jaemmons

If the bank is a fiduciary to the plan, as long as they are "subject to federal regulation and federally insured" they are exempt from being bonded under ERISA 412(a). Most banks are directed trustees, whereby they will only act as a custodian or holder of the plan's assets. In such a capacity, so long as their services to the plan are subject to the discretion of the plan administrator, they do not become a fiduciary to the plan, as defined in ERISA 3(21)(A). Also, all fiduciaries must be bonded, unless they are exempt from coverage under ERISA, so anyone or any entity which exercises control over the assets of the plan must be bonded, so you may still need to obtain a fidelity bond for the plan administrator.

Treasury Regulation 1.401(k)-1(d)(2)(B)(4).

Correcting under "the principles" of the VFCP does not insulate the fiduciary from DOL civil penalties and investigation. Once they pay the excise tax on the Form 5330 they may trigger a DOL investigation. Plus, if the individual preparing the Form 5500 answers the related question on applicable Schedules which disclose this problem to the DOL, they may trigger an investigation. The VFCP would alleviate what is generally not a pleasant experience from the employer's end . I guess you could "roll the dice and take your chances" but if the DOL comes in to investigate, the client may have to open their checkbook.

What if the employer/plan adminstrator stated that..."If the interest rate must be "reasonable", based upon local lending institution rates, why can't we use similar debt/equity (based upon the payment amount to what they earn) analysis a a bank would review for loan approval? We are using the same objective criteria for what we feel an employee can afford to repay, without causing a future loan default or application for financial hardship." I guess they could demonstrate that this "cap" has not been violated by any hce which should be able to serve as a good faith application of their current loan policy.

Mike, If an employer wants to place a uniform restriction that they feel would prevent financial hardship to the employee and/or possible loan default, don't you think they could have it as part of the loan approval process. I guess from my view point, although I don't draft this type of criteria in my clients loan policies, it boils down to a facts and circumstances demonstration, as it seems, from the original post, to be a uniform objective criteria that the plan administrator wishes to use in its loan approval/denial process. What do you think?

If it is applied uniformly, disclosed in the SPD and Loan Policy, and does not discriminate in favor of HCE's, I feel the employer would be permitted to apply this restriction. If the employer is adopting this restriction as part of its objective review process for approving loans, I don't see any problem.

I hate to use an industry cliche' but what does the document say? The plan document will dictate what portion of an employee's account balance is eligible for in-service withdrawal.

I agree with Blinky. In addition, you also need to offset his Medicare taxes (2.9% of all earnings) with what he already paid on the $112k, as both ee and er, before you compute 1/2 the SE tax.

No. The excise tax imposed by IRC 4979 is borne by the employer and not the plan.

No. The excise tax imposed by IRC 4979 is borne by the employer and not the plan.

No. The excise tax imposed by IRC 4979 is borne by the employer and not the plan.

I assume each of the children owns at least 5% of Company Z. If that is the case, then they would be proportionately attributed the stock that Company Z owns of Company A. Any child who would be proportionately attributed more than 5% of Company A would become an HCE of Company A. There is no double attribution of the children stock from the corporation to their parents, so both parents are attributed the stock from each child and each child is attributed 3.78% from the parents. Depending on the individual ownership of each child, in the least, the parents would become 5% owners for HCE determination.

From my understanding, only the IRS can issue "hand print" forms. Also, the instructions to the 2002 Form 5500 indicate on page 1 that "Filings using photocopies of the computer scannable forms and schedules may be returned or cause correspondence requiring additional information." Therefore, if you mailed your client "machine print" forms from an EFAST approved software system, they may be kicked back and rejected, as they may not be able to scan them.

Just my $.02. but i thought a purchase by definition means that you obtain something in return for money or its equivalent. When something is obtained it is a possession of its buyer, so how can this individual prove (substantiate) possession when they are not named as the lendee of the home or property, as indicated on the mortgage note (which I believe would be substantiated proof of primary residence purchase)? In any event, what if the employer wanted to just use facts and circumstances to determine the financial need under Reg 1.401(k)-1(d)(2)(iii)?? If this is going to be the employee's principal residence and in order for him to live there he needs to give his sister and brother in law money for purchasing the home, why couldn't the employer allow for this as a financial hardship?? Just a thought, as I see most of the replies are using the safe harbor determination for immediate and heavy financial need.

