R. Butler

I agree with Disco Stu that chances of an audit are increased by answering Yes, but the answer is what it is. I don't recommend answering falsely on the 5500. I do recommend making a complete correction and timely filing the 5330. You may even want to footnote the 5500 stating that the correction has been made and the 5330 has or will be filed. The DOL isn't extremely well staffed. They aren't going to visit if they don't think they can find something. If you make the correction and file the 5330 and if your plan is otherwise compliant you will probably be O.K.

The penalty is not assessed on the late dollar amount, but the rather on the "amount involved". The DOL treat late deposits as a prohibited loan. The "amount involved" is the interest that accrues on a the hypothetical loan. The penalty is 15% of the hypothetical interest. Quick Example Late Contribution is $10,000. It is 6 months late. Simple interest of 8% per year.--------------- The amount involved is $400 ((10,000*(6/12)*8%)). The penalty is $60 (15%*$400). I kept my facts simple, but keep in mind as with prohibited loans there may be multiple prohibited transactions if late contributions are actually made in different year.

I agree with the previous response. Section 612© clearly states that the provision is effective for plan years after December 31, 2001. It doesn't make sense to look at a committee report and arrive at a conclusion that is totally contrary to the letter of the law.

Thank you for all of the responses. I went ahead and did as Judy Miller & rcline46 suggest and just manually adjusted in the top heavy specs. I generally don't like to do it that way (I'd rather Quantech just do it correctly, so we have better cross checks), but I sometimes I guess we don't have a choice.

The '98 report (the year of distribution) was done on Pentabs. We transferred the plan to Quantech beginning in '99, so I don't actually see the employee on Quantech. I just see the distrib. in the top heavy test.

An HCE terminates in '94. Balance is distributed in '98. My understanding of the top heavy rules is that an employee's account balance is excluded from the top heavy test if that employee has not performed services at any time during the 5 year ending on the determination date. I am running a 12/31/00 test, Quantech is including the distrib. in the top heavy test. How do I get it out of the the test (or should it be in the test and I just don't know the top heavy rules as well as I should)?

I agree with Harry O. The Act clearly states that the limits you are questioning take effect in plan years BEGINNING after 12/31/01.

The default would be in 2000. The 1099-R should be issued for 2000.

1. Filing the 5330 and paying the excise tax is not the correction, it is the penalty for making the late deposit. The correction is remitting the money and making up lost earnings. You should make the correction before filing the 5330. The 5330 should be filed and excise tax should be paid. The tax is generally nominal. Late deposits generally is not a qualification issue. Once you have made the correction and filed the 5330, you should be done. 2. I am fairly ceratin you can still self correct on the failed ADP test. The permitted correction is QNEC's. See Rev Proc 2001-17 partciuclary Appendix B. The "other withdrawals..." comment I don't really follow, so I didn't consider it.

Your analysis seems correct. A 12 month cessation of deferrals is required if the plan is relying on the safe harbor test. If the plan document uses the facts and circumstances test I don't know of anything in the regs that require a participant to quit deferring. See 1.401(k)-1(d)(2)(iii)(B).

Late deposits usually can be self-corrected without a "VCR-type filing"......A full correction must be made, including making up lost earnings. The 5330 asks for an explanation of the corrective measure taken......An excise tax for a prohibited transaction is assessed on the "amount of involved". The DOL views late deposits as a loan to the employer; thus the "amount involved" isn't the amount of the late contribution, but rather the hypothetical interest accrued on the hypothetical loan.

Unless something has changed recently spousal consent still must be written. The final regs. issued in 2000 on paperless administration noted that the IRS couldn't provide for electronic spousal consents because a notary of public or plan administrator witnesses the signature. This presupposes that he/she is present when the spouse consents. Hope this helps.

I would file. The penalty is generally nominal; it shouldn't be that big of a deal.

Just wanted to refresh this post

Company A & Company B form a controlled group. Each company has its own plan. I have each plan set up separately on Quantech. Is there anyway I can get Quantech to do the 410(B) testing without me manually going an adding Company A's employees to Company B and vice-versa? Thanks for any guidance.

