Jon Chambers

Somewhat on point, had a client once who terminated plan, distributed assets, agreed with key execs to take taxable distributions, lend proceeds to company for 60 days, company agreed to repay at end of 60 days so execs could do a rollover (this was before mandatory 20% withholding). Amazingly, the scheme worked. Another way to skin the cat.

In general, you get what you pay for. But if you are using commissionable funds, you are paying for some service from your broker of record. I'd suggest following up with your broker and requesting update meetings. If this doesn't work, consider switching broker of record. There are many brokers who do a good job serving plans, and for them, all the revenue from your plan would be "new" (to address Paul's point). Alternately, you could go no-load and pay a fee based advisor to do meetings, probably for a lower total cost than your commissionable funds structure. Hope this helps,

I've heard (anecdotally only) that DOL doesn't like below prime loans.

For what it's worth, when I've discussed this issue with service provider representatives, they generally don't seem to "get" the ERISA and fiduciary issues. They're so focussed on their internal budgeting and profitability models, and so focussed on the individual account instead of the plan, that they often miss the bigger picture.

I've heard (and participated) in discussions on issue #1 at several conferences. I doubt you have a BRF issue with IRS. I agree with your gut reaction that it shouldn't be an issue with DOL either, but note that DOL has recently taken numerous aggressive (and counterintuitive) positions on issues such as fees. It's certainly conceivable that DOL would argue that bargaining power is at plan level, not individual account level, and consequently any breaks in commission rates should be available to all participants. It's also not beyond the pale for the DOL to argue that it would be a breach of fiduciary duty for plan sponsor not to push for commission rate breaks for all participants, particularly if decision makers are the large balance participants that would get the breaks under the "breaks for large balance only" scenario. The only way to know for sure is to request an opinion letter from DOL.

Charles Spencer & Assoc. out of Chicago puts together a good newsletter called Retirement Plan trends. I'd suggest looking at that.

In-kind contributions are generally permissible, but increase the plan's chance of audit. Significant documentation will be required to ensure that the property (in this case, stock) was properly valued at the time of contribution. I'd suggest that the cost of selling the stock and then contributing cash is probably less than the implicit cost of having the plan audited by the IRS.

Sounds to me like a violation of the "exclusive purpose" rule under ERISA Section 404(a)(1). Although exceptions may apply, I'd suggest that the organization would be better served to select investments for the plan based on their merit, rather than on the availability of commissions to be paid to the employer.

Whether or not the transaction is prohibited, there may be fiduciary conduct issues. Why doesn't the accounting firm select true no-load funds? At a minimum, this provides an appearance of impropriety, and increases the possibility of litigation. See (for example) http://www.firstunionsuit.com/, where First Union employees are suing their employer for selecting First Union funds, and not considering funds from other management companies.

Sure. Why not? They can now have a 401(k), so they can have a safe harbor plan.

Even if minimum distributions are required, he must still be permitted to make contributions. Otherwise, plan would violate ADEA.

R. Butler is correct on the fiduciary question. My discussion attempted to discuss the practical implications of a decision to take earnings away from a participant, once those earnings had been communicated. I still believe that the sponsor has primary control over the correction method. The recordkeeper that made the mapping error in the first place may not be willing to come up with the funds for the "adjust up only" correction, but if the sponsor provides the funds, in my experience, most recordkeepers will do the necessary administrative work. Remember, the sponsor controls the plan, while the recordkeeper merely performs administrative functions on the sponsor's behalf.

OK, let me take a slightly different tack. Recordkeeper mis-maps assets during transition, but all participants come out ahead, because each "wrong" fund outperforms each "right" fund. Would anyone argue that the recordkeeper, plan sponsor, or some other party is entitled to the excess earnings on plan assets attributable to the improper mapping? I doubt it. Second illustration. Some participants come out ahead, some lose. Net, the plan is ahead. I'll ask the question again, would anyone argue that the recordkeeper, plan sponsor, or some other party is entitled to the net excess earnings. If not, should the net excess earnings be allocated pro rata to everyone, or should they be retained by the participants that came out ahead initially. Bottom line is that (particularly when the blackout has been lifted and participants know where they are), there is a belief that participants have "earned" investment returns attributable to a mis-mapping, because their accounts were subject to the risk implicit in the investment vehicle. However, participants who lost out on the mis-mapping believe that they should be made whole. Like it or not, this perception exists. Sponsors that take away earnings from some participants to fund other losses incurred by other participants, because they were earnings that "shouldn't" have been earned, face potentially huge employee relations issues. If the sponsor can make these adjustments before the blackout is lifted, it may be possible to avoid the issue, since the participants won't know about the mis-mapping. But once the blackout has been lifted, tread very carefully.

Yes--no issues here.

In situations like this that I've been involved with, the company generally gives employees that came out ahead the benefit of the doubt, and doesn't reduce their funds, while making whole those employees that lost money due to the misallocation. I'm not saying that this is required, it's just what I've seen done, and seems to meet a common sense test.

