Belgarath

Really a matter for tax/legal counsel, and depending upon the costs/risk associated with various options. Could, for example, simply terminate the plan, and hope no audit. Or amend and restate to a PS currently, and hope no audit. Or do a full-blown VCP filing, under which various options might be pursued. One-person employers do seem to have a particular genius for finding old documents once they understand how important it is...oddly enough, they are usually the correct documents, timely executed, etc., etc... - amazing. Has he filed 5500 forms as required?

Thanks Lou. I don't even know what code was used on the 1099 - haven't seen it. Question was from an advisor but not on one of our plans, so I was looking at it in a general sense. I will suggest they check the 1099 codes to see if it was completed correctly. Happy Friday!

This is the 72(t)(2)(A)(v) exception. Any reason this wouldn't apply to a loan offset distribution (not a prior deemed distribution) upon termination of employment? I don't see any basis for saying this wouldn't apply, but we have a State tax department giving someone a hard time, so I thought I'd see if I'm missing something... Thanks.

And this brings it squarely back to the determination, made by the employer, of whether the employment relationship has terminated, and if so, when. Let us suppose that the employee, on December 15th, says, "I quit, today." The fact that there is now 4 weeks of accrued vacation time that must be paid does not make this person an employee on December 31st. On the other hand, if the employee simply goes on vacation on December 29th, and then never returns, (like Charlie on the MTA, for you other old-timers) what is the termination date then? I'm no labor lawyer, so I don't make the determination - it is up to the employer to do that. I agree with everyone that facts and circumstances can be tricky, but it is still the responsibility of the employer to make that determination, and then to inform us of the correct termination date. I promise not to say anything more on this subject!

Ignoring additional restrictions on the timing of amendments to a safe harbor plan... In general, it is permissible to amend a plan such that someone who is already a participant may now no longer be a participant. (As long as normal statutory eligibility requirements are not violated.) The anti-cutback provisions of IRC 411(d)(6) only protect benefits already accrued. It does not necessarily guarantee a right to accrue future benefits. The "right" to continue to participate isn't a protected benefit, and as such, may be eliminated - again, subject to normal statutory requirements. In my experience, such eligibility changes are almost always "grandfathered" as a matter of good employee relations, etc. - but it isn't a requirement.

I agree with Larry. As I said, we often question it with the employer to have them confirm one way or the other, but it is their call, and we go with what they decide. Of course, in many situations it doesn't make any difference one way or the other, and then we wouldn't normally bother to check.

As opposed to the first day they were only PARTIALLY dead.

Actually, we would do the same as Calavera - I just didn't take it that far in my initial response. We would go back and question if 12/29 is really the date they want - if so, then their initial certified termination date stands - if they want to change it to 12/31, we'd ask for written verification of the new termination date. As per the terms of our service agreement, we are perfectly within our rights to rely on the certified census and not question it, but as a matter of service, we do.

I'll take the opposite approach - if we receive a census stating that the date of termination is 12/29, we would not consider them employed on the last day of the plan year.

Valid rollover meaning a valid rollover to any allowable arrangement - IRA, another or same qualified plan, etc. Some plans allow direct rollovers, but do not accept "60 day" rollovers. I have no opinion as to whether "better" to roll back into the distributing plan (if allowed) or to an IRA. 10% premature distribution penalty does not apply if the rollover of the full amount is accomplished within the 60 day period, as there is then no taxable distribution.

Well, there are two issues - taxation and withholding. Since an in-service distribution (as opposed to a hardship withdrawal) is generally an "eligible rollover distribution" then 20% withholding applies. However, if it is rolled over in a valid rollover within the normal 60 day timeframe, then it isn't ultimately a taxable distribution. The plan might not accept rollovers - some don't.

Oh c'mon - you are right behind Bob Dylan in the pantheon of great American song-writers! Greatness is never recognized in its own time. When they dedicate the Poje wing of the ERISA section of the Smithsonian, your grandchildren will be proud of you.

On the other hand: "Democracy is the worst form of government, except for all the others." (Winston Churchill)

I haven't yet studied the actual regulation language to have an opinion on the physician question. I'm hoping it won't apply...

I wouldn't touch this one with a barge pole!

What if the plan says, (as many pension/401(k) plans do) that it will be determined by a licensed physician?

