Nate X

"same restrictions as the deferrals" A safe harbor contribution is essentially the same as a QNEC. The withdrawal restrictions on a QNEC are the same as deferral contributions. That's all he/she is saying. I'm assuming that Plan 1 is a Safe Harbor plan and Plan 2 is not. Plan 1 can be a Safe Harbor plan, while Plan 2 is not. However Plan 2 can not be permissively aggregated with Plan 1 to pass testing. So Plan 2 must pass testing on it own. So a problem would arise, for example, if Plan 2 failed coverage in any given year. You would also have issues if any HCE was allowed to participate in both plans. BFR = Benefits, Rights, & Features

Yes, they are eligible for a top-heavy minimum if they are Non-Key Employees. HCE status is irrelevant.

You are correct. There is no special due date for Top-Heavy minimum contributions, so the general rules for deductibility apply.

Yes we’ve seemed to have drifted quite a bit from the original question: Q: “Do the fees have to be shown separately on the participant statement, or can it be "netted" against the earnings?” A: They can be netted against earnings. Q: “I thought that if you want section 404© protection, you have to disclose those fees?” A: Two items regarding fees are addressed by 404©, 1. Transaction Fees: A description of any transaction fees that will be assessed directly to a participant must be provided to participants. 2. Operating expenses: A narrative description of annual expenses should be made available to participants upon request. Keep in mind that compliance with 404© is not required. Full compliance with 404© is difficult to achieve. Many practitioners believe that partial relief is available for those who do not fully comply. “Elliot Spitzer believes that the fees need to be disclosed whether or not 404© applies” Elliot Spitzer is the Attorney General of New York and does not trump the Federal law that 401(k) plans are governed by. The issues that Elliot Spitzer has addressed regarding retirement plan fees is much more complicated (i.e. deceptive practices and nondisclosure of cheaper alternatives) than simply providing participant’s disclosure. I believe that he is pushing for disclosure, but there have been no law changes in NY that require it. So again, you can say that you should disclose fees till your blue in the face, but there's no law that requires such disclosure.

Even though the two companies are not in a control group, the 415 limit is applied as if they were since A owns > 50% of B.

"Someone is telling us that if there isn't enough compensation to make the full deferral that the employer is responsible to make up the difference." I agree. The election to defer into the plan must be made prior to withholding from the employee's salary. So the Employer should be well aware that he/she may need to withhold tips to cover the desired deferral percentage. Failure of the Employer to do so puts the liability on the Employer. This is because once compensation is in the hands of the employee (or in this case when the employee takes the tips home) the money can not be deferred. Keep in mind that allowing employees "to take cash tips home with them the day they are earned" is different than Excluding tips from the plan.

The safest choice is to correct for all possible plan years. See EPCRS Section 6. http://www.irs.gov/pub/irs-drop/rp-06-27.pdf

You really should get an ERISA attorney on such issues. With any correction, the place to start is to figure out how to put the plan back into the same position as if the error never occurred. There are several government programs to guide you though the way to make such corrections. Generally in order to take advantage of any correction program, you mast make the plan whole. That is to say, correct all plan violations. Issue #4 obviously causes the biggest problem. Here is my suggestion: A. Distribute all after-tax contributions from the plan including earnings. This may mean all employee contributions made to the plan are distributed. The logic here is that participants are ineligible to make after-tax contributions to the plan, so the correction is to return the contributions plus earnings from the plan to participants. B. Have the employer make a QNEC to the plan equal to the amount participant’s elected to defer plus lost earnings for all plan years. The logic here is that participants elected to defer money on a pre-tax basis but the employer never withheld those deferrals. The correction would be similar to the EPCRS correction for issue #3. C. File this correction and Issues #3&5 under EPCRS. The IRS recently revamped the program. It’s good reading and will answer most of your questions. The latest publication can be found at: http://www.irs.gov/pub/irs-drop/rp-06-27.pdf D. Issue #2 could be corrected under VFCP for any pre-tax contributions that were not submitted timely to the plan. After-Tax contributions would be corrected using A & B. http://www.dol.gov/ebsa/newsroom/0302afact_sheet.html ....and I'm sure others will have something to say about my opinion.

If the Alternate Payee is NOT treated as the participant’s current spouse by reason of the QDRO, then the QDRO must specify the amount of and how the participant’s benefit is to be distributed to an Alternate Payee. 1.401(a)-13(g)(4) The QDRO can specify any distribution option that is available under the plan.

With all that had happened in the last decade, it is amazing that the answer to your question is NO. There is very little disclosure at all that is required to be given to participants proactively. Generic language must be disclosed in the SPD when charges to the plan may result in the imposition of a fee to a participant. The Plan Administrator should make information regarding fees charged to their account available to any participant who request it.

