John A

A final 5500 is being prepared for a plan. The plan merged assets into a successor plan with the assets transferring in June of 1999. A dividend of $35.00 posted to the account after the asset transfer. The dividend is still in the account. Can the final 5500 be prepared based on the asset transfer and can the late posting dividend be ignored? What should be done with the late posting dividend?

Tom, I think I agree, but just to make it even more interesting, how would the limits be checked in the case of 2 plans of the same employer, one with calendar plan year and limitation year, the other with 3/1/00-2/28/01 plan year and limitation year, if the $30,000 limit increases to $35,000?

quote: Originally posted by MWeddell: Once reemployed, the individual would need a second triggering event in order to be able to receive a distribution." That certainly makes it sound as if reemployment negates the distributable event. How would you handle this situation: A terminated participant received a check for a portion of his total 401(k) balance in a balance-forward, non-union plan, with the remaining amount to be paid after the next quarterly valuation date. Prior to the next valuation date, the participant is rehired by the same company as a union employee and there is a union plan. What should be done with the amount remaining in the non-union plan? Should the remaining amount be distributed since the distribution was elected and had been partially completed? Or does the rehire immediately negate the distributable event so that the money has to be left in the plan?

quote: Originally posted by jlf: To clarify: NJ is not using the entire $2.3 billion surplus in the police and firefighters pension fund to improve benefits for police and fire personnel. It is using just $45 million of it. JohnA, I'm sure you recognize this. I just did not want to leave it chance. jlf jlf, yes I recognize that the surplus is not being used entirely to improve benefits and I thought my post and the link indicated other uses for the surplus. That was what prompted the initial question of "Who owns the surplus?" Perhaps the question should have been, "What is the best policy when a surplus occurs - should it always be used 100% to improve benefits, should it be used to reduce current employer contributions, should it be used to reduce current employee contributions, should it be saved as a "rainy day" amount if investment experience turns sour, if a government plan - should the government be able to tap into the surplus for other governmental needs, etc., etc., etc. Should the existence of the surplus be credited to wise investing of the employer, favorable economic conditions due to a well-run government, dumb luck, overcontributions from employer and/or employee, etc.? In the private pension world,the government's answer when a plan terminates is to give an employer this approximate choice: 1) give the entire surplus to existing participants at time of plan termination, 2) give participants some of it, employer can keep some of it, and we the government will take some of it in taxes. In the private pension world for an on-going plan, a high enough surplus generally prevents the employer from making any further tax-deductible contributions and about the only way the employer may be able to continue making tax-deductible contributions would be to improve benefits. I'm not trying to provide a right answer re: surplus asset policies - I'm just raising the issue of surplus asset policies in light of New Jersey's actions. I thought it was interesting that some groups feared that if the entire surplus had been used to improve benefits for police and firefighters, some cities would have faced the possiblity of having no police or firefighters since they all would have retired. There was some fear that even the existing improvement might lead to shortages of police and firefighters.

Does the IRS have a general number that a plan sponsor can call to obtain a new copy of a favorable determination letter that the sponsor obtained but is now unable to locate?

I know deferrals in excess of the plan document limit have been discussed before, but I haven't been able to find an answer to this particular question. Are the deferrals in excess of the plan document limit counted in the ADP test? We are planning to do an APRSC and distribute the deferrals over the plan limit.

I believe the correct answer is 3/15 but I have been unable to find a cite. Anyone else?

Does the 30-day timing apply to a long-existing company that wants to establish a brand new safe-harbor 401(k) plan, or what is the timing requirement for the notice? I'm confused when I read Notice 98-52 as to whether the exception to the 30-day requirement applies to all brand new plans or only to plans of new entities. Thanks.

Thanks mwyatt, I agree with you. However, isn't distribution date also important? For example, if the participant had received an in-service withdrawal 10/31/94 and then terminated 3/31/95, wouldn't the '94 distribution (withdrawal) be excluded from the top-heavy test?

