J. Bringhurst

How about this for a horror story.... Been reviewing and re-reviewing a proposed DRO for a participant in a DB plan out on disability. The plan provides that a participant who is entitled to a disability retirement pension under the Social Security Act will be entitled to apply for a disability retirement pension under the plan commencing as of the first day of the month following or coincident with the date his disability pension from Social Security commences. The plan does not specify whether payments will include payments back to the date of disability determination. Although the participant went out on disability back in May, it can take quite a while to recieve a determination from Social Security and for benefits to commence. During this waiting period, the participant dies without proper language in the DRO naming the alternate payee as the surviving spouse for purposes of the QPSA, although it is his intention to provide her with this protection. We are trying to determine whether there is way that we can consider his benefit to have started as of the date Social Security determines that he was disabled, even though payments won't actually start under the plan until his Social Security benefits start.

Client amended 401(k) plan to eliminate installment payments and annuities effective for distributions after 12/31/2001 and did not provide a summary of the amendment to participants. EGTRRA added §411(d)(6)(E) for years beginning after 12/31/2001 to provide for the elimination of optional forms of distribution without any notice requirements...but includes the language "Except to the extent provided in regulations..." Since final regulations eliminating the notice requirement have not yet been published (that I'm aware of), I'm of the opinion that the client messed up. Any thoughts? The only correction that I can think of is to go back to distributees and offer all of the optional forms previously eliminated, adopt another prospective amendment eliminating the optionals forms, and follow the notice requirements. SCP? VCP?

Client has a cash balance plan that provides for immediate distribution upon termination provided the terminated participant makes the distribution election within 6 months of termination. If election is not timely made, participant must wait until earnly retirement date. Any thoughts about significant detriment issues?

In filing the Plans for subsequent letters of favorable determination (e.g., for EGTRRA letters), the client could be asked for proof of the timely adoption of the versions that were previously submitted in proposed form under GUST. Because the GUST letters are caveated on the timely adoption of the plans that were submitted in proposed form, the IRS reviewing any subsequent filing (which requires inclusion of the most recent determination letter) might ask for proof. This came up under the GUST program quite frequently. Clients were asked to submit executed copies of documents that were descripted in the prior letter as proposed.

Client filed both of their qualified retirement plans (one DB and one DC) with the IRS under the GUST program in proposed form but failed to adopt finalized versions within 91 days of the determination letter. In addition, the client failed to adopt EGTRRA amendments by the end of the GUST remedial amendment period. Are we stuck with a VCR submission under EPCRS?

Was the SPD even given to part-timers before their first year eligibility period? The IRS might argue that they did not question the practice b/c they did not know what the literature said.

Does anyone have any potential issues with the following situation: Client has Plan A, which is a 401(k) plan (calendar year plan year) with discretionary matching contributions. Client also has Plan B, which is an ESOP (also calendar year plan year). Prior to 1/1/04, client wants to merge Plan A with and into Plan B and create a safe harbor KSOP (they're not yet sure which safe harbor contribution method to use). We're preparing a transition memo describing the applicable steps, and I was just hoping someone might be able to come up with some issues I've not yet covered. So far, I've covered (1) corporate action (i.e., merger resolutions, removal of 401(k) plan trustees, etc.), (2) plan amendments and drafting (re: service crediting and protected benefits issues), (3) testing, (4) notice requirements (safe harbor and blackout notice), (5) safe harbor alternatives, and (5) Form 5500 filings.

From reading Notices 98-52 and 2000-3, I see no prohibition from switching between safe harbor matching contributions and safe harbor non-elective contributions on a year-by-year basis as long as (1) proper notice specifying the method is given each year and (2) the plan is properly amended to specify the method. 1. Does anyone see any problems with this or has anyone seen anything specifically permitting or prohibiting this? 2. Can anyone read Notice 2000-3 to permit a mid-year switch from the safe-harbor matching contribution to the safe harbor nonelective contribution (i.e., plan adopts safe harbor match, exits mid-year before making a contribution, and elects non-elective method on or before December 1)? Is this possible or would it fail due to the fact that the notice would not accurately describe the safe harbor formula?

