Oh so SIMPLE

I've got a situation where a divorcing employee has ~$200k in 401k benefits. $40k of that is a loan to the employee, the other $160k is invested in mutual funds. Employee is going to receive all the equity in their home. So, QDRO awards ex-spouse all $160k mutual funds part of the 401k benefits. This leaves the employee with a loan of $40k and benefits of $40k. Does that render the loan improper under 72p since it exceeds 1/2 of the vested benefits (and exceeds $10k)?

A new customer is the sole owner of a business with about 100 employees. The owner is very sensitive to the possibility of his staff employees finding out what the owner's financial worth is. I've known him for years, in other contexts, and this has been, even before considering a plan, something of paramount concern to him. He outsources all bookkeeping, billing and accounting chores for the purpose of firewalling financial information from his employees. He wants to set up a 401k plan and is willing to put in 5% of pay for all plan-eligible employees, so that he himself can cross-test his way into $55,500 a year. Given the rate of turnover of staff, we have determined that within 3 years the plan would likely be top-heavy, i.e., he would have more than 60% of the accumulated benefits in the plan. He is very concerned that this would cause discord by several employees if they figured out he had the lion's share of the accumulated benefits. We are considering setting up two plans. One just for "owner-employees", but permissively aggregating it with the other, generally available plan. The general plan will not be permitting employee direction of investment. The owner is insistent about this as well. All investment decisions will be made by a 5-person committee the owner will appoint. The owner will be the trustee. For the owner's plan, the owner will be the trustee as well. No employee direction of investment either. The trustee, rather than an investment committee, will make the investment decisions over the owner's plan. Effectively, this gives the owner individual direction over his benefits, but not the other employees over their benefits. Due to the permissive aggregation for nondiscrimination and coverage testing, the two plans will be but one 'plan' (Treas Reg section 1.401(a)(4)-12, definition of Plan) for purposes of the Treas Reg section 1.401(a)(4)-4 rules against discrimination regarding benefits, rights or features, of which participant direction of investment is clearly identified as one. Facially and technically, employee direction of investments will not be permitted under either plan. On the surface, the difference is merely that in the staff plan, an investment committee will be directing the trustee on what investments to make, while in the owner's plan, the trustee makes those decisions without a committee. The owner will only be directing the investment of his own benefits in his role as trustee of the owner's plan, not in his role as an employee. But because he 'wears both hats', the practical effect is that this highly compensated employee chooses how his benefits are invested, but the others (nonHCEs) do not. The ERISA attorney cautions against this because of Treas Reg section 1.401(a)(4)-4© effective availability of BRFs, but also noted that, on the other hand, federal courts have applied differently rules to multiple hat wearer's actions, depending on what hat applies to the specific action being taken. She said it in any plan where the trustee makes investment decisions the trustee is also a benefiting employee, the effect is that the trustee/employee gets to decide investment of his or her benefits while the other benefiting employees do not. She was not aware of any ruling that basically had the effect of saying that a non-directed trustee must not be a benefiting employee him/herself. She suggested that if this two plan approach is implemented, the trust documents ought to be drafted to give the trustee authority to either direct the investments or delegate to a committee of 1 to 7 benefiting employees to decide and give investment directives to the trustee. Then, as trustee of the staff plan, the owner would delegate to a committee made up of 5 benefiting employees for the staff plan and to a committee of 1, himself as the only employee benefiting under the owner's plan. I am wondering what you think, what other approaches might be taken to accomplish these objectives, etc.

Thank you, ERISAtoolkit.com. Old Med Practice is yet the sponsoring employer of the Old Plan. It is desired that all of the workers that transitioned on Friday from Old Med Practice to working for New Med Practice on Monday will have a distributable event, despite working for New Med Practice, and for one of them who was 55 at the time, she wants to withdraw under the 72(t) exception to the 10% penalty tax--which requires 'separation from service' after age 55, before distribution. New Med Practice is setting up New Plan, and will 'reset' everyone to zero for vesting service purposes.