First, I’d like to say. These are my favorite questions. Once the money is made currently available to the participant, he/she can no longer defer on it. So in your example, 5 of the 6 payrolls would be considered excludable comp for 401(k) purposes. Exclusions from comp are usually based on certain types (i.e. Bonuses). The compensation used must be reasonable, and may not exclude a certain percentage of the employee’s comp. Based on your example, it appears that the company would be excluding a percentage of employee’s compensation (approx. 83.33%). If the compensation excluded used was considered reasonable (again I don't think it is), then you could potentially use this if is passes non-discrimination testing for (1) the excluded compensation, and (2) the amount available to defer. Simply because the plan limits the amount a participant can defer is not discriminatory in-and-of-itself.

The employer has a fiduciary responsibility to exercise prudence over the administration of the plan. I would think that a prudent person in the same capacity would correct the sub-accounts. The “hassles” involved with the investment company and the employer's “reluctance” to correct the problem are invalid excuses. A plan fiduciary could be held liable for intentionally communicating incorrect information to participants (via annual/quarterly statements of plan activity and balances).

“Does anyone know of any mechanism that gives relief to the terminating plan?” A plan that failed to adopt a valid required amendment within the remedial amendment period can be cured under EPCRS regardless if the plan is terminating or not. ------ “Would the employer be able to rely on a favorable opinion letter that was issued before the EGTRRA amendments were submitted to the IRS but adopted?” The plan can rely on an Opinion Letter on a standardized prototype DC plan in regards to its form. The Opinion Letter is not invalidated simply because the plan adopted required amendments. The plan would not be able to rely on the Opinion Letter for the subsequent amendments however. Obtaining an Opinion Letter or LOD on the plan document is not required for a plan to be qualified.

A plan administrator has the responsibility to exercise due diligence in obtaining assurance that the money received from a hardship distribution will be used directly to pay for post-secondary education expenses during the next 12 months. The easiest way to accomplish this is by obtaining a written representation from the employee. However, be careful using estimates. The amount should not exceed the amount actually needed. So for example, if you assume that tuition cost will raise 5% next semester but the school has not made such announcement, the amount distributed could exceed the financial need.

I'm assuming this is in reference to a participant who had both non-union and union* service during the plan year and the plan is not a multiemployer plan. The participant would be considered both a union* and a non-union employee for plan purposes. Even if union* and non-union employees were allowed to participate in the same plan, the participant's service as a union employee* would be excluded from the top-heavy minimum. Union employees* are not subject to the top-heavy minimum. *Subject to good faith bargaining between employee representatives and the employer.

You are correct. Reimbursements to the plan that are subject to IRC 404 should be treated as an employer contribution and allocated as such according to the plan document. The reimbursement is subject to any other employer contribution limitation such as IRC 415.

"And how careful must we be to ensure only those who had the fees taken are the ones that receive the rebate?" I am not aware of any guidance regarding how to apply reimbursed plan expenses. Therefore, I believe you can either use the little guidance that applies to how expenses are paid from the plan and apply the reimbursement as a current negative expense or reimburse those who actually had the fee taken. Of course if you want absolute assurance, you can add it to the plan document and request an LOD, or request a private letter ruling. www.dol.gov/ebsa/regs/fab_2003-3.html

The fees can reimbursed to plan participants. The "fee reimbursement" issue only comes into play when the money is in the hands of the employer. Examples: (1) The plan pays expenses to provider X and the employer reimburses the plan, (2) the employer pays expenses to provider X and is reimbursed by the plan, or (3) the employer is the service provider of the plan and charges the plan for expenses incurred.

"In 7/2005, the employer started a new plan and transferred the assets of the old plan into this one." I agree with Vicki that the employer was required to adopt all required law changes through that date. The Employer was also required to file 5500's through 7/31/2005. In addition, successor rules would apply to the new plan.

I believe you could argue this either way (his/her situation at the time of payment vs. the reason for the distribution). However, even if you use code 1, the participant will still be exempt from the 10% penalty.

Termination of service is not one of the restrictions for hardship eligibility. However, if a participant is able to take a distribution by any other means (in-service withdrawal or severance from employment), then they must use that first. In General, there's no benefit to the participant to withdrawal money under the hardship provision vs. a normal/premature distribution. The exceptions to the 10 percent penalty are independent of the hardship rules.

I'm assuming she's keeping the same EIN because she is a Sole-Proprietor. In this case, the successor plan rules apply. The two companies are considered to be in a control group (even though they didn't actually exist at the same time). I would simply change the plan sponsor's name on Form 5500 (if applicable) and have the have the new company as an adpting employer in the plan document.

The statute of limitations for Form 5500 is 3 years from the date the return was due. I wouldn't bother amending further back than that.

"During 2006, Participant M earned a bonus called N which was not mentioned in Y's definition of compensation." I would check your definition of compensation one more time. Generally bonuses would be included unless they were specifically excluded. However, it looks like you already covered this. Like any other error, your job is to put the plan in a position as if the error never happened. Since it happened this year, I believe any reasonable means will suffice. Here are two possible options: Negative payroll adjustment for the contribution. Some practitioners have said this is a no-no, but it's a quick fix that works easily with most payroll providers. It's commonly used in the industry. Treat it as a 415 failure. Refund the participant's deferrals + earnings and move the match + earnings to suspense.

Here's a link to a recent article that should help in answering your question: http://www.asppa.org/nl/march/06-07.pdf