Alf

Losses really have to be taken into account or else you really haven't made a timely distribution of the excess contribution (plus allocable "income"), so you haven't really followed your plan or the I.R.C.. If you are still within the distribution deadline period, you should try and get the losses back. If the deadline has expired, you will have to self correct under the I.R.S. self correction methods. You should contact the participants and get them to pay the overpayment back. There W-2s should be revised to show the amount the distribution should have been, not what it was.

There is no point in going through the hassle of dealing with the minimum distribution rules, plus you never want money to be in a kids name. The theory that I ALWAYS hear explained is that the kid can take it at age 18 and blow it on anything. College money or retirement money should be kept in the name of a responsible adult who can give the money to the kid once the kid has proven that she is responsible.

Follow the documents. There are rules for switching methods that will apply if the elapsed time plan was just merged into the hour of service plan without any provision for the merged accounts to be determined by elapsed time. I don't even think that the elapsed time method is something that can be continued for the merged accounts because I have never heard of using two different service credit methods in a single plan.

We have always used the earlier date for our company's plans just to be safe. It is a pretty important filing, so there is no point in taking the risk that using the later date is ok.

Re: #3 DFVC should still be available for other years that have not been caught by the IRS. #4 There is no formal way of letting the IRS know that you are going to file under one of the correction programs without actually filing. You can file a determination letter application and highlight all of the issues and ask for consideration under cap or vcr, or you can file a very basic vcr or cap application for the issues and supplement them later. Other than those methods, you are fair game for audit on the compliance issues.

The deferral amount (a percentage of compensation) always has to be less than compensation, doesn't it? If tips paid directly to the employee are included in compensation, the employee has to pay the deferral amount to the employer for it to go into the plan.

If it helps (no authority, but sometimes there is safety in numbers), we use 90 days as the deadline also.

I think that the labor regs require the use of whatever lenders in that area are charging on a comparable loan. If my memory is correct, aren't you required to use the prime minus one?

The goal of correction is to make the plan whole as if the defect never occurred. The winfall should be used by the employer to reduce future deferrals. Otherwise other employees are made better off and you have not achieved full correction.

The rule in in Section X of Treasury Notice 1998-52 and Section A-11 of Treasury Notice 2000-3

I don't think that the new plan tactic will work. There is a rule that prohibits an employer with an existing 401(k) plan from setting up a new one under the 12 month rule.

I also posted this on the correction board, but I wanted to hear if any 401(k) experts had an opinion. Several of our accounts that are going to elect safe harbor status did not provide the required notice within the 30 day period prior to the first day of the plan year as required by the IRS. Can they correct this under APRSC by providing the notice now as long as the employees all get to make the maximum amount of deferrals and receive the maximum employer contributions that they would have had the defect not occurred? If we say that it is an operational defect, APRSC has to be available, doesn't it? Another employer was safe harbor last year and wants to continue but they didn't send out the annual notice within the 30 day period either. Can this be corrected? If not, is the result that they have to ADP/ACP test or does the fact that their plan document says that they are safe harbor mean that they have bigger problems that have to be corrected under one of the IRS correction systems?

I wouldn't be so worried about the notice deadline for a new plan. The safeharbor notice must be provided within a reasonable period of time before the employees become eligible under the plan. IRS Notice 98-52 provides that, in the case of an employee who becomes eligible after the 90th day before the beginning of the plan year, the timing requirement is deemed to be satisfied if the notice is provided no more than 90 days before the employee becomes eligible (and no later than the date the employee becomes eligible). Therefore, keep the calendar plan year and send notice before 1/1/01 and you will be square within the IRS's own deemed reasonable standard.

Your method is better at putting the participant and the plan in the same position they would have been in had the error not occurred. Revenue Procedure 2000-16 specifically addresses the situation where participants were excluded from participation, therefore the employer won't have an election form for these employees and the average ADP/ACP for that employee's group has to be used. In your case, you know what the employee elected and you should use that.

