RCK

If you don't report them with a code D (no longer entitled to benefit), the Social Security Administration is going to notify them in 30 or 40 years that they might be entitled to a benefit. Do you want to be digging around in 30 years to prove to the (former) participant that they are no longer entitled to a benefit, even though the SSA says that they might be? Several times, I have inherited plans that had not reported payouts with a Code D in the past. In each case, we have rounded up whatever historical data we could, and reported them with Code D. RCK

We have just discovered that for one of our plans, the 1999 5500 filing did not have a Schedule P at all, and the 2000 and 2001 filings had a Schedule P from the wrong Trustee. It seems to me that we should file amended returns for all three years--that it is not very much work, and we want to get the statute of limitations started for all three years. Comments? RCK

Blinky the 3-eyed fish is of course right. It seems to me that the logical of the employee's position is that he should be allowed to defer $12,000 even if the employer did not offer a 401(k) plan--clearly a non-sensical result. RCK

Based on your recitation of the facts, you are right. Plan doc says in-service withdrawal at NRA and NRA is 65. Participant can have a distribution at earlier of termination of employment or attainment of age 65. RCK

Keep in mind that you have to file a 5330 for each employer tax year in which there is an implicit loan to the employer. So if you have a calendar year filer, then you will have to do 5330 filings for 2001, 2002 and 2003. The actual interest calculations are nasty--for each month you have to compare the Federal Short Term rate with the actual rate earned, and credit the higher of the two. RCK

I agree with Katherine and Blinky. On the plan merger date, the merged plan does not exist, and therefore can't hold any assets. I spent too much of last summer convincing the technical department of a Big 4 accounting firm that this position was correct. But I did finally convince them of the correctness of this position. RCK

I'm confused by your terminology. Is this a spin off or a collection of rollovers? RCK

WDIK: My reply was based on the following theory: Any way you look at, it's wrong, so it's a matter of picking the least irrational solution. To me, that is saying that checks are not simultaneous, they are sequential. And the participant elected a 7% deferral on the first check, and a 0% deferral on the second check (because that IS what happened). Then the match has to be 100% of the first 5% of contribution from the first check--what the prior administrator did. I realize that to make this work, you have to be able to claim that the participant has made sequential elections--7% and 0%, and that is certainly a stretch. But the reality is that no money was taken from the second check--how can you claim that a protion of that amount was deferred? RCK

If the plan defines recognized compensation as W-2 earnings, I find it very difficult to believe that it allows two different deferral percentages--one for ordinary earnings, and one for office cleaning earnings. So let's assume that it does not. First of all, you fix that going forward. Tell the employee that the same deferral % must apply to both checks, and that the match will be based on the first 5% from each check. Then you go back and look at the historical match calculations. Given that they are based on a set of facts that the plan does not allow, you have some leeway to do what you think is right. I think that the prior adminstrator's approach is right. RCK

Keep in mind that convincing your auditors of the correctness of this position may be more difficult than achieving a concensus here. I went through a similar situation involving the merger of two DB plans last year, and it took months (literally) to convince our Big Four auditors that even though the assets were still in the extinct plan's former trust at the end of the year, they belonged to the surviving plan. That is even with the benefit of their national office. RCK

By endorsing the check, they are also accepting the terms of the Promissory Note. What does that say? Ours says that as long as they are on the payroll, payroll deductions must continiue. RCK

The instructions to the 5500 say: All pension benefit plans covered by ERISA are required to file a Form 5500 except as provided in this Who Must File section. The return/report is due whether or not the plan is qualified and even if benefits no longer accrue, contributions were not made this plan year, or contributions are no longer made. Pension benefit plans required to file include both defined benefit plans and defined contribution plans. Sounds like a "yes" to me RCK

It seems to me that there is risk in calling this a contribution, in line with Blinky the 3-eyed Fish's comment. I feel that this is a self correction of an operational error, and would be deductible as a reasonable business expense under section 162. But I'm not sure how to categorize the income on the 5500--probably not Employer Contributions, but that seems to only leave Other Income. RCK

