actuarysmith

I will not attempt to touch the DOL question. However, I would like to provide some comment about asset transfer in general. I am a partner in an administration firm that works on smaller clients than you refer to. However, in my experience the time required to complete the asset transfer and the fact that there was a blackout period are both consistent with standard industry practice. Many times the administrator is waiting on information from employees, employers, or financial institutions. This information can, and frequently does hold up the entire asset transfer process. The only point that you raise that causes me a little concern is why it took so long for the administrator to get back to you. It could very well be that if your wife's company in large enough, they may have been innundated with hundreds of similar phone calls and simply lacked the personnel to respond in a timely fashion. (All the staff could have been concentrating on finishing the accounting of the asset transfer details that you and all of the others were so anxiously awaiting.) In terms of you being out of town when the mailing went out - I am not sure that is relevant to anything. It sounds as though the plan trustees attempted to make reasonable efforts to notify employees of the upcoming asset transfer to "like" funds. Believe it or not, this is not something that they need to obtain your consent to do. It is the perogative of the trustees to do so if they feel that it is in the best interest of the plan. The only point that you may have to appeal is the calculation of the earnings during the blackout period. If you feel that the drop in account value was not consistent with what was happening in the funds you were invested in, you should ask for clarification. If you do not feel that they address the question adequately, you could seek help from the DOL first, or an ERISA attorney. Good Luck! I hope these comments help to some degree. They may or may not be what you wanted to hear, but I just felt that I would like to provide an independent opinion from someone in the "biz".

Me again.... I assumed that the author meant that there was a fixed method for allocating any profit sharing contribution that was put in - 1)comp to comp 2)integrated or 3) tiered or cross-tested, but that the amount of the total contribution that the employer could put in each year, in the aggregate was completely discretionary. Assuming that is the case, I don't believe that the document needs any revision at all. The amount the employer has already put in does not appear to be the problem. The problem is that some participants who were not eligible were given allocations. The sponsor should go back and revise the allocation worksheet showing the total amount actually contributed for all, but allocate only to those eligible. (This will require some adjustments, such as moving funds from non-eligilbe accounts to eligible accounts) Note: The employer may have INTENDED to contribute some fixed amount, such as 8% of pay for everyone eligible, but now with the adjustments, eligible participants may actually get 10% or whatever, after reallocating contributions from the other accounts. P.S. This is why it is not a good idea to pre-fund plans with a last day of employment provision.

I truly believed I had at least half a clue as to what the original question was..... After reading through the additional responses and the authors replies, I am confused as to WHO is confused - is it me, is it the other readers, or is it the author? (no offense intended to anyone!) Let's start with the basics. 1) If it is a profit sharing plan, then it is up to the sponsors discretion as to how much to contribute (unless the document stipulates the contribution as a fixed percentage as profit - rare, but still legal) 2) It appears, as the author states, there is no fixed amount of contribution. 3) It appears that there is a last day of employment requirement. 4) the employer chose to voluntarily fund all or a part of the years contribution prior to the last day of the year based upon certain assumptions about who would be eligible. 5) The employer profit sharing forumula is allocated according to a formula expressed as either a) the same percentage of pay for all participants, or b) a formula integrated with Social Security, or c) a tiered formula 6) Some of the participants who received "early" contributions (i.e. before they were actually accrued) were not employed on the last day, even though contributions were already made on their behalf. Assuming all of my assumptions are correct (Of course, Im an actuary!!) then your question is, "what happens to the funds for these participants who have money in accounts that doesen't belong to them?" First of all, the IRS only allows a plan sponsor to take money out of a plan under certain circumstances such as; to pay distributions, or in the event of af "mistake in fact". I have not read the literature recently on mistake in fact contributions, but my recollection is that it refers to minor clerical errors, such as contributing $23,875.63 instead of $23,578.63. It is definitely not because you exceeded 415 or 404, or becasue you changed your mind about how much to contribute. Therefore, I would say that you cannot take the money back out of the plan, the plan will reallocate the funds from the participants who had not yet accrued contributions for the year to the other eligible contributions. The net result will be that the participants who were eligible will get greater allocations than was originally intended.

Unless I'm missing something, the answer seems obvious - reallocate the total contribution among the other participants who ARE eligible for accrual. (In effect, each participant will end up with what they should have gotten in the first place if the ineligibles were excluded). This answer assumes that your document stipulates the total employer contribution as a specific formula related to profit.

It is clearly possible to pay admin expenses from plan assets. Your thread does not state whether or not assets are pooled or allocated to individual accounts. Pooled accounts make this a little easier, but it is still possible to pull it off with allocated accounts. I can't recall where I read it, but I believe there is a DOL letter somewhere that addresses this issue. Basically you are allowed to charge for items related to the ongoing admin and maintanance of the plan. You are not allowed to pay expenses related to the start-up or termination of plan. In general, apportioning the charges accross the asset base (or account balances) would probably generate less "back lash" from participants. However, it may be possible to use a combination of both approaches (i.e a flat charge per participant plus a percentage of account balance. The plan document needs to address the fact that plan assets are being used to pay plan expenses.

