Belgarath

"The participant agrees to use their 401k account balance to pay back the sponsor. Can a court order the plan to pay the distribution directly to the sponsor? Can the plan pay the participant's distribution directly to the plan sponsor? If so, do we withhold taxes/issue a 1099R?" I agree with prior commenters that that plan can't be forced to pay to the employer. However, there's nothing preventing a VOLUNTARY assignment by the participant of benefits that are payable, providing the requirements of 1.401(a)-13(e) are satisfied. For that matter, future payments can be assigned as well provded cerain requirements are met. Assuming such assignment is made and the payments are made to the employer, the participant is still liable for all appropriate taxes. Since the assignmant is voluntary and revocable, my best guess, without looking into it further, is that the 20% mandatory withholding would apply, but I haven't really looked into that question.

The terms of the marriage document are subject to some interpretation. Her interpretation (obviously the RIGHT interpretation) apparently says that I shall love, worship, honor, obey, grovel, and have no opinion whatsoever unless she first tells me what my opinion is.

Does the year and a day have to be consecutive? Out of my 30-odd (some very odd) years of marriage, I'm certain I could find 366 days of harmony...

In the past, it seemed that the IRS was fairly reasonable about allowing MINOR modifications to a VS without requiring a determination letter filing. However, under Revenue Procedure 2011-49, a literal reading of the Revenue Procedure doesn’t provide any wiggle room on this subject. In fact, they specifically removed a provision from prior Revenue Procedures that, reasonably, allowed correction of “obvious and unambiguous” typographical errors and/or cross-references. Now, if you lose reliance over fixing a typo, or a reference to the top-heavy provisions in article “x” – when in fact article “x” is for minimum distributions and article “b” is the top-heavy article, then more substantive modifications seem risky. Anyone had any conversations with the IRS on this whole issue, or heard anything at conferences, etc.? Whether the IRS truly intends to enforce this I can’t say. But it looks like you could file minor modifications on a 5307, as per the following. See following excerpt from Revenue Procedure 2012-6. Modifications to Revenue Procedure 2011-49 .02 Rev. Proc. 2011-49 is hereby modified as follows with respect to determination letter applications filed on or after May 1, 2012: 1. An adopting employer of an M&P plan (whether standardized or nonstandardized) may not apply for a determination letter for the plan on Form 5307. 2. An adopting employer of a VS plan may not apply for a determination letter for the plan on Form 5307 unless the employer has modified the terms of the approved plan and the modifications are not so extensive as to cause the plan to be treated as an individually designed plan.

I just had the same question come up. I agree with ERISAtoolkit. See 1.401(m)-2(a)(6)(ii).

In fact, it does specify what I said. You are talking about a plan subject to PBGC. I wasn't. However, since I didn't specify this in the original post, your confusion is understandable. Look under the first part of (g) under the one-year rule.

Pre-2002, loans to s-corp owners and unincorporated owners were PT's. But EGTRRA changed that for post-2001 loans. See IRC 4975(f)(6)(B). I'm quite sure I remember the IRS saying that an outstanding loan balance from a pre-2002 loan was no longer a PT starting in 2002, but I can't give you a citation offhand. So a default by an owner is generally no different than for anyone else, ASSUMING it is a "bona fide" loan that satisfied all the normal participant loan requirements.

Page 15.835 (g) of the 2012 editions. Has been in prior editions as well. Sal got back to me and said that he can't find his source for this statement either. I'm sure he had a good reason for it way back when, but he can't recall what it was. He'll be fixing this in the future.

In case anyone cares. Individual mandate upheld. Only details I know are that it was a 5-4 decision, with Kennedy voting against upholding, and Roberts voting to uphold. Don't know if they struck down any other part of it. I'm sure there will be lots of analysis in the days and weeks ahead!

We also use CIMA.

You can take one of (at least two) approaches: 1. Disclose what you currently receive or expect to receive per plan year, either as a dollar amount or formula or percentage - whatever, even if you do not believe disclosure is required. This is the very conservative, very safe approach. You don't get in trouble by over-disclosing. 2. Determine that you do not "reasonably" expect to receive $1,000 over the life of the contract or arrangement, and don't bother with the disclosure. You can always do one if in the future your revenue sharing amounts go up. My spies indicate that most people are just doing disclosures even when not required, but they may be spying on the wrong people.

Nope. Or to be more precise, nowhere in 89-87 does it give any such 6-month "safe harbor." It talks about as soon as "administratively feasible" which isn't a great help.

Sal's EOB states that there is an IRS 6-month extension from the date of the IRS determination letter to make the distributions. I am absolutely unable to find a Revenue Ruling or citation, IRS form or publication, newsletter, etc., that supports this. Does anyone know if this statement is correct? Did the IRS state this at a conference or is it in the actuary "gray book" questions somewhere, etc.? The PBGC instructions give 120 days, but not 6 months. Thanks! P.S. I e-mailed Sal with this question as well - I'll post his response if he gets back to me.

