Alf

My meaningless guess is that the DOL's participant contribution regulations don't apply to a plan that is not subject to ERISA. This was "Newtothegames" original question.

I would confirm that they aren't trying to undo a Rev. Rul. 90-105 or 2002-46 "product" because I think that special rules in Rev. Proc 2002-9 and Rul 2002-73 have to be considered as well.

I believe the first part of Boston's reply is correct. I believe the second and third situations will generally have identical results, with the clarification that the rules of Code Section 413© regarding the testing of multiple employer plans (sometimes one plan, sometimes separate plans) will apply to the third situation.

The QP has to have specific provisions allowing this type of IRA rollover for it to be permitted, but it will just be a normal rollover, not a deemed IRA. The fact that it was a distribution means it is cleansed of the IRA features (but after-tax money must still be tracked separately). You must confirm that it was not an inherited IRA and that it does not have after-tax money in it. Distributions of after-tax IRA money cannot be rolled over to a QP. The participant must be directly roll them over. Deemed IRAs are only applicable to new contributions. Do a search on benefitslink for EGTRRA rollover or portability changes and you should find plenty of explanations.

Can everyone confirm that one participant plans are subject to ERISA? I know it was as issue once, but I am not sure that it was settled. If not subject to ERISA, that would mean that the participant contribution rules would not apply. I do note that the orignal post mentioned a spouse, so this is not relevant for his question.

All of your proposed answers sound correct. The company in question will be the employer of the employees, in the controlled group with your company, and will be unrelated to the PEO both before and after the outsourcing. The only proposal that could cause problems is if they adopt the multiple employer plan and the benefits of that plan and the demographics of that company cause coverage or nondiscrimination testing problems.

If the PS cont is discretionary, don't make it for 2003 for anyone. Instead amend the plan to add a new contribution type (call it a nonelective cont or something like that) with all of the formalities (eligibllity requirements, allocation rules (including the LDY condition), vesting, etc.).

Yes. It may be a chicken-or-the-egg question though. My understanding is if the group health plan is terminated prior to the time all employees are terminated (and there is no GHP maintained by an controlled group memeber, etc. . . ) no COBRA notices are required.

All employees will terminate. If we terminate the plan before the employees terminate, I guess that no one will be entitled to COBRA technically. How safe is that going to be?

That PLR sounds brutal for us. Thanks (or no thanks, I guess) for the cite. Our proposal is going to be a little more formal and indirect in that individuals will get to choose their classification and the insured plans will exclude one of the two groups, but I assume that is how the plans in the PLR had to read. Is there a way to work this under the 125 rules by treating the one time election at time of employment as a cafeteria plan (do cafeteria plans have to allow annual elections)?

We are considering terminating all employees eligible for group health plan. If we terminate our self-insured plan (w/stop loss insurance of course) for all employees and retirees do we have to give COBRA notices even though COBRA will not be available? What can we say in the notice that will be of any help to anyone?

That is the Q. I don't know why this doesn't raise 125 plan issues, but I hope that it doesn't. Does anyone know of a way (explicit election) that we can clarify this for posterity and avoid questions about 125?

Ok. Thanks. I will follow up with the 125 plan experts on how to avoid tripping on those rules.

If employees are given a choice at hire between different fully insured welfare benefit packages (benefits and less compensation OR no benefits and more compensation), is that a cafeteria plan? A formal cafeteria plan happens to be one of the benfits available to all employees, but new hires are allowed to choose between two employment categories, which directly affects whether they get high benefits/low cash or low benefits/high cash. Is there any way to structure this to avoid technical questions about this being a 125 plan? Can we have employees execute a one-time irrevocable election to be one class over the other, or is there something that we are missing? I know this is done a lot in the case of employees vs. independent contractor cases like Microsoft, but I have never heard about whether this creates an inadvertant 125 plan where the choice is between two classses of employees.

If employees are given a choice at hire between different fully insured welfare benefit packages (benefits and less compensation OR no benefits and more compensation), is that a CODA? If so, ADP testing obviously does not make sense, so what can we do. Is it an issue about the form or timing of the election or does something need to be done to change the proposed structure. I know this is done a lot in the case of employees vs. independent contractor cases like Microsoft, but I have never heard about whether this creates an inadvertant CODA.

Let's say "earnings on the lost earnings" should be credited. I agree that the "late" contributions, lost earnings on the late contributions, and lost earnings on the lost earnings should all be credited to the participant's account.

