RCK

Thanks for responses. The money in question is indeed pre-87 money and has been separately accounted for. We only allow lump sum distributions from the plan, and allow distributions at termination of employment, or after age 59 1/2, or post tax contributions at any time, or inbound rollovers at any time. So as I see it, participant IS eligible to request a distribution, he IS eligible to take the post tax dollars separately, he CAN take his post-tax dollars out first, the post tax dollars DO count against the RMD and he CAN rollover the excess over the RMD. In this case, the RMD is greater than the post tax amount so he will be getting a sliver of tax liability in the process. RCK

We have a participant in our 401(k) plan who is over age 70 1/2 who will be receiving a RMD. What makes him unique for our plan is that he still has some post-tax contributions in his account. So I've waded through code and proposed regs enough to be comfortable saying that those post tax contributions are included in determining the "entire interest" of the employee, and subject to RMD. But my question is whether, if he takes a distribution of those post-tax contributions, that distribution counts against the RMD. I have gotten opinions on both sides of this already. RCK

jpod: I have no idea what the details of each situation were--all I know is that there were either two or three. I'd sure like think that the decision that did not adversely affect the true creditors, and that the judge realized that a 401(k) loan is just a premature withdrawal followed by increased post-tax employee contributions. However, I'm having kind of a cynical day, so I'm just not sure. RCK

I think that the Department of Labor is very handy in situations like this. Go to their website at dol.gov and find out the phone number for your nearest office. Call them and explain the problem. You are going to have to be able to distill the situation into a couple of key points if you expect them to follow this. I think that it comes down to the fact that you are entitled to receive a distribution and have not gotten it yet. You should have an SPD that explains when you are entitled to receive the distribution. Contacting them is usually more effective if you can find someone else in the same situation, but you may not have that opportunity. Good Luck. RCK

I agree with the previous comments--once you have been notified of the bankruptcy you have to stop withholding the loan payments. If your participant is upset about this, send him back to the court. We have had a couple of cases where the court allowed 401(k) loan payments to continue. RCK

I think that the bigger risk right now is the organizations that offer to "sweep" all your financial information into one place for you. So you give them the account number and PIN for each of your accounts (401k, IRA, mutual funds, mortgage, bank accounts), and they send that information to a third party, who goes out every night and "scrapes" the data from each of your accounts, returns it to your provider, who shows it all in one place for your convenience. Scary? absolutely. Do people do it? yes. As plan sponsor, can I stop it? nope. RCK

I had a terminating plan with a single asset-- a lovely seaside cottage in Ireland. Am I glad that the statute of limitations is up on that one. RCK

As usual, I agree with pax. One of the secondary goals of all of ERISA is to protect retirement benefits from assignment or alienation. Keep in mind though that those protections are off once the money leaves the qualified plan. RCK

Our core plan has had automatic enrollment for just over three years, with a 2% default contribution rate. Our experience is that we get very few complaints, and it really has not been a problem. I think that defaulting up to your matching level is a defensible approach. I would be a little concerned about the vesting schedule, but most of all I would do some retirement modeling to show that 6% would get the typical participant into reasonable replacement ratios at retirement. The experience of most plans with auto enrollment is that there is tremendous inertia, both in deferral percentage as well as investment elections. It seems that participants are implicitly assuming that the percentage that the sponsor has selected is adequate to fund their retirment. I see that as a future litigation prospect. RCK

and doesn't it say that V varies from year to year, but not from participant to participant?

I always thought that the part that was discretionary was the total dollar amount, and that the actual allocation of that dollar amount was determined by the plan document. RCK

MoJo, I saw this as mostly a diversification question. Any fund that is not a pure company stock fund is going to be diversified by some combination of capitalization, value/growth, sector, or at least issuer. A company stock fund is clearly not diversified by any of these factors. The whole Enron debacle showed that participants are driven by greed rather than sound portfolio theory. RCK

To MoJo's question, I don't think that imposition of a cap on holdings in a particular fund implies that that fund is not an appropriate investment alternative--so long as that fund invests in a single stock. I do think that it would be an interesting argument if the plan imposed a cap for a fund that had an investment strategy calling for diversification within its particular style, especially if only one fund were subject to that cap. RCK