I remember this was a source of much confusion, but I don't recall the clarifying guidance, or the roundabout interpretation if that's what it ultimately turned out to be. It has been established now for long enough that the history of it is beyond my feeble recall. The attached may help - see paragraph 3. But I couldn't, offhand, point you to the official guidance that states what the IRS is saying here. At any rate, I think your document provider is correct. http://www.irs.gov/pub/irs-tege/epnf_021605.pdf

Interesting - I hadn't seen this. Thanks, it is helpful.

Say you have a safe harbor matching contribution formula. Definition of compensation includes bonuses. (and bonuses are determined only at the tend of the year) Employer wants to amend definition of compensation, for purposes of the safe harbor match only, to exclude bonuses. Let's assume the compensation paid for 2012 under the modified definition of compensation will pass 414(s) testing. Can this be done for 2012? This isn't per se a reduction in the match formula, only a reduction in the definition of compensation to which the formula applies. I think it is ok, but I'm concerned that I'm missing something.

Interesting article. If Phyllis Borzi was quoted correctly in the final paragraph, it at least provides a ray of hope. But obviously comments at a meeting don't carry the weight of a written FAQ... Conference Report: SPARK National Conference Key Topic: Borzi addresses controversy over Question 30 of the disclosure FAQs. Key Takeaway: Second disclosure FAQs out after July 1; fiduciaries should consider making some investment options in their brokerage window a designated investment alternative. By Kristen Ricaurte Knebel The Department of Labor is working on a second set of frequently-asked-questions and answers regarding its fee disclosure regime, but the industry should not expect it out before July 1, Phyllis C. Borzi, assistant secretary of labor for DOL's Employee Benefits Security Administration, said June 18 at the SPARK National Conference. DOL issued its first set of FAQs on disclosures May 7, primarily addressing disclosures required under Section 404 of the Employee Retirement Income Security Act(88 PBD, 5/8/12; 39 BPR 921, 5/15/12). Borzi said that, since the release of the FAQs, there has been some “over-reading and overreacting” to Question 30, which deals with brokerage windows. In the answer to Question 30, DOL “reiterate[ed] that this brokerage account, or brokerage window, is not a [designated investment alternative]. That's not groundbreaking,” Borzi said. Additionally, the answer reminded people of their fiduciary duty to “prudently select and monitor service providers. So once you choose a service provider, you can't just walk away,” she said. While the answer may have reminded people of their fiduciary duty, Borzi recognized that the department has not been very clear as to fiduciaries' duties with regard to brokerage windows. Because of that, DOL has been speaking with retirement industry representatives about how they interpret their duty to participants when offering a brokerage window. “People will come to us and say, 'Well, this was new. We had no idea that we had to monitor brokerage accounts.' I would say to them, 'Well, what did you think your fiduciary duty was: Set it and forget it?' ” Borzi said. The Need to Monitor. DOL recognized that asking a plan fiduciary offering a brokerage window to provide disclosures for every investment option in that brokerage window would not make much sense, Borzi said. DOL was trying “to figure out how to get the kind of disclosure that people need to be able to make their [investment] choices in a way that wasn't overly burdensome for the plan sponsors and plan fiduciaries that offer participants these kinds of accounts,” she said. Borzi said DOL gave people a safe harbor by saying that, “if you have either no DIAs or you have some DIAs in this brokerage account, you need to look at what people are actually selecting, because if the point of this is disclosure, then you have to give people some information about the fees and other forms of compensation that are associated with their choices.” Borzi said the bottom line is that fiduciaries need to monitor the brokerage accounts and, if they see a majority of their participants selecting a particular investment, consider making some of the investment options a designated investment alternative. “If, in this monitoring of what people are doing in the brokerage account, you see patterns begin to emerge, then you need to consider--consider being the operative word--whether or not it makes sense to designate some or all of the choices that people make, if a lot of them are choosing the same things, as a DIA. That is all we said,” Borzi told the audience. By Kristen Ricaurte Knebel

Yes, you are right - so if you modify my example to use a .65 factor instead, is it that simple, or am I getting it wrong? Modified original paragraph taking into account .65. When doing this for a DC plan, can you use a "measurement period" of the current plan year only, as well as the current plan year only for "testing service?" In other words, if the average annual compensation is less than or equal to covered compensation (and good luck obtaining that data) and the unadjusted accrual rate is 1%, can you simply use the lesser of (2 x 1%) = 2%, or (1% + .65%) = 1.65%, therefore 1.65%? Or is it more complex than that and you have to go back and add up the sum of the disparity factors for all prior years, etc., and perform various voodoo and sorcery?

