holdco

Thank you for the reply. I mean a plan that effectively becomes a part of another plan, making it the merged plan. We had a plan where all of its participants and account balances were merged into a master & prototype plan. As soon as there is a merger (let's say it's effective 6/1/2011), my understanding is that the plan merging into the "taking over" plan must file notice of that change on its Form 5500 for the year, as per Code 6057(b)(3): "These notifications are made on the plan's Form 5500 (Annual Return/Report) submission for the plan year in which the change in status occurred. The notification must be filed at the time and place and in the manner prescribed in the form and any accompanying instructions." I take it that this notification must be made even if by the time the Form 5500 is required to be filed for that plan year in which merger took place, the merged (old) plan has zero account balances and zero participants. But I guess you are saying that if the merged (old) plan is not zeroed out in the subsequent plan year, it has a Form 5500 filing requirement for that year as well? Thanks again.

Good morning, everyone! Hopefully an easy question...does anyone know if a merged plan has a Form 5500 filing requirement? I know that under Code 6057, that plan must report a change in its status (merging with another plan) on its Form 5500 for that year. Other than that, does it have another Form 5500 requirement? What about the following year? Does it have another Form 5500 filing requirement, once it is merged? I just want to make sure tha I am not missing anything in respect of what seems to be a relatively straightforward question. Thanks so much for any replies.

Hello everyone! Quick question. Let's say a small business with 10 total employees has a health plan. For 5 individuals (the owners, and their spouses), the company pays their costs in full for the health plan. For the others, they contribute towards the health plan. Is the money paid by the company taken into account when running the discrimination tests under Sec. 125? Thanks so much for any thoughts.

Of course, I understand. But, the plan is terminated, so now, we are dealing with missing participants in plan terminations, which is not covered in the plan terms. Of course, our first thought was to roll over, but then we saw the DOL guidance. Can you explain away that quote about a terminated participants' balance being transferred to another defined contribution plan?

Seems like a different set of circumstances than your earlier post. If the terminating plan has (had) the automatic rollover provisions all along, why didn't you do that earlier? That's not optional. That will take care of one problem. I could find an expense to get rid of $24. Not necessarily. How is it in any way good to keep $24 and $1029 hanging around, with the hassles involved in direct evidence right here? Thanks for the reply...the post is different in that now we've found most of the addresses of the missing participant. No idea why we didn't roll over earlier. We were still trying to track down the missing participants, I suspect. I've re-read the only available guidance on this question and it looks like we MAY transfer to the 401(k) plan, and we can also open IRAs in accordance with the MPP and FAB 2004-02. The footnote in the FAB assumes that the terminated plan didn't have an annuity option AND there is no other DC plan into which the account balance may be rolled over. It's conjunctive. Because the terminated MPP plan did have an annuity option, I don't think this guidance is ironclad in our case. Whether we move the balance to the 401(k) or open an IRA, we shouldn't be violating any duty. If the guy with over $1,000 doesn't elect a distribution, we can roll him over into an IRA, or move him to the 401(k) plan. For the guy with $24, we technically can cash him out, but we don't know where he is. So, we can again roll him over or move him to the 401(k) plan. Regardless, per my earlier post, we have to amend the 401(k) plan to allow that transfer from a terminated MPP, preserving the distribution options. As far as strict compliance goes (practical considerations aside), does that seem appropriate?

Hello everyone! Here's a situation: a terminated money purchase plan has 13 participants with remaining account balances. The former sponsor of that plan also maintains a 401(k) plan. Only one participant in the terminated money purchase plan has a balance of over $1,000. The terminated plan had mandatory cash-out provisions if balances were less than $1,000, and automatic rollover provisions into IRAs in case no distribution election was secured. We have addresses for twelve of those thirteen participants, and we're going to cash out all of them but one. One of those twelve has a balance over $1,000 ($1,029 or so), so he can't be cashed out. The thirteenth can't be located (balance of $24). Under Treas. Reg. 1.411(a)-11(e), in respect of a terminated DC plan, if a sponsor maintains another DC plan, then a participant's account balance can be transferred to that other DC plan. In support of that, FAB 2004-02 assumes in its guidance that a missing participant's account balance can't be transferred to another DC plan. So, what would you do? Move the balance of the guy having over $1,000 and the guy who can't be located into an IRA per the terminated plan's terms, or move the funds into the 401(k) plan? It seems like we should move the funds into the 401(k) plan. Aside from the fact that the IRS and DOL support this construction, it lessens the burden on the sponsor, and we don't have to worry about finding IRAs for $24. Plus, we keep control of the assets, which is always preferable. I would greatly appreciate the community's thoughts on this. Thank you!

