jaemmons

MWeddell, I would think that you would be able to self-correct this, even if the plan document doesn't contain the forfeiture provision. If an HCE is receiving a match that is different than what is contained within the plan document, in addition to a higher allocation rate, I would think you'd have an operational problem since the plan is not operating according to plan document terms.

A participants testing age is generally their NRA, as defined in the plan document. If they have already attained their NRA, determine a participants EBAR based upon their NRA and NOT their current age. Reg Section 1.401(a)(4)-8(B). The current age rule under Reg Section 1.401(a)(4)-12 is disregarded when you are cross-testing equivalent benefits in a DC plan.

The matching amounts that are associated with returned deferral amounts are forfeited. The reasoning is that if you allow the HCE to keep those matching $'s, they would be benefiting at a higher rate than any NHCE, and as such you would have a 401(a)(4) problem with respect to the matching formula. This is done even before you run any ACP testing.

According to SEC 613 of EGTRRA, IRC Section 4975(f)(6) was amended, as well as ERISA Section 408(d)(2) to allow for loans to owner-employees and shareholder employees.

Did the employer provide them with enrollment materials for them to decide whether or not to defer? Delivery of an SPD can be delayed up to 90 days after they become an eligible participant. Therefore, "SPD notification" does not eliminate the need to provide the employee with proper enrollment information. Normally, an eligibility notice is provided to an employee, especially in a 401(k) plan, outlining what they will need to do, in order to start deferring into the plan. Although this notice is not a requirement under ERISA, it is becoming more of a standard (as well as prudent) practice in the 401(k) industry, in order to eliminate an of these types of issues. Assuming they didn't, according to your thread, and the employee was eligible to defer, you are looking at a self correction under the VCS program (Rev Proc 2001-17) under EPCRS. Using the correction method outlined in this Rev Proc., the employer would make a QNEC in an amount equal to the average ADP for the employee's group (either an HCE or NHCE). Plus, if they were eligible for any matching contributions on those amounts, they would have to deposit a QNEC in an amount equal to the ACP for the same group. This is the standardized correction method under 2001-17, but you may use another correction method, so long as it reasonable. (i.e.-use actual deferral rates/$ amount elected on enrollment form for employee)

You would use current contributions/benefits of all plans of the employer, including forfeitures reallocated, exclusive of any after-tax contributions. In determining the ABP, you can use either contributions or convert the contributions to benefits, as you do in the EBAR calculation. The benefit conversion, generally, will yield better BP's, especially if you have a younger NHCE workforce. Of course if you throw a DB in with this determination, you complicate the calcs. As AndyH stated, you may want to review Reg 1.410(B)-5.

MGB, I stand corrected, after having just reread the proposed regulations. Sorry for any miscommunication.

Philip: Union and nonunion ee's are disaggregated for ALL testing purposes, so catchup may be offerred to one group and not the other, without affecting qualification status. Et al: If members of a control group are considered QSLOB's, then each is disaggregated and tested separately for BRF's. Universal availability of the catch-up provisions apply to mandatorily aggregated groups (including ASG's, Control groups, and in "true" multiple employer plans). Since QSLOB's are not mandatorily aggregated ( if they are then why go through the QSLOB determination) each can elect to have catchup apply to their specific employees.

Just to let those who took the Fall 2001 c-4, ASPA has the candidates who passed the exam in their "What's New" section. You just need to know your candidate number.

You may also want to clarify if this is part of an administrative policy to the plan or a limit established by the financial institution. If it is the latter, no discrimination issue. However, I agree with Harry O that the level of the limit would be a fiduciary concern, especially if the self-directed account are receiving higher returns than the trustee directed account.

I agree with Archimage to a point, but an asset based charge is a different reimbursement than a TPA admin/recordkeeping charge. TPA admin/recordkeeping charges are generally deductible expenses under IRC 162, since they are considered ordinary and necessary business expenses (they are providing retirement benefits to their employees). If the employer deems the charges to be too excessive, then it may constitute a breach of fiduciary responsibility to not have the employer absorb these expenses or at least a portion of them. The problems I have seen are with respect to surrender charges associated with insurance products. Here, these charges are asset based to a taxexempt trust under IRC 501(a) and as such any payment taken from these assets which are reimbursed by the employer will generally, assuming that they are reasonable, be considered an employer contribution subject to deductibility, 401(a)(4) and annual limit testing (415).

