pmacduff

Here's a new one on me as TPA. A broker called me today and is handling the rollover for a terminated participant out of one of my client's 401(k) plans. The participant is rolling to an IRA, but also has an outstanding loan balance. The broker claims that the investment company will allow the participant to roll the loan into his IRA and then continue to make payments. Obviously I have experience with this when rolling to another qualfied plan that will accept the loan, but I have never seen it done rolling to an IRA. The broker claims he just did this for someone, but with a 403(b) account. Can anyone confirm or deny that this is possible or acceptable? I spoke with my client's investment firm and they said that they will distribute the loan, default and issue a 1099-R. I asked if it was possible to use code "G" on the loan distribution 1099-R and they are going to check and let me know...but I first need to know if this is even allowable. Thanks in advance....

That's right Tom and (thankfully) the PPA has changed this so that ADP correction refunds for the plan year 2008 (done in 2009) will be taxable in the year distributed. So we only have to do things the old way for 2006 and 2007. I think this is such a welcome change, our clients get confused enough about their Plans; I hated having to explain the taxation and 1099-R issue to them every year !!

OK - I never have good luck searching for old threads!!! Client was using safe harbor match for part of '06. Stopped mid way throught the year with 30 days notice to employees. End of the year arrives and ADP/ACP testing is required. Do we test the whole year? That would make sense because if we only tested from the termination of the safe harbor, there would be no ACP testing because there was no match from that point forward. Sorry for what may be an easy/obvious question, but my mind's been frazzled of late..... Thanks in advance.

Can you add a group to your doc group breakdown and group them together by definition. Then give that group $0 or 0% for an allocation? Or is it a mix and match where not all in that category want to be included/excluded?

I believe that the quarterly statement requirement is only for participant directed monies...

how about info to the HCEs at the start of the plan year (since you know who that are at that point) and let them know that if they maximize, there may be refunds due at the end of the PY? or are there enough HCEs that this wouldn't be feasible?

FYI - I went to an ERISA workshop by Derrin Watson and he seemed to feel that all of the big 401(k) vendors and investment houses would add the necessary verbage or end up getting left behind. In the scope of things, Derrin said there wasn't really that much to add. The vesting only needs to be provided once annually, so he didn't seem to think there was any issue with us as TPA providing that one statement at the end of the year reflecting vesting, but relying on the quarterly investment house statements for the other...

Thanks Bob, we'll leave the small balances in the plan until such time as the particp. could otherwise take a distribution. Since this will be true for '07 as well, I can't wait for 2008 when the newly autoenrolled employees CAN receive a return of $. As you mentioned, these employees were given the opportunity to opt out (repeatedly, in this case) before this went into effect on 11/1. There is somewhat of a language barrier, however, so the HR person has her hands full!

opinions please... we have an off calendar client (12/01 - 11/30) who just instituted auto enrollment features. [For some reason, they added it as of 11/01/2006 (instead of waiting for the plan year beginning 12/01/2006!)] Anyway, this industry has a lot of line workers who don't make much $, but, of course, didn't return their enrollment forms timely. They were autoenrolled and flipped out when they got their first check and the 401(k) deduction was there. They are paid weekly, so by the time they get to the HR office, the next week's deduction has already been done. They NOW sign the form declining enrollment. The client wants to refund the $ to these participants. Can we do this? This is my first auto enroll plan, and I don't know if the "old" rules even made any kind of reference to return of deferrals once the participant declines in writing. I know that PPA references a 60 -90 day window after withholding, but that won't be in effect until 2007 or 2008 when plans use the safe harbor auto enroll rules. The 10% excise won't apply at that time, either and match will forfeit. Any comments appreciated.

ah ha! ..."filler" would have done the trick for me... just semantics, however so thanks Tom!! Happy Turkey Day!

urban legend...???? cuz i believe I have read this somehwere before...

I don't know either and I'm a user since 2000...Tom...can you enlighten us?!?!

I just wanted to vent for a moment here...has anyone else thought about the fact that these safe harbor notices are supposed to be written as such that they can be understood by the "average participant", and yet for many of my plans, we are supposed to add all of this info that I know will only confuse the already confused masses?!?! As an example, I have a safe harbor multiple employer plan. The plan currently has basically only 401(k) deferrals and safe harbor matching. The plan doc was written to allow for discretionary match and/or profit share, but the chances are slim to none that any of the Employers will ever take advantage of those provisions. We had a great (one page!) safe harbor notice for 2006, that explained many of the things required in the new notice, but did use the SPD reference for things like the "other employer contributions" and "vesting" that now are required in the notice. What is the purpose of the SPD if we have to regurgatate all of that info over again for other employer contributions that are not even related in any way to the safe harbor match??? Can anyone make sense of this for me.......?

