John A

Can a money purchase plan be amended to become a 401(k) plan, freezing the money purchase source?

Can a plan choose to designate the same method of minimum required distribution (for example, single life for all paticipants, even if married) for all participants, or must participants be given a choice? Is the answer different for 457 plans?

Thanks for the responses. To describe the situation one more time (with a litte added detail): The participant had a residential loan in a prior plan of a different employer. The current employer plan evidently does not accept rollovers of plan loans. The participant borrowed money from a bank to repay the prior plan so that the current plan would accept a rollover. The participant then did the rollover from the prior plan to the current plan. The participant would now like to take a loan from the current plan in order to repay the bank, and would like to take it as a residential loan, essentially reestablishing what he had in place at the prior plan. Does the additional detail change anyone's opinion?

Regarding the Schedule P's that are often receive directly from the trustee: If a Schedule P was obviously created by changing the 1998 dates on the form to 1999, can this Schedule P be used? If a Schedule P has the same layout as the 1998 form but has the 1999 dates printed correctly -- perhaps was produced on the trustee's own system or something -- can this Schedule P be filed? Does it make any difference if the Schedule P was created in March 2000 (before the final forms were issued?)? Can 5500's be filed with these forms or will the filing be rejected? Is the best course of action to print out a completed 1999 Schedule P and send that to the trustee to sign? Has anyone else run into this?

Can a participant take the following loan over more than 5 years as a residential loan? The participant had a residential loan in a prior plan of an unrelated employer. The participant borrowed money from a bank to repay the prior plan loan so that he could roll the money into the plan of his current employer. The participant would now like to take a loan from the plan of his current employer in order to repay the bank, and would like to classify the loan as a residential loan. Can he take the loan from the plan of his current employer as a residential loan if he used it to repay the bank?

A few Qualified Replacement Plan questions: 1) It is clear that the initial transfer of the DB surplus to a DC plan that is a Qualified Replacement Plan is not deductible. If the surplus is allocated ratably over 7 years as matching and/or profit sharing contributions, it would seem to me that it would not become deductible in the year allocated, correct? 2) Since the amount must be allocated ratably over 7 years, am I correct that the amount to allocate in the 2nd year is: (the initial amount plus all earnings minus the amount allocated in the first year) divided by 6 (absent any 415 limitations or other considerations)? 3) From a prior thread (answer from PAX), I take it that the surplus is allocated to all participants at the time of the ratable allocation from the suspense account, even if the participant never participated in the DB plan, correct? 4) For anyone that has worked with a DC plan that was a Qualified Replacement Plan and specified allocating the surplus ratably over 7 years, would you have any advice of things to be careful of, or issues that arose that you did not expect? Thanks for any help.

MWeddell, thanks for the Code cite. It led me to also find the following [Reg 1.402(g)-1 (e)(4)] ---------------------------------------- (4) Plan provisions. In order to distribute excess deferrals pursuant to paragraphs (e)(2) or (e)(3) of this section, a plan must contain language permitting distribution of excess deferrals. A plan may require the notification in paragraphs (e)(2) and (e)(3) of this section to be in writing and may require that the employee certify or otherwise establish that the designated amount is an excess deferral. A plan need not permit distribution of excess deferrals. --------------------------------------------- This seems to indicate that one should check the plan document for the employee certification requirement. My initial question was an attempt to find written guidance - I was already certain that it was the responsibility of the individual, I just had not been able to find it in written guidance. However, in reading through the guidance, I was surprised to learn (on a different issue) that the individual could designate what was an excess deferral in each plan, rather than being required to use last-in first-out. I also am now wondering whether or not the employer has the responsibility for excess deferrals even if all of the deferrals are from the same employer, given that the guidance seems to indicate that an employer MAY designate that the employer may notify the plan on the individual's behalf in this case.

Is there any formal (or informal) guidance stating that employees are responsible for monitoring their own 402(g) deferral limits when they participate in the plans of unrelated employers during the same calendar year?

