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IS there an issue in offering annuities as a payout option in a 457b tophat plan? The employer owns the assets and the assets are subject to creditors. It may be difficult to pay an irrevocable annuity to a participant while the assets are subject to creditors. Can anyone add some light to this? Thanks!

What is consequence if employer switches to an off calendar year fiscal year, but maintains calendar year plan? I see deduction timeframe will change since employer tax return deadline is different and 415 deadline is changed. Any other issues? Thanks!!

You know that your deferral may not be even, so an employee, normally an HCE, could max out deferrals early in the year, and then not get any further match. So in essence if you could receive a 4% match based on full plan year comp, you now get much less since you reached the 402g limit early. My dilemma is can an employer decide to make a true up on a discretionary basis, or does it have to be required? Then they lose flexibility year to year.

Great point on the BRF issue. But is it a BRF if it is required in the plan? My main issue is whether you can make it discretionary and still meet the requirement of being a determinable formula - can a plan document even allow a discretionary true up?

If a 401k plan has a discretionary match formula, and it is being calculated on a payroll basis, can there be an election to make a discretionary true up match at the end of the year? Does this violate a definite determinable allocation formula? It gives the employer flexibility, rather than being locked into a true up each year. thanks!

It became a mandatory provision under HEART in 2010 for 415 purposes, but it is optional for plan compensation purposes. Provision became effective after 2008, but plans had until the end of the 2010 plan year to amend. But if employer did not pay differential pay, then it is a moot point and no amendment is necessary. And most likely no harm done since Includible comp under 415 was already changed per statute to include differential pay. Amendment just puts employer on notice that employees have option to defer on those amounts. Amendment could still be effective for 2010 and signed now with a Board resolution ratifying the amendment effective as of a 2010 date

There were some prior discussions on this. The only amendment we concluded necessary was adding differential pay to definition of Includible Compensation. Then decision is yours as to whether to make it mandatory or give employer option to exclude differential pay. Other amendments could create current availability issues subjecting affected participants to taxation so great care is needed when drafting top hat plan language.

Can a plan allow terminated participants to take hardship distributions i.e. for unforeseeable emergencies, from a top hat plan?

Here is situation - tax exempt sponsor has 2 plans, a 401k with a match and then a voluntary 403b. The HCE's are capped at 6% in the 401k, they can then defer additional amounts into the 403b plan. The enrollment team mistakenly enrolled a group of NHCEs into both plans however employees only wanted to defer into the 401k. How can we get the deferrals out of the 403b plan, with no distributable event? They are not ineligible employees, they were mistakenly set up under this plan. I cannot see an exact correction method under EPCRS. Think we should be able to distribute deferrals plus earnings as 1099 income?

Thanks Tom, you got it!! My first sentence said the plan failed comp ratio and general test.

A 401k plan failed compensation ratio testing and the general test due to the exclusion of overtime. This was for plan ending 6/23/2009. Plan is now correcting by preparing retroactive amendment to add back the overtime and provide the make-up nonelective contributions. What type of amendment is this? Is it a 401(a)(4)-11g amendment that must be done within 9 1/2 months? Does the group that is receiving the make-up contributions have to be named, with dollar amount of contribution stated, or can the plan's definition of comp just be retroactively amended with a statement that missed nonelective contributions will be made to all NHCE's for example? Thanks!

Yes the plan has been amended to grant vesting for each employee acquisition. Also, each time employees are hired they are all granted 100% vesting. However, sometimes only HCEs are hired. The discrimination is for the current employees who are subject to the 3 year graded schedule. We took over this plan a year ago, and found out this provision was never tested and now we may have to. Plan sponsor got real nasty about it saying prior vendor never mentioned testing. So want to be sure testing is really needed. If all employees from each facility that they pick to hire are treated the same way, there is no discrimination there. But what about the current plan participants who did not have there vesting set at 100%? Is this is a testing issue each year?

There is a provision in the 401(a)(4) regs about imputing prior service up to 5 years, as long as there is a business reason, all employees are treated similarly etc. There does not have to be a controlled group relationship. Would this not help?

Any thoughts?

Are there any issues with charging participant accounts for final Form 5500 preparation when a 401k plan terminating? Thanks!

We have a 401k plan sponsored by a large medical practice. They commonly "acquire" employees, meaning recruit, medical staff from different practices around the country. It appears the employees are mainly HCE doctors, but could also include NHCE medical staff such as RNs, PRNs, etc. They have been granting these new hires with 100% vesting under the k plan, which has a 3 year graded schedule. I know there is a special merger and acqusition rule in the 401(a)(4) regs that allow a one time BRF test, but this is not an acquisition. My question is does this granting of full vesting create an annual BRF test? These employees during the first year of hire would be NHCE correct, so what would be the testing issue in the first year? In year 2 I could see testing. However, when you look at the rules for imputed service and vesting, it appears it may be ok to impute vesting or up to 5 years of service, as long as certain conditions are met - see excerpt below. Employer does not want to credit prior service with the current employer, because this is hard to track,, some of the doctors are contract employees etc. So how can they accomplish their goal in terms of drafting the plan, and if possible avoiding testing? ERISA Outline Book 2.b. Granting of pre-participation service. Pre-participation service means any service prior to the employee's commencement (or recommencement) of participation, with the employer maintaining the plan or with a prior employer. For the granting of pre-participation service to be nondiscriminatory, the provision must apply to all similarly-situated employees, there must be a legitimate business reason to grant the service, and there must not be significant discrimination in favor of HCEs, neither by design nor by plan operation, resulting from such grant of service. Treas. Reg. §1.401(a)(4)-11(d)(3)(iii)

We have a governmental 401 (a) plan with a 7.5% mandatory FICA replacement contribution, designed to be a 414() pick-up. Since the employee portion of the social security tax rate is being reduced by 2%, the employer wants to know if the mandatory pick up amount should also be reduced under the plan? Any thoughts??

