Belgarath

IMHO, the transition period is not available in the situation you describe.

Gracias.

I don't have much information, but extrapolating/guessing from what I do know, the following situation may be the actual situation, or close to it. Suppose you have a non-profit foundation, that does whatever - provides canoe trips for blind dogs and cats so that they are less stressed. They have a U.S. operation, and a Canadian operation. Let's ASSUME that the same board controls both organizations, so they are a related group. The U.S. organization has a non-ERISA, deferral only 403(b). They have NOT been allowing the Canadian employees to participate, and there is no separate plan. Now, I can't find where the Canadian employees (I THINK they are all Canadian citizens, not U.S. citizens) can be "excluded" under the Universal availability regulations. But, perhaps the plan could simply exclude all non U.S. source income COMPENSATION, which would accomplish the same thing, as they are paid purely for work in Canada? Or actually, as I think about it, they should be able to exclude Nonresident aliens, I think, which depending upon the circumstances should take care of that "problem." Never seen a situation even approaching this, and curious if anyone else has? By the way, no highly-compensated employees, apparently.

For $500 bucks an hour, I'll give you an opinion. Heck, I'll even give you a second opinion!

Not so sure about that. If you take the approach that option A is allowable, then how is it automatically a cutback? Also, under the "3 year continuation" - probably the next paragraph - doesn't that also appear to indicate by its very nature that such an amendment isn't automatically a cutback? Haven't really thought this through - just a couple of quick thoughts...

Hi Austin - I'm sure you know this already, but a client such as you describe almost certainly will throw you under the bus if anything goes sour with option A. Are you even presenting this to them as an option? I'd certainly be inclined not to, although I don't know the details of the situation. I suppose you could do the old, "I don't recommend this, but if after getting an opinion from ERISA legal counsel you wish to proceed in this manner, here's a hold harmless to sign if you instruct me to proceed in this fashion" routine. Now, I'm not an attorney, and I don't know how successful a hold harmless is if defending yourself in a lawsuit - any attorneys out there who would like to weigh in on this? But it usually scares the clients enough so they don't proceed with the risky option - they just hate to sign a hold harmless. Good luck on this one - clients like this make me wish I'd listened to my Uncle Jerry, who counseled me to become an optometrist.

FIS will apparently be sending some clarifying information on this in the very near future.

Hi Larry - can you elaborate as to why the regulations don't affect the plans? (I understand that in "real life" a denial of disability status is uncommon, so mostly it doesn't affect anything.) However, in many of our plans, "Total and permanent disability" results in 100% vesting, as well as a waiver of normal allocation conditions - I'm focusing on the DC plans for the moment. So I don't see how we could tell our clients that the regulations don't affect them. We certainly can, and probably will, say something along similar lines, such as "These regulations don't affect you UNLESS you have a situation where you are denying "Total and Permanent disability status" for a participant, and that denial has a negative effect on any provisions in the Plan that are applicable to that Participant." A few other items for discussion - there is no formal amendment date that I can see, but the regulations are effective after April 1. So are you going to notify your clients to follow these regs, prior to doing the amendment? Also, I haven't really thought through the implications if the regulations aren't followed. Assume total and permanent disability status is denied. What can the participant "get" if the Participant goes to court - in other words, what damages are realistically available, beyond simply 100% vesting them? I will say that in all my years in this business, I've never seen a problem situation arise, in a DC plan, due to this disability issue. Doesn't mean they haven't happened behind the scenes, but nothing has ever been brought to my attention. This might be a more serious issue in DB plans. Anyone have special thoughts on that issue? Thanks to all for the discussion.

Thanks Peter. Good to know. Hopefully the situation will never arise!

Boo. Hisss!

Like many people, I'm looking for methods to have these regulations not apply to normal 401(k) plans. Amending hundreds of plans (and attempting to explain this crap to clients) isn't high on my fun list. Sure, we can do a plan sponsor level amendment - and that's probably where we'll end up... So I toss this out there for you attorneys. Suppose a pre-approved Plan document currently says that the determination will be made by a licensed physician. Doesn't specify who chooses the licensed physician. If the Plan Administrator institutes a written policy that the determination of Total and Permanent Disability is made by a licensed physician CHOSEN BY THE PARTICIPANT, (and also accepts a SSA determination or under the employer's LTD program) is this sufficient to remove discretion, so that an amendment isn't even necessary? (I'm not saying this is necessarily a good idea - in fact, might be a very bad idea if participants get names of licensed physicians who are "easy" and will certify practically anything.) Just trying to look at any angles. It is frustrating, because the real life application of all this is so limited and a denial situation so uncommon that it is a whole lot of time for, generally, nothing. Whoops, I guess that describes my life in the TPA world.

