R. Butler

We actually had a similar situation. We did "split hairs" & make it a reportable transaction. I don't disagree with JohnCheek that the Plan still is self-directed, but the instructions provide that "Transactions under an inidvidual account plan that a participant or beneficiary directed with respect to his or her account...." The participant did not direct the change from one mutual fund to another.

If the plan is top heavy, if a key employee makes employee deferral contribuions & if there are no other contributions other than deferrals, the top-heavy minimum is required. EGTRRA made numerous changes to top-heavy rules, but the only provision that actually states a 401(k) plan isn't top-heavy is §613(d). That only applies to certain safe-harbor 401(k) plans. This isn't a safe harbor plan so §613(d) isn't applicable.

For purposes of your question, I never get to it. The Rule of Parity doesn't apply here.

Without researching too much I don't see how you can exclude the 5 months indefinitely. §410(a)(5) provides in part that "...Except as otherwise provided in subparagraphs (B), ©, and (D), all years of service with the employer or employers maintaining the plan shall be taken into account in computing the period of service for purposes of paragraph (1)." Since we don't have a 2 year eligibilty requirement §410(a)(5)(B) does not apply. The Rule of Parity (§410(a)(5)(D)) does not apply because this employee is not a participant & furthermore has was previously pointed out there haven't been 5 consecutive breaks in service. That leaves §410(a)(5)©, the one year break in service rule. After revieiwing 1.410(a)-(7)©(5) it seems to me that you could require an additional period of service, but once that additional period is completed employee would get credit for all prior service. The difficulty with that, particularly in a 401(k) plan is the retroactive entry. "...5) One-year hold-out--(i) General rule. (A) For purposes of section 410(a)(5)©, in determining the period of service of an employee who has incurred a 1-year period of severance, a plan may disregard the employee's period of service before such period of severance until the employee completes a 1-year period of service after such period of severance. (B) Example. Assume that a plan provides for a minimum service requirement of 1-year and provides for semi-annual entry dates, but does not contain the provisions permitted by section 410(a)(5)(D) (relating to the rule of parity). Employee G, age 40, completed a seven-month period of service, quit and then returned to service 15 months later, thereby incurring a 1-year period of severance. After working four months, G was laid off for nine months and then returned to work again. Although the plan may hold employee G out from participation in the plan until the completion of a 1-year period of service after the 1-year (or greater) period of severance, once the 1-year hold-out is completed, the plan is required to provide the employee with such statutory entitlement as arose during the 1-year hold-out. Accordingly, employee G satisfied the 1-year hold-out requirement as of the eighth month of layoff, and G is entitled to become a participant in the plan immediately upon his return to service after the nine-month layoff effective as of the first applicable entry date occurring after the date on which he satisfied the 1-year of service requirement (i.e., the first applicable entry date after the first month of layoff). See the regulations under section 410 (a) (relating to eligibility to participate)..."

Not if the plan is top-heavy.

Probably need to review PTE 84-24. Even if it qualifies for a prohibited transaction exemption, I'd avoid it just because of the appearance.

Yes.

I agree with that analysis, but I don't have any problem calling this a mistake of fact based on the facts you have given us.

1. Exclude unrelated tollovers 2. Exclude participants that did not perform services during the 12 month period ending on the determination date.

If he is in conflict then Sal is right & the regs are wrong.

I vote that the notice isn't valid. I know that the 30-90 is just a safe harbor, but June is double the outside time frame.

If the employer used the "Wait & See" approach to the 3% nonelective than clearly you can get out of it. Even if you didn't use the "Wait & See" I don't know of anything that prevents the Plan from amending provisions prospectively.

The 5500 instructions do fairly good job. As far as the Schedules go there is actually a quick reference chart in the instructions.

I tend to agree with the 1 year. In this Plan if physician determines employee can't return to meaningful employment for 12 months. He is disabled & we have a distirbutable event. Not necessarily, the loan document can provide for continued repayment after termination. I agree. Its not known how long this guy is going to be gone for yet. Whenever an employee leaves on an unpaid leave of absence, at the request of the employer we send them a letter to the participant explaining the 1 year suspension rules. In this particular case an individual in our office is questioning the applicability of the provision to a disabled person. I don't find any support for their position, but I always try to check anytime there is a disagreement.

I lokks like Appleby beat me to the punch by about 30 seconds.