Does the document say that deferrals will be based on the defintion of plan compensation? It is possible that "plan compensation" will be used for other issues (such as ADP/ACP testing), but not for deferrals. Read the document carefully. I am not certain, but I believe it is even okay for a document to be silent as to what compensation is to be used for deferrals. In that case, it is only important for a plan sponsor to be consistent within a year and to use a nondiscriminatory definition of compensation. Of course, if the document clearly defines what compensation is to be used for deferrals, then you are back to determining corrective measures.

Employee Z is the child of the sole owner of Corporation A. Thanks for your answer. Even if you don't have a specific cite, do you think the IRS position was stated in a Notice, a Revenue Ruling, a court case, etc.? I'm a little surprised by the answer and I'd like to verify it if possible.

Corporation A terminates its 401(k) plan. Employee Z rolls over the distribution from the 401(k) plan to IRA J. Corporation A is sold to shell corporation B. Corporation B becomes Corporation C. Employee Z is the sole owner of Corporation C and rolls over the amount from IRA J to Corporation C's 401(k)plan. Is this a related rollover?

Thank you, R. Butler. It's nice to get a definitive answer.

Would a Defined Benefit or Defined Contribution plan with Life Insurance features ever show Code 4B on Form 5500 Line 8? Because 4B is a Welfare Benefit Feature, I would think no. But I seem to recall hearing Janice Wegesin (speaker for the ASPA Form 5500 Webcast) say that 4B possibly should be used for DB and DC plans. Did anyone else hear that? Has there been any decision?

On Form 5500 Schedule T, is there any requirement or preference as to which disaggregated part of a plan is shown on lines 4c and 4d? What are others using most commonly and why?

Dave Baker: Has the plan sponsor (or any affiliated entity or predecessor entity) ever had a 401(k) plan that's been terminated? No b2kates and pax, I completely agree, but the plan sponsor is being told by someone that they can't or shouldn't do it that way (we're mystified as to why). We had already recommended amending rather than replacing. However, the question still stands: Is there any reason a plan sponsor (that has never before maintained nor had any affiliated entity maintain any plan other than the profit sharing plan)couldn't terminate a profit sharing plan and immediately start a 401(k) plan?

What is the best way of correcting the following? Due to a payroll service not having the definition of compensation set properly, 401(k) plan deferral amounts and associated match are incorrect (too small)over a few months. Some of the participants that had incorrect amounts withheld have terminated, others are still active. Would APRSC be acceptable, or is VCR better in this case? Can the active participants be "corrected" by withholding additional amounts out of future compensation as a "catch-up." Does the plan sponsor need to correct this by making QNECS equal to all shorted 401(k) and match amounts plus earnings? What's the best way to get this corrected?

Is there any reason a plan sponsor could not terminate a profit-sharing plan, and immediately start a 401(k) plan?

A plan sponsor has an ESOP plan which is failing the ratio percentage test for 410(B) minimum coverage. The plan sponsor also has a 401(k) plan. When doing the average benefit percentage test: 1.Do the 2 plans have to be aggregated? (I have read in some places that ESOPs and union plans do not need to be aggregated, but other sources seem to indicate that ESOPs do need to be aggregated - has this been changed?) 2. What employees can be excluded? (Do all employees that have met the eligibility requirements for either plan have to be included, or is it possible to have some type of statutory exclusion of employees, like excluding employees under age 21 or less than a year of service?) [Edited by John A on 07-13-2000 at 09:41 AM]