Impossible to say. I do believe there is a "risk" of, at the very least, an auditor giving a client a rough time. Our clients are mostly "small" (less than 100 employees) and have little to no tolerance for additional fees for us to fight/educate the IRS, much less any additional legal fees if it becomes necessary. Of course it is sometimes necessary, but we try to head off potential trouble as much as reasonably possible. As Tom mentions, others may take a much more aggressive stance. They may well be right - I haven't seen audit results for such a plan, 'cause we don't do them. As an aside, I have rarely see a plan designed to be truly aggressive in this manner, or, depending upon your viewpoint, not being aggressive, but "utilizing this technique to reach the very limits of its applicability."

I tend towards cowardice on this issue when it comes to pushing the very edge of the envelope. I have visions of IRS auditors packing .44 magnums and saying, "Go ahead, make my day."

Wow, even worse than I thought! Interesting discussion. So taking something a bit less "legalistic" than a QDRO, what about a hardship withdrawal? Plan allows it, but subject to the vendor/funding company decision. Funding company, in turn, says they won't process it unless the Plan Administrator "signs off" on it. So a participant who has a legitimate hardship can't get it. Is this now a fiduciary problem because investments weren't properly selected? Can State law compel one party or the other to "do it" or does this just circle right back to the same issues discussed above? And while all this plays out with the lawyers fighting, the participant's hardship, which is presumably an immediate need, sits in limbo. What a ridiculous set of conflicting rules/responsibilities.

Thanks Peter. I don't actually have any such situation - my questions are, at this point, academic. The small 501(c)(3) plans that often use elective deferral only plans, rarely engage legal counsel in situations where it should be sought, I'm willing to bet. Certainly they don't when sponsoring 401(k) plans...

Carol - I completely and totally agree that "shoulda woulda coulda" - but the simple fact is that many, possibly most, just didn't. So that leaves the situation(s) I mentioned, (plus probably others) so I'm wondering how folks deal with it? I firmly believe that there are tons of these plans out there, and I suspect that employers have been routinely performing such functions so that participants can get a distribution, although I have no hard evidence to back that.

Just wondering what the rest of the world encounters in "real life" on this. Plan is set up to be a non-ERISA - deferral only plan. In order to avoid ERISA status, there are operational requirements in addition to the Plan provisions. So, the Plan/Administrator, upon receipt of the DRO, refers it to the Vendor, 'cause the Plan Administrator doesn't want to kick Plan into ERISA status by making a determination if it is a valid QDRO or not. The Vendor kicks it right back, and says, "I'm not going to make this determination." A similar situation could occur with hardship withdrawals, for example. How do you folks and/or your clients typically handle this? You are between a rock and a hard place...

And if you want any support for the above other than the word of the two experts who have already responded, I have in my notes a reference (probably came originally from Sal Tripodi's ERISA Outline Book) of a case law reference to Steffens v. Commissioner, 707 F.2nd 478 (11th Cir. 1983).

Without doing any special research, I'd say just the opposite. Under 1.457-4(b), a nonelective employer contribution is deemed to be made under a valid agreement, so no deferral election should be required.

Thanks Bird - I couldn't find (when looking fairly quickly) anything on the e-file information/FAQ's, 5500 instructions, etc., that indicated it was required. It's just been done that way here since, approximately, 300,000 B.C., give or take a few years, so I thought I'd check. Certainly doesn't cause any harm...

Is it a REQUIREMENT for the filing authorization to show the EIN? We've always put it on the form routinely along with the Plan name, number, and Plan Year, but I'm not sure if it is actually a requirement. Just curious...

All kidding aside - are many young people coming into this industry these days? Back in the "old days" when I was just a pup, a lot of TPA organizations, insurance companies, etc., would take in people who knew nothing about qualified plans and train them. It seems like now, employers are less willing to train folks, and they all want someone who knows the business. Most of the TPA folks I see these days are 50+. I suppose at some point supply and demand will correct the imbalance.

I'll be eligible not too many months thereafter, but really, how far is $150 going to get me? I'd just be glad to have more hair - regardless of the color!

I'm going from memory here - the Roth deferrals are already included in Box 1, so there are no deferrals to "add back" in to Box 1 if it is just Roth. So I would expect the Box 5 amounts to be the same, in the absence of any other modifications. If you add the Roth deferrals back in, you'd be overstating Box 5. At least that's my recollection, but don't trust my memory - you'll want to look at the instructions.