Harwood

Today's Federal Register: http://a257.g.akamaitech.net/7/257/2422/14...004/04-4551.htm or http://a257.g.akamaitech.net/7/257/2422/14...pdf/04-4551.pdf Class Exemption: http://a257.g.akamaitech.net/7/257/2422/14...004/04-4552.htm or http://a257.g.akamaitech.net/7/257/2422/14...pdf/04-4552.pdf

http://benefitslink.com/boards/index.php?s...t=0entry81437

I think what you call the gap method [10%] is the "safe harbor" method of §1.401(k)-1(f)(4)(ii)(D). It has the 15th day of month cut-off language. Just prior - §1.401(k)-1(f)(4)(ii)© - has the fractional method. It is governed by the General Rule in (A) which says that the gap period goes through the date of distribution. It appears only the "safe harbor" method allows the splitting of the month.

1994 was the last year when Form SSA made it clear that it is optional to report those who received a distribution and no longer have a benefit. The Form and Instructions changed radically in 1995. I have a 6/17/96 Tax Alert from Ernst & Young and a 4/22/96 ASPA ASAP which state that the Schedule SSA change from 1994 to 1995 made it appear that all Code B, C, and D reporting was now mandatory. However, E&Y and ASPA insist that the underlying rules did not change and only Code A reporting is mandatory. To this day, the SSA Instructions read as if code B,C, and D reporting is required. The 5500 Preparer's Manual did change from 1999 to 2000. "Optional Reporting of Paid Participants" dropped "Optional" "may optionally be reported" became "should be reported" "you may report this information" is now "report this information"

Unemployment rules vary by state. In California: One of the eligibility requirements: "Be available for work which means to be ready and willing to immediately accept work." Also: "Individuals who attend school or training and are not participating in the California Training Benefits program, may qualify for UI benefits if they continue to actively seek work. The Department determines if the individual is entitled to UI benefits." My advice: Play by the rules. Tell the truth. Do as I say, not as I do.

All three cases deal with whether plan loan repayments will stop in order to provide more disposable income or if the loan will be paid off before the unsecured creditors. None of the cases questioned the right of a bankruptcy court to stop loan repayments, if the court felt it was appropriate. The Buchferer case stands out because it is one of the few cases to consider a plan loan to be a secured debt.

Buchferer, Gerald In re, (1997, Bktcy Ct NY) 216 BR 332 . Esquivel, Baldo Fabela In re, (1999, Bktcy Ct MI) 239 BR 146.

A footnote in Rev. Rul. 55-747: "This Revenue Ruling reads substantially as P. S. No. 58, Revised, issued on March 7, 1947." Rev. Rul. 61-157 contains: "STATUS OF P.S. RELEASES The following list is designed to give current information as to the status of P.S. Releases issued under the Internal Revenue Code of 1939, which, to the extent consistent with the Internal Revenue Code of 1954 and the regulations thereunder, remain effective, except as indicated:" There were 68 P.S. Releases from 1944 to 1951. No indication what P.S. stands for.

As always, participants need to check with their tax advisors. What follows are excerpts only: Form 1040 Instructions Line 7 Wages, Salaries, Tips, etc. • Corrective distributions shown on Form 1099-R of (a) excess salary deferrals plus earnings and (b) excess contributions plus earnings to a retirement plan. Publication 525 Taxable and Nontaxable Income Excess Contributions You must include the excess contributions in your income as wages on line 7 of Form 1040. You cannot use Form 1040A or Form 1040EZ to report excess contribution amounts. If you receive excess contributions from a 401(k) plan and any income earned on the contributions within 2 1/2 months after the close of the plan year, you must include them in your income in the year of the contribution. If you receive them later, or receive less than $100 excess contributions, include the excess contributions and earnings in your income in the year distributed. You should receive a Form 1099–R for the year in which the excess contributions are distributed to you (or are recharacterized). Add excess contributions or earnings shown on Form 1099–R for 2003 to your wages on your 2003 tax return if code “8” is in box 7. If code “P” or “D” is in box 7, you may have to file an amended 2002 or 2001 return on Form 1040X to add the excess contributions or earnings to your wages in the year of the contribution.