Did you perhaps mean (b)(2) and (3) for allocations based, and ©(2) and (3) for accrual based? Sorry, I should have been more specific in my original question. What I was trying to get at is in ©(4)(iii), they say you use the "measurement period" and "testing service" as in 1.401(a)(4)-3(d)(1). And under -3(d)(1)(iii) it appears that the measurement period may be the current plan year, and under (d)(1)(iv)(B)(2), it appears that if the measurement period is the current year, testing service is 1 year. Hence my original question, can I actually have the calculation as relatively painless as in my question, or am I totally misunderstanding it is a lot more complex?

Imputed disparity in a DC plan tested on an allocations basis seems relatively straightforward. But it seems rather more complicated if it is cross-tested. I want to see if I'm getting the basic idea right. Let's say it is just a PS plan, no 401(k), no other DB plan, never has been a DB plan, never has been any integrated formula. Plain vanilla. You have obtained the EBAR's for all employees. Now you are going to adjust those EBAR's for imputed disparity. When calculating the "permitted disparity factor" - it is apparently the sum of the annual disparity factors for each year included in the measurement period for determining the accrual rates, divided by the participant's rtesting service in that period. When doing this for a DC plan, can you use a "measurement period" of the current plan year only, as well as the current plan year only for "testing service?" In other words, if the average annual compensation is less than or equal to covered compensation (and good luck obtaining that data) and the unadjusted accrual rate is 1%, can you simply use the lesser of (2 x 1%) = 2%, or (1% + .75%) = 1.75%, therefore 1.75%? Or is it more complex than that and you have to go back and add up the sum of the disparity factors for all prior years, etc., and perform various voodoo and sorcery? If you have been a participant for more than 35 years in such plan, is imputed disparity not allowed (probably dependent upon answer to above?) Thanks.

A question came up which I thought might be familiar to some of you who deal with Fiduciary requirements. Say I am the fiduciary to profit sharing plan A. The company sponsoring Plan A happens to be an auditing firm that does ERISA audits. As fiduciary to this plan, I am receiving compensation. I'm also fiduciary to a new profit sharing plan B, for a completely unrelated business. The Plan Administrator is looking for an auditor for their plan. I happen to think that the auditing company (A) for whose plan I am a fiduciary, is a highly competent and reputable company. Am I allowed to recommend them to Employer B? Is it ok if I recommend them as long as I disclose that I am a fiduciary to their plan? Or am I not permitted, either by law or ethics, to recommend this firm? My uninformed guess is that I could recommend them as long as I disclose that I'm a fiduciary to their planl, and thus receive compensation from them?

Correct me if I'm wrong, but if I cut through the fog, you're talking about Section 79 welfare benefit plans, right? "Group term" life insurance plans BUT the HC's get permanent cash value insurance paid by the corporation (ususually a C-corp 'cause the owners in an S-corp can't get the permanent cash value insurance) and the rank and file opt out of the permanent 'cause they can't afford (or don't want to afford) the current income, (approx. 2/3 of the permanent insurance premium) so they get the term up to 50,000 only? I think there are only a very few TPA's in the country that handle these. I'm not sure what you mean by who would be "valued more." Do you mean who is best qualified to explain it to a client? I suspect this is done generally by the insurance agent. I don't think that I, for example, as a TPA for qualified plans, would be an appropriate resource to discuss this with a client, although I suppose I could if I became expert in them. That ain't gonna happen! In general, I think CPA's tend to have the most influence, but I suppose anyone who is truly knowledgeable and trustworthy about the program could be appropriate. I'd lean toward CPA and/or attorney. As far as who is "best positioned" I guess it might be the qualified plan TPA. Really hard to say - depends upon which advisor the client trusts the most.

Gold - at some point, one would expect even the DOL to be a little bit reasonable about some of this when it actually comes to enforcement, particularly with regard to this initial year of disclosure. In the preamble, footnote 13, they give an example which may give an indication of their real type of concern - they use trailing commissions as an example, where even after the contract ends, commissions will be paid. For a plan where you receive $50.00 per year for loan fees if participants take a loan, and only one participant currently has a loan, and all other charges are paid by the plan sponsor, it does seem to be stretching the point to assume that you will receive this for the next 20 years. I think you could "reasonably" expect not to receive $1,000 in such a situation. I must say I won't be sorry to get through the first "cycle" on this and the participant disclosures. Should be a lot easier in year 2!

Seems to me that 1.404(e)-1A(f) is relatively clear - it is based upon each partner's distributive share, as determined under Section 704. To be honest with you, we've never gotten into the details of how it is determined under 704 - we leave this to the CPA/client.

Austin - there are some folks who maintain that such an arrangement means that one or more DIA's are "...made available ( e.g., through a platform or similar mechanism) in connection with such recordkeeping services or brokerage services." I'm merely saying that there is not universal agreement on this subject, that's all.