Situation is that dual status county hospital adopted a 457b top hat plan. Some kind of misunderstanding with the 501©(3) status and governmental status. So now they propose to convert the tophat plan into a governmental plan, to avoid plan termination and taxation to the executives. I am unclear on how to convert an unfunded top hat plan. I could see freezing the plan and allowing payouts as employees terminate, and adopt a new 457b governmental plan. Does anyone have any thoughts and any other ideas? Thanks!!

Does anyone know how to terminate a top hat plan if the plan is funded with individual contracts and the participant cannot be forced out?

I guess that is part of my question. If you interpret "crediting prior service for eligibility" to include the entry date since entry date is part of eligibility, then they would come in immediately under the normal plan rules. Similar to a rehire. So I do not see why the document would need to state anything specific. If you view entry date as separate from eligibility, then you would look to the plan to see when they should come in, but there will be no specific language. And if you are under this view and you want to make them enter the plan immediately upon transfer, then you will need language because you are not looking at entry date as being part of the predecessor service that you are crediting. It seems to me that once you reach an entry date in Plan A, and switch to Plan B, you do not need to meet the entry date again.

We have 2 companies A and B, in similar line of business where A owns part of B, but they are not a controlled group. Employees often transfer between companies. Situation we have is employee terminates with A and transfers/is hired by B. Lets assume employee met eligibility in plan A and had been particiipating for years. Plan B credits service with Employer A under the predecessor service provisions. Plan B has one year of service with semi-annual entry dates. Employee is hired on August 5th and has his service credited by Plan B. So when does emplloyee enter plan B? On August 5 or next January 1? Thanks

Broker is on the Board of Directors of a tax exempt entity. He is also the broker for the plan, and of course controls the investments and receives commissions, on assets of 40 million. Is this a prohibited transaction? He is not the named trustee, but he is on the board of the employer, and in essence the plan sponsor is normally a fiduciary. This is an ERISA plan, and it is not self directed, employer directs investments, and broker has plan on local brokerage firm platform. Any thoughts??

A non ERISA plan wants to stay within the non ERISA safe harbor parameters of FAB 2007-2. If the plan has multiple vendors and wants to limit loans and hardships to a single vendor by amending the plan document/loan policy, does this constitute employer discretion regarding plan design and violate the FAB? If so, could the TPA or consultant or vendor make the request to modify the plan in order to avoid employer discretion? Thanks for your thoughts!

(b)lines Ask the Experts – Universal Availability and Immediate Deferral July 13, 2010 (PLANSPONSOR (b)lines) – A reader says: “I have been told that the new regulation for Universal Availability requires employees be allowed to defer immediately to the plan. “Therefore, in all 403(b) plans today, employees must be immediately eligible to defer but the plan sponsor can put an eligibility requirement on the match. Is this correct?” Mike Webb, Vice President, Retirement Cammack LaRhette Consulting , answers: You are generally correct, but, as is the case with most regulations, there are exceptions to the general rule. Unlike 401(k) plans, which allow eligibility requirements such as a waiting period to be imposed with respect to elective deferrals, 403(b) plans generally allow all employees the right to make elective deferrals to the plan upon date of hire, in what you label accurately as the Universal Availability requirement. Over the years, several exceptions have evolved to the Universal Availability rule, most notably for collectively bargained employees. However, the final 403(b) regulations eliminated the collectively bargained exception and restricted the exclusions from the right to make elective deferrals to the following groups: •Employees who will contribute $200 or less annually; •Employees who participate in a 401(k) or 457(b) plan, or in another 403(b) plan; •Nonresident aliens with no U.S. source income; •Employees who normally work less than 20 hours per week (note that hours MUST be tracked in order to administer this exclusion); and •Students performing services described in Code §3121(b)(10) (generally, those enrolled in a post-secondary educational institution performing services for that institution). Even these narrow existing exclusions are somewhat difficult to administer in practice, since, if only one person from an excluded class is included, even inadvertently, all employees from that classification must be permitted to make elective deferrals to the plan. Thus, as a practical matter, many plan sponsors choose to allow all employees the right to make elective deferrals upon date of hire. As for employer contributions, eligibility restrictions, such as age and/or service requirements, may be imposed in a manner similar to that of qualified plans such as 401(k) plans, provided that such restrictions are not discriminatory in a manner that causes the plan to fail coverage testing under Code Section 401(a)(4). Historically, there were some differences as to how the nondiscrimination rules applied to 403(b) plans as opposed to 401(k) plans, but these differences were essentially eliminated by the final 403(b) regulations.

Check the IRS Q&A this October and see if they answer this question.