JDuns

If the plan permits distribution in cash or kind and the promissory note supporting the plan loan permits assignment or transfer, it is possible to distribute the note. If the participant could find a plan or IRA willing to accept the rollover in kind (i.e. accept the note) the participant could avoid the income tax hit at the time of the distribution (subject to issues if they default on their repayment obligations). I have seen plan loans transfered to the buyer where the plan loan is rolled into the buyer's plan and payroll deductions continue to be made to repay the loan. I have never seen an IRA provider accept a loan/note in a rollover, but it is theoretically possible. Hope this helps.

Generally a plan must count all hours worked (including overtime) or credit with a fixed number of hours based on a DOL approved equivalency (eg 45 hours a week). I suggest you do some research if you think that the plan would permit you to ignore the OT hours of service.

Where a controlled group employs individuals in multiple countries, should the plan use the general rule set out in the code to determine US source income or may the plan rely on the applicable treaties? I.e., do you treat non-resident aliens as excludable if (a) the portion of their compensation attributable to services performed in the US exceeds $3000 (the Code answer), (b) if they work in the US more than the number of days specified in the treaty (the answer under most treaties), or © they are not US citizens or you know that are resident aliens (ignoring the US source income portion of the exclusion)?

The rate of return analysis ignores the fact that most plans impose a loan origination fee and many also impose regular loan maintenance fees that significantly reduce the net return on the loan investment. In addition, the fiduciary issues on speed of crediting loan repayments, risk of errors in calculating and recrediting loan amounts, issues regarding loan defaults (especially when a participant declares bankruptcy) all make plan loans an unattractive option for plan sponsors/administrators.

The transition rule DOES NOT mean that no coverage testing is required during the transition period. It only means that the groups may be tested separately with each group ignoring the other side's employees. The adoption of the new plans indeed ends the transition rule early requiring all of the employees of 1-4 to be counted for the 9/2005 tests.

The "old" controlled group and the new acquisition may be tested separately during the transition period ONLY if there are no changes to the coverage for either group. In your example, for the 9/30/05 PYE, you would need to include 1,2,3 and 4 (assuming you maintain 4 separate plans). If you added 3 and 4 into 1's plan, you would also have to count 5's employees for the testing (since you would have changed 1's plan eligibility after the transaction).

I think that you may not be "required" to auto-roll the after-tax account, but if you are already auto-rolling the rest, I would recommend rolling it all. (1) The IRS and DOL clearly prefer to have retirement savings stay in plans. (2) If the former participant doesn't cash the check, you have a lost participant to keep track of (which you could have avoided). (3) the rules clearly permit auto-rolling everything (accounts less than $1000 or setting the plan's default as rollover for elective distributions (if the J&SA rules do not apply)) so I don't see a down side.

To be qualified, the order must be clear on its face, so I would vote to have it revised and resubmiteed. I have seen plan administrators who send a letter to the alternate payee, participant and their counsel setting forth the plan's interpretation of potentially confusing drafting and requiring the parties to countersign the letter agreeing with the interpretation or submit a revised order (and treat it as an appealable claim decision). Hope this helps.

Well, electronic delivery may be acceptable for a subset of the hourly employees if you follow the procedure to get their authorization for such delivery. Generally more trouble than its worth, but a possibility.

My only comment would be that your plan terms govern. Just because a change is permitted under the 125 plan rules does not mean that your plan must allow it (unless it is a HIPAA special enrollment right). I do agree that the change is clearly permissible under the Regs.

409A deals with deferred compensation and accelerates the TAXATION of certain non-compliant plans (subject to penalties). In the situation described, the employee has paid all taxes (I assume federal income and FICA as well as state and local income taxes) and there is no further deferral of taxation but there is deferral of payment. If that is true, 409A would not apply. However, typically there has been payment of the FICA and local taxes and the income taxes are payable as payments are made. In this situation, 409A would apply and the 12/2004 plan would not be grandfatherable. Hope this helps.

$200 is the maximum amount that may be cashed out without offering a rollover (which indirectly ties to the 20% withholding since that applies to rollover-eligible distributions).

I agree with Mbozek but I generally approach the question with how "typical" the changes are. If they are standard language that have been approved frequently (so retroactive document changes would be highly unlikely), I would be comfortable not going in early. If the language is unusual or potentially controversial, even if the change doesn't affect testing, I would recommend going in early unless you are comfortable.

I have been concerned that the IRS has clearly indicated that 409A lies atop current rules about constructive receipt and also that "performance based bonus" has not yet been defined. If a bonus program is based on a calendar year and an employee is promoted in December (when he has a fair idea of the bonus to be paid), is everyone comfortable allowing him to defer the entire bonus so long as the election is made "within the first 30 days of eligiblity"? What about allowing deferral of a prorated portion of the bonus based on the number of days in the measurement period after the election date? I realize that informal comments have indicated that the performance based standard will be looser than 162(m) but we don't know yet what the definition will be. If a company reserves the right to adjust the bonuses (e.g., to adjust EPS by adding back a non-recurring charge), that bonus would not qualify as performance based for 162(m). Would anyone else be uncomfortable allowing mid-year deferrals of such a bonus?

