and they will presumably go into a "default" fund chosen by the plan sponsor?)? ------------------ LKP

Don't forget that the safe harbor 3% non-elective contribution can also be included in the general test/cross-testing. Works nicely for a plan that is already putting in 3% or more employer discretionary because plan is top-heavy and cross-testing. Only additonal "cost" for them is the 100% vesting of the 3% and guarantee of the contribution even is ee terminates prior to year end--works great for my smaller ers who haven't been able to get their deferrals up to $10,000 because of low ee deferrals! ------------------ LKP

Thanks, everyone, for your input. The language is being finalized as we speak (of course, I've got the attorney to deal with!) . . .

Thanks for your interest and input. They do have HCEs; it's not a large company--maybe 30-40 employees (with 4-5 HCEs). In the past, the er didn't contribute (the plan also has a CODA and deferrals were being made), but in recent years, the er has started contributing. Allocation language is: "...contributions shall be allocated amoung eligible Particpants for each calendar quarter during the Plan Year in the same proportion that his or her Hours of Service during the calendar quarter bears to the total Hours of service of all Participants for that quarter." There is no limit under the plan as to the # of Hours of Service which can accrue for allocation purposes. But without getting into the logistics, on the face of it, would you agree that the language of this formula represents a design based safe harbor? i.e., this formula allocates the same $ amount for each unit of service performed by the ee under 1.401(a)(4)-2(B)(2)(i)? Again, thanks for your help. Laureen ------------------ LKP

I have a PSP that allocates contributions and forfeitures to each eligible participant in the same proportion to which his or her Hours of Service bears to the total Hours of Service of all eligible particpants. I think I've got a design-based safe harbor under 1.401(a)(4)-2(b)(2)(i) --allocation of the same dollar amount for each uniform unit of service (not to exceed one week) performed by the employee during the year. I've got someone questioning whether this is a design-based safe harbor--who is right? Any help is appreciated. ------------------ LKP

I think you mean a "safe harbor non-elective 3% contribution," not a "qnec." Anyway, I believe the answer to your question is "yes," the 3% non-elective safe harbor is included in the allocation used to satsify 401(a)(4) nondiscrimination requirements (cross-testing) and the amounts may also be used to satisfy the top heavy minimum contribution requirements. For example, if your NHCEs (usually same as non-keys) are receiving 5% in order to pass using cross-testing, this allocation will satsify the 3% non-elective safe harbor (so long as 3% is 100% vested and not contingent on employment on last day of plan year) as well as the top-heavy requirement. ------------------ LKP [This message has been edited by lkpittman (edited 06-03-99).]

Thanks, Larry & Tom, for your input. We are still having some trepidation about how to write the volume plan language with respect to forfeitures, but this helps! Laureen