I'm working from home today, so don't have access to appropriate cites. But from memory and experience, this is a valid concern. I've worked with companies that felt that the daily trading activity on their stock was insufficient to ensure that regular 401(k) contribution activity could be processed without moving the market. They were further concerned that arbs might detect a semi-monthly trading pattern, and trade against the plan (i.e., acquire shares to corner the market prior to the semi-monthly contribution, then refuse to sell for a reasonable price). For the company I'm thinking of, we established a structure where the company stock fund was unitized instead of tracking shares. We then directed the trustee to purchase a small number of shares each day, to cover the projected semi-monthly funding obligation. We adjusted the directive for significant inter-fund transfer activity, or for cash distributions from the stock fund. These adjustments served to minimize the trading activity required, and to mitigate against large and predictable trading volume on any given day. From memory, these structures were put in place to meet general fiduciary responsibility, prudence and oversight requirements, not in response to a specific Code section. Hope this helps,

If you mean, by taking a principal position to facilitate trading, absolutely not. The rules that apply to company stock in a 401(k) are numerous and complex; this typically only makes sense for large, established companies, that generally don't need an additional market maker.

With regard to John A's three questions, here is some real world experience. 1) I agree that it is ridiculous to match on a pay period basis if there is a last day requirement. In addition to the obvious apparent cut-back issues, there are very real problems with the plan holding unallocated funds at the point in time that the funded but unaccrued match is pulled back out of the accounts of participants that terminate before year end. I've never seen a plan that operated in this manner. 2) I don't believe that in a discretionary matching environment that the formula needs to be stated before the start of the year. I have at least one client that has a discretionary matching formula that permits them to adjust the form and amount of the match annually, without the revision reflecting a plan amendment. The plan document incorporates several formulas, all discretionary, and the Board elects which formula will be funded, in what amount. Although some may believe that this approach is not "definitely determinable", the plan has a FDL. 3) See answer to (2), above. Hope this helps. Remember, I'm a consultant, not an attorney.

I don't believe that the coverage issue for a "match patch "is any more complex than coverage for a year end profit sharing contribution with a last day requirement. Clearly the patch is a separate "BRF" which needs to meet coverage. If turnover is really high, this could be a problem. Presumably, a year end only match with a last day requirement would face similar problems. I agree with Tim's comment about the plan document governing. I wonder if there are some (many?) bundled plans with a document that defines a matching allocation based on annual comp that operationally use a pay period approach. I can see how this would be a potentially huge compliance problem.

Actually, the calculation of the match depends on the accrual date, which is a function of the plan document. If the match accrues on the payroll date, the match is calculated on period by period comp, so, in the example provided, the employee gets less match unless they change their contribution behavior or the employer drafts the plan to incorporate a year end adjustment. In my experience, companies tend to prefer year-end matches because they acknowledge the time value of money--if they hold funds during the year, it reduces their cost of borrowing, or, alternately, generates interest income. Of course, employees prefer pay period matches for the exact same reason. Some small, unsophisticated employers might appreciate the installment nature of a pay period match, but larger corporations won't have difficulty funding the match, and would rather pay later than sooner. For them, it becomes a benefits decision--keep employees happy by funding each pay period, or reduce corporate finance costs by funding at the end of the year.

I'm not directly responsible for the document or the "match patch" allocation, but I believe the formula DOES need to be in the document, b/c the populations for the payroll period match and the "match patch" are slightly different. The employer imposes a last day requirement for the "match patch" allocation, no last day requirement applies to the payroll period match. Don't thing that this is particularly hard to draft however, believe it fits in the TPA's master/prototype document, although it might be a volume submitter amendment.

I agree with the comments above, but note that with the trend towards more bundled providers, payroll period matching seems to be becoming more common. In my experience, about 80% of plans match on a payroll period basis. Some plans using a TPA adopt a hybrid approach--pay period matches, with an annual "match patch"--an additional contribution, to provide participants with the maximum match under an annual formula. This is extremely popular with participants, who can front-load 401(k) contributions for investment purposes, without negatively impacting the match total for the year.

The problem with Dinah's approach is that the renegotiation may cause the term of the loan to extend past the 60 month IRS maximum (for non-home purchase loans). I've seen plans get into significant IRS audit problems using this approach. That's why my earlier post suggested a bridge loan from the company to pay off the first loan, keeping the second loan as a distinct and separate loan, with its own 60 month maximum term.

Another problem with multiple loans is the payroll process, and which loan deduction is applied to pay which loan. I've seen instances where first loan is fully repaid, but deduction doesn't stop b/c other loans are still outstanding, and also where a repaid loan stops all loan payment deductions, so remaining loans become delinquent. Of course, there are also the typical wrong payment to wrong loan, and the consolidate all payments into a single payment and let the recordkeeper figure it out type of problems. My advice--one loan at a time only. If a participant really needs more money, on an exception basis, the employer can make a short-term "bridge" loan, the participant uses these funds to pay off the current loan, and then applies for a new loan (be careful with calculation of max available). Participant uses portion of new loan to repay employer, net proceeds are just like a second loan, but there is only one loan outstanding at a time.

Yes, I think you need to either have a notary at the jail, or alternately, a plan representative at the jail, unless parole or time off permits the spouse to execute the form outside of jail.