If your plan currently requires 501 hours for accrual (as most standardized prototypes)or 1,000 hours for accrual (as most non-standardized prototypes), then you have already passed the point in the year in which participants have accrued the benefits. Therefore, you cannot amend to an EOY employment requirement until the 2001 plan year (provided it is timely). The fact that it is a DB or DC plan is irrelevant.....

Not sure that they are required to complete beneficiary forms or not. I don't believe that they would have to, or rather if they did not and were to later die (as they obviously will) then the proceeds would accrue to their estate automatically in the absense of an election form.

We have actually done this in the past. However, there are a couple of items that you need to keep in mind - 1) since you are not terminating the MP and rolling into the 401(k) you will need to preserve the annuity options in the plan - at least on the MP "rollover" portion, 2) the in-service withdrawal privledges may be different for this source of money as opposed to the others- 3) you will still need to file 2 5500's in the year of merger (one on the old MP plan for a partial year showing 0 ending balances, another on the new merged plan). 4) I am not at all sure what you would need to do with the old MP document - Normally upon termination the plan needs to be amended or restated to bring it into compliance with GUST, however, in this case the new merge plan will presumably comply with GUST when the required restatement occurs........... Anyone else have any thoughts on this last point?

I read the reg mentioned by R. Butler. I guess the participant made the "mistake" of telling you that they had already paid a portion of the bill with a credit card. (I don't want anyone to take this the wrong way - the reg says "... if the employer relies upon the employee's written representation, unless the employer has actual knowledge to the contrary...") Since this participant told you that he had already paid part of the bill, you have actual knowledge to the contrary. The participant volunteered extra information that probably now requires you to act differently on the matter than had they kept to themselves.. It seems that the prudent thing to do now would be to only issue a distribution equal to the remainder of the medical bill. However, I still don't feel that a participant is obligated to pay an item with a credit card. I don't consider an interest rate in the range of 18%+ (as charged by most credit card companies), as reasonable. Had this participant come to you first (before paying the bill) and told you they were willing sign a statement that the need could not be reasonably met from other sources, you would need to honor that and make the distribution for the full amount. (Or possibly, even if he had already paid the bill, but didn't choose to volunteer that information to you). I would like to thank Mr. Butler for directing my attention to the specific regulation. It was educational to read it again and I guess that's one of the purposes of these bulleton boards - to learn something...........

I would respectfully disagree with the other response and grant the hardship. If you are using the IRS safe harbor definitions and your hardship withdrawal form asks the participant to certify that they are using it to pay medical expenses (with a signature and date) I would think that you could grant the request. To be safe, I would probably request that a copy of the original unpaid medical bill be attached. After that, I don't believe it would be your "problem". The fact that 1/2 of the h/s was already paid by a credit card seems irrelevant.All that did was transfer his obligation to pay one entity to a different entity. If you are using the IRS safe harbor definitions, this should insulate the TPA or sponsor from having discretion or having to act like a bank or lending agency (i.e. and be concerned about what other financial resources a participant has available).

In order to be a key employee, the director would have to have an ownership percentage. Alternatively, if the compensation of the director exceeds 50% of the DB dollar limit (i.e.$65,000 in 2000) and the director is considered an officer, then I suppose that you would have a top-heavy issue. How about paying the director something below $65,000 and anything above that level in a stand-alone DC plan? (This assumes of course, that the director didn't already meet the Key employee definition in the current year or 4 preceding years - per code section 416(i))

since 401(a)(26) no longer applies to DC plans, and you have No HCE's - why don't you set up a plan that covers only the director? (assuming that is who you are trying to benefit.) Otherwise, if you are actually trying to benefit others as well, but favor the director, just set up a tiered "profit sharing plan" with the director in Group A (the maximum allocation group.) Remember, you can always discriminate in favor of one HCE over another, or one NHCE over another NHCE.

ASPA has a number of comp & benefit surveys available. They are broken down in a number of different ways - geographically, size of company, number of partners, type of business, etc. etc.

My remarks may have given the wrong flavor of our actual practice as a firm. We would not encourage a business owner to select a son as the financial advisor - in fact we would strongly advise against it! (for all of the reasons cited in the other replies) In addition, the performance of the investments, as well as all fees, asset charges, etc. etc. better darn well compare favorably with comparable investment alternatives that might have been oferred. My comments were meant to imply that if the sponsor was still bent on selecting someone with any relationship to the owner, there better be full disclosure of that fact. In actual practice, I don't believe that we have ever had the son of an owner act as broker. We have son-in-laws, or cousins.

Our opinion of this has always been that if the fact of the family relationship is fully disclosed to the participants,there is no problem. (With the caveat that the commissions, fees, asset charges, etc, etc. fall within reasonable boundries ignoring the family relationship.)

