ETA Consulting LLC

Technically, since the insurance policy is a part of the plan, insurance premiums (paid to the policy) do not represent amounts leaving the plan. If anything, it a transfer from one asset (cash) to another (the insurance contract). Expenses within the contract would be considered expenses to the plan; since the contract is owned by the plan. Not sure how this would affect what you're trying to do. Good Luck!

No, it is still falls under Section 401(k) of the Code. Good Luck!

It doesn't mean a 403(b). It's a settlement annuity, where the funds are no longer plan assets. "Settlement Annuity" is merely a term that I use, but the point is that the funds leave the plan to pay an insurance company for a contract to guarantee your benefit under the plan. Good Luck!

No such rule exists. One has nothing to do with the other. I'd ask them to provide a regulatory cite. Good Luck!

Originally, a 90 day notice was in the Proposed Regulations back in 2001 (or so), but this notice was not included in the Final Regulations. So, the notice hadn't applied for a while. Good Luck!

The short answer is that you can do whatever you want as long as you make contributions pursuant to a definitely determinable formula and that you continue to pass the appropriate non-discrimination tests by doing so. As you dissect these two criteria to your situation, you'll may get a host of issue (or non at all). With that said, when an individual moves from one division to another (typically making him ineligible for additional contributions to the former division and eligible for contributions to the new division) the individual merely begins to have his contributions calculated pursuant to the formula in the new plan. It's a process. Good Luck!

No. The Plan is not subject to ERISA when covering only the owner of the company. It would, therefore, not require any such bond. Good Luck

Your understanding is correct. There are only a few provisions that require an advanced notice (i.e. elimination of safe harbor 401(k)). I know the elimination of periodic payments used to require advanced notice, but doesn't currently require one. So, you would be safe with eliminating loans and hardships without advance notice. Good Luck!

So, where is the concern?

I agree that I can be done; dot all 'i's and cross all 't's. Just giving another alternative that "may" work, depending on the circumstances: Let's suppose the participant has $50,000 in the account plus a $25,000 loan. A direct rollover to a new plan would give him at $50,000 account balance in a new plan and a loan offset of $25,000. Since this is a cashless distributions, it would be exempt from the 20% withholding on the $25,000 taxable amount. The taxable loan offset could be rolled over within 60 days in order to avoid taxation. The participant could then take a loan from the new plan in the amount of $25,000. In a totally separated transaction, the participant could rollover the $25,000 loan offset (since it would be within 60 days of the distribution). This is just another planning tool in the event the distributing plan requires a payoff or the new plan does not accept that in-kind loan note. Good Luck!

They appear to say the same thing. The concept is that you will always determine the RMD based on the longer of the two life expectancies. The issue is that when performing that determination, the "Spouses" single life expectancy will be recalculated each year (and then compared to the participant's life expectacy in the year of death (reduced by one each subsequent). For non-spouse, you're reducing both the participant and non-spouse, so you'll never have to compare again. For a spousal beneficiary, If the participant was younger ( and had a longer life expectancy), you'd start out using that one. In the future (through recalculation of the spouse), the spouse's life expectancy may become longer (so you'd begin to use the spouses). It's just a different way of saying the same thing. Good Luck!

I see what you are saying. The "No Alternative Means Available" is under the 'facts and circumstances'; while the "deemed necessary" looks at only the employer plans and 6 month suspension

I don't think so; I agree with BG. When I first brought up this issue early in the discussion, I read and re-read the rules in our plan document (from the regs) and am quite confident that the point of the safe harbors is to qualify certain expenses without further conditions. These are two distinct criteria outlined in the Regulations. I merely copied two paragraphs illustrating how the two standards are broken down. First, you determine whether or not a hardship exists. If funeral, then yes. Second, you determine if the a distribution is necessary to satisfy the need. (iii) Immediate and heavy financial need—(A) In general. Whether an employee has an immediate and heavy financial need is to be determined based on all the relevant facts and circumstances. Generally, for example, the need to pay the funeral expenses of a family member would constitute an immediate and heavy financial need. A distribution made to an employee for the purchase of a boat or television would generally not constitute a distribution made on account of an immediate and heavy financial need. A financial need may be immediate and heavy even if it was reasonably foreseeable or voluntarily incurred by the employee. (iv) Distribution necessary to satisfy financial need—(A) Distribution may not exceed amount of need. A distribution is treated as necessary to satisfy an immediate and heavy financial need of an employee only to the extent the amount of the distribution is not in excess of the amount required to satisfy the financial need. For this purpose, the amount required to satisfy the financial need may include any amounts necessary to pay any federal, state, or local income taxes or penalties reasonably anticipated to result from the distribution. Keep in mind that the safe harbors are listed below each of these in the Regulations. For these purposes, I only copied the paragraphs to show that there are 2, not 1, standards to satisfy. Good Luck!

We know the voting stock is 100% and 78%; which is not a controlled group. We also know that the value stock is limited to 5 or fewer members, so you cannot get a combined 80% using any combination of 5 individuals. Barring some other attribution provisions (i.e. restrictions on stock in favor of a parent or sibling), then they are not a controlled group. Good Luck!

