Laura Harrington

A divorce decree (or even a QDRO) is never going to allow the participant to take an in-service distribution she is not entitled to under the plan document. Even if she could take an in-service to satisfy this obligation, why would she want to? She would be the one liable for the taxes on the distributed amount, including (presumbly based on the info you provided) an early withdrawal penalty. As JSimmons said, if the divorce decree meets the requirements of 414(p) it is a QDRO which would allow the plan to assign the indicated portion of her assets to the ex-spouse. But any distribution would be made to the ex-spouse, not to the participant.

FYI: the ASCi EGTRRA documents [prototype and volume submitter] do not contain the opt-out language.

Also, the regulations that Sieve referred to were finalized in August 2006: 1.411(d)-3(a)(3) and (4), and 1.411(d)-3(b)(4). Basically what the regulations say is that the rules I stated in my prior post apply only to benefits accrued after the change in vesting schedules. For the benefits accrued before the change, the participant has a protected right to remain on the 5-year schedule.

Sort of. Let's take someone who had 2 vesting years of service at the time of the change in the vesting schedule. Under the 5 yr schedule he was 40% vested. Because he had less than 3 years of service at the time of the change, the employer does not have to give him the option to stay on the 5-yr schedule. But that does not mean he automatically switches to using the 6-yr schedule. As Sieve said, no vested percentage can be reduced below it's pre-amendment percentage. Under the 6-yr graded schedule he would only be 20% vested at 2 years. So, when the change occurs, he has to stay at 40% vested until his vesting percentage would increase under the new 6-yr schedule (which would be when he has 4 vesting years of service).

No, it is because the match was not available to all of the participants during the plan year. Participants terminated prior to 7/1/2007: 0% rate of match All other participants: 50% up to 6% match.

That is correct. Based on the information you provided, the hourly and salaried plan were not aggregated for coverage so you do not have a BRF issue regarding the after-tax contributions. I hope you told the client in writing concerning the 3-year rule, and they replied in writing that they wanted to use it anyway. Here is where a liability release may come in handy down the road.

When you permissively aggregate for coverage you no longer have two separate plans for coverage and nondiscrimination testing. They are one plan and the provision is no longer uniformly applied to all participants in "the plan". This is what makes the differing provisions BRF issues.

I agree with Tom. If the plans are not aggregated for coverage you have no BRF issue. However, if you have to aggregate the plans for coverage than you must test the availability of the right to make after-tax contributions. I was also going to point out the same issue Tom did regarding the 3-year testing cycle. You cannot rely on testing results from two years ago just because you know the plan is going to fail for the current year. That is contrary to the reason the 3-year testing cycle is allowed.

Thank you everyone for your replies. It sounds like I need to think outside of the box more regarding effective availability. For this particular plan, the good news is that for 2007, only 1 of the 3 HCEs deferred and he only deferred 3% of his pay. No current availability or effective availability issues for 2007. But for future years it is possible all or some of the HCEs may defer 4% or more, in which case the number of HCEs/NHCEs who defer enough to receive the match will become one of the factors I will consider for effective availabilty. Here is another situation: Plan is calendar year, 1/1/2007-12/31/2007, and allows for discretionary match on a payroll-by-payroll basis. The employer does not begin making the discretionary match per payroll until 7/1/2007. For current availability I treat the participants who terminated prior to 7/1/2007 as not benefiting since they did not have an opportunity to receive the match. Typically for effective availability I would consider whether or not the employer communicated to the plan participants that they were going to begin making a match mid-year and whether or not they gave them an opportunity to change their deferral elections. But are there any other issues I need to consider for effective availability?

Regarding #2, you can amend the plan to remove any participant who has less than one Year of Service even if they have an account balance. Those with account balances will still be counted as partcipants and included in the Form 5500 count but they would no longer be eligible to accrue additional benefits. I would take this approach over only removing those who don't have an account balance.

Another thought: If the matching formula were based on years of service, say 0-3 YOS: no match and 4+ YOS: 100% on the 1st 2% deferred, I would test for current availability by counting those with less than 4 YOS as not benefiting and those with 4+ as benefiting. Even if some of the 4+ group did not defer, and therefore did not receive the match, they would still be benefiting for current availability because the match was available to them if they had deferred. The fact that they did not defer would have no bearing on the test. Should the fact that employees chose not to defer affect the test with one type of match formula and not another? Just another rationale for using option #1.

In the 2007 ERISA Outline Book, Sal Tripodi gives an example of testing a tiered match formula for current availability. The formula is 50% on the 1st 2% deferred and 100% on the next 4% deferred. He states that all employees have the same opportunity to defer enough to receive the maximum match, so current availability is satisfied. While this matching formula is not exactly like the one in the example, it is, I believe, a similar type of formula.

