RCK

I agree with Harry O also. It is not unusual for a plan with a service cap and an integrated formula to result in an accrued benefit that decreases due to an increase in the covered comp level (the breakpoint in the benefit formula). And for a plan that includes bonus in the definition of recognized compensation it is common for final average pay to decrease, occasionally by significant amounts.

Since no one else has responded yet, I will take a shot at it. I think that the client has a funding deficiency, and there is not much you or they can do about that. I think that now you do what you can to keep it from getting worse--freeze acruals, prepare a request for a funding waiver for the current year, etc. I don't think that the Secret Service is going to go to bat with the IRS on your behalf, but certainly the fact that they are involved shows the validity of your actions. Good luck. RCK

I would be concerned about the validity of the Waiver of Participation, particularly because the sales manager was not a HCE when (s)he signed that. On my Soapbox: it is situations like this one that have led us to the stunning amount of rules and regulations that we have for qualified plans. This comment is strictly mine, and does not represent the position of my employer, any former employer, or anyone else for that matter. And certainly not meant as a criticism of sdolce. RCK

I agree too that the ending balance on the last 5500 must be zero. I'm a little concerned that the amount returned to the employer is really a reversion of residual assets, and not a refund of a mistake of fact contribution.

My advice to others who are warned of a pending blackout period would be to make sure that your account is structured the way you want it before the blackout period begins. Advice to Robert Tate would be that an 8 week blackout is not unusual, but an 8 week delay beyond that period is a little unusual. For the employer, not communicating what is happening is not the best way to handle the situation. Your employer should be telling you what is happening and why. Otherwise, I agree with actuarysmith on potential causes and especially on calling the DOL. Also, I think that the DOL is more responsive when they get calls from several different people. RCK

Assuming that your plan is a calendar year plan, I don't think you are missing anything. Your premium snapshot date is 12/31/2000 and on that date you only have two participants. So your flat-rate premium is indeed $38. RCK

I think that you need to refer to precedent in administration of the plan. We have an acquisition, that resulted in an annually valued plan hitting my desk. If we got a distribution request in March 2001, and the 12/31/2000 valuation had not been completed yet, then we would have had to wait for it to be done. Your comment that "the administrator offered to pay" concerns me. The adminstration of qualified plans is not something that is to be negotiated--it is to be done in accordance with the rules of the plan. In particular here, it sounds like the administrator did something special for a person who progbably had a larger than average account.

We have been doing automatic enrollments for just over 2 years now, and have applied the concept in a number of acquisitions. I would not see a problem with the approach as you have outlined it. Our primary concern in situations like this one is the mechanics of implementing the procedure--when do they move between payroll systems, how do you pass information to the payroll system and the recordkeeper, etc. I would add that we decided early on never to call it a negative election. It is always an automatic enrollment--clearly carrying a more positive spin. Note also that there is uniform concern about inertia among auto enrollees--they do not change their percentage or investment elections. RCK

It is OK discriminate among the NHCE's or among the HCE's, and in fact you can discriminate against the HCE's. But as pax says you can't discriminate in favor of the HCE's. The greater issue in your case is going to be a communications and HR issue--how you deal with the differences in the Summary Plan Description, and other employee communications that deal with the benefits. (For the record, I have always viewed the SPD as a legal requirement, and not a communications tool). RCK

Our 401(k) plan includes a discretionary match, made at the end of the year in company stock. Not surprisingly, participants cannot diversify out of that fund until they are 55 and 100% vested (5 years of service). But the part that I find odd is that the diversification rules apply even after termination of employment. I don't have any reason to think this is not legal, but my question is whether this is unusual, common or somewhere in between. RCK

I agree with pax. Based on the facts, this would not be a discrimination issue. It certainly could become a communications, actuarial valuation, or HR issue. And, no, I am not changing my user name from RCK to "I agree with pax."

All I can provide is anecdotal information. Our plans would not allow a hardship to repay a student loan. The safe harbor definition says "payment of tuition and related fees"--not repayment of a loan taken out to pay the same. And I'd argue that the fact that the participant got a loan to pay the tuition clearly shows that there is not a heavy and immediate need. If you want to make (and stretch) an analogy, allowing a hardship to repay a loan should then also apply to a mortgage for a primary residence. You would not allow a loan to repay a home mortgage (barring a eviction), so should not allow one here.

Assuming that the sponsor change took place in the middle of the plan year that you are now filing an extension for, I would file under the new employer's name and EIN. Then be sure to recognize the chaange in the 5500 when you file that. And keep the filing handy, because you will get questions. Note that all 5558 filings are now supposed to go to Ogden, UT.