No. That would be the classic definition of a 'successor plan'. Good Luck!

Your fact pattern is too convoluted. If you list Company A and its owners by percentage (and the owners relatives), and then list Company B and its owners by percentage; it would be much easier. Total combined ownership for more than one person confuses the issue as those amounts can be calculated from the inital lists. Good Luck!

In a plan that uses the safe harbor basis in determining hardships, the above is not applicable. Whether the invoice is paid or open not withstanding, in a safe harbor situation, I could have a million dollars in cash sitting on my kitchen counter, but I'd still be able to take money out of the plan to pay for funeral expenses. I disagree. Just because a hardship exists doesn't mean a distribution from the plan is necessary in order to satisfy the hardship. 401(k)(2) of the Code outlines 2 safe harbors 1) whether a harship exists, and 2) whether a distribution from the plan is necessary in order to satisfy the hardship. Under the 2nd standard, you get the "maximize Plans loans and other distributions" and the six month suspension period. Good Luck!

PenPro's argument was "how can a distribution from the plan be necessary to pay a bill that was already paid by the participant". This is a valid question. We know a hardship existed because it was deemed to exist by simply being a funeral. A separate standard is whether a distribution from the plan is necessary to pay the hardship. PenPro's argument is no, because their is no bill outstanding. I understand, and respect, that argument. I, like you, believe there are other facts to consider. I do not believe how long ago (or how old the invoice) was it one of those facts. The analysis should remain on the lines of "whether a distribution from the plan is necessary in order to pay the invoice". From here, we'll never agree. That's where it would depend on the judgement and documentation of the decision to show the IRS, if audited, that the distribution for hardship was valid. Good Luck!

No. Each Plan may be written to cover only the employees of that particular company. The issue is "Service for Initial Eligibility". This includes all service of the Employer (which includes related members of a controlled group). She's not employed at both companies at the same time. So, she won't "likely" participate in both plans. When you look at eligibility for plan entry, you look at "all service of the employer". When you look at actually receiving contributions under a particular plan, you look at "compensation received while working for that particular member". Each issue is segmented for it's own analysis. Collectively, the plans must pass the appropriate non-discrimination tests, but you're operating each plan under it's own terms. The term for "eligibility" is that you count "all" service performed for the employer (including controlled group members). Good Luck!

"Like" I believe there is a little flexibility provided by allowing the Plan to consider "Participant Representations" with respect to the availabilty of other funds. Under this fact pattern, this is futher complicated because the participant actually produced a copy of the check that was used to pay the funeral expenses (meaning that the funeral hardship was satified while the participant has another burden of 'having less money'; which is not a hardship). My contention is still (pushing the envelop a little further) that it would depend on the conditions on which those funds were available. I think we would agree, however, that it would be less of an issue had the participant not presented the sponsor with a copy of the check used to pay the expense. That's like saying, "I want a hardship distribution, but I'm going to prove to you that the funds are NOT needed to satisfy the hardship". So, we know what we arguments are :-) Good Luck!

I have used all three, but have used ASCi (DGEM) for years. In my opinion, it is the best system I've seen yet. The attorneys that wrote the document are old PPD guys that used to work for Corbel. When they moved to create ASCi, they resolved all the weaknesses from the old "Autodoc" system that Corbel used. It drastically reduces the time needed to create a new document (or amend and plan) for a client. Just my thoughts. Good Luck!

It does count; as it is service for the same employer. That's what being a member of a controlled group does; they are treated as one employer. Good Luck!

I agree with what you are saying; which is what you've established in the first comment. You're simply saying that it cannot be a hardship as the funeral expense no longer exists. Remember, the participant paid it off with a check. Now that he paid it off and is indebted to a friend, a condition created by the payment of funeral expenses, it does not qualify as a hardship. I respect that interpretation. But my original comment addressed a little of that if documentation was shown that the payment of the funeral expense was made with funds provided to the participant with the understanding that a hardship distribution would be received from the plan. You're not saying "Hey, funerals aren't safe harbor hardships". You're merely saying that in this case, the funeral is not the hardship, but the fact the participant ran out of money. Good Luck!

If anything, you are discriminating against the HCE's (since they usually cannot put that high of a salary deferral percentage away) which is always ok. "LIKE". The only time there would be an issue under this type of instance would be if the 'actual rate' (e.g. 25%) were to increase as the level of employee deferrals (e.g. 15%) increase. Since anyone who defers at or below 15% is receiving 25%, then there is no issue. Good Luck!

You make a valid point; it always boils down to judgement and documentation. I tend to agree with PensionPro from the straight fact pattern. However, this could be overcome by an employee representation that no other sources of funds were available while those proceeds represent amounts provided in order to proceed with burial until that hardship amount is received. This would, obviously, require detailed documentation (maybe even a certified statement from a friend) stating that those funds were provided to the participant with that understanding. This would provide a much higher standard of documentation as the seemingly obvious answer is that the amounts were paid with funds that were available as evidenced by the check used to pay those funds. Good Luck!