Belgarath

Bg - sorry, but I simply don't agree. The Code and regs do not require that the rollover into a 401(a) plan be by direct rollover only - only that an "eligible rollover distribution" may be rolled to an "eligible retirement plan" within the requisite timeframes. Now, the plan may not permit it, which is a separate issue altogether - hence my comment that the plan must permit it.

Yes, he can. Assuming of course that the plan permits incoming rollovers. Of course, he'll have to come up with the 20% that was withheld to roll back into the plan or he'll be taxed on it. An additional wrinkle to be aware of. Since he's over the RMD age, if he hasn't taken a RMD for 2012 yet, the regulations provide that any distribution coming out of the plan is first considered to be the RMD. Therefore this amount would technically be ineligible for rollover. So he may want to withdraw his RMD first, or, he can just plan on rolling back in the amount in excess of the RMD - whatever works.

ESOP - we are a TPA, but not for the ESOP. And by the way, thanks for the webinar info. I have no experience with ESOP's, but this was a question that came up in discussion. Seems like another one of these tricky little pension "niches" all on its own. QDRO, I wondered about the PT issue, which was why I asked if it was allowable - didn't know if there was a specific exemption that allowed it.

Thanks!

Here's another discussion of the issue. http://benefitslink.com/boards/index.php?s...mp;#entry204793

But do we only have to deal with the IRS regulations? The DOL 2550.408b-1(e) provides the following. FWIW, we actually contact 3 local banks every month to get a rate for such loans, and average the 3. We provide this number to the Plan Administrator, who can then make whatever determination they want! (e) Reasonable rate of interest. A loan will be considered to bear a reasonable rate of interest if such loan provides [[Page 505]] the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. Example (1): Plan P makes a participant loan to A at the fixed interest rate of 8% for 5 years. The trustees, prior to making the loan, contacted two local banks to determine under what terms the banks would make a similar loan taking into account A's creditworthiness and the collateral offered. One bank would charge a variable rate of 10% adjusted monthly for a similar loan. The other bank would charge a fixed rate of 12% under similar circumstances. Under these facts, the loan to A would not bear a reasonable rate of interest because the loan did not provide P with a return commensurate with interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. As a result, the loan would fail to meet the requirements of section 408(b)(1)(D) and would not be covered by the relief provided by section 408(b)(1) of the Act. Example (2): Pursuant to the provisions of plan P's participant loan program, T, the trustee of P, approves a loan to M, a participant and party in interest with respect to P. At the time of execution, the loan meets all of the requirements of section 408(b)(1) of the Act. The loan agreement provides that at the end of two years M must pay the remaining balance in full or the parties may renew for an additional two year period. At the end of the initial two year period, the parties agree to renew the loan for an additional two years. At the time of renewal, however, A fails to adjust the interest rate charged on the loan in order to reflect current economic conditions. As a result, the interest rate on the renewal fails to provide a ``reasonable rate of interest'' as required by section 408(b)(1)(D) of the Act. Under such circumstances, the loan would not be exempt under section 408(b)(1) of the Act from the time of renewal. Example (3): The documents governing plan P's participant loan program provide that loans must bear an interest rate no higher than the maximum interest rate permitted under State X's usury law. Pursuant to the loan program, P makes a participant loan to A, a plan participant, at a time when the interest rates charged by financial institutions in the community (not subject to the usury limit) for similar loans are higher than the usury limit. Under these circumstances, the loan would not bear a reasonable rate of interest because the loan does not provide P with a return commensurate with the interest rates charged by persons in the business of lending money under similar circumstances. In addition, participant loans that are artificially limited to the maximum usury ceiling then prevailing call into question the status of such loans under sections 403© and 404(a) where higher yielding comparable investment opportunities are available to the plan.