Out of curiosity I reviewed my 2002 ERISA Outline Book. It seems to me that Sal is saying that in 2003 an individual over 50 can only defer $14,000. Thats what I was referring too. Sal does does go onto provide examples of a participant in two plans that is required refunds from both plans. He states that each plan can apply the catch-up limit separately for purposes of determining refunds. I didn't consider that possibility, but it does make sense. Still in no example, at least in the 2002 edition, does Sal say an over 50 person can exceed $14,000 in acalendar year.

I don't see a problem. The 25% is deduction limit. You are not deducting the forfeitures. The annual addition limit is the lesser of $40,000 or 100% of comp.

I agree with your ultimate conclusion, but I disagree that the catch-up contribution is a plan limit similar to 415. I am fairly certain that catch-up contribution is an individual limit.

It is my understanding the "top-heavy pass" available to ceratin 401(k) safe harbor plans is not available to the Plan design you describe. That was Sal's view in the 2002 edition of the ERISA Outline book. We don't have the 2003 edition, but I've seen nothing that to suggest a reason for a change in that position.

I agree that can suspend for 1 yr for a bona fide unpaid LOA. I really don't know, they are concerned with the taxation if repayments don't resume at the end of the 1 year. It makes no sense to me, but they pretty adament so I'm at least going to look into it a little bit.

Participant takes a loan, a few months later takes a leave for disability. My understanding is that loan payments can be suspended for 1 year for a bona fide unpaid leave of absence. I am being told that because the person has a disability we must suspend repayments indefinitely (the 1 year limit not applicable.) They reason that we cannot ever default the loan because cannot take anything away from a participant on disability per ADA and other related laws. I doubt that they are correct, but I just am hoping to verify since I'm not up on all the ADA or any other disability laws. Thanks in advance for any guidance.

What ought be done is to make the Fiduciary change his name to Steve Bartman & then make him run through the streets of Chicago while wearing a Marlins jersey. This may accomplish a couple of things. It may satisfy the whining Cubs fans desire for vengence & maybe after a few beatings the anger will subside & the real Steve Bartman can get on with his life. Ah, but alas my sick sense of justice won't be honored. Generally no civil penalties. Possible criminal penalties under ERISA §501. "...Any person who willfully violates any provision of part 1 of this subtitle, or any regulation or order issued under any such provision, shall upon conviction be fined not more than $5,000 or imprisoned not more than one year, or both; except that in the case of such violation by a person not an individual, the fine imposed upon such person shall be a fine not exceeding $100,000...." Possible civil penalties if participant makes a formal request & request not fulfilled within 30 days. See ERISA §502©(1). "c) Administrator's refusal to supply requested information; penalty for failure to provide annual report in complete form (1) Any administrator (A) who fails to meet the requirements of paragraph (1) or (4) of section 1166 \2\ of this title or section 1021(e)(1) of this title with respect to a participant or beneficiary, or (B) who fails or refuses to comply with a request for any information which such administrator is required by this subchapter to furnish to a participant or beneficiary (unless such failure or refusal results from matters reasonably beyond the control of the administrator) by mailing the material requested to the last known address of the requesting participant or beneficiary within 30 days after such request may in the court's discretion be personally liable to such participant or beneficiary in the amount of up to $100 a day from the date of such failure or refusal, and the court may in its discretion order such other relief as it deems proper..." If DOL requests & you fail to provide within 30 days penalty can be $100 per day not to exceed $1,000. (See ERISA §502©(6))

I'm not sure this is necessarily correct. If participant wants to refinance, they would have to repay the full $8,480 within the original repayment term of the $4,777 loan. Otherwise it would probably be easier for the Participant just to have 2 outstanding loans, the original loan and a new loan for $3,703. (I guess you could still combine them to one loan still, but you gotta be careful with the amortization schedule; that $4,777 still has to be repaid by the original due date and you would still have to amortize the $3,703 over no more than 5 yrs. Personally thats too much work for me.)

Assuming the loan limits provided document are parallel to the IRC; participant could take out an additional $5,223.02 ($10,000-current balance). Remember though that only 50% of vested balance can be used as colatteral so an additional source of colatteral would be required.

The original post stated that the problem occurred in 2002 so its really irrelevent, but even if it occurred in 2003, it seems to me that this would only be prudent if you caught the error in the first quarter of the plan year. If the participant didn't have the opportunity to defer for at least 9 months out of the plan year, the EPCRS correction method still requires a corrective contribution for the portion of the plan year in which the participant was not allowed to defer.