J. Bringhurst

(1) expenses for the repair of damage to the participant’s principal residence that would qualify for the casualty deduction under section 165 of the Code (determined without regard to whether the loss exceeds 10% of adjusted gross income); and (2) payments for burial or funeral expenses for the participant’s deceased parent, spouse, children or dependents (as defined in Treas. Reg. Section 1.401(k)-1(d)(3)(iii)(B)(3)). I think that the PPA adds at least one more.

Is the addition of the two new hardship reasons under the final 401(k) regulations optional or mandatory? I should know this, but I'm blocking tonight.

I wasn't saying that Appendix B applies to this exact situation, but I was making the case that the employer is usually on the hook...except in this one case where the participant has an opportunity to make up the deferrals that it missed out on by not being provided with election forms.

Check Revenue Procedure 2006-27 with regard to overpayments from defined contribution plans. At the very least, the plan must be made whole and in the position it would have been in had the failure not occurred (amount of distribution plus earnings must be put back into the Plan...even if the employer has to put it back) and participant must be informed that the distribution was not eligible for rollover.

Does the plan provide that forfeitures can be used to help pay for plan corrections?

I disagree with the argument that the employee is on the hook for the above situation...the Appendix B of the revenue procedure provides for a specific correction for a failure to let otherwise eligible employees participate for a partial plan year...this correction contemplates the employee being able to make up the missed deferrals if the employee has at least 9 months to do so...the situation described above went on for longer than 3 months...of course, the employee should have noticed...but the plan sponsor is responsible for administering the plan in accordance with its terms and would be considered more of an "expert" in the care and feeding of its own plan.

At this point, it's more of an academic question...whether the last day of the year requirement on a true up constitutes a different rate of match...and needs BRF testing.

Thank you!

Can anyone tell me whether true-up matching contributions (under a plan that provides for matching contributions on a payroll by payroll basis) that have a last day of the year requirement have to be tested as a benefit, right or feature (i.e., different rate of match)?

Okay, J4FKBC...I've actually come around to your way of thinking on this one...no matter how CCH reads, the language of the Act is what is important...I guess that what CCH is trying to say is that if you want a cliff schedule it has to be 3-year and if you want a graded schedule it has to be 6-year....

I've been struggling with this issue because of the CCH explanation of this provision found at CCH 720 (otherwise I'd read 411(a)(2)(B) more literally): "A defined contribution plan...must vest all employer contributions according to the schedule that currently applies only to employer matching contributions. Thus, if a defined contribution plan uses cliff vesting, accrued benefits derived from all employer contributions must vest with the participant after three years of service..."

It is my understanding that you have to move to the 3-year cliff if you currently operate under a 5-year cliff schedule (for any employee who has at least an hour of service on or after 1/1/07). My question is whether or not the new schedule applies to contributions made on or after 1/1/07 but that relate to the 2006 plan year. Any guidance out there on this?

Yes, just took another look at Form 5310 and realized that it doesn't require all the same information as Form 5300 (does not require benefit formula or vesting schedule).

We will be filing for a favorable determination letter on the termination of a previously frozen DB plan. When completing the applicable forms (e.g., Form 5300, attachments, NIP), must everything be filled out as if the plan were not frozen? For example, Form 5300 requests information regarding the plan's eligibility provisions and benefit accrual formula. As of the freeze date, no new participants and no additional benefit accruals. Do you include the pre-freeze information or just leave blank with a note that the plan has been frozen?

Has anyone seen guidance addressing whether the PPA provision permitting the transfer of funds to the PBGC for missing participants in a terminated DC plan overrides 1.411(a)-11(e)(1) (i.e., the prohibition against distributing amounts from a terminated DC plan that does not offer annuities if there is another DC plan in the controlled group)? Thanks in advance.