C corporation has an ESOP. Their corporate charter/bylaws whatever restrict ownership to employees or plan only, so a stock distribution is not allowable. So when a participant is about to retire, (let's say they are entitled to $50,000 at current appraised stock value) I'm wondering what options are available. There were two that were brought up, and as I don't know much about ESOP's, I was wondering if one is "better" than another or if both are even allowable options: 1. The corporation makes a deductible contribution to the plan of $50,000. This cash is paid to the terminating participant, and the participant's stock is then allocated amongs the eligible plan partiicpants just like any normal plan contribution. This seems perfectly normal and acceptable. Is it? 2. The corporation contributes $50,000 to the plan to pay out the participant, but it isn't a deduction. Instead, they retire the stock. Is this allowable? Does it have any effect upon the stock price of the remaining shares in the plan? It would seem that this would be a "wash" and therefore a neutral transaction in terms of stock value (?), but is it even allowable?

Thank you both!! This was very helpful.

Hi John. Thank you. You don't, by chance, have a citation for the position that a restatement isn't required, do you? That's the missing piece of the puzzle I haven't been able to locate, and it has been driving me crazy! I've seen several opinions agreeing on this point, but I'd sure love some back-up. Of course, I'm sure the potential client in question didn't even have required amendments, much less restate, so there will be other problems to deal with...

I agree with Erisa that for 2011 TH determination, you'd look back to 2010. But for 2012 top heavy status, you'd look to see if he satisfied the key employee requirements in 2011 - the lookback year. Yes, he did. So you would count his account balance as a key in your top heavy testing for 2012.

My apologies - I was referring specifically to DB plans. So I guess my question still stands.

I must say I'm a bit confused on this. I have seen various opinions on the subject of restatement, but without citations. Is there anything official that says governmental plans don't need to be restated? Assuming the answer is no, then there appear to be two possibilities. First, they are using a VS document, and have until April 30, 2012. Second, they are an IDP, and would have already gone long past the Cycle C deadline (or Cycle E if they so elected) to restate and submit for a determination letter. What am I missing?

Are you simply not getting inquiries/applications, or just not getting the type you want? I've heard similar laments from other sources. And while it's a "chicken or egg coming first" sort of circle, I think a good deal of it has to do with the job and real estate market. When things are good, people are much more likely to take a chance, sell their house, and move. Now that prices are way down, many people cannot afford to do so. Also, in 2-income households, it may be very difficult for the second person to find an acceptable job even if the first one does. All of this then feeds on itself, so that people are much less likely to look, since it's too difficult or unaffordable, and since they know it is unaffordable/difficult, they don't bother to look/apply... There may be lots of other reasons, of course. This is just a personal theory based upon anecdotal evidence.

"Shame on someone for having a plan design with a six month suspension." Huh? Sorry, I'm missing the point of this one?

Yes.

Probably. I'm not sure this is specifically addressed in the regulations. First, check your plan document, which may specify. If not, I think most people take the interpretation that the alternate payee is treated as a "beneficiary" for the purposes of adding a QDRO distribution back in for considering top heavy status.

Hi John - yes, those, and all other interim amendments, were timely adopted. I absolutely agree that it is better to restate. However, the client doesn't want to pay for it, and I couldn't find anything requiring it, so I just wanted to be sure. Thank you both for your comments.

Re-upping this post. For a DB plan with an EGTRRA restatement deadline of 4-30-2012, where they want to terminate it now - one person, no 204(h) issues, all "interim" and "plan termination" amendments in place, but NOT restated for EGTRRA - is there any reason why an EGTRRA restatement is required? I can't find any guidance that requires the restatement, even if distribution isn't made until after April 30th, as long as termination date is prior to then. Mind you, I'm not saying it is a bad idea, but I can't find where it is REQUIRED. Any thoughts?

Is there a decent cafeteria plan reference source that isn't too technical - sort of for a high level skim of the basics? This would be for someone (me) who knows NOTHING about cafeteria plans. I just need to familiarize myself with them, but not in too much depth at this time. Beyond that, for the more technical issues, any other recommendations other than what has already been mentioned? Thanks.