I agree with QDROphile and Lori that the forfeiture of lost participant, fully vested account balance (regardless of whether the vested amount is from employee elective deferrals or satisfaction of a service based vesting schedule). The next question is what happens with the forfeited balance. In all cases, the plan document governs. It is my understanding that a profit sharing plan must reallocate "regular forfeitures" that are not used for permitted things (funding other employer contributions, restore forfeitures, etc.) to the remaining participants. It is my understanding that a plan may keep the lost participant forfeitures in a suspense account (not allocated to participants) if the plan draws a distinction (since the plan remains liable for the lost participant benefit when the participant is located).

Oops. Prior to 2000, various regs (like 2520.104-20(a)(2)) extended the exception to SPDs. But that was revised in regs issued in late 1999. I should know better than to rely on my memory (since I haven't had any small clients since then).

The COBRA rule does not change the small plan exemption from providing a full SPD. But the small plan SPD exception also does not change the requirement to provide other notices required by law (like the COBRA and HIPAA notices). Therefore, the COBRA notices are required for any plan with 20+ employees. The COBRA notices may be incorporated into a SPD but a SPD is not required so long as the plan has fewer than 100 employees. Hope this helps.

You are correct that resident aliens would not be excluded based on the exception you described and must be counted as non-excludable when performing various non-dicrimination tests. However, an employer may be able to exclude these employees from plan participation if the plan coninues to pass the necessary coverage tests.

Many plans permit the withdrawal of after-tax contributions at any time. I assume from the question that, if the contributions had been classified as pre-tax from day 1, the employee would not have been able to receive the in service distribution (i.e not age 59-1/2 or hardship). In my opinion you have offered the only two permissible solutions (especially if the employee is an HCE).

No expenses incurred before the accounts are opened may be reimbursed by the HSA on a tax-free basis. If the account is opened by the provider on February 10, the employee may take a distribution to pay for medical expenses incurred prior to that date (including expenses incurred in 2004 or earlier) but would have to include the distribution in their taxable income. Only medical expenses incurred on or after Feb. 10 in my example would be entitled to be reimbused tax-free.

If a grandfathered plan does nothing to blow its grandfathered status AND the pre 10/2004 terms of the plan satisfied pre-AJCA legal requirements, the plan may continue to operate without changes both before and after 12/31/2005 (and the link between payment elections in the qualified and nonqualified plans may continue unchanged). For plans that are not grandfathered for any reason, unless the IRS extends the current exception, the link between the qualified and NQ plan payment provisions must be cut on or before 12/31/2005. Hope this helps.

To try one last time to explain to Don the position of all of the ERISA/insurance experts posting on this question. An insurer who is licensed to issue issurance policies may only issue policies conforming to state laws. While it is true that the insurer and purchaser of an insurance policy may permissibly agree to a rider changing the pre-approved version of the policy terms, the insurer is not permitted to accept any rider that would cause the policy to violate state law. As noted by many other posters, issuance of such a policy could cause the insurer to lose their license to issue any policies in that state. Because an insurer may not agree to a rider that would violate state law, the employer/purchaser may not remove the mandated insurance in a rider to an otherwise approved policy.

If a plan provides for full payment at vesting and the CIC accelerates vesting, it could be that you have a non-qualifying, event based distribution. However, since the payment would happen within the same tax year as vesting, I don't think it would be a deferred compensation plan (for the affected participant) so I think it is still OK. I have listened to several webcasts and teleconferences taking the position that event based accelerations of vesting are permissible so long as the distribution events are limited to the permitted list.

No, The savings clause clearly exempts from ERISA preemption state laws governing insurance. Therefore, plan may not obtain an insurance policy that violates state insurance law. An employer can always avoid the state insurance law by self insuring its plan. One of the trade-off between self-insuring and fully insuring is that a self-insured plan may offer the benefits desired by the sponsor without worrying about state legislated mandates while a fully-insured plan frees the sponsor from worring about bad claims experience (at least the next premium renewal).

A few concerns about mandating a voluntary benefit: Many state laws require an employee to consent to most deductions from their paycheck. While many practioners will rely on ERISA pre-emption, I generally recommend that an employer obtain the consents. If an employee did not have a choice about the coverage, did they really have a choice between cash and the benefit? If they had no choice, arguably the premiums are taxable compensation. If the employer really wants to mandate coverage, why run it through the 125 plan and take out payroll deductions -- instead just don't provide the expected raise and add the mandatory coverage with the employer paying the full premium.