If the error was caught in the same plan year and the employee will not be harmed by the exclusion (the employee can maximize the annual contribution over the remaining period in the plan year), then I think the latest APRSC guidance says that you don't have to QNEC. A QNEC equal to the average deferral percentage for the HCE group will be a windfall to him if he gets to make deferrals for the same plan year.

The answer may depend on how the document is worded. If the document has been amended to reflect the safe harbor provisions and it requires that a notice be provided or that the plan maintain safe harbor status, there may be a qualification problem. If your amendment has not been adopted yet, your only problem is that you will have to run the ADP and ACP tests because you did not qualify for the safe harbor. Also, the IRS position is that a plan must specify the method being used to comply with the ADP test, so when your new law amendments are being drafted in 2002, you will need to make sure that the plan reflects that the 2000-2001 plan year was not safe harbor.

Is there any requirement to provide a 204(h) or 204(h) type notice to fired employees affected by a partial termination of a DB plan?

Yup. Isn't a multiple employer plan the only way to go then? Although even there, you have to be able to work out who pays the employees compensation so that you can run ADP tests separately for each employer?

Also, to carry Jonh's point further, if you have a LDY requirement for the true-up, you will end up with different rates of match for different employees. Each different rate of match will be a benefit, right, or feature that has to be tested under 401(a)(4). Won't this effectively preclude the use of a LDY requirement for the true-up unless you really know your demographics.

I believe the severance pay issue depends more on when it is paid than what the plan says. Whatever definition your plan uses, the Plan says that compensation paid to an employee will count under the plan. The latest IRS position I have heard of is that severance pay is not being paid to employees for services performed as an employee (or something to that effect). My understanding is that the IRS generally allows plans to consider severance pay as compensation if it is paid while the employee is still employed or included in the last paycheck, but not if it is paid after the employee terminates employment. Based on this logic, it probably doesn't matter what the definition of compensation is unless you have some special way of characterizing the payments as a job training or placement allowance or something like that.

I think all participants have to be entitled to distributions from a terminated plan in order for it to terminate. Right? How else would you get the money out of the trust? A spin-off or trust transfer would work, I guess, but you would still end up with another plan somewhere. If you have accounts for former participants that are not distributable under the "separation from service" distributable event provision because of the same desk rule, those accounts will be distributable on the termination of the plan.

Terminating the plan prior to the acquisition is generally accepted as being effective for the buyer to avoid liability for the acquired plan, but it is not without risk. A qualfied plan is not technically terminated until all assets have been distributed from the trust. Although the IRS has been accepting the notion that the termination date relates back to the proposed date of termination, you can blow it by not distributing assets or filing a Form 5310 within one year of the proposed date of termination.

Age and sex are out. Smoking can be done. I don't have any authority handy, but that is what is done in the market. Smoking is not (yet) a protected right.

Isn't it clear in EPCRS that this program is not effective with respect to prohibited transactions? I know that this means that pts can't be corrected under EPCRS, but doesn't it also mean that the "fiction" of defect/correction/no defect is just ignored for the prohibited transaction rules. By using one of the EPCRS methods, you don't really undo history and erase the transaction, you just prevent the facts from causing disqualification. You still have your prohibited transaction no matter what you do. B.L.: You have a chicken omelette

I don't think you can do either. I don't think that you can offset loan amounts in a 401(k) plan until you have a distribution because of the 401(k) distribution restrictions. Even if you have a plan termination, if you withhold distributions until your 5310 is approved, you haven't really had a distribution event, unless you have very favorable plan language that somehow provides that no distributions will be made on plan termination until IRS approval is received. Then, maybe you could argue plan termination for the 401(k) distribution restrictions, but not a distribution on plan termination yet. Otherwise, I think for consistency, your loan offset should occur when the distribution for plan termination occurs. Deemed distributions are a section 72 taxation concept. By amending the plan to provide that all loans are due on termination is a contractual provision, not a tax one. If the provisions of section 72 are not violated, then there won't be a deemed distribution.