PensionPro

The participant should not be able to elect to default on the loan by stopping payroll deductions. Does the loan agreement provide for this?

You may expenses from the plan assets but the participant must be paid $1,000.

More information here: http://benefitslink.com/boards/index.php?showtopic=40920

My understanding is that Employer B can not deduct contributions it makes on behalf of employees of Employer A because it would not be considered ordinary and necessary business expenses, but check with the CPA. "Section 404 provides that if amounts contributed to a qualified plan providing deferred compensation for employees are ordinary and necessary within the meaning of section 162 or section 212 of the Code, the employer may deduct those amounts under section 404 within certain limits. Section 1.404(a)-1(b) of the regulations and Rev. Rul. 67-341, 1967-2 C.B. 156, provide that contributions may be deducted under section 404(a) only to the extent that they are ordinary and necessary expenses and are expenses incurred for reasonable compensation for personal services actually rendered. Cases interpreting section 162 have consistently applied the common law rules regarding employer-employee relationship in determining the deductibility of reasonable compensation. In addition, deductions are permitted only to the employer for whom the services were actually rendered. Young & Rubicam, Inc. v. U.S., 410 F. 2d 1233 (1969))." G.C.M. 39208, December 28, 1983.

Here is what the IRS Web site has to say: How does a participant show that he or she is experiencing a hardship? Generally, if a 401(k) plan provides for hardship distributions, the plan will specify what information must be provided to the employer to demonstrate a hardship. Most 401(k) plans use the "deemed necessary" rules, so that inquiry into the employee's financial status is not required. In other cases, an employer may generally rely on the employee's representation that he or she is experiencing an immediate and heavy financial need that cannot be relieved from other resources. However, an employer cannot rely on an employee's representation if the employer has actual knowledge that the employee's need can be relieved: (1) through reimbursement or compensation by insurance; (2) by liquidation of the employee's assets; (3) by stopping elective contributions or employee contributions under the plan; (4) by other currently available distributions (such as plan loans) under plans maintained by the employer or by any other employer; or (5) by borrowing from commercial sources. (Reg. §1.401(k)-1(d)(3)(iv)©) However, an employee is not required to take counterproductive actions. For example, the need for funds to purchase a principal residence cannot reasonably be relieved by a plan loan if the loan would disqualify the employee from obtaining other necessary financing. (Reg. §1.401(k)-1(d)(3)(iv)(D))

If your participant count on 1/1/2010 is below 120 and you filed as a small plan for 2009, you can file as a small plan for 2010. Remember to count all the employees who enter the plan on 1/1/2010.

Even though there is no tax consequence, the employer should rightly abstain from being a party to the "sham transaction" designed to circumvent the rules. Impermissible distributions even if they are rolled over can jeopardize the whole plan. An IRS auditor or a court may not agree with the IRS agent you talked to on the phone.

Using compensation for the calendar year ending in the plan year meets the requirement of 414(s).

The plan's vesting schedule applies to benefits accrued after rehire.

The CPA might have or should have followed the instructions. The 2008 Form 1040 instructions say if the total amount you deferred for 2008 under all plans was more than $15,500 (excluding catchup), include the excess on line 7, which is wages, salaries, tips, etc. This would only leave the issue of the excess deferrals being taxed again at distribution. I don't see how this would be a qualification issue for the plan(s) yet since the plan(s) were not informed of the excess deferrals.

You mandatorily disaggregate for coverage per 1.410(b)-7©. All statutorily includible NHCEs must be covered under one of the safe harbor formulas. I have not been able to find objections to your proposed arrangement. If there are any problems with it, the brilliant minds on this forum will identify them.

At the very least the match and nonelective would have to pass coverage testing.

Unless the plan meets an exception described in the instructions, Schedule H filing is required. The lack of transactions would not be a determining factor.

Are the in-service and hardship withdrawals subject to the 2 year seasoning/5 year participation rule?

No. Catch-up contributions with respect to the current plan year are not taken into account for purposes of section 416. However, catch-up contributions for prior years are taken into account for purposes of section 416. Thus, catch-up contributions for prior years are included in the account balances that are used in determining whether the plan is top-heavy under section 416(g). 1.414(v)-1.

Determination of partial plan termination due to discontinuance of employer contributions to a profit sharing plan depends on all the relevant facts and circumstances. If the employer has failed to make substantial contributions in 3 out of 5 years, and there is a pattern of profits earned, partial plan termination is a serious consideration.

Since you are already reporting this participant with a code D in the transferor plan, you can accomplish everything you set out to do by reporting the participant with a code B (instead of a code C) in the transferee plan.

Suspend deferrals now.

The instructions under the Voluntary Alternative Reporting Option state that you should file the schedules that are applicable. Schedule R itself says Part II should be skipped if the plan is not subject to IRC Sec. 412 of ERISA Sec. 302. So if the plan can skip Part II then the way I see it Schedule R is not required to be filed. However, it is not going to be a huge effort if 5500 software is used to file Schedule R with only the identifying information.

According to a DOL agent we spoke with, the burden of proof is on the employer to show they paid the participant. Based on the SSA filing the participant has proof that the plan owed a benefit at a certain point in time. Now it is up to the employer to prove that between the SSA filing and the current claim the benefits were paid. Or at least another Schedule SSA with code D was filed. Just because there are no current benefits due the participant does not mean the participant's benefits were not forfeited by the plan. That's the perspective of one DOL agent. I have not heard how the courts see it.

So if a participant is eligible to receive the matching contribution, they are considered benefitting even if the employer decides not to make a matching contribution. This is different from nonelective contributions, where you actually have to receive an allocation to be considered benefitting. It raises a question. In a 401(k) plan, an employer makes a discretionary match at the end of the year for those participants who deferred, worked 1,000 hours and were employed on the last day of the plan year. In a year when the employer decides not to make a matching contribution, the 410(b) ratio percentage test would be 60% because 40% of the NHCEs terminated during the year after working more than 500 hours. So this plan fails the 410(b) RPT for the match? How do we correct this?

Not really an opinion, just quoting the relevant section with emphasis added. Such information shall also be displayed on any Intranet website maintained by the plan sponsor (or by the plan administrator on behalf of the plan sponsor) for the purpose of communicating with employees ... in accordance with regulations which shall be prescribed by the Secretary.

§1.413-2. Special rules for plans maintained by more than one employer (a) Application of section 413© (3) Additional rules (iii) The special rules of section 413(b)(2) and §1.413-1© (relating to (A) section 401(a)(4) and prohibited discrimination, and (B) 411(d)(3) and vesting required on termination, partial termination, or discontinuance of contributions) do not apply to a section 413© plan. Thus, for example, the determination of whether or not there is a termination, within the meaning of section 411(d)(3), of a section 413© plan is made solely by reference to the rules of sections 411(d)(3) and 413©(3).

1.411(d)-4, Q & A 3

My understanding is the 80/120 exception is available if "a Form 5500 was filed for the prior plan year." This is from the 5500 instructions.