410(a)(5)(A) ?

Do the non-resident aliens have any U.S. source earned income? Does the plan already exclude non-resident aliens with no U.S. earned income from eligibility?

Of course the entire RMD regulations are in § 1.401(a)(9). I sum it up thusly: wherever the money is December 31, that is where the next RMD must come from. If all the money is in a Qualified Plan where a non-5% owner continues to work, the Required Beginning Date is not triggered, so no RMD. This includes money rolled into the plan from other sources.

Loans and hardships are based upon the circumstances when the application is made [and up to the date the check is cut]. If the terms of the plan were met then, I don't think subsequent events should worry the sponsor or are even any business of the Sponsor. Does the loan become immediately reported as taxable because of changed circumstances after it was issued? Do the people who got a 15 year loan have to give it back because the deal to buy a new house fell through?

Depends on the plan document. I have seen it both ways, in different documents.

Participant can use the money for whatever they choose. They can even come back the next month and apply for a distribution due to the same hardship because they didn't spend the first check to relieve their hardship. I call this the "dirty little secret" of hardship distributions. I know of nothing that requires the Plan Sponsor monitor what a Participant does with any distribution. All you can do is limit the number of hardships taken per year.

I doubt that there is anything in the Code or ERISA regarding this. I think that generally courts rule that as long as the money was fully invested during the delay, the Participant has no case. Check the plan document and the distribution form to see if any time limit was exceeded.

I think so. Check out IRS Notice 2002-3. It has the "SAFE HARBOR EXPLANATION FOR GOVERNMENTAL 457 PLANS/ SPECIAL TAX NOTICE REGARDING PLAN PAYMENTS"

"Generally, you must send to the IRS copies of certain Forms W-4 that you received during the quarter from employees still employed by you at the end of the quarter. Send copies of Form W-4 when the employee claims (a) more than 10 withholding allowances or (b) exemption from withholding and his or her wages would normally be more than $200 per week. Send the copies to the IRS office where you file your Form 941." "Base any employee income tax withholding on the Forms W-4 that you send in unless the IRS notifies you in writing to do otherwise." http://www.irs.ustreas.gov/pub/irs-pdf/p15.pdf

"The updated notice must be provided as soon as reasonably possible, unless such notice in advance of termination of the blackout period is impracticable. In this regard, the Department reiterates that to the extent that an administrator has the ability to furnish notice to some participants and beneficiaries earlier than other participants and beneficiaries, which may be the case where electronic disclosure is available, the administrator has an obligation to provide such notice, even though providing advance notice to other participants and beneficiaries (e.g., by mail) may be impracticable."

I don't recall any recent rulings. I know that the regs do not mention severance pay. §2530.200b-2 Hour of service. (a) General rule. (2) An hour of service is each hour for which an employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

Although it may not be required, all documents I have seen do deal with the issue of excess deferrals caused by employment with two or more unrelated employers. In your [theoretical?] situation, all it takes for a solution is for one of the documents to have a section dealing with the subject.

Some employers consider similar temporary layoffs to be a "leave of absence" for loan repayment purposes. Consult ERISA counsel to be sure.

There can be attachments for a conviction for a crime involving the plan. You don't have that situation. 401(a)(13)©

Further on in Rev Rule 2004-13: However, certain plans that provide for early participation may satisfy the requirements of § 401(k)(12) with respect to the portion of the plan that covers employees who have completed the minimum age and service requirements of § 410(a)(1), while satisfying the ADP test of § 401(k)(3)(A)(ii) for the eligible employees who have not completed the minimum age and service requirements.

Chapter 1 of The ERISA Outline Book has several pages on Earned Income The Pension Answer Book has several items on the self-employed and/or earned income.