Service provider accidentally comingled pre-safe harbor matching contributions and safe-harbor matching contributions and, as a result, permitted hardship withdrawals of safe harbor matching contributions for several NHCEs over a three-year period. Several of the affected participants have since terminated employment. Our thoughts are to perform applicable nondiscrimination testing for the affected years, but service provider is charging an enormous amount to run the testing. :angry: Thoughts on possible alternative corrections?

I'm fairly certain that actuarial increases need not be provided while a participant is in suspension service (unless he/she has attained age 70-1/2), but I cannot find this in the regulations. Any help out there?

Thank you....I found about 5 seconds before your reply!

Are there any rules about how to assig a "plan number" when completing IRS Form 5500 for a master trust?

Is it possible under a safe harbor 401(k) Plan to have different eligibility provisions for deferral and matching contributions (e.g., immediate participation in regard to deferrals but year of service requirement for matching contributions). Notice 2000-3 (Q&A-10) appears to permit this but also seems to require ADP/ACP testing....

We have a client who has recently discovered that they failed their ADP test for 2000 and 2001. In determining which correction methods to use, we've decided to use the "one-to-one" method for the 2000 plan year (this is one of the correction methods outlined in Appendix B of Revenue Procedure 2002-47 and provides for a distribution to HCEs and a corresponding QNEC in the same amount to NHCEs) and a distribution to HCEs (without any corresponding QNEC to NHCEs) by 12/31/02 for the 2001 plan year. Since both correction methods include a corrective distribution to HCEs, we are trying to determine how to allocate applicable earnings/losses.....the plan document (prototype) does not appear to provide for the allocation of "gap period" income/loss and the regulations state that gap period income can only be allocated if the plan so provides. Since the market has been such a bear (pardon the pun) lately, we are concerned whether HCE account balances are large enough to withstand the corrective distribution. Any thoughts about being able to allocate earnings and mainly losses through the date of correction? Rev. Proc. 2002-47 only seems to address the allocation of earnings on corrective contributions, rather than distributions.

Well, it seems as if there is no clear cut answer on this one...I may have to go to the IRS and inquire (without disclosing the client, of course). If they give me an answer, I'll post it here.

Yes, the excess is from deferrals to only one plan. Thanks for the help!

Thanks for that link!

§1.402(g)-1(e)(8)(iii) appears to indicate that distributions after April 15 must wait for a distributable event.

My problem concerns distributing excess deferrals (deferrals in excess of 402(g) limit) after the applicable correction period (April 15) not distributing excess contributions under ADP after the applicable correction period.

Brian, You are correct...I was also looking at ADP/ACP testing and conflated the two correction periods. Sorry for any confusion!

Pursuant to §1.402(g)-1(e)(8)(iii), distributions of excess deferrals made after the 2½ month correction period may only be distributed when permitted under §401(k)(2)(B) (i.e., severance from employment, death or disability; attainment of age 59½, hardship, termination of plan). I do not see this stated anywhere under Appendix A of Revenue Procedure 2002-47, which merely provides that the permitted correction method is to distribute the excess deferral to the employee and to report the amount as taxable in the year of deferral and the year distributed. Any thoughts on this?

Thanks to all who responded!

Mbozek,if the amount is over $5,000 are you saying that the amount can be distributed as a lump sum, subject to applicable withholding, even if there is another DC plan in the controlled group?

The way I read the regulations on this one is that you cannot force the money out if any employer in the controlled group of corporations maintains another defined contribution plan (other than an ESOP). I think the best you can do is transfer the money to the other plan....if there is no other defined contribution plan, I believe the money (even if over the $5,000 limit) can be cashed out, provided the plan does not offer annuity forms of distribution. I'm not totaly sure how this works, so perhaps someone who's been through this can weigh in.

Does the acquiring company have its own defined contribution plan? 1.411(a)-11(e) provides that "if a defined contribution plan terminates and the plan does not offer an annuity option, then the plan may distribute a participant's accrued benefit without the participant's consent - if the employer, or any entity within the same controlled group of the employer, maintains another defined contribution plan.... In such a case, the participant's accrued benefit may be transferred without the participant's consent to the other plan if the participant does not consent to an immediate distribution from the terminating plan." Have you sent your requests via certified mail/return receipt? You may actually have a missing participant (and could use a search firm such as The Berwyn Group ).