Dave Baker

This sort of design seems clever to me -- I guess the ability to put in a last-minute deferral feature, which HCEs can take advantage of more easily than non-HCEs, is a big reason why the IRS has special rules for SIMPLE IRA plans (can't be put in after October 1 for a given calendar year). But I don't think there would be any such rule for your basic 401(k) plan. Heck, I understand that 401(k) plans used to be written to allow deferrals ONLY from bonuses, before it was clear that salary deferrals would be acceptable to the IRS. (I was barely out of high school then, though, and thinking about other things, so I'm not sure.)

Test

Could you type the exact language of the plan in this regard?

I found one article online that has some of that kind of information -- Minimum Distribution Requirements (IRAs and Qualified Defined Contribution Plans)

Any language in the plan allowing a reversion to the employer, I wonder? This actually happens sometimes in money purchase pension plans, and happened more frequently back when such plans were not allowed to reallocate forfeitures among other participants' accounts and instead had to use them to reduce the employer's contribution. I guess you could amend the plan to specifically allow for reallocation of these funds if it doesn't already so provide.

The SEP money has been in the employees' IRAs since then?

In some cases the forms signed by the participant go "stale" in about 90 days, meaning the plan is supposed to get another set of forms signed before cutting the check. As for deadlines, though, usually there aren't any under the terms of the plan. Sometimes a plan's provisions will credit the participant with interest if more than a certain number of days have gone by since the end of the most recently ended year. I guess ERISA's fiduciary duties would impose a requirement on the plan administrator to get moving as soon as administratively practical, but enforcing those duties is another matter (federal lawsuit, damages issue, etc.). And isn't there a rule in the tax code from olden days, having to do with participants who attain normal retirement age? Something about having to get the funds flowing no later than 60 days after the end of the plan year in which NRA occurs, I think.

Start to give them the option of having amounts withheld, you mean? I don't think these payments could be rolled over, so the mandatory 20% withholding rules wouldn't apply but the optional withholding rules applicable to "periodic" payments probably would. But an individual can opt out of that type of withholding for no reason at all -- the IRS just wants to make sure the plan gives the payee that option so that the payee isn't short on cash come next April 15.

The THOMAS Web site (Library of Congress - http://thomas.loc.gov/) is showing no executive action on the bill (HR 1180), after the conference version was approved by both House and Senate in mid-November.

Might be determined by the plan document. You're working with one that still has old language re minimum distributions to everybody at 70-1/2, even if a 5%-or-less owner?

Ditto Merrill Lynch

Often a state's statutory laws will regulate whether an employer can cause an employee's earned vacation time to be forfeited when the individual leaves employment. It depends on the state you're working in. The kinds of attorneys who know about these laws are "labor" or "employment" lawyers - they are usually listed under "Attorneys" in the yellow pages, under one or those two categories.

Know what you mean. I have put something like this into my forms: "No matter who you might name as your beneficiary, the plan must pay half (50%) of your account to your surviving spouse, because he or she has a right to half of your account balance after your death as a matter of Federal law. (Further, your surviving spouse will have the option of having that 50% share paid to him or her in the form of an annuity contract purchased by the plan.) If you'd like someone else to receive some or all of the spouse's 50% share (for example, you'd like to have 100% of your account pass to your children in equal shares, not 50% to your surviving spouse and the remaining 50% to the kids), your spouse certainly can allow you to do so by signing the appropriate place on your beneficiary designation form. But it is up to him or her to decide whether he or she will "consent" to your "waiver" of the surviving spouse's right to his or her 50% entitlement."

I call it the "Goldilocks rule" -- not too much, not too little.

Interesting! So the fellow should roll the funds into an IRA and then withdraw them (at which time he would be over 59-1/2)?

The employer is subject to ERISA (not a governmental employer or a church or church-controlled organization)? Always lookin' for dem loopholes

The participant might be stuck, under the rules in the IRS proposed regs -- has he (she) passed the April 1 of the year that follows the calendar year in which he or she attained age 70-1/2? If so, maybe there's a loophole -- is the individual still working for the company sponsoring the plan, but has a 5.0% or less ownership interest in the company?