I'll take a stab. Assuming I'm understanding your question correctly, my answer is no. The retirement age specified in the plan must be in compliance with the regulations - the fact that in an-service withdrawal isn't permitted is immaterial.

"Am I alone in thinking it unfair or inequitable for a plan to tell a widow she has to wait 10 or 20 years to get a pension benefit if her husband died at an early age? In theory a husband who starts a job at age 18 could work 20 years and then die at age 38, the wife would then have to wait 17 years for a partial pension or 27 years for a full pension. Would you want your wife to have to go through that? " First, since a plan can force the participant to wait until retirement age to collect a benefit, how is this "inequitable" to the surviving spouse? Of course I would prefer my spouse to be able to start collecting benefits presently (albeit drastically reduced, as pointed out earlier by Mike), but then I'd prefer the same treatment for myself, too. And if I terminate employment at age 40, I can't start collecting a benefit. Beyond what's "equitable" or "fair" depending upon your viewpoint - what's your deal here? Are you an attorney representing a surviving spouse who wants to currently collect a survivor benefit, and has been denied? You seem to have an agenda of some sort - which is fine. I'm dubious that you'll obtain the kind of answer on these boards that you are apparently looking for. Nevertheless, certainly an interesting question and discussion thread.

What about Q&A-5 of the Notice 2010-84? Excerpt below. Seems to me that this provides support that the 5 year "clock" starts for the yearin which the rollover is made, or if earlier, when contributions were made to a designated roth account in a prior plan. A qualified distribution from a designated Roth account is a payment made both after the distributee attains age 59½ (or after the distributee’s death or disability) and after the distributee has had a designated Roth account in the plan for a period of at least 5 years. The 5-year period described in the preceding sentence begins on January 1 of the year the distributee’s first contribution was made to the designated Roth account. However, if the distributee made a direct rollover to a designated Roth account in the plan from a designated Roth account in a plan of another employer, the 5-year period begins on January 1 of the year the distributee’s first contribution was made to the designated Roth account in the plan or, if earlier, to the designated Roth account in the plan of the other employer.

Thank you both. And FWIW, here's the language from RP 2008-50, section 8 under SCP for insignificant errors. 04 Examples. The following examples illustrate the application of this section 8. It is assumed, in each example, that the eligibility requirements of section 4 relating to SCP (for example, the requirements of section 4.04 relating to established practices and procedures) have been satisfied and that no Operational Failures occurred other than the Operational Failures identified below. Example 1: In 1991, Employer X established Plan A, a profit-sharing plan that satisfies the requirements of § 401(a) in form. In 2005, the benefits of 50 of the 250 participants in Plan A were limited by § 415©. However, when the Service examined Plan A in 2008, it discovered that, during the 2005 limitation year, the annual additions allocated to the accounts of 3 of these employees exceeded the maximum limitations under § 415©. Employer X contributed $3,500,000 to the plan for the plan year. The amount of the excesses totaled $4,550. Under these facts, because the number of participants affected by the failure relative to the total number of participants who could have been affected by the failure, and the monetary amount of the failure relative to the total employer contribution to the plan for the 2005 plan year, are insignificant, the § 415© failure in Plan A that occurred in 2005 would be eligible for correction under this section 8. Example 2: The facts are the same as in Example 1, except that the failure to satisfy § 415 occurred during each of the 2005 and 2007 limitation years. In addition, the three participants affected by the § 415 failure were not identical each year. The fact that the § 415 failures occurred during more than one limitation year did not cause the failures to be significant; accordingly, the failures are still eligible for correction under this section 8. Example 3: The facts are the same as in Example 1, except that the annual additions of 18 of the 50 employees whose benefits were limited by § 415© nevertheless exceeded the maximum limitations under § 415© during the 2005 limitation year, and the amount of the excesses ranged from $1,000 to $9,000, and totaled $150,000. Under these facts, taking into account the number of participants affected by the failure relative to the total number of participants who could have been affected by the failure for the 2005 limitation year (and the monetary amount of the failure relative to the total employer contribution), the failure is significant. Accordingly, the § 415© failure in Plan A that occurred in 2005 is ineligible for correction under this section 8 as an insignificant failure.