Thanks for the reply. I don't think we'll have any qualification issues with this kind of amendment. That said, even if the transferee 401(k) plan prohibits transfers of assets from MPPs without participant waiver of the QJSA and spousal consent, we can still move the balances from the terminated plan? All the consent laws that I see are in the context of distributions, not transfers, so if we amend that plan-specific provision, it looks like we'll be okay on that point.

Thanks for the thought. I've copied below my reply to QDROphile...perhaps you have an additional suggestion? Thanks very much! Thank you again. Following up, the 401(k) plan document permits transfers from other 401 or 403 qualified plans, annuity contracts under 403(b), governmental plans, IRAs, Roths, etc. It prohibits transfers of assets from a money purchase plan unless the employee's spouse waives the QJSA. We can't get this waiver because we can't contact the participants. So, the plan does not in fact accept transfers from money purchase plans, and should be amended, correct? In terms of your statement that amounts not greater than $1,000 may be distributed pursuant to 401(k) plan terms (in our case, by way of lump sum or direct rollover only), we only have a provision stating that if the balance is $1,000 or less, the amount may be distributed as soon as employment terminates. It does not specify the form of that distribution. Did you have some statute in mind that says the 401(k) plan isn't required to preserve the QJSA form of distribution once the MPP balances are transferred over, if they are less than $1,000? I guess for the one account that is over $1,000, the QJSA must be preserved?

Thank you again. Following up, the 401(k) plan document permits transfers from other 401 or 403 qualified plans, annuity contracts under 403(b), governmental plans, IRAs, Roths, etc. It prohibits transfers of assets from a money purchase plan unless the employee's spouse waives the QJSA. We can't get this waiver because we can't contact the participants. So, the plan does not in fact accept transfers from money purchase plans, and should be amended, correct? In terms of your statement that amounts not greater than $1,000 may be distributed pursuant to 401(k) plan terms (in our case, by way of lump sum or direct rollover only), we only have a provision stating that if the balance is $1,000 or less, the amount may be distributed as soon as employment terminates. It does not specify the form of that distribution. Did you have some statute in mind that says the 401(k) plan isn't required to preserve the QJSA form of distribution once the MPP balances are transferred over, if they are less than $1,000? I guess for the one account that is over $1,000, the QJSA must be preserved? CORRECTION: The 401(k) plan permits lump sum distributions if the balance is $1,000 or less. Sorry, I missed that caveat. So what does this mean? It looks like the plan must nevertheless be amended to allow for transfers from the terminated MPP, but the transferred account balances need not be distributed in the form of a QJSA when the time comes? Is this really accurate, even with the 1.411(d)-4 regulations on preserving participant benefits, the anti-cutback rules, etc.? Then I've seen this quote in the Internal Revenue Manual: "In the case of a MPP under which the annuity form of payment cannot be eliminated, a distribution must be made in the form of an annuity that preserves the available options if the participant does not consent to distribution in the form of a lump sum. IRM 7.12.1.2.12(2). Assuming you are correct and we don't need to preserve the QJSA for the balances less than $1,000, then for the one balance greater than $1,000, we should? What a terrible set of rules. =)

Thank you again. Following up, the 401(k) plan document permits transfers from other 401 or 403 qualified plans, annuity contracts under 403(b), governmental plans, IRAs, Roths, etc. It prohibits transfers of assets from a money purchase plan unless the employee's spouse waives the QJSA. We can't get this waiver because we can't contact the participants. So, the plan does not in fact accept transfers from money purchase plans, and should be amended, correct? In terms of your statement that amounts not greater than $1,000 may be distributed pursuant to 401(k) plan terms (in our case, by way of lump sum or direct rollover only), we only have a provision stating that if the balance is $1,000 or less, the amount may be distributed as soon as employment terminates. It does not specify the form of that distribution. Did you have some statute in mind that says the 401(k) plan isn't required to preserve the QJSA form of distribution once the MPP balances are transferred over, if they are less than $1,000? I guess for the one account that is over $1,000, the QJSA must be preserved?

