RCK

I'm having a hard time with all this support for Blinky, the 3-eyed Fish. My reluctance can be tracked back to the day I had to explain to our ERISA counsel that my support for my position (on some obscure topic) came from Blinky the 3-eyed Fish. RCK

This may not be a perfect situation for a Safe Harbor design if the existing design is lean--say a match of 20% of the first 5% with a 5 year graded vesting schedule. If that is the case, the move to safe harbor matching, and safe harbor vesting can be breath-takingly expensive. The lesser cost approach is to increase NHCE participation in the current design by adding loans and hardships (if they are not already features), and then communicating the benefits of 401(k) participation. Relentless communication can be as effective in increasing participation as improved plan design. I'm also a big believer in automatic enrollment (it's worked for us), but that does carry some philosophical issues. RCK

Can you provide more details? Was the profit sharing contribution declared through board action or whatever your plan requires? Was it communicated to participants? In general, the contribution must be made by the sponsor's tax return due date including extensions. So I'm wondering if you could claim that the profit sharing contribution was never really made/declared/accrued, and then file an amended tax return, removing that deduction. RCK

Thanks for the responses. The rumor through our finance department is that there might be a Sarbanes Oxley driven problem. But I have not gotten clarification yet. RCK

You are still confusing tax and accounting rules. The tax deduction rules are (generally) in IRC section 404, and say that a contribution to a pension trust is deductible in the tax year in which it is actually made. As with any IRS rule, there are restrictions, but that's the general rule. RCK

This whole thread has gone stray. Let's keep in mind the original posting. Amazingly, that joke just came to me by a completely different route, with the following substitutions: The role of the Red Sox fans played by loggers. The role of the Yankee fan played by a tree-hugger. The role of the shark played by a grizzly bear. And the role of the Pope played by himself. Still hysterical. RCK

Katherine, Thanks for your response. Yes, there are full scope audits because of an 11-K filing. Our treasury department is currently taking a survey of those interested parties to see if they care if the plan audits are done by a different firm. RCK

Plan sponsor is a publicly traded, Fortune 500 company with corporate audit performed by a big 4 company. There are roughly a dozen plans that require an audit, including four that hold company stock in employee directed accounts and therefore require full scope audits. Each year, the plan audits and corporate audit have been done by the same firm. (That is, if in 2002 A did the corporate audit, A also did the plan audits. It does not mean that A has done the plan audits every year.) Question: Is there a downside to splitting the providers so that A does the corporate audit but B (a smaller and cheaper regional firm) does the plan audits? Thanks for your thoughts. RCK

I'd say that it depends on what your collective bargaining agreement says. If it says just that you are going to provide the members with access to a 401(k), you would probably be OK in deducting all manner of expenses from participant accounts. If it says that expenses wil be paid by the sponsor, then that's obviously what you have to do. And if it is somewhere in between, then you have to decide what you are comfortable doing. I do not see audit fees as any different from investment management recordkeeping, trustee, or any other normal expenses. RCK

I think that it is a new concept, facilitated by the recent SEC actions. But if the fund is only seeing net transfer instructions from the plan as a whole, how does it determine the appropriate "fee"? RCK

I guess that I thought that approach had already been tried. RCK

Network, network, network. RCK

My daughter will be off to college soon. I'm sure that she has stopped being a financial burden. But back to the question--I don't suppose that the son took the distribution as a rollover, so that you could contact the receiving firm and explain to them that a protion of the rollover was not rollover eligible? RCK

Kriso, I agree with both of the preceding posts, but would like to give you something else to think about: (1) Check to see if this is covered in the purchase agreement. (2) If you do decide to treat it as a partial termination, you only have to vest those people affected by the event. This generally means people who are actively employed at the sold store on the date of sale. But we have had situations where it was widely known that the store was for sale, that we treated as a partial termination, and vested everyone who was actively employed 30 days prior to the actual sale date. (3) If you do decide to go the partial termination route, I'd suggest a plan amendment saying that you are treating the event as a partial termination. RCK

I agree with Mike Preston. Does the plan say that you're going to do it like that? RCK

What do you mean by "the plan trues up the match at year end"? RCK

We are in the business of approving hardships, and we nearly always rely on the EOB. Without that, we would probably take a letter from a collection agency. A detailed bill would definitely not do it--we neet to guarantee lack of insurance coverage. Note that we hardly ever have uninsured employees, so a total lack of medical coverage is not an issue. I'm not sure how we'd go about proving that there was no insurance. RCK

I agree with you. The "exact percentage" can vary by year of plan operation--not by year of participant service. In addition, I don't see that the document gives you the latitude to apply one percentage below $XXX of deferral and a different percentage above that level. It says "uniform percentage of such participant's deferred compensation", which means to me a uniform percentage of all deferrals. As usual, I'm assuming that there is not any wording elsewhere in the document that might lead one to a different opinion. RCK

I'd vote "yes". I think that you file from the effective date of the plan until all the assets are distributed. Clearly, on the back end you stop filing when there are no assets left. But my interpretation of the instructions would be on the front end of the plan's life you file as soon as you have a plan--not as soon as you have assets. RCK

I agree with pmacduff. (I come from a large employer perspective). We would not continue the distribution processing unless she was at least 59 1/2. In our situation, I think that the result is clearer, because we would have automatically restarted her deferrals on rehire at the deferral percentage she went out at. RCK

Does the Safe Harbor notice have to be given before the beginning of the plan year or 30 days before the beginning of the plan year? RCK

It is reassuring to note that life is not stagnant, and that some things grow and improve. When I first heard this joke about 30 years ago, the frog was a dog, and he was not related to a Rolling Stone. Clearly better now. RCK

I'd say that as long as the sponsor did not segregate the contributions from its own assets, you have a prohibited transaction, and not much chance of getting out of it. Besides, the penalty is based on the interest and the interest is for two months on one month's contributions (plus a compounding of that amount). It just is not a lot of money, unless somehow the actual return on one or more of the funds was outrageous. And the penalty is just 15% of the interest. By the time you get down to the penalty, it typically is more trouble to calculate it than to pay it. RCK

I'm surprised at the way this ended up. tlemaster, are you saying that the plan has the option of taking the money back, or that it must? As a plan administrator, I've been in this position before, and have refused to accept the money back. (The participant had a valid hardship, proved it, and plan made the distribution. Plan has no right or responsibility to monitor what the money was used for). A cynical person, would also ask how you managed to find an answer to that question at the IRS. But I'm not that cynical. RCK

At the risk of sounding cynical here, how does a manufacturing company have five (or sx) salaried employees and no hourly employees? Other than that, I agree that you can amend the plan to create the structure that you want. Since the match is discretionary, I believe that you can still do that up to the end of the plan year. RCK