John A

Many plan documents I've seen have a provision such as: "Hour of Service" means ... each hour for which an Employee is directly or indirectly compensated or entitled to compensation by the Employer" for reasons other than performance of duties (such as vacation, disability, layoff, leave of absence) during the applicable computation period. Notwithstanding the above, no more than 501 hours of Service are required to be credited on account of any single continuous period of performing no duties. Do these hours get credited for all plan purposes, including benefit accrual and vesting, or are these hours only used to determine whether or not a break-in-service has occurred? What are you basing your answer on (guidance at a conference, regs, etc.)?

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WARNING: This is not a complete answer, by any means. However, I believe that 3401(a) generally does not include the following items that are included in W-2: 1) Includable Section 105(h), 2) Disqualifying disposition of qualified stock option, 3) taxable group-term life insurance. For both 3401(a) and W-2, section 125 contributions must be grouped with other nontaxable elective contributions such as 401(k) and all either included or excluded. These answers are based on 414(s) safe-harbor definitions of compensation. Compensation is a complex issue filled with exceptions to each rule and it is difficult to provide a better answer than this, but I'd love to see anyone else's answer.

TCAT, Just to clarify some things, did this employee defer $10,000 by deferring 4% on the first $250,000 of compensation? Does the document state that if the deferral rate is 4%, the match will be 6%? Or does the document state that if the deferral rate is 4%, the match will be 1.5 times the deferrals? Does the document allow an employee to select a specific dollar amount for a deferral, or does the document only allow an employee to select a percentage to defer? Does the document provide for payroll-by-payroll match, or does it specify an annual match? I'd like to see some numerical answers from others that have responded. It seems like the following are some possible answers: 1) Deferrals had to be capped when the employee reached $160,000. So deferrals would have been $6,400 and match would have been $9,600 (either 6% of $160,000 or 1.5 times $6,400). 2) Deferrals are allowed to continue beyond $160,000 up to the 402(g) limit, so deferrals would be $10,000. Matching contributions would have been 6% of $160,000 or $9,600. 3) Deferrals are allowed to continue beyond $160,000 up to the 402(g) limit, so deferrals would be $10,000. Matching contributions are 1.5 times deferrals, or $15,000. It appears to me that the answer is 1) if the plan document only allows percentage elections, and 2) if the plan documents allow dollar elections (even thought the participant made a percent election). Are there other possiblities? What do others think the correct numerical answer is?

Relief for 1999 forms seems to have arrived. I believe that the agencies have indicated that, for the 1999 forms, they will accept "machine-print" versions even if some entries are made by hand, and will also accept a mix of "hand-print" and "machine-print" schedules. It is still an excellent question - how will this be resolved for 2000 forms and beyond?

IMHO: 1) Employer not only can revise the 1998 annual report and issue amended benefit statements, but has to do just that. 2) The plan will need to go through APRSC or another IRS correction program due to the employee who received a distribution based on the mythical contribution. My guess is that the correction would be first to request the overpayment back (good luck), and then to put the other participants in the position they would be in had the overpayment not occurred. See the recent IRS guidance on correction programs. I am not sure about the deductibility of any contribution the employer would have to make to restore the overpayment. 3) The employer will have to file an amended 1998 5500. Since this plan is a profit-sharing plan and time is past the 8 1/2 months after the end of the plan year, I do not believe the employer could choose to make the contribution even if the employer wanted to. Did I miss anything?

A plan sponsor currently has a DB plan. The sponsor would like to continue the DB plan but freeze participation, so all current participants would continue to accrue benefits, but anyone not currently a participant would never become a participant in the DB plan. On the date of closing participation, the sponsor would like to start a new 401(k) plan that would be open only to employees who were not participants in the DB plan. Does anyone see this possibly working? It seems like it would be difficult to satisfy 401(a)(26), 410(B), and 401(a)(4). Are there any other issues/problems that should be considered? Anyone out there think this is viable?

Provided the plan document does not specifically prevent it, is there any reason a single parent enrolling in a 401(k) plan could not designate the participant's child as the primary beneficiary and the participant's parents as contingent beneficiaries? The participant's child is still at the toddler stage and the participant's life insurance would not allow the participant to designate a minor as the primary beneficiary. Any other suggestions about how to handle this designation (does the designation need to name a legal guardian in case of the participant's death)?

In cross-tested Plans, should the document include or exclude the method to correct the test? If the document does not specify the correction method, can different correction methods be used for different years?

Is it true that when performing 410(B) testing, one should not include employees only receiving a top-heavy contribution? Is it also true that if the 410(B) test fails without employees only receiving a top-heavy contribution, then those employees need to "benefit" at the same percent as everyone else (not just the 3% top-heavy)?

Is it true that any time you include otherwise excludable employees in order to pass the 410(B) test, you should do an amendment to the Plan stating which classification of employees were included (e.g. employees working more than 800 hours)? Is this in the regs?

Can the depletion of most of the assets of a plan (participant with more than half of the assets of the plan taking an in-service withdrawal) cause a partial plan termination?

It means that the 401(k) deferrals would not be deductible to the employer, and might very well be subject to the 10% excise tax for nondeductible contributions. Whether or not the deferrals could be stopped or not allowed would probably depend on the plan document.

I realize that missing participants and locating missing participants has come up in several prior threads. I'm wondering if anyone has any knowledge of what can be done according to California law (or does ERISA preempt any California law on the topic)? Specifically: An employer has a division in California. The employer has several Mexican employees who have terminated with account balances and are now impossible to find. The employer has already gone through the Social Security Administration to locate them, with no success. The employer believes that many of these individuals have returned to Mexico. The employer knows of a California state law that requires unclaimed payroll funds be returned to the state. The employer would like to know if this would apply to retirement funds also. The employer understands that the employer will need to consult with an attorney on how to accomplish this, but the employer would like to know if there is any information on whether it's even possible first.