MoJo. I still don't understand your thinking that by "holding" the assets of a plan, you automatically become a fiduciary. And how is it that by allowing a non-fiduciary trustee (which does not necessarily mean they are a fiduciary, if they are a directed-trustee) to house the assets of a plan, do you violate any fiduciary standards? This happens all the time. Having worked closely with some major banks and financial institutions on trust/custodial contracts, mostly because of liability reasons, they have been extremely adament about NOT becoming a fiduciary to the plan, and as such have outlined language to the effect that they will act as a "directed-trustee" and do not assume any discretionary authority over the management of the plans assets. Just because they may be a trustee to the plan does not automatically make them a fiduciary. Of course, if they act in an unauthorized manner over the managment/admin of the plan/assets, then I would say that they would become a fiduciary, but that is a facts & circumstances situation.

What if there were different levels of matching contributions in both plans (assuming that they are 401(k))? Even though for 410(B) purposes you may pass on an unsafe harbor basis taking into account any participant who receives an allocation, the level of benefit must be tested under 1.401(a)(4) excluding all statutory exclusion under 410(a)/(B)(3)(A)&©. This discrimination testing is not satisfied under 401(m) because we are testing the formulas themselves and not the actual allocations received. Even the availability of loans, hardships, timing of benefit payment, forms of benefit payment, and NRA, must be looked at. Depending on what each plan offers, you need to make sure that at least 70% of the NHCE workforce is able to receive this right or feature. I know it seems cumbersome, but EVERY BRF offerred under "like" plans (ie.-dc or db) must be looked at for 401(a)(4) testing purposes taking into account ALL employees of the employer, even if they are not covered under the plan. Disaggregating the plans and testing only those employees covered for coverage and BRF's is not an option in a single employer plan. All employees must be taken into account.

Since these types of plans are considered individually designed, because of the prevailing wage language, I would say that you should submit for a determination letter from the IRS. There isn't any automatic reliance that I know of that applies to these plans. Since these plans are looked at by the DOL, I would get a "clean bill of health" from the IRS on its form and operation (schedule Q).

Without having any other information, I would say yes. Are they "like" plans (i.e.- DC, DB)? All like plans of the employer MUST be aggregated together in determining satisfaction of 401(a)(4), taking into account all nonexcludable employees under 410(a). Passing coverage on participation is only one test. Rates of accrual, vesting schedules, timing of benefits, availability of loans, etc. all must be looked at to see that they are not favoring HCE's for the entire company.

The recordkeeping and reporting services are ministerial functions to the plan. As such, performance of these services would not cause the individual or entity to be considered a fiduciary. A list of what the DOL considers ministerial may be found in DOL Reg 2509.75-8.

I don't necessarily agree with MoJo. The determination of fiduciary status is a functional one. In order for a custodian to be deemed a fiduciary, as defined under ERISA 3(21)(A), they would need to generally exercise any DISCRETIONARY authority or control over the management of the plan, including its administration, and disposition of any and all plan's assets, or render investment advise for a fee. As always, there may be other facts we are missing, but at first guess, if the custodian is only "housing" the assets for investment and distribution AND is directed by the trustees listed in the plan document as to what to do with plan $'s, I don't feel they would be a fiduciary of the plan. If this were the case, alot of banks and other financial institutions wouldn't be offerring custodial services, because of the bonding costs and added liability issues. I guess you would need to look at the contract that the employer signed with the custodian, normally contained in the custodial agreement, which outlines the services and functions the custodian will perform for the plan.

MWeddel, Do you know of any written support to your final statement concerning not being allowed to retroactively make an employee eligible for 401(k). The reason is being that I have attempted to argue in support of this on other threads, but do not recall where I read the supporting documentation.

You're still missing my point. How is someone going to be able to max out at the 7%, when they don't have enough salary left? How isn't it a potential problem with a lower paid employee not being able to afford the "catch up" from their prior compensation?? Aside from any potential cutback issues, you will need to test the current availability of this feature to ensure that it doesn't favor your highly paid employees. What if you have 2 employees become eligible on December 1 and 1 is an nhce and the other an HCE. The HCE is the only one who can actually afford to defer the maximum 7% from his/her remaining paychecks. I would think you would now have a problem, not only with a cutback in benefits, since the nhce cannot afford to maximize his/her deferrals, but you have a discrimination issue with the retroactive entry dates because the only new participant who can receive a full benefit on the pretax source is the HCE, unless the er is going to kick in a QNEC for the nhce to make up for the shortfall.