Offline, I'm sending you one that we used about 18 months ago. That is, I'm not sure it is still good. RCK

I'd guess that end of 2001 is not out yet. I got survey of 2000 assumptions from Watson Wyatt, but did not get it until October 2001. RCK

I agree with Katherine's comments. But I'd like to extend this a step. Assuming that the plans can pass coverage either combined or separately, is it possible to flip-flop annually on how you do the coverage testing, and therefore the ADP/ACP testing? That is do the ADP/ACP separately one year, and combined the next year, etc. RCK

The administrator would normally be paid either by the Plan sponsor from corporate assets or by the Trustees from plan assets. With the Plan Sponsor declaring bankruptcy, I would not count on getting any payment from that source. But perhaps the plan documents allow for the payment of expenses from the trust(s)--either from the participant accounts or any accumulated forfeitures. That would be worth checking out. RCK

I don't think that KB's solution helps with Maverick's problem. KB seems to be saying let a bunch more people into the plan earlier, and then exclude them from the test. Doing that would leave the same problem that Maverick started with. Bottom line is that there is not an easy solution. Auto enrollment will work but as KJohnson said, you have communication issues and lost participant issues. A safe harbor would work, but costs will be very high. The tricky solution is to do your test at the end of the year, and assuming your plan allows it, make corrective contributions starting with the lowest paid NHCE and working up until the test is passed. Can be very cost effective. Will be very time consuming. RCK

Thanks, mbozek. Our consistently conservative ERISA law firm gave us the opinion that the Determination Letter was required to be provided on request. I like your interpretation better. But to the original question, we'd still provide upon request for a rollover situation. RCK

As a plan sponsor, I will require some sort of verification that the disbursing plan is qualified. The fact that the IRS is not going to apply the death penalty to my plan for accepting as a rollover a distribution from a plan that is not qualified is reassuring. But that would still leave me with the hassle of cleaning up a "dirty" rollover. We provide a copy of Determination Letter for outbound rollovers, and require either copy of letter or a statement from Plan Sponsor (that plan is qualified) on inbound rollovers. And I can't find the cite, but I think that a copy of the Determination Letter is one of the things that the participant is entitled to have access to. RCK

Back to the original question: we have a well-intentioned employer who wants to provide a plan for her employees. So this should be viewed as a long-term commitment, which means that the employer is going to end up having it for, say 10 years, and spending $500,000 on the plan. I doubt that if she had to spend that much on a capital expenditure, she would not get expert help to make the decision. The same logic applies here. My full disclosure: not in LA, currently employed by plan sponsor, formerly with Big 5 Audit firm, and before that with local TPA. RCK

I agree with mbozek's answer but not some of the reasoning behind it. Our experience in acquisitions has been that the due diligence process only turns up the most flagrant problems. In order to determine that a plan is truly clean, it is necessary to do a compliance audit or something similar. And that can't be done until after the deal is signed. This is what requires the quarantine approach (although we have taken to calling it "aging" the acquired plans). RCK

Our (institutional) trustee is telling us that the deadline for recovering erroneous FIT withholding for calendar year 2001 distributions was 1/18/02. Can anyone tell me whether this is an IRS deadline, or just something that the trustee is doing for their convenience? Longer story: we made a mistake in making a death benefit distribution from a 401(k) to the beneficiary. Instead of distributing to him, we cut the check to the deceased and took the 20% withholding in the deceased's ssn. The check was cashed and we are pursuing the net amount as a forgery case. But that leaves the 20% that was submitted to the IRS in the deceased's ssn. How do we recover that portion? I'm out of my element here--any ideas anyone? RCK

I'd guess that with the possible exception of the pro athlete group, there are going to be some NHCEs in the group. Even the athlete group might have NHCEs if the guys in Podunk Rapids in the rookie league are in the same plan. RCK

It's also going to be a function of what other qualified plans there are. An employer that emphasizes their 401(k) or Profit Sharing plan may choose to target a smaller benefit from their DB plan. RCK