Pg 12 and 49 still say the same thing, its just that the DOL wanted to display their linguistic skills. Page 12 if the plan is not a profit sharing....the 4th criteria applies. Page 49 says unless the plan is profit sharing....the 4th criteria applies. It says the same thing stated two different ways, the 4th criteria does not apply if the plan is profit sharing..... or the 4th criteria applies unless it is profit sharing....

I agree with Stephen's understanding of when to file. If the plan isn't a DB or MP plan, if there are only cash distributions and if all 1099-R's are filed using the EIN of the plan sponsor then a Schedule R isn't required.

Can the terms of the note prevent the employee from rescinding? My initial question didn't consider this issue, but it is an interesting thought. Our notes also provide that withholding will continue until the loan is repaid. My concern is my own lack of understanding of state withholding laws. I doubt the note itself violates state law, but can the repayment clause be enforced over state withholding laws? Would the answer vary from state to state?

I see a problem with allowing intentional defaults. There isn't a reason for this thread if we weren't concerned about intentional defaults. ERISA requires that loans be bona fide. Now I am not necessarily extremely concerned about one person revoking a payroll withholding. I am concerned about many participants using the loan and a subsequent revocation of payroll withholding to circumvent distribution provisons. Wouldn't the DOL be concerned if 30 loans were taken and then payroll deductions immediately revoked?

Points well taken. I understand your arguments, I just don't necessarily agree with the conclusion. Maybe one day case law or statute will give a definitive answer.

Nonetheless, Dean's trademark line... I realize that advisory opinions only apply to the facts of the particular case. I agree that DOL opinions are but one interpretation of the law. However, in this case they are only interpretation I can find. I have looked for case law and have not found any on point. As far as how the method of repayment relates to ERISA, again I would refer you to DOL advisory opinion 96-01A. That issue dealt with discretionary methods of loan repayments. In reaffirming a previous DOL position the opinion states, "Although the Department's previous opinions did not address the specific issue here, which concerns the discretionary methods by which to operate a loan program, we reach the same conclusion." Most of us readily accept that negative elections are permissable. It is not the only means of enrolling participants; it is not even the most widely used method. Why does ERISA preempt state withholding laws with negative elections, but not loan repayments? Now I do realize I am probably in the minority. For the very reasons Hank mentions in his post, I did acquiesse and advised the client to stop withholding.

It seems to me that 94-27A also indicates ERISA §514 would preempt state withholding laws. I spent alot of time researching this issue and it seems to me that employee should not be able to rescind the payroll deductions. However, most of the people I spoke with (and they are much more knowledgeable than I am) disagree. They cite state withholding laws, but they don't seem to be able explain to me why ERISA §514 does not apply. I have difficulty with the arguement of ERISA not dictating the form of repayment because how do you explain the advisory opinions (or negative elections for that matter)? Even though I don't necessarily agree, for right now I acquiesed to the majority and advised the employer to stop payroll deductions.

Generally speaking can a thrift plan accept rollovers from a 401(k) plan?

I don't know of any reason why either the TPA or the record keeper would be liable for late deposits. If there are substantial and reoccurring errors, however, I do get concerned and in the past I have recommended to my employer that we dump the client. Even if there is no real basis for liability, you may have to actually defend a lawsuit. We do recommend to our clients that deposits be segregated within days of the payroll date. We send letters out at least twice a year reminiding all of our 401(k) clients of the DOL's position on the timliness of deposits. As far as the 5500 goes, I generally do not ask clients if their deposits were remitted timely. I am comfortable that I know every account that each plan has; I review the accounts and if any deposit is remitted after the "outside" time frame I automatically answer yes and recommend corrective actions. Deposits remitted before the "outside" time frame are looked at on a case-by-case basis. We will consult the plan sponsor. Even if we ultimately answer "no" on the 5500, we still may recommend corrective measures, but the ultimate decison is the plan sponsors.

I should have used the term fiduciary and not party-in-interest. I don't disagree that the employee is a party-in-interest under ERISA, but does that make this a prohibited transaction? I thought that a prohibited occurred when a fiduciary causes the plan to engage in a transaction that the ficuaciary knows or should know constitutes...blah,blah,blah. From the initial question I assume that there is a loan program that makes loans reasonably available to all participants. Unless the employee is a fiduciary, I don't see why this is a prohibited transaction.