Old Medical Practice was equally owned by 6 doctors. Two leave. Old Medical Practice goes inactive on Friday, just collecting accounts receivable. In anticipation of this, the other 4 doctors have formed New Med Practice, owned equally by them. New Med Practice hires all the staff employees that had worked for Old Med Practice, leases a new space, and resume medical practice three days later (Monday). They do not constitute a control group. Considering only the 4 doctors that own interests in both Old and New Med Practices, they own 100% of New and only 66.67% of Old Med Practices. Neither Old nor New Med Practices owns an interest in the other. They are therefore not an A-org affiliated service group. Clearly, the 4 doctors in New Med Practice each own 10% or more of both practices. However, neither New Med Practice nor Old Med Practice provides any services to the other. So they are not a B-org affiliated service group. Neither New Med Practice nor Old Med Practice receives more than 50% of its revenues for providing management services to the other. So, no IRC section 414(m)(5) affiliated service group either. Consequently, it would appear that all of those that worked for Old Med Practice has had a separation from service that permits payout from the qualified retirement plan of Old Med Practice, despite working for New Med Practice. Am I missing something in this analysis?

I need to obtain benchmark data on earnings by retirement plans that do not allow participant direction of investment (all investment decisions have been made by the plan trustee) for years in the period of 2003 to current. Are there online sources that you can direct me to?

If a company has fewer than 25 employees and includes in its cafeteria plan the option for payment of premiums to pay for State Exchange purchased health insurance beginning 1/1/2014, may the cafeteria plan impose minimum service and entry date requirements that would put cafeteria plan eligibility beyond 90 days after employee begins working 30 or more hours a week? Generally, Obamacare requires health plans not require more than 90 days. So the question is whether a cafeteria plan that allows for payment of State Exchange purchased insurance, whether such a cafeteria plan is a 'group health plan' or merely a mechanism for paying premiums. If just a payment mechanism, the 90 day requirement should not apply. If such a cafeteria plan is itself a 'group health plan', then the 90 day rule would apply.

The employer is not trying to skirt ERISA, just wants to know what the implications under ERISA and other regulations are for providing employees a choice of these two options: (1) onsite health practitioner/more limited insurance coverage/less employee cost, and (2) a less limited insurance coverage/more employee cost.

An employer has had a new comparability plan with a safe harbor 401k feature (nonelective 3% of pay contribution from the employer) for a few years. He has given much thought to it, and proposes that in addition to descriptive language in the SPD covering both of the following, the HR person would: (1) personally counsel each new employee that is age 40 or older before his or her plan entry date that he or she has the option to sign a one-time, irrevocable election out of all plans of the employer and receive a 5% of pay raise in lieu of plan participation, and (2) give all employees when signing up for 401k elective deferrals a written explanation that if he instead chooses to make a contribution to an IRA, it may yet be tax deductible and the employee would have more control over the investments and more withdrawal access, not being subject to the distribution restrictions on 401k benefits. Any problems?

An employer is thinking about bringing an MD-DO-PA-LPN one day a week for employees to go to as an alternative to making GP type doctor's office visits. Would this be providing major medical coverage, deficient per ObamaCare? What concerns are there if it were provided as part of one of two major medical packages provided by the employer to its employees? One package includes access tp the visiting health practitioner at no co-pay charge to the employee, at one price to employees for coverage, and the other package not including access to the health practitioner, coverage that costs the employee more and visits to doctor's offices carry a co-pay obligation for the employee? Is the employer exposed to liability for malpractice of the visiting health care practitioner?

Old firm sponsored Old plan which included 401k benefits. Old firm dissolved. Many, but not all of the old law partners formed New firm, for which New plan was set up, with a 401k feature. As Old and New firm constitute a control group, those employees of Old firm that went to work for New firm when it was set up did not separate from service. Not understanding fully the separateness of the two plans, the administrator/trustee of Old plan allowed those that did not have a separation of service and requested (on an individual choice basis; not a trustee-to-trustee transfer) to directly roll his or her benefits from Old plan to New plan. Four individuals chose to do such; all four being under age 59 1/2. I have been asked to prepare a VCP for Old plan, so that it can correct the fact that the benefits left Old plan before those employees had distributable events and without having been provided proper notices and explanations. The correction will include the return of the funds from New plan back to Old plan. My question is whether a VCP application needs be made for New plan also, as it received into its trust what were improperly rolled benefits and as part of the correction will be paying those funds out, back to Old plan. Is a VCP for New plan required as one is for Old plan?