Link to Rev Proc 99-44: http://www.benefitslink.com/IRS/revproc99-44.shtml

[*Thanks* to Sal Tripodi of TRI Pension Services, for permission to reprint and edit the following article, which appears on his site today at http://cyberisa.com. TRI Pension Services, started in 1994, is committed to providing consulting, professional training, and reference material in ERISA-related subjects.] Current DOL regs exempt "small" pension plans from the annual audit requirement that applies to larger plans (i.e., engaging an independent qualified public accountant to examine the financial statements of the plan and to issue a report to be attached to the Form 5500). A "small" plan is one that has fewer than 100 participants at the beginning of the plan year (or has between 100 and 120 participants and elects to be treated as a small plan). Proposed regulations issued today would require small pension plans (e.g., profit sharing plans, 401(k) plans, money purchase plans, or defined benefit plans) to meet certain conditions in order to be exempt from the annual audit requirement. Small pension plans that cannot meet these conditions would have to engage an accountant to audit the plan each year and attach the accountant's report to the plan's Form 5500. The regulations are proposed to become effective 60 days after they have been finalized, and would pertain to plan years that begin after the effective date. Small welfare benefit plans would not be subject to these new rules, and would continue to be exempt from the audit requirement without any of the new conditions. To be exempt from the audit requirement, a small pension plan would have to: (1) have at least 95% of its assets invested in "qualifying" plan assets, or (2) obtain a bond for any person who handles assets that do not constitute qualifying plan assets, in an amount that is not less than the value of such assets. Qualifying plan assets are: - qualifying employer securities, - participant loans which meet the prohibited transaction exemption requirements, - assets held by a bank or similar financial institution, as defined in DOL regs, - assets held by an insurance company, - assets held by a registered broker-dealer, or - assets held by an organization that is authorized to act as a trustee of IRAs. In addition to meeting one of the two requirements described above, the summary annual report would have to include: (1) information about the name of each institution holding qualifying plan assets and the amount of such assets held by such institution as of the end of the plan year, (2) if applicable, information about the surety company issuing the bond described above, (3) a notice that the participants and beneficiaries may request a copy without charge of any such bond and statements received from each institution holding qualifying plan assets that describe the assets held by the institution as of the end of the plan year, and (4) a notice that the participants and beneficiaries should contact the DOL's Pension and Welfare Benefits Administration if they are unable to examine or obtain copies of these items. The DOL believes this regulation would increase the security of assets in small plans, by conditioning the waiver of the audit requirement on enhanced disclosure of information to participants and beneficiaries, and, if the plan invests more than 5% of its assets in nonqualifying plan assets, by strengthening the bonding requirement. Written comments on the proposed regulation must be received by the DOL by January 30 of next year. A reprint of the full text of the proposed regulation appears online at http://www.benefitslink.com/erisaregs/audit [This message has been edited by Dave Baker (edited 12-01-1999).]

Are you age 62? What was the vested portion of your account balance as of 12/31/98 -- over $5,000? When is the company's stock revalued every year (or is it)? On December 31?

[Posted for Josie K by Dave Baker] posted 11-26-1999 11:42 AM I hope that someone can help clarify this issue for me. A child born to a Cobra continuant is a qualified beneficiary and the continuant has 60 days to inform us of the birth of the child. Is the 60 day time frame correct? Or is the notification requirement limited to 30 days? Thanks

Remember though, that the individual is hosed if his account receives any amount in the form of allocations of forfeitures or employer profit-sharing contributions.

pensiondoc - please update your email address (use the "My Profile" link at the top of most pages). Thanks!

Take another look, pensiondoc -- all of the IRS guidelines (only 8 pages long, though) are posted online by EBIA -- click on the "IRS Training Manual" link on this Web page: http://www.ebia.com/cafeteria.html

Beth -- prototypes from the New England have that provision.