- The problem with political jokes is they get elected. ~Henry Cate, VII - We hang the petty thieves and appoint the great ones to public office. ~Aesop - If we got one-tenth of what was promised to us in these State of the Union speeches, there wouldn't be any inducement to go to heaven. ~Will Rogers - Those who are too smart to engage in politics are punished by being governed by those who are dumber. ~Plato - Politicians are the same all over. They promise to build a bridge even where there is no river. ~Nikita Khrushchev - When I was a boy I was told that anybody could become President; I'm beginning to believe it. ~Clarence Darrow - Why pay money to have your family tree traced; go into politics and your opponents will do it for you. ~Author Unknown - Politicians are people who, when they see light at the end of the tunnel, go out and buy some more tunnel. ~John Quinton - Politics is the gentle art of getting votes from the poor and campaign funds from the rich, by promising to protect each from the other. ~Oscar Ameringer - - I offer my opponents a bargain: if they will stop telling lies about us, I will stop telling the truth about them. ~Adlai Stevenson, campaign speech, 1952 - A politician is a fellow who will lay down your life for his country. ~ Tex Guinan - Any American who is prepared to run for president should automatically, by definition, be disqualified from ever doing so. ~Gore Vidal - I have come to the conclusion that politics is too serious a matter to be left to the politicians. ~Charles de Gaulle - Instead of giving a politician the keys to the city, it might be better to change the locks. ~Doug Larson - Don't vote; it only encourages them. ~Author Unknown - There ought to be one day -- just one -- when there is open season on senators. ~Will Rogers

There are only 3 kinds of people in this world - those who can do math and those who can't. (I fall into the latter category...)

Ain't that the truth!!! Beats me. Jpod, they have been filing 5500 forms every year on the 403(b) plan, so I'm guessing that wasn't necessarily the reason. But the reasons, whether valid or not, lie in the very distant past and will never be known. Players/decision makers either long gone or unknown. Anyway, thanks to all for the discussion. This one is just too strange.

Larry - thanks for taking the time to respond. I will point out just one thing: you will notice that I edited the post as soon as reasonably possible to tell people not to bother, so I don't think it should have been an enormous time waste for anyone. Most of your questions I cannot answer, either for privacy reasons, or that those details are simply unknown. I've traced the document language back through the EGTRRA document, and it has been the same - why, I don't know. I didn't draft it, and have no idea how far back this language goes, or why it was done this way. Following is an applicable paragraph - there is also ACP language in the document in other spots. This particular document appears to be pre-approved Volume Submitter language, although it may well be modified language. No evidence (yet) of any IRS individual determination letter application or approval. P.S. - just a quick edit - I do note that DOL Advisory Opinion 2012-02A addresses, in a completely different context, this precise arrangement. I know this has nothing to do with IRS qualification, but it does indicate that such plan provisions/combinations are not unknown. Doesn't mean they are correct... Also, this is a non-governmental 501(c)(3) employer, subject to ERISA. Nonelective Contribution. For each Plan Year, the Employer shall contribute 9% of the Compensation of each Participant who contributes at least 3% of his or her Compensation as an elective deferral to the “XXXXX Tax Sheltered Annuity Plan” for the Plan Year, and who is otherwise eligible to share in allocations in this Plan for the Plan Year. This Nonelective Contribution shall be considered a matching contribution for ACP testing purposes.

Larry - I think you are right, so I need to retract my statement. As I looked back in my notes from years ago, this was an opinion from an ERISA attorney on a document where the language was somewhat ambiguous, and attorney opined that '"retirement age" in this context only occurred once. Our document doesn't contain any such language that says "once only" - I guess the only way to avoid this problem is not to waive the allocation requirements for people who terminate on or after NRD?

I don't have time to look it up now, but I'm sure that some documents provide that you can only get a "retirement" date allocation once. In other words, you can't terminate employment with less than 1,000 hours/last day,( assuming those are the allocation requirements) receive a contribution for that year, then get rehired the next year, terminate again w/less than 1,000 hours/last day, and get another allocation based on "retiring" again. The provision only works once. But in other plans, it may work an unlimited number of times, although if it is a HC, perhaps that might cause issues. I've never had reason to worry about it, thankfully.

Money purchase plan provides a contribution of "X%" ONLY if you defer at least 3% in 403(b). I'm nearly certain I remember that in such a situation, the MP contribution is treated as a matching contribution subject to ACP testing. Agree/disagree? Thanks. Bah. Don't bother - No HC anyway! Thanks.

So, IN January of 2018, someone sends 2017 data and asks you to do DCAP testing. They pass the "5% owner" test, but fail the "55% DCAP test." Lets us just suppose that the HC average benefit amount was $1,000, and the NHC average was $300. I'm being told that as long as it is "corrected" by the time the W-2's are done, that instead of the entire HC amount being considered taxable income, you can just count the excess over what "would" have passed. So, for example with a $300 NHC average, if the HC average had been $545 (I'm rounding here) then it "would" have passed, and therefore the HC taxation on the DCAP will only be amounts in excess of $545. Is this approach "blessed" anywhere in IRS guidance? I don't find it anywhere, but I'm not a cafeteria plan expert. Do people just do it this way, even if not officially sanctioned by the IRS?

Thanks all.