I'm preparing a Form 5500 for a plan that uses the Nationwide Trust Innovator Fund, a platform within which an employee may pick among mutual funds. Interests in the Innovator Fund are unitized. So, the plan owns units of the Innovator Fund. Nationwide insists that the Innovator Fund is not as a pooled separate account (PSA) or collective/common trust (CCT). Is the interest properly reported as interests issued by a company registered under the Investment Company Act of 1940 (e.g., a mutual fund)? That is, is the Nationwide Trust Innovator Fund a mutual fund of mutual funds and reported as a mutual fund itself?

My research indicates this would be a problem as Old 5 and New 4 would be an affiliated service group or control group at the date of termination of Old 5's 401k plan. The reason motivating this is trying to get some nonqualifying assets one of the 5 MD's directed his benefits be invested in, out of a QRP where it is causing increased bonding (to avoid audit despite otherwise being a small employee plan) and annual appraisal costs. There are sufficient other assets for this MD's 401k benefits, and the nonqualifying asset could be allocated entirely to the MD's profit sharing benefits. So, here is the attempted work around. Merge just k assets/benefits obligations of all employees from Old 5's plan into New 4's plan. That would leave just PS assets/benefits obligations in the Old 5's plan, could Old 5's plan be terminated and distributions of the assets remaining in Old 5's plan be distributed, regardless of New 4's plan existing and being operated?

The situation is a medical partnership of 5 MDs (Old 5). They terminate that partnership on a Friday. Next Monday, 4 start new partnership (New 4); 5th one retired. New 4 hires virtually all the same staff, but moves the equipment over that weekend to new office space. New 4 has a slightly different name (enough to get by the state's business entity registration folks). Old 5 had a 401k plan. New 4 sets up a new 401k plan. Numerous factors are driving for a termination of Old 5's 401k plan, rather than continuing it as a wasting trust or merging it into New 4's 401k plan. If Old 5's 401k plan is terminated and payouts processed, will New 4's 401k plan have to prevent those that went from Old 5 to working for New 4 be prevented from making 401k deferrals for 12 months following the payout from Old 5's 401k plan?

I have a calendar year plan that had under 100 participants at the beginning of 1/1/2010. For 2010, a Form 5500-SF was filed. As of 1/1/2011, there were 117 participants. 29 CFR section 2520.103-1(d) allows the 2011 annual report to be filed as a Form 5500-SF under the special 80/120 rule. If it does, is it exempt from the independent accountant's audit requirement of 29 CFR section 2520.104-46 and -41, which specify the 100 threshold, but not the special 80/120 rule? Does anyone know of any IRS ruling that applies the special 80/120 rule to the independent accountant's audit report requirement too?

Trying to keep the plan in compliance, both with its terms and pension rules, and qualifying for tax deferral (and the rollovers thus eligible for rollover, and not subject to the 6% tax). 402(f)(1) provides "The plan administrator of any plan shall, within a reasonable period of time before making an eligible rollover distribution, provide a written explanation to ... ." The plan specifies too that a direct rollover notice is to be provided in advance of distribution.

What is the fix for a situation where plan directly rolled to a former employee's IRA (which the former employee wanted), but such was done before providing a 402(f) notice was given, and nothing in writing was given explaining that the employee had the alternative of a lump sum payout?

After this proposed change, no participant would be permitted to self direct. All decisions about the annuity would, as with other plan assets, be made by the plan trustee or an investment committee. This would allow those that had previous to this change self directed into an annuity to have the continuing benefit of their prior self direction just for their individual benefit; where as all plan assets not invested in a product the characteristics of which are tied to a specific employee would be the pooled part for which investment decisions would then be actively managed by the plan trustee or an investment committee, on a pooled basis. Given that this would be a move taken at a time in response to new regulations taking effect, and the move is to change the plan in a way so that the new regulatory burdens do not apply, would this change likely be viewed by the IRS as a discriminatory BRF if this disproportionately favored HCEs?