John and Tom, thank you for your replies. Tom, while your 2 cents means something to me, I don't think it would mean anything to this particular employer! My question was actually about testing for current availability and not effective availablity. I know the effective availablily is much more difficult to test for in this case and wasn't going there with my question. But since you mentioned it, I'll let you know what my rationale was in determining the match is effectively available. I considered the ACP safe harbor rule which allows for a match on salary deferral of up to 6% of compensation. It was always explained to me that the reason for this cap was that the IRS did not think most NHCEs could afford to defer more than 6% of their compensation. I also considered the QACA elevator rules which allow for automatic contributions of up to 10% of compensation. This must mean the IRS thinks at some level that NHCEs can afford to defer up to 10% of their compensation. In this case, a NHCE only has to defer 4% to receive the maximum match, so I rationalize that the match could be considered to be effectively available.

401(k) plan has a match formula of 100% of salary deferral up to 2% of compensation; however, only those who defer at least 4% of compensation are eligible for the match. There is a potenital BRF issue, but I'm not sure how to test for current availability. Two possibilities come to mind: 1) Test based on the fact that everyone had the ability to defer at least 4% of their compensation. Therefore, the matching formula was available to everyone, even if they did not defer at least 4%. 2)Test based on the deferral percentages for each participant. Only those who deferred at least 4% were eligible for the match, so they are the only ones benefiting for the availability test. Any thoughts or other ideas? Thanks!

I agree with Sieve; no reason you cannot take a loan from the money purchase assets unless the document says you cannot. Don't forget that if loans are allowd from the MPP source, spousal consent may be required.

I don't mean to create any additional issues for you, but I don't think you can "convert" a 403(b) plan to a 401(k) plan. There are no provisions in the Code for this.

You have test the after-tax in ACP. Treas. Reg. §1.403(b)-5 Nondiscrimination rules. (a) Nondiscrimination rules for contributions other than section 403(b) elective deferrals--(1) General rule. Under section 403(b)(12)(A)(i), employer contributions and after-tax employee contributions to a section 403(b) plan must satisfy all of the following requirements (the nondiscrimination requirements) in the same manner as a qualified plan under section 401(a): (i) Section 401(a)(4) (relating to nondiscrimination in contributions and benefits), taking section 401(a)(5) into account. (ii) Section 401(a)(17) (limiting the amount of compensation that can be taken into account). (iii) Section 401(m) (relating to matching and after-tax employee contributions). (iv) Section 410(b) (relating to minimum coverage). (2) Nonapplication to section 403(b) elective deferrals. The requirements of this paragraph (a) do not apply to section 403(b) elective deferrals.

From the Treas. Reg I quoted above: If an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under sections 401(a)(4) and 410(b). The benefits, rights and features testing is under 401(a)(4). So if you don't aggregate for coverage, you don't have to aggregate for 401(a)(4). I think the only issue you have to worry about is the catch-up contribution universal availability rule. If one plan offers catch-up, they all have to offer catch-up.

The "plan" for coverage testing purposes will be the "plan" for nondiscrimination testing as well. If each separate plan of the controlled group passes coverage without aggregating, then each plan is treated separately for nondiscrimination purposes (including general testing, benefits, rights & features, ADP/ACP). If you have to aggregate the plans for coverage, thereby treating them as one "plan", then they are also one "plan" for nondiscrimination purposes. Treas. Reg. 1.410(b)-7(d)(1): (d) Permissive aggregation for ratio percentage and nondiscriminatory classification tests—(1) In general. Except as provided in paragraphs (d)(2) and (d)(3) of this section, for purposes of applying the ratio percentage test of §1.410(b)–2(b)(2) or the nondiscriminatory classification test of §1.410(b)–4, an employer may designate two or more separate plans (determined after application of paragraph (b) of this section) as a single plan. If an employer treats two or more separate plans as a single plan under this paragraph, the plans must be treated as a single plan for all purposes under sections 401(a)(4) and 410(b).

I think what you are looking for with regards to when the premimum is taxable is found in IRC §79. You have a great day too! Laura

IRC §3401(a)(14) specifically excludes the value of group term life insurance on the life of the employee from compensation under this code section. Since the §3401(a) definition qualifies as a 415 definition, and the starting point for §414(s) compensation is §415 compensation I think you were correct with regards to both the compensation used for testing and for benefits/allocations.

The Form 5330 Instructions explain how to file an amended return and claim a refund/overpayment. A copy can be found at www.irs.gov. I cannot speak as to whether or not the instructions from the auditor overrule the correction. I think the actual test results, and resulting refunds, need to determine the excise tax amount. I would question the auditor as to how he/she came up with their numbers. The auditor may have discovered an error in the test that was completed or the auditor may have done the test incorrectly.

Depends why you need to know. If you are determining HCEs or Keys or whether or not an affiliated service group exists [attribution defined under IRC §318] the answer is no. If you are determining whether the participant is a disqualified person for purposes of the prohibited allocation rules under IRC §409(p) [attribution also defined in IRC §318, but slightly modified] the answer is yes. If you are determining whether or not a controlled group of businesses exists [attribution defined under IRC §1563] the answer is also yes.

Yes, that is what he is wanting to do. There are two methods of correction stated in EPCRS: the one-to-one correction method and the QNEC correction method.

The blackout notice is a requirement under Title I of ERISA (see §101(i) as added by the Sarbanes Oxley Act). ERISA §4(b)(1) provides that governmental plans are exempt from Title 1 of ERISA. Governmental plans are defined in ERISA §3(32).