Why doesn't anyone else have a problem with the retroactive entry on pretax deferrals??? Retroactive entry on pretax deferrals only runs in favor of HCE's, since they are the ones who can most likely defer into the plan at the end of the year. Once these employees become eligible, how does the employer make up for the deferrals that could have been deferred from compensation since the beginning of the year? If they don't have enough comp, do they contribute a QNEC for the period they would have been able to defer? Example: EE becomes eligible (meets both age 21/1yr) on December 1st. Since you have retroactive entry on deferrals, comp from 1/1 thru 12/1 is now eligible for deferral, but these pay periods have already passed. If the ee earns $30k and wants to put away the 7% based upon the 30k. This is $2,100, but they only have two pays left (assuming biweekly payperiods) or roughly $2,300. How can this ee afford to defer the max without suffering a hardship? Seems to me that if someone is not able to defer the 7% of their entire comp because they became eligible too late in the year, that the er has a cutback issue, unless they make up the difference with a QNEC. Thoughts????

Remember that a determination letter is not a requirement for terminating a plan. I normally look at each client's plan term individually and assess whether or not a letter is needed. In cases where we have a plan that only covers an owner and a spouse, I don't recommend filing with the IRS, especially if the plan is not a DB. (but DB plans are a different story). The plan is not subject to most ERISA requirements because of who the plan benefits and as such, you don't have any testing on the plan. Please note that my opinion is only that: an opinion, but in cases where you administer a small plan, the cost of preparing the filings, even if you have an individually designed plan, are not worth it, because the IRS agent has nothing really to review, except the plan document. Therefore, I would recommend you restate the plan for GUST and informally terminate the plan with a resolution and pay out the assets.

Why did you even submit for a letter? In any event, I don't think would have a problem, since it is a DC Pension plan, with rolling monies out. The plan isn't subject to any discrimination or reporting issues, so you should not have any problem with getting a qualified opinion letter, unless you have had problems with satisfying IRC 412 in any prior year.

Let me try to give you a simple example to help you out. (Assuming that the only eligible plan participants are the owners) ESOP shares owned by employees: 40% (assuming all shares are allocated to accounts and not held in suspense). Owner 1 - 25% (includes ownership in from ESOP shares) Owner 2- 25% (same as above) Owner 3- 25% (same as above) Owner 4 - 25% (same as above) Company #2 All owners own 25%. Common control determination: All owners are the same in both companies so we look at the "common" interest (or smallest ownership %) between the two companies, including shares allocated to them under the ESOP. They each own a common interest of 25%, so we have a common ownership between both companies of 100% which is greater than the 50% required. Since we satisfy the common interest requirement, we can back out the ESOP ownership. Let assume for simplistic purposes that 40% of their ownership (or 10%) is held in the ESOP. Backing the 10% out, leaves 15% ownership in "non-excludable" stock within company one. Now let's look at the regular bro-sis analysis. Effective Control MUST be 80% or more between the companies: Since they collectively own only 60% (4*15%), we don't satisfy this first requirement, so we don't have a control group. You pretty much have to run two control group analysis. However, in determining if the ESOP stock can be excluded from the actual bro-sis determination, you take the same five or fewer owners and look at their common control between the companies, including any allocated ownership by the ESOP. If this is 50% or more, then you can back out the shares allocated in the ESOP when you calculate their actual ownership %'s in each company. Sorry for being long winded.

I agree with what the financial institution is telling your client. The balance to determine his MRD for 2001 is based upon his 12/31/2000 value. These amounts have to be "earmarked" during the 2001 plan year for distribution and any distributions that are paid out during the 2001 calendar year are FIRST used to satisfy the MRD amount. Once the amount of the MRD has been satisfied, the remaining account balance can be rolled over to the IRA. Treasury Reg 1.402©-2, Q&A 7(a).

Under IRC 1563©(2)(B), as long as the same five or fewer employees own 50% or more of all classes of stock in a corporation, stock held in a "401(a)" plan exempt for tax purposes under 501(a) can be disregarded in determining ownership for brother-sister control groups. In short, if you have 5 or fewer employees who have similar ownership of 50% or more between two or more companies, only taking into account their common controlling interest, you can disregard stock allocated within the ESOP. There are other exclusion, but this one seems to be relevant to your situation. Keep in mind that the ESOP ownership is counted, however, in determining whether or not you have common controlling interest between the two companies. Only treasury stock and non-voting preferred stock are automatically excluded from determining ownership under IRC 1563©. If you determine that you have common controlling interest, then you can back out the ownership of any shares held within the ESOP. I tried to keep it simple.