Determination date for top-heavy test is 12/31/99. Participant terminated 10/31/94. Participant received a distribtuion 3/31/95. Is this distribution included in the top-heavy test in accordance with Code Sec. 416(g)(3)or excluded from the test in accordance with Code Sec. 416(g)(4)(E)?

An employer terminated its defined benefit plan and allowed employees a full range of distribution options, including rolling over the money into the employer's 401(k) plan. Is this a related rollover? Is the rollover included in top-heavy testing as part of the 401(k) plan indefinitely? Can the amount be ignored after 5 years since it was part of a distribution to the participant?

An employer with a 2-week payroll period had a payroll begin December 27, 1999 and end January 7, 2000. Do the deferrals associated with that payroll get attributed to 1999, 2000, or split between the years for 402(g) and ADP test purposes? Does the employer get to choose? If the employer can choose, can the decision be changed each year?

Both the trustee and the employer filed a 1096 and a 1099-R with the IRS for the same distribution. How should this be corrected? The concern is that if a "corrected" 1096 is done showing 0, this will negate both of the 1096's filed (each of which would be correct if the other wasn't filed). Suggestions?

Does the answer change if the "part-time employee" was employed from a temp agency, and then was hired away from the temp agency by the employer?

http://www.nasra.org/level2/dbvsdc.html Some selected excerpts from this link, which is directly on topic to DB vs. DC: DB vs. DC - Who Rules? An Interview with Leslie Finertie (Towers Perrin) Defined Benefit vs. Defined Contribution retirement systems is one of the "hottest" topics in public sector retirement systems. The vast majority of public retirement systems are DC, which may explain the many apparent misconceptions about DB. The 1997 PENDAT Survey indicated that the median employer retirement contribution to a DB plan for general employees was between 10 and 14 percent of covered payroll. What might be the comparable contribution to a DC plan? Finertie: Studies show if you try to keep employees whole when they transfer from a DB to a DC plan, contributions have to increase by 50 percent or more of payroll for employees over age 40. Or, with the same contribution rate to a DC plan, the average investment return needs to increase to 15 percent or more, annually for life. Recent studies show that about half of terminating employees eligible for a lump sum spend that money rather than roll it over for retirement. It's hard for a 30-year-old to realize that if they spend the $5,000 to $10,000 they've saved so far, it will make a big impact on their retirement account in 30 years. Many public retirement system directors have expressed the fear that a substantial number of people under a DC plan will end up at the age of normal retirement without an adequate benefit to supplement Social Security. Is this a valid concern? Finertie: Everyone should be concerned about the adequacy of retirement benefits for employees switching to DC plans. Social Security alone may not keep retirees out of poverty. So, employees may need to work well into their 60s to accrue enough benefits in a DC plan. Individuals may look at the large DC account balance and retire at age 50 or 55 thinking they have enough money. But what if they run out of funds by about age 65 when Social Security payments begin? Will they be in good enough health to go back to work after being retired for 10 years or longer? Who will pick up the shortfall when these retirees can cover their own living expenses? Do you think that DB vs DC will continue to be a big public sector issue in the coming years? Finertie: The DB vs DC debate will rage on. So many organizations marketing 401(k) and similar types of DC plans will continue to focus on their advantages. DBs will continue to remain difficult to understand. And, we will continue to have generational differences with younger employees preferring DCs because of their portability. Also, as employers begin to need employees to work for more years because of the emerging skilled labor shortage, employers may want DCs which don't encourage early retirement because they don't include early retirement subsidies.