Let's make it even more simple. The terminated money purchase plan required distributions in the form of a QJSA. The current 401(k) plan allows for distributions only in the form of lump sums or direct rollovers. The missing participant balances are all, with the exception of one, under $1,000. FAB 2004-02 details the requirements on how to locate missing participants and roll over their funds, however small, into IRAs (amongst other alternatives), but it does not apply if there is another DC plan into which the balances can be transferred. Your pointing out Treas. Reg. 1.411(a)-11(e) was very helpful, and but begs the ultimate question...if we can transfer the participant's accrued benefit without his consent to our 401(k) plan (pursuant to that Reg.), must we also amend the 401(k) plan to provide for a distribution in the form of a QJSA? I think the answer is yes, but I can't find the language confirming it. Obviously, we'd prefer to roll it over into an existing plan instead of enrolling everyone into IRAs, and of course we'd prefer not to amend anything if we don't have to. But I can't spot the 411 regs that explicitly provide for mandating the form of distribution from the terminated plan. Perhaps in your experience, you know this to be true? Or false? Thanks for the insight.

I was referring to FAB 2004-02, which allows for distributions to IRAs in respect of terminated plans (and missing participants therein). That was our original thought. Most of the balances of the missing participants are under $200. I don't know what annuity one can buy in such a case, and it will probably be difficult to find an IRA provider too, as you wrote. That's why the FAB provides options like allowing the balance to escheat to a state unclaimed property fund, or be moved to an interest-bearing bank account. That said, the FAB assumes that there is no other DC plan into which the missing participants' balances can be rolled over. Our terminated plan had mandatory cash-out provisions, but we can't make any distributions because there is no one to distribute them to, at the moment. So, we're looking to move the small balances over to the DC plan, which you label a transfer (I'm guessing, not a "rollover?"). Are you sure that moving a missing participant's account balance to another DC plan is not a distribution? I'm told that there are "rules" as to what "form" this transfer/distributions is to take in transit to the 401(k) plan. The key point is, there's no choice involved here, as we have no one making them, just a bunch of accounts with no one to claim them. I just want to nail down that whole "form" issue, assuming it is actually pertinent.

How about 1.411(d)-4(e), Question 3? "An employer who maintains a MPP that provides for a single sum optional form of benefit may not establish another plan that does not provide for this optional form of benefit and transfer participant's account balances to such new plan." The only forms of distribution under our 401(k) plan are lump sum and direct transfer to another plan. The terminated MPP required payment in a QJSA of vested account balances, though it also allows for annuity purchases, direct rollovers, and lump sum payments in certain cases. There's no way we can buy an annuity given the tiny balances. Is there a special way we should distribute those balances? The other option was rolling them over into IRAs, but we'd obviously like to try moving the balances into our 401(k) first.

Thanks so much, I wasn't aware of this provision. However, a quick follow-up. I understand that this is a transfer from a terminated plan, and because the participant with a balance in that terminated MPP can't be found, he can't consent to an immediate distribution from the terminated plan, so we can transfer it to our other defined contribution plan (the 401(k) plan). But how can you tell that distribution options are preserved under that regulation? And must that actual transfer to the 401(k) plan take a specific form (i.e., lump sum)? I will look at the 411(d)(6) regs, since that was the first idea I had. Thank you again!

Good morning all! Does anyone by chance know what the rule is for preserving distributions to a 401(k) plan? Specifially, we have a terminated money purchase plan with about a dozen account balances of missing participants (only one a bit over $1,000, the rest under). I know that under DOL guidance, you can roll over these amounts to IRAs, among other options. However, that guidance assumes that there's no other defined contribution plan into which the account balances can be rolled over, and we have a 401(k) plan. However, I thought that a distribution of this sort is limited to certain forms under the Internal Revenue Code. If someone can shed any light on this problem, that would be great. Thank you!

Hah, I got you. Not a problem. I figure that's the answer, and that's what I've been finding. Just looking for confirmation. Thanks.

