Medusa

ERISA Outline Book: Forfeiture for cause. This rule is typically used to forfeit "excess vesting" under a forfeiture for cause provision (sometimes known as a "bad boy" clause). The plan must define "cause" for this purpose (e.g., theft, violation of covenant not to compete, or other stated wrongdoing). The IRS permits a forfeiture for cause only if the vested amount forfeited is in excess of the minimum vesting requirements. Treas. Reg. §1.411(a)-4T©, Example (1); Rev. Rul. 85-31, 1985-1 C.B. 135. For example, if a non-top-heavy plan provides 25% vesting per year of service, with 100% vesting at four years, the plan is being more liberal than the five-year cliff vesting requires. 3 Under a forfeiture for cause provision, an employee with less than five years of service could forfeit his vested interest. Court cases addressing the forfeiture for cause provision include Hepple v. Roberts & Dybdahl, Inc., 622 F.2d 962 (8th Cir. 1980); Hummell v. S.C. Rykoff & Co., 634 F.2d 446 (9th Cir. 1980); Noell v. American Design, Inc. Profit Sharing Plan, 764 F.2d 827 (11th Cir. 1985).

Mike: No, that's not it, but thanks for the effort. The one I am thinking of ( and I am pretty sure it is from the same timeframe) said something to the effect that in reviewing refunds of deferrals due to excess annual additions, the IRS would not challenge the "reasonable error" issue, in the absence of regulations. I might have dreamt it but I don't think so.

I seem to recall that at either an ASPA or EA conference pre-1999, something akin to the following was asked at the IRS Q & A session: In the absence of regulations, how will the IRS define "reasonable error" for the purpose of 1.415-6(b)(6)? The answer was something like "very loosely". I sure wish I could get my hands on that Q & A if anyone has it.

I am also interested in the answer to this last question. While I have no objection to disclosing administration/investment management fees, quantifying them is not so easy. Any opinions would be appreciated.

We have a participant coming forward who in 1992 received a letter from the Social Security Administration saying that he was owed benefits by this client's plan. We have no record of this person or his balance, nor does the company, but presumably at some point in the distant past his name was put on an SSA. Of course that would have been several trustees and several TPA's ago. We don't even know when he supposedly worked there. Does anyone know whose burden this is, in terms of the participant vs. the employer? Does the employer have to prove that the person was paid, or does the participant have to prove that he wasn't? It has been proposed to force the person to provide copies of all his tax returns to accomplish the latter, but somehow I don't think that would fly. It would be nice to be able to get a copy of a 1099R for the person, but I don't even know from when it would be, or whether the IRS keeps them for that length of time.

If you are making the repayments, tell me again where the loophole is. I don't see where you are getting any money out tax free. You took money out, you put it back in, and you are taxed at the point of distribution. Unless, as Appleby suggests, you are proposing a direct rollover to a Roth, which is not permitted, nor are rollovers permitted at all on loan proceeds.

Also it seems to me that you are in fact defaulting on the 401k loan in your scenario? If you make all the scheduled payments it is a non-issue.

We have some clients that have instructed us to deduct the distribution fee from the terminating participant's account. Some of these clients have now been pulled into a DOL audit program. The text of the DOL's initial results letter is as follows: Interestingly, the issue of imposing an obstacle to exercising an ERISA right was not raised at all. Will let you know how these audits progress.

Here is an earlier thread on this topic: http://benefitslink.com/boards/index.php?showtopic=4585

If the leasing organization does sponsor such a plan, we still have the requirement that not more than 20% of the work force may be leased in order to consider it a safe harbor plan, correct?

We would like to merge a nonelecting church's profit sharing plan into their defined benefit plan. The profit sharing plan has a lump sum distribution option upon termination of employment, whereas the defined benefit plan does not. We would like to eliminate the option after the merger. It is our understanding that 411(d)(6) does not apply to nonelecting church plans, but despite this, the IRS has informally suggested that they are not so sure we can eliminate the option. If anyone has an opinion on this, would appreciate your comments.

One of our clients recently acquired another company with a SEP. They would like to merge the SEP into their existing 401(k) plan. Given that SEPs are funded with IRA accounts, is this type of merger possible? I realize that it is possible if elected by the employee, but does the employer have the discretion and authority to accomplish this merger without employee involvement? Thanks in advance for any thoughts.

Disco Stu is right, the cite is in 1.401(m)-1(f)(12).

They do not need to provide you with contact information for the third party service provider, assuming that firm has no legal role (e.g. Plan Administrator as defined in the plan document). Many third party service providers will not interface directly with participants, as a term of the service contract. And that is perfectly legal.

For partners in a partnership, the answer is definitely the net of the two. I don't know why members of an LLC would be any different.

Joe, I believe you are confusing the limit on the officer count with a limit on the key employee count. The limits you describe do indeed apply to officer determination. And these rules apply to 125 plans as well as qualified plans.

Wanted to mention that the PWBA website does now address this issue: PWBA Frequently Asked Questions Search on the page for "loan" and you will find their answer to the question.

It does not meet the TH minimum as outlined. Assuming that a straight pro-rata allocation does not generate an allocation in excess of 3% for anyone, that is what you will need to do.

Some pension plan participants have requested a copy of Form 5500. The Schedule SSA has information specific to certain individuals, including their Social Security numbers. Must we include the SSA as part of what we furnish to them, and if not, do we have any basis for that position other than common sense?

I looked at this a year or so ago and could find no guidance whatsoever. And I ended up not using it because there was no analogous provision in 414(s) or 404, can't remember which (maybe both?), and it just made life too complicated because of that.

Agree with Jon. Check Private Letter Ruling 9137001, 4/24/1991.

I won't dignify that comment with a response.

It would certainly make the subject easier to discuss if the regs were final. In the meantime, however, I would be hard pressed to use the word "illegal". I do think it's aggressive, and that the attorney assumes some risks. But then, that's why they make the big bucks.

So far, no one has adequately demonstrated to me that he is incorrect. If I'm going bounty-hunting, I know of several better places to go.

GBurns: Thanks for the info, but I suspect this attorney will not be impressed with regs that are only proposed, and have been in proposed form for 7 years without any signs of going final. I looked into this before and could find nothing violating any final regs or other finalized promulgations. This attorney's position is that the requisite risk-shifting still exists, albeit at a reduced level, because there is still a chance that a person's final check won't be high enough to cover reimbursements. There has also been some discussion that a reduction of the person's final check can't reduce him or her below minimum wage. In any event, I'm not about to take the attorney on without something more definitive to stand on than proposed regs.