Client is terminating an overfunded DB plan and creating two qualified replacement plans to make up the benefit. One of the replacement plans will be a new DB designed to mirror the terminating DB...the second replacement plan will be the current DC plan that will be amended to provide for a QNEC on behalf of each employee who was a participant in the terminating DB as of its termination date. The QNEC under the DC plan will cover at least 95% of the participants from the terminating DB who are were employed as of the date the DB plan will be terminated. Under the 95% rule for qualified replacement plans, can any part of the reversion transferred to the DC plan be used to offset future matching contributions (in addition to the QNEC)? About half of the participants in the terminating DB plan will not be eligible for matching contributions under the DC plan. I.e., must both the QNEC and the matching contribution separately meet the 95% rule or is it sufficient that only one type of contribution meet the rule? I know this is probably confusing, but I can't find any guidance on this one.

What I said in my original post is that we consider the Plan's QDRO procedures to be part of the Plan document. Hence, if the procedures provide for an immediate lump sum distribution option to APs, then the Plan document provides for them (because the procedures are part of the Plan). The availability for an immediate lump sum distribution is available to any and all APs per the QDRO procedures. In any event, the issue is the 30 day election period for the lump sum option.

See questions 3-8 and 3-9 from the DOL site: http://www.dol.gov/ebsa/publications/qdros.html Although this is the first client with whom I've worked that permits a form of benefit to an AP not otherwise provided under the plan to a participant, the DOL appears to contemplate this very issue. I've only just started working with this client on their QDRO procedures, so I have no idea at this point how they determine the lump sum amount.

I removed the term "significant detriment" from my last post as I realize that it applies only in the context of cash outs and this is not a cash out question. I'm only worried about the imposition of the 30 day deadline to enable her to get an immediate distribution. For example, the AP wants to elect an immediate distribution of her $50,000, but she gets deployed to Iraq and makes this election within 45 days (i.e., late)...now she must wait until the participant's earliest retirement age (which is seven years away). This is the issue. Sorry for the confusion caused by my use of the incorrect term.

Okay...there is obviously some confusion regarding my post....the question doesn't have anything to do with cash outs. For example, an alternate payee is awarded $50,000 under the terms of a QDRO. Under this particular DB plan's procedures, she can elect an immediate lump sum distribution of this amount. If she does not make this election within 30 days, however, then she can no longer get an immediate distribution...she must wait until the participant's earliest retirement age. Does anyone have a problem with the plan forcing her to make her election within 30 days or to wait until earliest retirement age?

The issue is not that amount of the benefit paid but the 30 day restriction. I.e., would it be considered a significant detriment if an AP only had 30 days to elect the immediate lump sum option?

We take the position that QDRO procedures are part of the plan. Accordingly, the inclusion of a lump sum distribution for alternate payees would not fall under the category of a QDRO providing something not otherwise provided for under the plan's terms. Many of our DB's do not provide for lump sum distributions for amounts in excess of the cash out limit (i.e., the only lump sum is the cash out). Some DB plans do, however, provide for lump sum distribution options (i.e., in addition to annuities). My question really just concerns the requirement that an alternate payee elect the lump sum option within 30 days or lose it...

We have a client whose QDRO procedures (for their DB plan) specify that alternate payees can elect to receive a lump sum distribution of their assigned benefit but only if they make the election for the lump sum within 30 days of the date the DRO is determined to be qualified. A lump sum distribution is not otherwise provided under the terms of the plan (other than for a cash out). Does anyone see any issues with this? Could this be considered a significant detriment issue (although the lump sum availability could simiply be removed and A.P.s forced to wait until earliest retirement age)?

Whether or not the DOL's answer to the question is only their position/opinion, the client is fairly comfortable in conforming with the DOL's view on the subject, especially since we agree with it, as their benefits counsel. They've had enough irate drafting attorneys and crying alternate payees and are more than happy for us to provide procedures that are a bit more user friendly and open to different drafting styles/situations. Even if we do end up providing a model, it will not be required.

HA! Seriously? In our situation, we're employee benefits counsel and are charged with reviewing client's QDRO documentation, including the model QDRO that they're imposing on the parties...I have enough other problems with the model to suggest kicking it to the curb...just want to present them with all the facts and get them to fly as straight as possible. Obviously, they can do whatever they want...but it would be against our advice.