A partial termination is based upon facts and circumstances. Even if the percentage of laid off workers is 25%, you need to look at surrounding circumstances of the layoffs. Did the employer lay off occur due to economic reasons? I have read past court cases which suggested that if layoffs were done in good faith, did not adversely impact the financial "health" of the plan, did not discriminate in favor of hce's, then a partial termination did not occur. I have seen the 20% used as a guideline for whether or not to research the potential of a partial termination, but that is all for which it is to be used - a guideline. Changes in employee demographics with small employers happen a lot of times for financial reasons, but you should still gather more facts surrounding its cause and if the plan administrator wants a more concrete opinion, I would suggest filing a form 5310 with the IRS.

Since the late deferral deposits would be considered a prohibited transaction, in order to avoid any DOL penalties or investigations, I would suggest the VFCP. Although the fiduciary avoid the DOL civil penalty of 20% under ERISA Section 502(l), I still would think that they are liable for the IRS 10% excise tax.?. I know that under Rev Proc 2001-17 under Part III, Section 6 paragraph 6.07 indicates that excise taxes are not waived under the EPCRS program. I assume this would also apply to the VFCP.

belgareth, I would look at 401a4 testing before doing any retroactive amendment. In the least, you could bring the argument to the accountant, for whom you are doing this work, that this is the only alternative for the client to comply with 401a4 testing with respect to the allocation of the employer contribution. The client may not wish to contribute more $'s and may ask the accountant to "find a way for this to work". Just a suggestion

The spouse, whom I assume is the designated beneficiary to the IRA, must receive the $65k by 12/31/03 in order to meet the mrd requirement for the deceased participant for the year of death. The spouse's 2003 mrd is based upon their 12/31/02 IRA value. They do not assume ownership of the IRA until some time during 2003, which would first be taken into account for their 2004 mrd determination. No recalculation is necessary. See Treasury Reg 1.408-8

At least as rapidly is based means that the spouse continues to receive a minimum required distribution from the plan, until the total account is exhausted or transferred to an IRA. The 2003 mrd would be based upon the spouse's (assuming they are the designated beneficiary) life expectancy as determined by h/her age in 2003. The forms of benefit options (e.g.- lump sum, installment, life annuity, etc.) are irrelevant, as the mrd is based upon life expectancies and is paid out as an annuity payment. Even if the plan does not allow for annuity payments, the mrd amount is determined as an annuity and is paid out as such.

Since the deceased participant was receiving MRD's, post death distributions must be paid at least as rapidly as before. Treasury Regulation 1.401(a)(9)-2 Q&A 5. Yes a "mindi" should have been paid in 2002. The 5 year rule is only applicable to death benefit payment prior to the deceased participant reaching their required beginning date.

Employer will be liable for a 10% excise tax (Form 5330) on the corrective distributions, since the corrections were made after 2 1/2 months after the end of the plan year.

That being the case, I would say that you could disregard years of service prior to the effective date of the new db plan.

Pat, Most waivers are revocable because they are indicated on an enrollment form. These do not constitute "irrevocable" consent to participate, in the eyes of the IRS, and as such these employees are treated as eligible (assuming they met the plan's eligibility requirements) and counted in with the adp and acp testing. Assuming the waiver sare revocable, these ee's are counted in determining plan participants, and if participant count is over 120 at the beginning of the plan year (plan sponsor may exercise the 80/120 rule for determining a large plan filing) you may need to go through the DFVC program, as the plan filing may be treated as incomplete and kicked back to the employer and an unfiled 5500, subject to late fees.

If an employer terminated another DB retirement plan within the past 5 years, then years of service prior to adoption of the new DB plan could not be disregarded for vesting purposes. Treas Regulation 1.411(a)-5(B)(3)(v)(B) states that a predecessor plan was established within "the 5 years period immediately preceding or following the date ANOTHER SUCH PLAN (emphasis mine) terminates,..." The key words are "another such plan" which would mean a like plan replaces a terminated plan within the 5 year period. Had the employer sponsored another DB within the last 5 years which has been terminated?

pbarrett, Did the employees sign timely irrevocable waivers to opt-out of participation in the plan or did they just indicate that they did not want to participate on an enrollment form? Also, does the employer contribute any additional funds besides 401k and m $'s? If no other contributions are available within the plan, AND a timely irrevocable waiver from plan participation, pursuant to Treas Regulation 1.401(k)-1(g)(4)(ii) and 1.401(m)-1(f)(4)(ii), are not eligible employees and are thus excluded as eligible participants for purposes of 401k and 401m plan participation. If the participation waivers meet Regulation requirements, you disregard these employees as plan participants for purposes of 5500 and plan purposes.