I'm not certain. The only contract that we have is a retainer agreement, but the contract is with the plan sponsor/administrator. Also, let's say we do have a contract or arrangement with the plan. Wouldn't legal services constitute indirect compensation (from the plan sponsor) under the final regulation? So the law firm would then have to disclose? Plan sponsor payments do not count as indirect compensation. From the rules: It also applies to providers of other specified services who receive either "indirect compensation'' (generally from sources other than the plan or plan sponsor) or certain types of payments from affiliates and subcontractors. Also, I've been told from other attys that they would never sign an agreement directly with the plan because they might then have to sue the sponsor. Thank you, that's very helpful. So summing up, an employee benefits practice at a law firm, that provides advice (e.g., in the form of memoranda, e-mails, etc.) to a plan sponsor, and once a year updates/drafts plan documents would not be a covered service provider and/or would not be receiving compensation of the kind contemplated by the final regulation and necessitating disclosure to the plan?

I'm not certain. The only contract that we have is a retainer agreement, but the contract is with the plan sponsor/administrator. Also, let's say we do have a contract or arrangement with the plan. Wouldn't legal services constitute indirect compensation (from the plan sponsor) under the final regulation? So the law firm would then have to disclose?

I'm not certain. The only contract that we have is a retainer agreement, but the contract is with the plan sponsor/administrator.

And as a quick follow-up, is it possible that we are providing fiduciary services to the plan somehow by rendering the above legal work? Thank you again!

Legal services are covered, but it only counts if you are going to receive any indirect compensation from the plan. All the attorney's that I know get paid by the employer and not by the plan, so I don't think it will apply. Thank you for the reply! So if Company A sponsors Company A DC Plan, and we've rendered some opinions regarding that plan, or re-drafted some provisions, we should not have to provide any disclosure, if we got paid by Company A and not the Company A DC Plan?

hello everyone! Hopefully an easy question. If a law firm provides services to a retirement plan (specifically, to the plan sponsor/administrator of that plan, a company client), are we required to send a disclosure under the final 408 regulations? Are we a covered service provider? I can't confirm whether or not that's the case anywhere. Any suggestions or authority would be appreciated. Thank you!

I agree. Just make sure you have an election form on file saying they don't want to contribute. Thanks so much! I guess that makes sense, but the language of the Notice and the IRS FAQ suggests otherwise. You have to go through a tortuous use of the words "entitled" and "eligible" in order to conclude they don't need an account. What a pain.

I have been circling this topic forever and I can't seem to pin down an answer. Say a small business owner sets up a SIMPLE with the the 3% matching contribution. He has 6 employees, none of whom want to participate in the SIMPLE. The employer says fine, sets up an account only for himself, and contributes the maximum with match. Is this permissible or not? The way I read the IRC and the DOL Notice 98-4, as well as the IRS FAQs below, an employer must enroll the employees so that they have a plan, but if they contribute zero, great, their accounts will reflect that. The employer has a son who passed the bar this year, has been licensed for 8 months, and is saying there's no need to set up any accounts for the employees if they don't want to participate. Who is correct? If anyone could send me any evidence or authority to their answer, I would be eternally grateful. This simple issue is driving me nuts! Thank you!! FAQs Which employees of an employer must be eligible to participate under a SIMPLE IRA plan? If an employer establishes a SIMPLE IRA plan, all employees of the employer who received at least $5,000 in compensation from the employer during any 2 preceding calendar years (whether or not consecutive) and who are reasonably expected to receive at least $5,000 in compensation during the calendar year, must be eligible to participate in the SIMPLE IRA plan for the calendar year. If an employee meets the conditions described in this paragraph (or such lesser conditions imposed by an employer) and is not excluded, then the employee must be covered by the SIMPLE IRA plan. -------------------------------------------------------------------------------- May a participant "opt out" of a SIMPLE IRA plan? An employee may not "opt out" of participation. Of course, any eligible employee may choose not to make salary reduction contributions for a year, in which case such employee would accrue no employer matching contributions for the year, but would receive an employer nonelective contribution for the year if the plan provides for such contributions for the year.

Hello everyone! A client has a deferred compensation plan with grandfathered benefits. There are no haircut provisions in the plan. A participant in the plan has a lump sum deferral due to him on January 1, 2014 (his fixed retirement date), that he wants to accelerate to 2012, the year in which certain other deferrals are set to begin paying out in installments. As it stands, I don't see any way that this acceleration would be permissible. A formal amendment allowing haircuts would be a material modification for 409A and would lose grandfathered status for the benefits. However, what if the client just gave the participant a lump sum payment in 2012 with a 10-20 percent haircut? Is this allowed? Do we run afoul of 409A? If anyone can assist or perhaps point me to any IRS position on this subject, I would greatly appreciate it. Thank you!