My 3/29 post was intended to relate to the link provided: http://www.bergen.com/region/pensionc200003284.htm The link seems to indicate that the New Jersey legislature believes that a $2 billion surplus in the police and firefighters pension fund should be used to 1) provide a more generous early retirement benefit, 2) reduce the contributions of town and city governments (making money available for property tax relief), 3) reduce the withholding requirement for pension payments for current employees. Any thoughts on New Jersey's actions? Some excerpts from this link: The New Jersey legislature approved a bill that pays the tab for a controversial measure signed in January that allows police and firefighters to retire after 20 years with pensions equal to half their salaries. The measure covers the cost of the new benefit and further reduces what towns must pay the state for existing pension benefits by tapping part of a $2 billion surplus piling up in the state Police and Firemen's Retirement System. The surplus is the result of the sharp growth in the value of stocks held by the pension funds. Such a maneuver allows towns and county governments to skip thousands of dollars in pension payments that they would have otherwise been required to pay by April 1. That money can now be used to ease property tax pressures by allowing officials to pay down debt or address rising costs for municipal services. Municipal and county governments have avoided paying their portion of the pension bills for employees who are not police or firefighters since the passage of the 1997 pension bond act, which pumped $2.76 billion in bond proceeds into the state pension systems. And earlier this year, Whitman signed legislation that reduced the size of the pension payment withheld from local and state government employees' paychecks.

It seems to me that you have 2 choices: 1) Accept that you received erroneous information initially and withdraw the excess contribution to the IRA. You should consult your tax advisor, but I believe you will not incur liability for income tax or the 10% penalty tax on the withdrawal - see IRS Code Sec. 408(d)(5)(B), which I show below but which is pretty hard to understand without help. 2) Contact an ERISA attorney about the evident discrepancy between the plan document and the SPD. I believe there have been numerous court cases involving discrepancies between plan documents and SPDs, but I am not sure how most have turned out. Let us know what you decide to do. Here's the code section I mention above: (B) Excess rollover contributions attributable to erroneous information. If— (i) the taxpayer reasonably relies on information supplied pursuant to subtitle F for determining the amount of a rollover contribution, but (ii) the information was erroneous, subparagraph (A) shall be applied by increasing the dollar limit set forth therein by that portion of the excess contribution which was attributable to such information. For purposes of this paragraph, the amount allowable as a deduction under section 219 shall be computed without regard to section 219(g).

Suppose that it is acceptable to put matching contributions into a money purchase plan. What happens if the ACP test fails or if the matching contribuiton is associated with excess contributions due to a failed ADP test? The money purchase plan is subject to section 412 minimum funding. How is this seeming contradiction resolved?

Just to be sure I understand, was the conclusion that active employees who are $0 benefit participants must be included in the participant count until they either terminate employment or all assets are distributed?

AndyH: Agreed. My thanks to you and to all the respondents.

http://www.bergen.com/region/pensionc200003284.htm Who owns surplus assets?

An ESOP plan document specifies that the forfeitures are reallocated. Can the document be amended so that the forfeitures go back to the company? The company would then put the forfeitures back into the plan as a contribution and receive a tax deduction for it. We do not think that this is allowed, but we have a client insisting that a lot of ESOP plans do this. The plan has some cash, and has a leveraged loan that they are making payments on. The plan is not entirely owned by the ESOP, if this makes any difference. 1). Can forfeited shares or forfeited cash go back to the company? 2). If yes, could the company put the forfeitures back into the plan and receive a deduction for it? Is there any guidance such as a regulation that states that this can or can't be done? If you agree that this is not allowed, are there other alternatives for the forfeitures besides reallocating them that would be to the advantage of the company?

The husband and wife owners of a company with 50 participants in the 401(k) plan shut down the operations of the company and terminated the 401(k) plan. All assets have been paid out of the plan. The company still exists with the owners as the only employees. What are the options for starting a new plan at this point? Do the successor plan rules apply? The owners may resume operations of this company or start a new company in the future.

The description of the DOL VFC program I read made it seem like the program was an invitation to a DOL investigation. The description said a lot more about what was not protected by using the program than it did about what any advantage to using the program would be. I'd also be interested in whether others will be using the VFC program for the situation you describe - we have not decided for sure one way or the other at this point.

Employer fails ADP test and the correction was to return excess contributions. There was match associated with the returned deferrals. Because matching contributions are immediately 100% vested, the plan document seems to assume there will never be any forfeitures and so is silent on what to do with forfeitures. I believe the match associated with the returned deferrals has to be forfeited. What should be done with these forfeitures if the plan document truly is silent on the issue? How do documents generally deal with this issue? (I've seen one that said what to do with forfeitures in this case was at the discretion of the Plan Administrator.)