Our SPD's state the following - " You should also be aware that the annual dollar limit is an aggregate limit which applies to all deferrals you may make under this plan or other cash or deferred arrangements (including........ or other 401(k) plans in which you may be participating). Generally, if your total deferrals under all plans exceed the annual dollar limit, you will be taxed...... For this reason, you should request that excess deferrals be returned to you. If you fail to request such a return, you may be taxed a second time when....." Since the SPD is written in a manner that clearly places the burden on the participant, I don't feel that we have any liability. I realize that not all participants read the entire SPD. In fact, I seriously doubt that 25% read the SPD. However, from a CYA viewpoint I think that we are covered. I would suggest that your SPD contain similar language if it does not currently.

We have had this issue arise in our plans several times. We are firmly of the position that there is ONLY ONE person who would have the ability to determine if their had been a 402(g) violation if more than one plan is involved (with unrelated employers) - IT IS THE PARTICIPANT!! The payroll companies, plan sponsors, and plan administrators do not have resources, nor the obligation to check out every single participant in every single one of their plans - this would be onerous, expensive, and frankly completely unwieldy. Tell that participant to go look in the mirror!

I agree 100% with Sonia.

At the risk of stating the obvious - proceed with caution!! You would benefit greatly by reading an article called "The do and don'ts of restoration payments" by Fred Reish and Bruce Ashton. (www.benefitslink.com/reish/articles/doanddonts.html) According to the article, which cites several PLR's, there are only two ways you can make a contribution. 1) Any employer contribution other than a restoration payment would be considered an employer contribution to the plan. It would have to be allocated according to the terms and conditions in the plan document. In addition, it would be subject to 404, 415, 410(B),401(a)(4), etc. etc. It is extremely unlikely that the amount you are trying to "reimburse" has any relationship to compensation earned or service worked by a participant. (In fact it's related to the size of the account balance). Therefore, it would need to fit the parameters of a restoration payment. 2) In order for an contribution to the plan to not be considered a normal employer contribution, there must be controversy over whether the loss resulted from a fiduciary breach. This must be evidenced by threats of lawsuits, claims of fiduciary wrongdoings, assertion of a fiduciary breach claim, etc. It is unlikely that your scenario meets the criteria for 2). I am not an ERISA attorney, but it doesen't appear that your client would be able to make up the loss. (based upon the limited information given in your description)

I knew of one a couple of years ago and it went belly-up. Who would pay for the infrastructure if the third party vendor was not selling funds or wanting to be in the TPA "biz" like us? If a plan sponsor had to pay the vendor, the TPA, and the fund company it seems it would get expensive. All of the firms listed earier provide the daily val platform at no or low cost because they have the investment dollars. Maybe I am not properly understanding your question.............

I concur completely with the response immediately above. Unfortunately, you are likely stuck with a result that you deem "absurd". You should amend the plan document (prosectively, of course) to either go to 100% vesting or use forfs to reduce the match. For now, you are stuck with these great little $7.98 account balances (been there- done that- won't do it again!)

There are now a large number of financial institutions that provide what you are looking for - Nationwide, Manulife, Kemper, Franklin Templeton, American Funds, MFS, Hartford, Aetna, and American Skandia. These all provide for daily val, online access, quarterly statements, 800#, etc. Your job would be to focus on plan design, document prep, form 5500 tax filing, testing, vesting, eligibility, etc. Some of the firms listed are insurance carriers with group annuity contracts and others are straight mutual funds. They are all similar in how they operate from a TPA viewpoint.

I do not mean any offense to the author - he is asking a reasonable question. However, in my experience his company is doing a fine job of remitting deposits on a timely basis compared to the plans we see. (Our firm services over 1,200 plans). As far as the specific example eluded to above - $500 a month being deposited 10 days "late". I did a quick and dirty calculation and it really does not amount to much. For example, let's assume that you would have earned 10% annually on your deposits. Using simple interest (keep it simple for us actuaries!) for 10 days - that's $500 x 10% x (10/365) = $1.37 !! per month that has been "lost". If we plug this result into our financial calculator and accumulate this for 10 years, we get a whopping $ 282.98 (Whoopee!) Say, what does a hill of beans go for these days?

I concur completely with the response above................

I am not sure that I agree with the last comment - I am not aware of an explicit prohibition against collectibles in individually directed plans. However, it seems as though you clearly get into a discrimination problem under 1.401(a)4)-4. Assigning all of the collectibles as an asset of one participant (presumably an HCE) would violate the effective availability of benefits, rights, and features. In other words, only one participant would have the effective availability of a certain investment option that no other participant would have. The only way to structure this plan, would be to assign a proportionate share of the collectible asset to whichever participants wanted a share of it as part of the account. The collectibles would be held as part of the trust, but outside of the other assets. The collectibles would have be appraised at least annually. The fun will really begin when a participant terminates and wants to take a distribution - "let's see, I'll take the top portion off of the ming vase, the frame off of the picture, and the band off of the vintage antique wristwatch. Hmmmm, I still have $1,765.25 coming. What else should I take?". (HA HA) We have only had a couple of plans with collectibles in them and they were both MAJOR headaches! I would suggest you get the plan sponsor to sell them to anyone willing to buy and be done with it. P.S. one of the plans that had collectibles was audited. Once it was discovered that the collectibles were decorating an HCE's summer home, things got ugly real fast....... Need I say more?