One of the alternatives that I would like to present to companies to dealing with the new fee disclosure burden is to do this: 1-Terminate k plan and process payouts (direct rollovers or lump sums, as chosen by each plan beneficiary), those that roll to IRAs will be able to direct the investment of their retirement savings, not held in IRAs rather than plan trust--no fee disclosure or other responsibilities for the company, 2-Establish new profit sharing plan without participant direction of investment, just pooled accounts over which the trustee/investment committee makes all investment decision, 3-Add 401k feature to take effect 13 months after the old k plan's termination. Does the 12 month prohibition begin to run from the day that employees may no longer make elective deferrals or from the date that the old k plan's assets have all been rolled/paid out incident to the termination of the old k plan?

If a plan that has allowed participant directed investments switches that, to trustee/investment committee making decisions over pooled accounts (the individual ones all swept into the pooled account), may the annuity investments be continued but simply be assets belonging to the employee upon whose life expectancy the annuity is based, with the rest of the benefits in the pooled accounts be shared proportionately? For example, suppose 2 employees. One with $150,000 in benefits, of which $100,000 is an annuity's value and the other $50,000 is mutual funds. The other employee has $75,000 total benefits, all in mutual funds. The $125,000 is swept into one plan account. The second employee has 3/5 (60%) interest ($75,000 of $125,000), and the first employee has 2/5 (40%) interest ($50,000 of $125,000) as well as all of the annuity as held by the plan. Is this permissible? No new funds going into the annuity, just avoiding penalties for cashing it out. Leaving it as just benefits of the employee on whose life expectancy the annuity is based, with no ability to direct what happens to that annuity. Any problems?

Do employees have a distribution event with regards to benefits in 'old plan' where: 1-they were employed by old company which sponsored old plan, 2-old company no longer does business and they are not actively working for old company, 3-old company continues to exist as a business entity simply to wrap up its dealings, including continuing to sponsor old plan which is not yet in the process of being terminating, 4-new company was formed and immediately began operating the same business as old company when old company stopped operating that business, and 5-the employees are working for new company which is owned by more than 70% of the owners of old company (and do not have in-service distribution events--e.g., are not yet normal retirement age). New company has set up new plan, which accepts rollovers into new plan. Must there be a termination of old plan for there to be a separation from service for a distributable event, or merger of old plan into new plan, for the rollovers of these benefits?

Plan language uses the reg safe harbor definition for hardship withdrawals. Employee has requested hardship, just submitting an 'estimate' for cost of breast reconstruction surgery that has not yet been performed. Due to a high deductible re the medical insurance the employee has ($10,000 per year), the hospital and surgeon want payment up front, before the surgery and thus before the expense is incurred. Any thoughts on whether this can be the basis for a hardship withdrawal of 401k benefits in advance of the medical services being performed?

Does anyone know where I can get a sample document for employer, comparable contributions to HSAs? (Not just allowing under a cafeteria plan, but employer contributions with no choice for employees.)

morris, X is both a self-employed person of MNO and a true C/L employee of ABC. Why can't X participate in the cafeteria plan as an employee of ABC? Do you have a citation to authority for the analysis you explained, essentially that X's being a self-employed person with respect to MNO negates, for cafeteria plan purposes, his being a true C/L employee of ABC?

ABC is an S Corp, but employee X owns no stock of ABC. X receives W-2 wages from ABC. X is an 8% owner of MNO, an LLC (i.e., partnership for tax purposes). Due to MNO being 85% owned by the person who is also the 100% owner of ABC, MNO and ABC are a 'control group.' Does X's 8% ownership of MNO (which renders him a self-employed person, not a C/L employee of MNO) render X to be a self-employed person as to all of the MNO-ABC control group, and not eligible to participate in the MNO-ABC cafeteria plan? Or, may X participate in that cafeteria plan since X is a C/L employee of ABC? If so, what special concerns might apply to X's participation in that cafeteria plan, apart from just considering X's W-2 wages from ABC for purposes of elective reductions, etc.?

Does anyone have a good outline that would address this topic that you'd share with me? Please send me a private message if you do.