30Rock

Hi Bird The plan froze at the end of 2008 and all accounts were 100% vested. However, there were forfeitures, I assume from employees who terminated in 2008 with unvested amounts. The way the plan was restated is that all sections collapsed and the plan has a box Frozen checked, distribution options are available, 100% vesting, and that is about it. So the base plan says forfeitures should be applied in the Plan Year they arose (2008) or the plan year following (2009). The plan should have stipulated that forfeitures would be reallocated and how. Since no further contributions were made to the plan, the forfeitures could not be used to reduce anything, and there have been no expenses. How can I apply them as 2009 contributions? Can they be applied this year, 2010, the year the error is discovered? What happens in the case of an active plan with discretionary contributions where one plan year the employer does not make any contributions - is he forced to make a contribution so that forfeitures can be applied, or can forfeitures carry over year to year until there is a contribution?

Is there such a thing as a 401(a) plan that only accepts DROP money - which I believe is rollover money from a state defined benefit plan when an employee retires. I believe a money purchase governmental 401 plan can ACCEPT DROP rollover money. But you still need a written plan and a fixed MPPP contribution correct? Can the plan have a 0% MPPP formula and thereby only accept DROP money? Not sure of the advantage of this arrangement versus the employee just rolling the DROP to an IRA? Any thoughts?

Thanks! The base plan states that forfeitures will be applied as of the last day of the Plan Year in which they arose, or if necessary, the last day of the following Plan Year. So I guess we can do either. If I do the latter it will be for the 2009 Plan Year, and that is still timely for 415 purposes since it is only May. Since the plan is frozen it means NO contributions of any source are being made (client has a 403b plan now and the two plans cannot be merged). It appears I need to unfreeze the plan for one year - not sure I can retroactively do this. Since the authority on how to use the forfeitures is stated in the base plan I think rather than restate the adoption agreement I can just reallocate these forfeitures as nonelective via a board resolution?

Let me clarify the issue. The prior plan document, before the plan froze, had both nonelective allocated pro rata and matching contributions. Forfeitures were used to reduce future employer contributions. After the plan froze there have been no further contributions, hence the forfeitures have not been used. Yes the plan should have been amended when it froze to reallocate. So now, the forfeitures sit in a suspense account. What is best way to clean up - amend the plan to provide a nonelective contribution for 2010 and then reallocate the forfeitures? Thanks for any suggestions!

I agree. Plus I think we are off point a little. My actual question is not a mandatory contribution question. It is simply can a plan set a minimum of 3% in order to get into the plan. If you do not elect to contribute 3% you are not allowed to participate and you cannot elect a lower %. This could have a discriminatory impact on the NHCEs who may only be able to contribute 1 or 2% therefore failing effective availability. Also the true "mandatory contributions" are not a CODA, they are nonelective contributions that do not count towards the 402g limits. Therefore, effective availability is not an issue. I think I answered my own question! Thanks for making me think!

Oh yes I see that now, I agree. Separate 415 limits should apply

I think there is an exception - even tho they are not a controlled group, when there is 50% common ownership I think you aggregate the 415 limit, so his limit in both plans is really $46,000 (2008) or $49,000 (2009). Need to check out 415 aggregation and 50% controlled group status

Recline - that is a fantastic comment and point you make. Where did the IRS state that a 6% mandatory amount is alright, in a PLR or Q&A? Thanks!

"We" is the vendor I work for. You know I cannot go further with that one!

Thanks so much!

Is there a problem with a plan setting a minimum deferral % of lets say 3%? I recall an issue with maybe effective opportunity for the NHCE's, but maybe there is a range that is considered reasonable? Have others encountered this issue?

Do you think any type of fiduciary implications come into play under state law? Could the employer be held liable by the IRS or a participant claim that the employer had the duty to monitor the loan program and the loan limits, and by not doing so have jeopardized their retirement savings? We have employers who refuse to monitor loans when there are multiple vendors, and I am wanting to know if they do not have some liability? Appreciate any guidance!

I have a plan where the current document allows for withdrawals of rollover monies at any time. Client wants to eliminate all in service distributions. I realize that this is a protected benefit but am confused on how to protect it - do I protect the right to in service withdrawals or rollovers for all participants, even if they have never rolled money in, if so this means that I can really only eliminate the right for new hires after the date of the restatement?

What fiduciary obligations if any does the sponsor of a governmental 457b in Florida have regarding offering loans when there is more than one vendor and the vendors are not monitoring the loan limits? If a participant exceeds the loan limit under 72(p) there are tax consequences to the participant. What about for the employer - prohibited transaction rules under ERISA and the Code do not apply. All I can think of would be state law fiduciary issues regarding not monitoring the loan program and thereby jeoparding participants' retirement savings? Any ideas?

I realize that the Service Members Civil Relief Act (SCRA) states that if the loan is greater than 6% the service member can send a notice upon return from duty asking to lower the loan rate to 6%. We have a plan sponsor trying to put a spin on this to say can the rate be lower than 6%. SCRA says the loan rate cannot exceed 6%. My view is that this only helps if lets say the original loan is 9% interest and upon return from military leave he wants to reduce it to 6% this is ok. But lower than 6%??

I think you know oldman

We have a plan that has unallocated forfeiture money even though the plan was frozen as of 12/31/2007. I assume the amendment did not address forfeitures and neither did the recordkeeping system. At this point, should they be reallocated, and how? To all participants with an account on 12/31/2007 even if they have by now taken a distribution, or can we look at active accounts today?

Do unreimbursed medical expenses have to be unforeseeable in order to qualify for a hardship withdrawal under a 457b governmental plan?

I thought a top hat plan became an ineligible plan if the 457 limit was exceeded for a calendar year? Is there even an approved correction program for top hat plans?

Hi If the 402g limit is exceeded by 16 cents, what is the correction? Can the $75 de minimus rule under Section 6.02(5)(b) of Reve Proc 2008-50 EPCRS be applied since it will cost more in payment fees to distribute the excess than 16 cents? Should the participant include in his 1040 as taxable income, or is there a de minimus income tax rule too? thanks!

Hi I know this is an old link but I have a similar question. If the 402g limit is exceeded by 16 cents, what is the correction? Can the $75 de minimus rule be applied since it will cost more to distribute the 16 cents? Should the participant include in his 1040 as taxable income, or is there a de minimus income tax rule too? thanks!

I am not clear on how you satisfy universal availability? Assuming the For Profit has full time employees that cannot be excluded under the 20 hour a week/1000 hour per year rule, and do not meet the other exclusions, how do you satisfy UA if the For Profit does not have a 401k plan?

Is there a problem for contributing for 2009? If this is a calendar year plan, the 990 deadline is May 15, and the 415 deadline is not until October 15th.

What is the deadline for a Cycle E filer to adopt a pre approved plan if they are currently on an individually designed plan? If they sign an 8905 do they have until Jan 31, 2011 the cycle E deadline or do they have to adopt the plan by April 31, 2010? Thanks!!