401K_AZ

1. Generally, no. Prevailing wages may be paid in either cash, benefits, or a combination. I say 'generally' because I cannot speak to the requirements of every municiaplity and state--but federal and the state jobs that I am familar with do not require a plan. If you pay in cash, then no plan is needed. 2. Yes, they can just pay cash. But you lose some of the savings on "labor burden" (e.g., contributions to a 401k are not subject to certain payroll taxes). There can be some real cost savings when you avoid payroll taxes on a significant amount of your labor costs. 3. I don''t see why note. It just has to be a "bona fide" plan. To avoid the annualization requirement, defined contributions need immediate eligiblity (at least to the PW contributions), and 100% vesting of those PW contributions. You could use some PW to fund or offset the employer contribution to a SIMPLE. In a 401(k), you would often have a seperate source set up for the PW, but not sure you would do that in a SIMPLE--but there is no requirement to actually have a seperate source as long as your employer contributions are immediate eligibilty and 100% vested. Depending on how many participant subject to PW and you setup the a 401(k) --e.g., what recordkeeper, services, etc. --- the admin costs might be signifcantly outweighed by the savings in payroll taxes.

It has always been my understanding that at least one trustee needs to be in the U.S. When I have looked at this issue before, this is what I have based it on: A qualified trust under section 401(a) must be created or organized in the United States, as defined in section 7701(a)(9), and it must be maintained at all times as a domestic trust in the United States (See § 1.401-1(a)(3)(i)) In the regulations related to 7701(a)(9), it sets forth a 2-prong test-- the 2nd prong being: “One or more United States persons have the authority to control all substantial decisions of the trust (control test).” (See § 301.7701-7 Trusts - domestic and foreign). Note that the first prong of that test is that a court within the United States is able to exercise primary supervision over the administration of the trust--hard to do with all trustees residing in other countries. Also note that further down in the regs, it does state that "Substantial decisions" includes Investment decisions. There is a Safe harbor for certain employee benefit trusts and investment trusts to be deemed to satifsy the above "control test", "provided that United States trustees control all of the substantial decisions made by the trustees of the trust." Whether the safe harbor control test is used or not, it appears that a U.S. trustee is needed. Now, the regulations do have a transition period for when a change occurs: "In the event of an inadvertent change in any person that has the power to make a substantial decision of the trust that would cause the domestic or foreign residency of the trust to change, the trust is allowed 12 months from the date of the change to make necessary changes either with respect to the persons who control the substantial decisions or with respect to the residence of such persons to avoid a change in the trust's residency."

I noticed the mention of charter schools in the thread, and I have been pondering similar scenarios. Under many state laws, the charter schools are considered public schools. These states have laws that factor in 2015-17 considerations already, and charter school are considered public schools under state law. If under state laws, the charter school are in fact public schools, then in my opinion, there should not be too much controvesy about establishing a non-ERISA/governmental 403b plan (let me know if you disagree); however . . . Charter schools often have for profit private managment companies, which are owned by the same people who founded the charter school. The charter schools hire the management companies to perform many essentional functions and most of the state-provided funds flow right to these managment companies for these services. These management companies can provide services to several "related" schools. We see the following scenarios, none of which I like: 1. PEOs just simply setup the charter schools in their 401k plan without much thought as to the charter school being considered a public school. I do not think these charter schools are eligible for 401ks. (not a grandfathered gov 401k plan in anyway) 2. A 403(b) is established for the charter school, and the for-profit management company is a participating employer. I do not know of any exceptions that would allow the for-profit entity to participate, but I would love to know if there is one. 3. a 401(k) is established for the management company, and the charter schools are a particpating employer. I do not know of any exception that would allow the charter school, as a public school, to participate, but I would love to know if there is one.

I posted my thoughts on the subject before, at http://benefitslink.com/boards/index.php/topic/56254-late-deposits-dol-safe-harbor/#entry246113 When I was at the DOL, we did not look at the date the contribution was remitted, or even the date the money was received by financial institution, but the date it posted to the trust account. And, we never looked at when the contributions were allocated to the actual participants--just when the contribution posted to the plan's account. There is a difference between when the entity receives the assets and when it was posted to the account--often it is the following day.

See Internal Revenue Bulletin: 2010-6 Q-15. If an individual is eligible under a plan to receive a distribution under § 401(k)(2)(B)(i)(I) as a result of a deemed severance from employment under § 414(u)(12)(B), and is also eligible under the plan to receive a qualified reservist distribution within the meaning of § 72(t)(2)(G)(iii), as permitted under § 401(k)(2)(B)(i)(V), what treatment applies to a distribution that could be made under § 401(k)(2)(B)(i)(I) or under § 401(k)(2)(B)(i)(V)? A-15. If an individual receives a distribution that meets the definition of a qualified reservist distribution under § 72(t)(2)(G)(iii), the distribution will be treated as a qualified reservist distribution, even if the distribution would also have been permitted as a result of a deemed severance of employment under § 414(u)(12)(B). For example, if a plan provides for qualified reservist distributions and for distributions on deemed severance under § 414(u)(12)(B), a distribution to an individual that could be either type of distribution will be treated as a qualified reservist distribution. In that case, the distribution would not be subject to the 6-month restriction on elective deferrals or to the 10-percent additional income tax of § 72(t). The rules applicable to qualified reservist distributions are discussed in Section IV, below.