Why would they want to do that? There have been threads here that discussed this type of issue, but I think never in the context of someone who had been in the plan for years already. RCK

Right. It is required to 100% vest at attainment of NORMAL retirement age. RCK

On one point, I think that I disagree with Steve72, and am pretty sure that I disagree with KJohnson. My recollection is that you have to compare the underpayment rate with the actual rate every month for the period, not just for the entire period. Otherwise, I agree with what seems to be the consensus here. RCK

To respond to the last part of the original question: we have employees in California and have been using automatic enrollment since March of 1999. We started with a 2% default deferral and just moved to 3% in the last month. We have not had any problems. As an aside, we have always referred to the program as Automatic Enrollment, in order to give it a little more positive spin, but also because it is a more accurate description. To me, an Automatic Enrollment is what happens in a 401(k) plan and a Negative Election is what happens in politics. RCK

On a practical level, MR, what are your documentation requirements for a hardship withdrawal for purchase of a primary residence? For our plans, we are looking for a signed purchase agreement or a good faith estimate of closing costs. If neither of those documents is in participant's name, he does not meet the documentation requirements. RCK

Normally for an asset purchase, the responsibility for maintaining the plan would not move to the buyer. But in your case, you are saying that the buyer took it over. So there must be some language dealing with the continuation of the plan. Similarly, there is probably some representation language in the purchase agreement, where the seller makes some representations about the qualification of the plan and the status of its filings. I'd hope that there was some direction in one of these. RCK

Right. Taking the withholding is easy for the recordkeeper. But we have to deal with trying to recapture the federal and state withholding on lost and stale checks, and coordinating with the trustee. (Trustee is not the recordkeeper) And I'm trying to get some feedback that will get me grounds to go to them and say that the best practice is to NOT do withholding on under $200 distributions. RCK

I know that we don't need to take withholding on (rollover eligible) distributions of less than $200. And I know that for administrative reasons, I don't want to take withhlding on those distributions. But my recordkeeper is saying that their system is set up to take withholding on all (rollover eligible) distributions, and they do it for all their clients. So I'm trying to get a sense of the market-who is taking withholding on those small forceouts, and who is not? RCK

I agree with Alan. What would you do in the simplest case, where this is a pure profit sharing plan (employer contribution only, not a 401(k), and calendar 2002 was the first plan year. Total plan assets (excluding receivables) is zero, and nothing is due in for months. How do you make a loan? RCK

I thought that you were saying that the aggregate excess contribution was based on using the entire $11,000 and $100,000. As long as that's the case, we're facing a large refund. I was hoping to find a way to base the total excess on the smaller contribution base, and therefore come up with a smaller return of excess contributions. RCK

Thanks for the responses. To clarify, we have never done SLOB testing, and this participant is an HCE. Mike seems to "get" the question better, although he did not provide an answer that I like. I was hoping for a cite that said that since this was not a discretionary act, and since the participnat was never eligible for both plans at the same time, we could disregard the participation in the plan that passed. Then we could calculate both the excess contribution and the allocation to the participant based on only the $11,000. But it's not looking good. RCK

Facts: 1. Employer has multiple business units, and several 401(k) plans, covering different non-overlapping collections of those units. 2. Participant transfers from one business unit to another, and as a result of that moves from one plan to the other. 3. Because the plans are all with the same recordkeeper and same trustee, we do an automatic plan-to-plan transfer of his account to the new plan. 4. Let's say that he contributes $6,600 based on $60,000 of earnings while in Plan A and $4,400 based on $40,000 of earnings while in Plan B. 5. The plans are not aggregated for coverage or ADP/ACP testing. Our interpretation of Reg 1.401(k)-1(g)(1)(ii) is that all contributions and all earnings count in both plan's ADP tests. Let's say that Plan A passes ADP/ACP, but that B flunks badly and refunds are required. I'm left with a bunch of questions, but I think I can consolidate them down to two: 1. In determining the aggregate excess contributions, how much of the employee's earnings/contributions do we count? 2. In determining the transferred participant's excess contributions, how much of his earnings/contributions do we count? RCK