I have reviewed several prior threads on this topic, but I am still unclear on one question: Can a plan document have a provision that requires 500 hours in a 6-month period for eligibility, without also having a provision that anyone that completes 1,000 hours in a 12-month period meets the eligibility requirements? A 12-17-98 post from MWeddell in a thread titled "Years of Service" stated: "A 6-month period with 500 hours of service eligibility requirement is legally permitted because it's impossible for someone to meet the 410(a) maximum eligibility period of 1 year with 1,000 requirement without meeting a 6-month with 500 hours requirement." Other threads have seemed to indicate that it is only acceptable to have the pro-rated hours requirement if the plan document also provided language for the 1,000 hour requirement. It seemed well-established from other threads that many plan documents have been approved with the dual provisions. Does anyone know of a plan document that has been submitted and either rejected or approved that only had the 500 hours requirement without the 1,000 hour language? Do you agree or disagree with MWeddell's reasoning for the pro-rating being acceptable (without the additional language)?

What is the proper procedure for making corrective distributions due to ACP test failure when match contribution has not yet been deposited? An employer has decided to make a discretionary matching contribution, and the match formula is defined in the plan document. The employer is planning on depositing the matching contribution after March 15. The ACP test fails and will be corrected through corrective distributions of the excess aggregate contributions. The employer would like to refund the excess aggregate contributions (match) before March 15. A few questions: 1) Can we safely assume that no earnings will be involved since the match has not yet been deposited? 2) Is it possible to make the actual deposit of match net out the excess aggregate contribution amount, so that the excess aggregate contribution amount is never deposited? 3) Can the employer refund the excess aggregate contributions from current match account balances before March 15, even though the match involved in the calculation has not yet been deposited?

Thank you all for the reminder. I'm not sure what I was thinking. The ACP test does pass and the match does have to be forfeited, not distributed. The match that has to be forfeited is the match associated with corrective distributions (deferrals returned due to the ADP test failure). The plan is a daily valued plan, and I believe the real question, other than the earnings question, is if the forfeitures can be released from current match balances prior to the discretionary contribution being deposited. (I have restated the question on the Daily valuation board.)

What is the proper procedure for handling forfeitures when match contribution has not yet been deposited? An employer has decided to make a discretionary matching contribution, and the match formula is defined in the plan document. The employer is planning on depositing the matching contribution after March 15. The ADP test fails and will be corrected before April 15 through corrective distributions of deferrals. The matching contributions associated with the excess contributions (deferrals returned due to the ADP test failure) will be treated as forfeitures and the plan document provides for reallocating them to other plan participants. The employer will make the corrective distributions of excess contributions before March 15, but the match will not be deposited until later. Questions: 1) Can we safely assume that no earnings will be calculated on the match treated as forfeiture? 2) Can the employer release forfeiture amounts attributable to the discretionary match from current match account balances, even though the match involved in the calculation has not yet been deposited?

What is the proper procedure for making corrective distributions when match contribution has not yet been deposited? An employer has decided to make a discretionary matching contribution, and the match formula is defined in the plan document. The employer is planning on depositing the matching contribution after March 15. The ADP test fails and will be corrected through corrective distributions of deferrals. There will be "hanging match" associated with the deferrals. The employer would like to refund the hanging match before March 15. A few questions: 1) Can we safely assume that no earnings will be involved since the match has not yet been deposited? 2) Is it possible to make the actual deposit of match net out the hanging match, so that the hanging match portion is never deposited? 3) Can the employer refund the hanging match from current match account balances before April 15, even though the match involved in the calculation has not yet been deposited?

An employer has an employee who is out on workmen's comp, receiving 60% of their pay. The employee is going to be eligible to join the 401(k) on April 1st. Does the employee get to enter the plan on 4-1-00 or does the employee have to wait until being actively back to work. If the employee has to wait, does the employee have to wait until the next entry date or does the employee get to start deferring as soon as the employee goes back to work? If the employee can enter the plan while out on workmen's comp., how does the employer do deferrals since the employee is not getting a paycheck?

Since 403(B) plans are not subject to being top-heavy, can I safely conclude that 403(B) plan balances are not used in determining whether or not other DC plans of the employer are top-heavy?

I believe it is clear that the change does not constitute a separation from service, so I do not believe the transer could be a rollover. I had looked at this issue one other time and came to the following conclusions: 1)there can be trustee-to-trustee transfers between the plans, 2) it would be highly preferable for both plan documents to specifically allow trustee-to-trustee transfers, but it is probably not essential, 3)various rights such as methods of distribution would have to be preserved for the transferred money, 4)if the transfer is not in cash, the plan documents would need to provide for in-kind transfers and the receiving plan would have to allow for the type of asset transferred. I'd still be interested in other opinions on this. [This message has been edited by John A (edited 03-07-2000).]

A 401(k) plan participant and his wife died due to a car accident. The participant died immediately. The wife died about 2 weeks later from injuries sustained in the accident. Is the money paid to the secondary beneficiary named in the participant's beneficiary designation? Is the money paid to the wife's estate and then controlled by the wife's will? Is this another case where it would be best for the plan to file an interpleader action?

You might wish to post your message on the 403(b) message board rather than under the Form 5500 board.

You may wish to post your message on the 403(b) message board rather than under the Form 5500 board.