In a normal multiple employer plan, it should be a distributable event for an employee to transfer from one employer to another I believe. Years of service among unrelated employer in a multiple employer plan are required to be aggregated under 413©, however, the 401(k) rules are run on an employer-by-employer basis. It prevents one employer from having to keep up with what another employer is doing. Your situation is awkward, however, because the IRS PEO guidance will apply. If this client organization did not elect to adopt the multiple employer plan, then the accounts of this CO should be spun off to the CO plan or terminated before 1/1/04. It sounds like all the parties have done is to recharacterize the employee's employment as with the CO and not the PEO. If that is all they did, it should not be a distributable event, otherwise the IRS PEO guidance would not require the spin-off and termination procedures. If this really was a PEO employee originally (a corporate employee of the PEO and not a worksite employee) the answer would be different and a distribution should be allowed.

What they might be saying is that by remitting all payroll deposits after the end of the month, you are violating the participant contribution rule. By remitting the end of month payroll deferrals within a couple of days after that payroll, you demonstrate that you can administratively remit these contributions in a number of days. Therefore, it is a violation of the participant contribution rules to hold the mid month payroll deferrals for 2+ weeks. If that is their position, I do not think it is agressive at all. I don't think that interest on the interest is relevant if I understand your post. First, make the plan whole by crediting lost EARNINGS to participants. Then complete the 5330 by determining the INTEREST the employer saved from the interest free loan from the plan. This lost interest doesn't have to be paid to anyone, does it? It should just be a means of calculating the 5330 excise tax.

Are vacation payouts and severance really comparable when considering this issue? Vacation payouts really seem to be payment for past services as an employee and severance always seems to just be a form of payment for retraining, job hunting, releases from future suits, etc. rather than for past services. I understand and agree that the IRS informally advocates a "safe harbor" test of whether the amounts are paid on the last day of employment, but in theory, "forward looking" severance payments shouldn't be considered under any retirement plan regardless of when paid and vacation payouts that really are compensation for past services should be considered no matter when paid. My point (or question) is really that vacation payouts and severance probably should be analyzed differently, in theory at least, shouldn't they?

No. No 1,000 hour of service or last day of year requirment can be imposed on receipt of nonelective contributions in a nonelective contribution safe harbor plan. Elective deferrals aren't really an issue for the nonelective safe harbor contribution rules. Section V. B. 1. c. ii. of IRS Notice 98-53 allows restrictions on the amount NHCEs can defer so long as each eligible employee is permitted to make elective contributions in an amount that is at least sufficient to receive the maximum amount of matching contributions available under the plan. However, section V. B. 2. of IRS Notice 98-52 requires that a safe harbor nonelective contribution must be made on behalf of each eligible employee. Section IV. A. specifies that the regulatory definition of eligible employee in IRS reg section 1.401(k)-1(g)(4) applies which means that each employee who has met the minimum age and service requirements of the plan must receive the nonelective safe harbor requirement.

That is brutal! Great point, but that is a new one for me.

You have identified the technical problem with just changing the match vesting I suppose. However, assuming that you can't just change the vesting schedule for a type of contributiont that never existed, it would be easier to adopt a profit sharing or nonelective contribution provision with a "matching" type allocation formula and use your vesting schedule there. Some plans even have "supplemental match" provisions that could be used as well. The terms would be off a bit, but it has got to be easier than two plans and a merger.

I don't understand why any importance is being placed on the word "sponsoring" in the multiple employer context. If a plan has 403(b) provisions (or profit sharing, catch up contributions, etc.), not every employer that has adopted it has necessarily adopted those provisions. If you can have a 403(b)/401(k) combination document, then I don't think that every employer "sponsoring" that plan for its employees (including the entity that is "sponsoring" the document by drafting it, administering it, and making it availble to other entities) has to be an 403(b) eligible entity unless it is making the 403(b) provisions available to its employees.

Aside from the dual 401(k) / 403(b) plan document issue (which sounds ok to me but I have never heard of it before), I don't think you should have a multiple employer 403(b) plan because I don't think that the multiple employer rules apply to 403(b)s. However, just becasue the PEO makes a document available to clients and handles administration doesn't mean that it is a "sponsor." As long as the PEO doesn't have any employees in the 403(b), it shouldn't matter whether the PEO is an eligible organization.

Safe harbor formulas are too rich, so many non-top-heavy clients use negative elections, but comply with state law by getting specific written authorization on hire date as part of their new hire paperwork. I understand that it goes against the negative election concept somewhat, but is being done. Otherwise, I feel the 2 or 3 existing DOL opinions are general enough to apply in other states depending on how the statute is worded if authorizations are unworkable. Is the California statute more burdensome that simple written authorization?