RCK

Ooops. I lost sight of the original question--that this distribution came from an IRA. I was thinking 401(k).

Our plans say that it will be done automatically. The change to do this was made two years ago, and has been met very favorably--mostly because it consolidates all monies in one place. The plans are very similar except that they cover different groups. They do have the same loan, hardship, and distribution features.

I agree with John Cheek. When the participant took the distribution payable directly to himself, it became 100% taxable. It is not the payer's responsibility to follow up with the participant to see what they did with the money, and it does not matter. At the point of distribution from the plan, the entire amount was taxable--this is not a direct rollover, where the payer can clearly say that the distribution did not create a taxable event.

We have four plans that share the same platform--recordkeeper, trustee, investment options, etc. There are some different plan provisions, and when someone moves from one plan to the other, we automatically do a plan to plan transfer. And all the preceeding comments are on target--it has to be in both documents, and you have to be careful about distribution options and benefits rights, and features.

Tom, Is it fair to assume that this logic would not apply where the forms were significantly different? For example, you could not do a 1999 filing on the 1998 forms? rich

I'd hate to contribute to confusion any more than I usually do. I was just adding a little more humor to pax's interpretation of DH as the Designated Hitter, and saying that Designated Hitters are usually older guys, and eligible for 59 1/2 distributions.

I think that a DH is generally old enough to qualify for an in-service (59 1/2) distribution. :-)

I am just looking for closure on this issue. Late in 1997, the state of Florida announced that its loan tax of $.35 per $100 (or portion thereof)applied to qualified plans. I remember panicking about this when it came out, but being unable to find anyone who was actually doing it (including our recordkeeper and trustee). So we employed the head-in-the-sand approach, because we only had a handful of our participants in Florida with loans. Does anyone know what happened to this? Are plans actually doing it?

It seems to me that the plan document has to define who gets the match. If it does that by describing who is eligible, then it should be easy enough to determine whether someone who took a hardship is eligible. If it does that by defining who is NOT eligible, and "participant who took a hardship" is not mentioned, they have to get it. For example, our core plan says that the year end match goes to everyone who works 1000 hours, and is either an active employee on the last day of the plan year or died or retired. A person with a hardship could have met the 1000 hour rule and the last day rule, and would get the match.

I do not have a specific cite for the repayment with after-tax money position. All I can say is that it was the position of our outside ERISA counsel, and may have come from their tax department rather than their benefits department.

Last time we researched this issue, we came to the conclusion that the repayment had to be made with post -tax dollars. And that would leave the participant in the unenviable position of having a taxable distribution, a non-deductible repayment, and a second taxable distribution of the same amount. The plan in question was a DB plan, but I don't think that matters. Didn't make sense to us, or the participant.

The general answer is that you might not be able take a distribution while still employed--it depends on your plan. You will need to look at your plan's Summary Plan Description (SPD) to see what is available to you. You might have the right to take a Hardship Withdrawal for certain purposes, including uninsured dental expenses. You might have the ability to take out a loan, and use that to pay the dental expense. And if you are age 59 1/2, you might have the right to take a distribution while still employed. RCK

These simple questions have an amazing tendency to get complicated. I'm puzzled by your comment that you "canceled" the plan. Do you mean that you amended the plan terminating it, with proper notice to participants, etc. And may or may not have filed with the IRS for a determination letter? And there being no other 401(k) plans in the controlled group, you were able to distribute assets? If "yes" to both of those, then I agree with mwyatt. If not . . . . .

I think that the key here is that, as I read the question, they are still not divorced. So that would be why she is entitled to only 50% of what is left. As long as the distribution from the 401(k) did not require spousal consent, he was free to spend the money as he saw fit.

I like JON'S answers. As a plan sponsor, if I were in that situation I would consider the following: 1. Pass the costs through to the participants. 2. But cap the charges as a % of assets at say 2%, and have the sponsor pick up the balance. I think that your 2% rule of thumb is reasonable, and that anything higher will deter participation, and anything lower might create an artificial demand. 3. Communicate. Communicate. Communicate. That is, tell the participants exactly what you're going to do, and why. RCK

If we're talking about Investment Management fees, I certainly agree that they are payable as long as they are reasonable. If they are really Investment Advisor fees, and could be construed as for a plan design function, they sound like settlor expenses, and then not payable by the plan.

I agree with the other two respondents--this is an easy one. "Not on good terms", "not living together", "have no idea where the scumbag is" are all insufficient excuses. The spouse has to sign off to validate any designation of someone else as beneficiary.

This is a pretty straightforward issue, as covered by previous responders. I would just add that you want to make sure that the 1099-R is coded correctly. I don't have the form in front of me but if I recall correctly, the distribution code should be 2, which means Early Distribution, but subject to an exception from the penalty. In this case the exception is age 55 and separated from service.

I think that the short answer is they don't have to track it. But the longer answer is that it depends on how they got to the PTO policy. If prior to that policy they had a traditional vacation and sick days policy, then they might have grandfathered (banked) accrued sick days at the conversion. Then you have to keep tack of sick days at least for anyone with a grandfathered benefit.

It depends on what you want to do. The most common service based formula is probably a points based profit sharing plan, where the allocation of the total contribution is based on a combination of recognized compensation and years of service. The alternative would be to create a service based match in the 401(k) plan--for example, the match is 25% for years 1-5, 50% for years 6-10, 100% thereafter. In either case your primary hurdle is probably discrimination testing. If you're doing a tiered match in a 401(k), the testing at least is pretty straightforward--just your regular ADP/ACP test. If you're doing a points based Profit Sharing contribution then you will have to prove 401(a)(4) compliance. In either case, passing the tests might be difficult.

I don't see anything in the 5330 instructions that lists a de mimimus level. It says what's the excess, and what's 10% of that. I'd guess that if your refund was less than $5.00, then your excise tax would be rounded 0. I'd also say that filing the 5330 with the $10 excise tax is cheap insurance that you've done everything right.

Yes, that's what you have to try to do. It's what you when that does not happen that I think gets interesting. Do you then report the 20% as a distribution from a qualified plan and the balance as ordinary income? I don't think that you do anything about the missed withholding.

It seems to me that the participant is choosing to spend a portion of their after-tax income on insurance, and that has no impact on what you report.

I was hoping to get a response to one of my earlier comments--that a vendor's determination letter on a prototype would not count as a determination letter for voluntary self correction purposes. Any comments?

Let's hope that the insurance company comes up with the information. If not, I'd go back to the current actuary and have them double check the transition file that they received. It obviously had ee contibutions with interest, and it should have had ee contributions without interest too. Assuming that neither one come up with the data that you need, then: 1. You need to do something to come up with a tax basis for each of the benefit payments. 2. Nobody is going to have any better data than you do. So, I would do estimates based on a (or several)sample participants. The person for whom you do have data would be a good starting point. The result would be a set of factors that would vary by years in the plan and years since cessation of contributions. Those factors when applied to the contributions with accumulated interest would give you estimated ee contributions. This is an operational failure, and I'd say that you're doing some form of self-correction. Document what you're doing, making it clear that you have exhausted the possibilities, showing how the estimates are derived, and that the results are reasonable.