Does a document have to contain language about "legally separated" spouses for a participant to avoid the spousal consent requirements? Does a court order in effect for the "legally separated" status have to contain language about the retirement plan for a participant to avoid the spousal consent requirements? IRS Reg 1.401(a)(20) Q&A 27 reads as follows: § 1.401(a)-20 Requirements of qualified joint and survivor annuity and qualified preretirement survivor annuity. Q-27: Are there circumstances when spousal consent to a participant's election to waive the QJSA or the QPSA is not required? Yes. If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, spousal consent to waive the QJSA or the QPSA is not required. If the spouse is legally incompetnent to give consent, the spouse's legal guardian, even if the guardian is the participant, may give consent. Also, if the participant is legally separated or the participant has been abandoned (within the meaning of local law) and the participant has a court order to such effect, spousal consent is not required unless a QDRO provides otherwise. Similar rules apply to a plan subject to the requirements of section 401(a)(11)(B)(iii)(I). ------------------------------------- I'm trying to interpret whether "a court order to such effect" means 1) a court order to the effect that the spouses are legally separated, or 2) a court order to the effect that the spouses are legally separated and the spousal consent will not be required in the plan. My interpretation would be that the language does not need to be in the plan document, and there must be a court order that the spouses are legally separated. What is your interpretation? Thank you.

Where plan records are available to separate the pre-1989 amounts, are pre-1989 matching contributions (and other non-401(k) deferral money) that are distributed in a hardship distribution eligible for rollover?

Cathy, Look at lines 4d and 4e of the Schedule T and the blank lines provided, then refer to the instructions. Does this answer your question? (I believe that there is no need for attachments as long as there are 4 or fewer disaggregated parts of the plan).

I am trying to determine what interest rate must be used when an employer is late contributing salary deferrals to a plan. It seems appropriate to look for DOL Reg 2510.3-102 for guidance. That reg seems to say that the rate used must be the highest rate of any plan investment over the applicable time (or the federal rate + 3 if greater). Let’s say a plan has only 2 investments, and Fund A earns 100% over the applicable time, and Fund B earns 0% over the applicable time, and the federal rate + 3 = 7.5%. Further, there are only 3 participants in the plan. Participants X and Y are invested 50% in Fund A and 50% in Fund B. Participant Z is invested 100% in Fund A. Participant X is deferring $100 per paycheck, Y $200 per paycheck, and Z $250 per paycheck. The due date for the employer depositing the deferrals was June 10, 2000. The employer missed that date and is planning on making the plan whole, including interest, as of July 1, 2000. What amount of interest, in addition to the $550 in deferrals, should the employer contribute? How is the answer calculated? Does the answer to a question like the above differ if the plan is a daily plan or a balance forward plan? How would a balance forward plan calculate interest from say, May 29, 2000 to June 15, 2000, if valuations are only done annually?

Am I reading Rev. Proc. 2000-16 correctly? It appears to me that the fee for the VCR program is based strictly on the most recently filed 5500 at the time of the submission. So if a plan had 1,050 participants at the time of the operational failure but no more than 1000 were shown on the most recently filed 5500 at the time of submission, the fee would be based on no more than 1,000 participants, correct? Also, it appears to me that even if the VCR covers multiple failures, including failures in different years, there is still only one fee for the submission, again based strictly on the numbers from the most recently filed 5500 at the time of submission, correct?

A Plan Sponsor/Trustee in a daily-valued, trustee-directed profit sharing plan keeps forfeiture money in the funds they were invested in at the time of the forfeiture rather than moving the money to a stable value fund. Forfeitures are reallocated. 1) a) At the time of reallocation, if the funds the forfeiture money is invested in have lost money, is the plan/sponsor trustee required to contribute the amount of the loss to the plan? b) If so, is this contribution deductible? 2) If the funds the forfeiture money is invested in have earnings, what happens to the earnings (do most documents cover this)?

1) If an individual was mistakenly paid too little in a hardship withdrawal in January of 2000, is there any problem with letting the individual withdraw the additional amount that should have been included previously? 2) If a deferral was withheld in 1999, the withdrawal was taken January 9, and the deferral was deposited January 15, should the deferral deposited January 15 be included in determining how much the hardship withdrawal can be?