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Company A sells Division 1 to Company B on 1/1/2000. Company A spins off its 401(k) plan for the Division 1 employees to Company B's 401(k) plan. Company A permits its participants to receive a distribution of Company A stock in kind. Company B gives the Division 1 employees until 7/1/2001 to reallocate their balances attributable to Company A stock to other investment options. Reg. Sec. 1.411(d)-4, Q&A-1(B)(1) provides that an optional form of benefit includes all features relating to the distribution form, including medium of distribution (e.g., cash or in-kind). However, Reg. Sec. 1.411(d)-4, Q&A-1(d)(6) and (7) provide that "the right to direct investments" and "the right to a particular form of investment" such as investment in company stock are not protected benefits. How does one reconcile these apparently conflicting positions? My thought is that Company B can prevent Division 1 employees from making new investments in Company A stock either from future contributions or transfers of other investment options into Company A stock. However, Company B must make available to Division 1 employees the right to receive their account balances in the form of Company A stock. Any thoughts on this?

Company A acquires Company B. Each has a 401(k) plan. Company B's 401(k) Plan has 100% vesting of employer contributions. Company A's 401(k) plan has a vesting schedule for employer contributions. Now, Company A wants to merge the Company B 401(k) plan into its 401(k) plan. I know that Company A cannot reduce the vested percentage of employer contributions in Company B's 401(k) plan prior to the merger date (ala Sec. 411(a)(10)(A) and that a participant with at least 3 years of service has to be given an election to remain on the old vesting schedule (ala section 411(a)(10)(B)). My questions are: (1) would the merger be treated as the amendment of Plan B so that participants with at least 3 years of service can elect to remain with the 100% vesting for employer contribuitons under the Company A 401(k) Plan? (2) For those participants with less than 3 years of service, or if the answer to (1) is no,for all participants, could Company A subject the Company B employees to its vesting schedule for all future Company A contributions to its 401(k) plan (while retaining the 100% vesting of the Company B 401(k) Plan account up to the date of the plan merger)?

I'm a little confused about example (1) in Q&A -14 of Proposed regs on transit passes. In the example, the employee reduces his or her compensation for up to the statutory limit each month and receives a pass for that month. The IRS says this example is an example of a valid compensation reduction election. Thus, if an employee reduces compensation during March and receives a pass for March during March, that is acceptable. A more realistic example, and one that would be more palatable to employers and employees is to have the employee make payroll deductions in February and receive the pass at the end of February so that the employee could purchase tickets for March. Neither the proposed regulations nor the examples state that such an approach would be acceptable. Any thoughts on this?

Participant in a 401(k) Plan is non highly-compensated and makes 401(k) Contributions in excess of the 402(g) limit. These excess deferrals were matched. Section 411(a)(3)(G)provides that matching contributions related to excess deferrals are to be forfeited. Since the purpose of forfeiting such matching contributions is to avoid a discriminatory rate of match, would such forfeiture be required in the case of a non highly-compensated employee?

Assume Employer A has a qualified plan with a calendar year plan year. In 1999, Employer A terminates the plan. In 2000, Employer A establishes a SIMPLE IRA. In the first quarter of 2000, Employer A makes the last contribution to the terminating qualified plan. Question: Does the last contribution to the qualified plan in the year the SIMPLE IRA is established cause the exclusive plan rule to be violated? Notice 98-4 states that an employer is considered to be maintaining another qualified plan if any employee receives an allocation of contributions for any plan year beginning or ending in the calendar year. Here, the right to the contribution was earned in the preceding year, but the contribution was made in the following year. Any thoughts would be sincerely appreciated.

Thanks Kip and Kirk! However, there is a bit of kicker. What if the cafeteria plan imposes a 31 day limit on requesting changes in status(e.g., You get divorced on July 31. You have until August 31 to request a change in status)? In many cases, hard documentation may not be available.

Employee advises employer of legal separation with spouse and drops him/her as dependent. A few months later, the dropped spouse notifies the employer that there was no legal separation and that he/she should not have been dropped. To what extent does the plan administrator have a right to rely on the employee's representation in connection with a change in family status? In the joint and survivor annuity area, ERISA provides that if the fiduciary was prudent in relying on participant representation of no spouse, there is no liability. Here, there is no duty of spousal consent, so there would appear to be no specific duty to investigate the participant's claim. Any thoughts?

For purposes of the minimum distribution rules, are QVECs (otherwise known as VDECs or DECs) subject to the IRA minimum distribution rules or the qualified plan minimum distribution rules? This is critical in 2 respects: the ability or inability of an active employee to defer the required beginning date to retirement and the ability of a deceased spouse to consider the QVEC as his/her own. My research has not disclosed any answer. Under ERTA proposed regs, no deductible contributions could be made to QVECs after 70 1/2. However, for distribution purposes, the QVEC was subject to the rules of Code Section 402(suggesting it was a type of qualified plan). This is not an academic question, so I would sincerely appreciate any thoughts anyone may have on this subject.

Thanks Disco Stu and Harry O! My gut feeling was that, subject to testing, this arrangement would work, given that part-time employees would not be required to be excluded past the statutory minimum. I just wanted to bounce it off you to be sure I hadn't missed anything. Again, thank you for your input on this.

Jim, I understand your point. My understanding of the IRS concern dealt with excluding people not normally scheduled to work 1,000 who actually work 1,000 hours. The proposed scheme would not exclude them but would require them to complete 1,000 hours before they could defer.

Does anyone have any thoughts on whether a plan can permit employees normally scheduled to work 1,000 hours in a year to become eligible after 30-60 days of employment, but require those who are not regularly scheduled to work at least 1,000 hours to actually complete 1,000 hours? I have recently come across these situations in a couple of plans where clients want to do this. Any views on this issue would be sincerely appreciated.

Another option is to use the internet. I just read an article that lists web sites for locating lost participants. There are 2 free sites listed: (http://www.vitalrec.com) and (http://www.tollfree.att.net/tf.html) and a site for which a fee is charged (http://www.1-800USSearch.com). Hope this helps.