BG - thank you for your reply, that is what I believed to be true. I did check the section where unrelated employers can adopt in the doc, but it is fairly brief (participating employers can join the plan by signing an agreement...blah, blah blah). This is a Corble Multiple Employer Doc. thanks again for the info....

Participant terminates from Employer #1 within a multiple employer plan & goes to work for Employer #2 who also participates in the same plan. Plan doc references that all dates, service, vesting, etc. will carry from Employer to Employer within the group - no problem. However nothing I can find in plan doc references distribution in this instance, doc just contains standard "distribution as soon as administratively feasible following termination.." is this participant entitled to a distribution of his account from Employer #1?

Vicki - thanks for the response. We (as TPA) don't charge the client if we don't prepare paperwork, so these small vested balances are remaining in the plan and basically forfeiting to all other participants, this doesn't seem right. I think we will advise the client that all terminees will receive distribution forms; the charge for distribution will be invoiced to the client, and the client can pay the invoice from the Plan assets.

ok - I know this one has been discussed before, but I still have trouble when I search for things... Client has a 401(k) PS plan, PS assets are in pooled funds, 401(k) was recently moved to individual accts. Distribution fee is charged to participant prior to payout per plan, some participants have 401(k) assets but no PS balance and some have small PS balances due to forfeiture reallocation. How do you handle participants with small balances that are less than the distribution fee? Client does not want to pay fee from Company. Suggestions?

I'm primarily a 401(k) person, so please be kind... Performing ACP testing on a 403(b) plan and it fails - is shifting allowed as it would be in a 401(k) Plan to pass ACP? Thanks in advance.

but how do the after tax contribs. affect the top heavy status of the plan since it no longer consists "soley" of safe harbor and 401(k) pre-tax? can the plan still rely on the top heavy pass?

NAIU - SHnec satisfies top heavy if there are no other contributions to the plan (deferral and safe harbor only) and you can base it on comp as a participant. If the plan has forfeitures or other employer allocations (profit share, etc.) then top heavy applies and has to be computed on total annual comp, not participation comp. I think ja3207 wants to know if the "after tax" contributions are going to fall into the category of other allocations and top heavy will kick in... now that I've said that, I'm not sure myself but the after tax aren't "employer" contributions, so I think it would be ok. others?

so Blinky - can we amend the distribution provisions to allow only for loan distribution at the time of termination and the balance of the account following the val date following termination? As NAIU mentioned, this is an HCE. It isn't that the client won't amend the distribution provisions with regard to loans, but they want to have terminees wait for the "cash" balance of their account so that they aren't having to process multiple distributions. We don't see that many loans being rolled, in general, and this was the first and only loan in this plan. The loan policy states that the loan becomes due and payable upon termination, so we would have to amend that as well to address the rollover.

I guess I wasn't thinking that loans could be treated differently from the balance of the account with regard to distribution upon termination. So - we can just amend the loan policy where it says that loans are "due and payable upon termination of employment" and add language to allow for rollover upon termination?

Thanks for the replys. As mentioned in the original post, I'm not sure if the client wants to change the loan policy to allow for repays from terminees (just to keep this one loan current). They aren't the type to want to hassle with keeping track for an ex-employee (even if it WAS a former partner). I'll be checking with the client re: amendment to the loan policy to allow terminees to make payments. They could have this guy pay quarterly to keep the loan current until transfer which wouldn't mean having to do that many repays in the interim. Thanks again.

Ok - here's my situation...we have a client where one of the partners is leaving and joining another firm. He currently has an outstanding loan balance. He has already checked with the his new Employer's plan administrator and they will accept his loan balance as a rollover (we'll be providing them with the backup loan origination forms and amortization per their request). The plan I adminster, however, does not allow for distribution until after the val date following termination; in this case after 12/31/2006. All plan distributions are done once the safe harbor contribution has been made in the following year (could be as late as Oct if the client is on extension (self-employed partnership). The loan provisions of this plan state that the loan becomes due and payable upon termination of employment. According to the plan loan policy, the loan will default in the quarter following the quarter in which the last payment was made if payments cease. The client wants to work with this terminated employee to address the loan situation. They don't really want to change the plan distribution date, because then they will be doing multiple distributions whenever someone leaves. I'm not sure if they want to change the loan policy to allow for repays from terminees to keep this loan current. Does anyone have any suggestions?

It's my experience in an audit situation that the auditor compares the plan contribution with the Employer's 1120 deduction. So I would report on the 2006 (as you said) and that will coincide with the 1120 deduction for 2006.