I was a senior investigator with the DOL. I will not argue for or against the merits of how EBSA looked at the timing of deposits, but just offer this insight regarding how we looked at this when I was still with the EBSA. It's been a few years since I was there, so enforcement policies may have changed. We did not look at the date the contribution was remitted, or even the date the money was received by financial institution, but the date it posted to the trust account. And, we never looked at when the contributions were allocated to the actual participants. There is a difference between when the entity receives the assets and when it was posted to the account--often it is the following day. The original posting does not explicitly say that the employer is a small employer that would have the 7 day safe harbor. Assuming it was a small employer, if the contribution did not post to the account until the 8th day (even though it was received by the custodian on the 7th day), then the DOL would say that the 7 day Safe Harbor is inapplicable, and then you must determine when the assets could have been reasonably segregated (as a very general rule of thumb, 3 days from my personal point of view). I believe that the DOL's viewpoint could be summed up as just because the custodian received money on the 7th day, it does not mean the money was actually deposited into the trust on that day. The day it posts to the account is the most accurate way of knowing when the contribution actually made it to the trust account--and thus, segregated from general assets Again, it has been a few years since I left EBSA. Let me know if you are seeing different enforcement policies being put into effect.

You can implement an plain automatic enrollment arrangement (ACA), but you have to do an EACA to get the 90 day withdrawal. If this is an existing plan that is also a calendar year plan, you cannot implement an EACA midyear generally. For EACAs, an initial notice must be provided to newly eligible employees not more than 90 days before the employee becomes eligible to participate in the plan and no later than the date the employee becomes eligible. For plain ACAs, the notice should be provided to participants upon eligibility to participate and thirty days before each Plan Year. As far as state wage laws, it has generally be held that ERISA preempts those state laws. The DOL has been pretty consistent with its view that a employer is free to implement an ACA, regardless of any state wage withholding or payday laws. I have personally been involved with assisting a NJ client when an employee filed a complaint about the automatic enrollment, and the judge dismissed the claim based on ERISA preemption.

I can't speak to how every regional office operates, but out on the west coast the EBSA mainly hired "Investigators", although there was at least one "Auditor" in the office. The biggest difference that I could tell is that the Investigators had legal backgrounds, and the auditors had an accounting background. There really wasn't much of a distinction in duties as far as I could tell. The DOL or a Regional Director may have a specific distinction that I didn't know about. As for as “Investigations” vs “Audits”-- at least for the cases I worked on, we only opened cases on plan sponsors where there was suspected wrongdoing--meaning, we didn't audit to just to check up on a plan--we were looking for evidence to substantiate a suspected violation of federal law. So every investigation started out involving “those employers/fiduciaries who have abused their role as fiduciaries”, or there was high likelihood of harm to participants. Many times, the reason for the investigation wouldn’t amount to much, but we had a list of things that we always checked on every plan. So, maybe the default list of things we checked every time may fall more along the lines of an “audit". Also, in any investigation the facts may warrant a parallel criminal investigation to be opened. I don’t think anybody does criminal audits.

You absolutely CANNOT use forfeitures to pay earnings/interest on late deferrals. Late deferrals are technically a PT (an impermissible loan to a party-in-interest from the time the assets could have been reasonably segregated until the date of remittal, or in plain English: The employer is deemed to have borrowed the money until the contributions are sent to the plan’s trust), and they are clearly a breach of fiduciary duty. You can never use plan assets to correct a fiduciary duty. I am a former DOL/EBSA investigator, and I can assure you that using forfeitures in this manner will get you dinged during an investigation. The Fiduciary is required to make the plan whole (to be read as the earnings/interests must come from outside of the plan). Corrections of Fiduciary breaches are not Plan Expenses!

EEK! I was an investigator with the DOL/EBSA, and this exact situation was always used an example of PT in our training! Also, the questions posed by Masteff are right on the money. Pooled Account of individual accounts? They will need to plan on having an appraisal done annually. Where will the money from the property taxes, insurance, etc come from? The Plan? Since this is a DC plan, then expect scrutiny from the DOL at some point. I am always weary when owners want to do some type of special investment within the confines of a 401(k) plan. There are so many ticking timebombs when real estate is a plan asset.

For HRAs that carryover unused employer contributions, does this impact nondiscrimination testing (i.e., $1000 per employee every year is contributed to the HRA, and unused amounts can be used in the following years). Do actual reimbursements need to be considered for testing, or can contributions be used somehow?

For HRAs that carryover unused employer contributions, does this impact nondiscrimination testing (i.e., $1000 per employee every year is contributed to the HRA, and unused amounts can be used in the following years). Do actual reimbursements need to be considered for testing, or can contributions be used somehow?