Thought it might be useful to have the RP 2008-50 language from 6 (.06)(2) handy. Tom - I've got a question re your response. I'm not clear from this whole discourse what the plan language here really says. I'm guessing that it has an allocation formula that provides that once a person has received annual additions up to their 415 maximum, that the remaining contribution is allocated to other participants? If so, and if there is still left over money, then it must be corrected as per RP 2008-50 - so in this situation, once the allocation is complete, the remaining money is allocated, causing 415 violations, then the deferrals are refunded first to those participants who deferred? Is that what you are saying, or am I misunderstanding? Thanks. QDRO - I'm uncertain about something in your last response. Yes, the plans require that a 415 excess be corrected in accordance with RP 2008-50. But doesn't that allow for SCP? Why do you say it is VCP only? P.S. - correction of a 415 excess is specifically used as an example in SCP under Section 8. (2) Correction of Excess Allocations. In general, an Excess Allocation, as defined in section 5.01(3)(a) of this revenue procedure, is corrected in accordance with the Reduction of Account Balance Correction Method set forth in this paragraph. Under this method, the account balance of an employee who received an Excess Allocation is reduced by the Excess Allocation (adjusted for earnings). If the Excess Allocation would have been allocated to other employees in the year of the failure had the failure not occurred, then that amount (adjusted for earnings) is reallocated to those employees in accordance with the plan’s allocation formula. If the improperly allocated amount would not have been allocated to other employees absent the failure, that amount (adjusted for earnings) is placed in a separate account that is not allocated on behalf of any participant or beneficiary (an unallocated account) established for the purpose of holding Excess Allocations, adjusted for earnings, to be used to reduce employer contributions (other than elective deferrals) in the current year or succeeding year(s). While such amounts remain in the unallocated account, the employer is not permitted to make contributions to the plan other than elective deferrals. Excess Allocations that are attributable to elective deferrals or after-tax employee contributions, (along with earnings attributable thereto) must be distributed to the participant. For qualification purposes, an Excess Allocation that is corrected pursuant to this paragraph is disregarded for purposes of § 402(g), § 415, the actual deferral percentage test of § 401(k)(3), and the actual contribution percentage test of § 401(m)(2). If an Excess Allocation resulting from a violation of § 415 consists of annual additions attributable to both employer contributions and elective deferrals or after-tax employee contributions, then the correction of the Excess Allocation is completed by first distributing the unmatched employee’s after-tax contributions (adjusted for earnings) and then the unmatched employee’s elective deferrals (adjusted for earnings). If any excess remains, and is attributable to either elective deferrals or after-tax employee contributions that are matched, the excess is apportioned first to after-tax employee contributions with the associated matching employer contributions and then to elective deferrals with the associated matching employer contributions. Any matching contribution or nonelective employer contribution (adjusted for earnings) which constitutes an Excess Allocation is then forfeited and placed in an unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year(s). Such unallocated account is adjusted for earnings. While such amounts remain in the unallocated account, the employer is not permitted to make contributions (other than elective deferrals) to the plan.

Since actually paid in 2012, why don't they rescind their allocation resolution and do a new resolution making part of the contribution an advance for 2012? (caveat - there is one school of thought that says once a resolution is made, it creates an enforceable obligation to make that contribution for the prior year. However, since it will be an excess that can't be allocated, then I wouldn't think this is much of a risk, unless the plan allocation method gives some of that excess to other NHC participants. Even then, this may be deemed an acceptable "risk" - if it seen to be a risk at all.)