We do acquisitions on a regular basis, in a wide variety of circumstances. If there is an underfunded DB plan, that is obviously a liability. But if there is an overfunded DB, we can merge that with one of our DB plans that is just fully funded or underfunded. It gives us interesting opportunities. Merging in an overfunded plan is almost as good as making a contribution. However if the successor does not have a plan or any interest in adding one, then the earlier comments are correct--you can give it to the participants through increased benefits or to the IRS upon termination.

I think that there is only one easy answer to this one: if the acquirer does not have a 401(k) anywhere in their controlled group, then get them to take the plan along with the division and people. Then they can terminate the plan and distribute assets. You might have to provide them with some encouragement to do this--it can be an expensive and time-consuming process. I cannot claim to be an expert in this area--my perspective is that of a sponsor that has done frequent acquisitions and a few sales. So, you are getting what you paid for--free advice. RCK

What investment management fees "should" be is a function of several things, but chiefly the size of the fund and the kind of fund that it is. A reasonable fee range for an actively managed small cap growth fund may be 1.00 to 1.25% per year. And the fee for a large Indexed equity fund could be in the 0.05 to 0.10% per year. The investment management fee that we pay for a $200 million S & P 500 index fund is 5 basis points (or .05%). That is the result of a tiered schedule, that starts out at .2% and grades down to .03%. RCK

I agree with rcline46. Not only has every plan that I've been involved with handle it that way, but it makes sense. Individuals are cash basis taxpayers, and on a cash basis the January 10 check should have the deferral taken. It is 2001 income. I think that the issue gets a little fuzzier if the payroll runs on December 24 and the employee gets the check on January 3. In that case, the determining factor for me is the check date. A check date in 2001 means 2001 income, and means subject to deferrals. RCK

Michael4509, I think your posting in a different thread said that you were new to all this stuff. Assuming that is true, here's the issue: it all depends on who has the responsibility for making investment decisions. If the trustee is truly that, and they do have the authority, then what they did seems like a reasonable decision. If they are really just a custodian of the assets and the fiduciary responsibility for the investments lies with you, then they have clearly blundered by doing what they did. We sponsor a number of plans, and always try to have the trustee be the bank/insurance company/fund that handles the funds. But investment direction is never delegated outside--it belongs either to the participants or to a designated person or committee. RCK

I think that you could argue that if the amendment increasing benefits was adopted after the distribution had already been maed, then the value of the benefit was never over $5,000 and automatically cashing out the remaining $500 would be acceptable. But I also think that getting spousal consent is the safe course, and the one that I'd pursue. RCK

I like to break issues down into component problems. Based on what you have said, this mess has at least three: 1. The owner is abusive, which means that (s)he does not respect the employees. 2. The owner is dishonest. 3. The company is in severe financial straits, and does not appear to have the leadership needed to recover. Any one of these is enough to walk. pax and actuarysmith are right -- again.

It seems to me that you need an advocate to help you push the process along. My experience as a plan sponsor is that the regional PWBA offices can be very helpful. But you might need to get another affected person to call too--I think that they are more interested if there are several complaints. I'm not sure how to insert a link to the appropriate section of the DOL website, but here it is: http://www.dol.gov/dol/pwba/public/contacts/folist.htm Find the regional office that includes your state, and give them a call. RCK

You have to prove a hardship to get the withdrawal. Having done that, you do not have to spend the money for that hardship. The distribution is taxable regardless of what you do with the money. The easiest proof of that position is that the portion of any hardship that is not pretax ee contributions is rollover eligible. So you can get a hardship distribution to prevent foreclosure on a primary residence, and roll the distribution to your IRA.

I agree with pax that the two approaches can give different results. But I think that there is some guidance on this, and that it says that you have to do the comparison a year at a time. I'm not current on it because we use the suspension of benefits notice, but if I get the chance will try to find something. RCK

Thanks to everyone, but pax in particular, for their comments. The third bullet as outlined by pax is indeed the sticking point, as is the "plan year ending in the tax year" point. We produce 80,000+ W-2's per year, and have employees in 35 corporate qualified plans and probably nearly 100 multiemployer plans, each with different eligibility criteria. Keeping it all straight is a nightmare. I'm not yet sure what we will be doing for calendar 2001.

I can't quote the entire Tax Management reference here, and in the broader contex of the entire section, I still think that the employee does not actually have to enter the plan to get the Pension Plan box checked. The most 'on-point' reference that I have is from BNA's Payroll Guide, where it says "Under a defined benefit plan, any individual who is not excluded from participating under the eligibility provisions of the plan is considered an active participant. The individual is considered active even if mandatory contributions have not been made,the minimum service for benefit accrual for the year has not been met, or no benefits have vested."