KJohnson

Also, mbozek's point is a good one regarding ERISA coverage and the DOL plan asset regs. However, once you get past a sole proprietor with no employees, be sure to do careful research in your Circuit with regard to how Courts have interpreted who is an "employee" under ERISA. Also, once you get beyond 160K of earned income (after adjustments) all the individual 401(k) gets you over a SEP is catch up contribuitons. Finally, BISYS has posted some vendors for individual k products here: http://www.individual-k.com/moreInfoBusinessOwner.asp (this is no endorsement of BISYS).

401kproman--I am not sure I agree. I think the election to defer has to be made during the Plan Year but that the actual deduction does not have to be made at that time. In fact, since a partners compensation was not deemed "currently avaialble" until the last day of the Plan Year, there was always some quesiton of whether you could defer out of an ongoing "draw" alhough most people assumed that you could Just recently, the IRS issued a PLR regarding this subject. http://benefitslink.com/IRS/plr200247052.pdf

Chris, you may want to look here: http://www.corbel.com/news/technicalupdate....asp?ID=194&T=P

1.401(m)-1(a)(1) refers to matching and "employee" contributions. Then 1.401(m)-1(f)(6) defines employee contribuitons.

The TAM cited above can be found here: http://www.benefitslink.com/IRS/tam9735001.shtml Does an actual contribution under the old allocation method actually get you anything logically or legally as long as you leave the old allocation method in the Plan (along with your new allocation method). Presumably, the contribution under the allocation method is discretionary. Thus, as long as you have not eliminated the allocaiton method, aren't you still o.k under the TAM if you simply decide not to fund it? It seems like making a minimal contribution would be just for "show."

At the ASPA and ABA conferences, there are also DOL Q&A's. Here is their response to this question over the last three years: QUESTION 8. Can a retirement plan charge participants' accounts (directly) the cost of issuing a check to the participant? DEPARTMENT OF LABOR ANSWER. 2000 Answer: Staff is examining this and so is not prepared to answer. We should expect guidance in the not too distant future. 2001 Answer: Staff said it is still working on the guidance. This year, however, staff offered a few clues about its position. Staff observed that the relevant issue in this situation, as in connection with PWBA's published guidance on the costs engendered in a plan's DRO/QDRO review, is whether or not an imposed plan charge to the participant "burdens a statutory right." It is that issue that impedes a positive staff approval of the proposed response. 2002 Answer--The issues raised by this example continue to be under active review by the Department. The Department indicated that, while there was internal agreement regarding many of the issues, a final decision has not been reached.

MJB--I realize the IRS has given informal comments that support your definition of a BRF, but I am not sure that it squares with the actual language of the regulation cited by MWeddell which use the terms "applicable" and "available" and does not use terms like "specified" by the Plan or under a "provision" of a Plan. It is very rare that a particluar investment is specified in the terms of the plan document itself. They are often not even specified in the terms of the SPD. The reg is also specific that the "right to a particular form of investment" is a right or feature and different rights or features exist if they are not "available on substantially the same terms." Therefore, it would seem that to the extent that you have an investment alternative that is available on different terms to different participants you have a BRF issue. To take an extreme example, let's say that you have a Plan that offers 6 mutal funds and a directed brokerage feature. To use the directed brokerage feature, the Plan requires that participants use a specified broker. That broker has a minimum of $1,000,000. I would think that you would have a BRF problem in this instance no matter what the informal guidance given at an ASPA conference ( My recollection is that this guidance may also have varied from year to year.)

The discussion between BLINKY and EARL is interesting. I agree with Blinky but here is an interesting Q&A from the 1999 ASPA conference. It seems to me that the IRS representatives came to the right answer ( the rule of parity would be inapplicable) but reached the wrong conclusion based on ths answer. Maybe they were only concentrating on 411 and not 410. . 96. The rule of parity (Code Sections 410(a)(5)(D) and 411(a)(5)(D)) permits service to be disregarded for certain "nonvested participants." Can this rule be used if someone had terminated employment before the employer had even established a plan? For example, an individual works for an employer for 3 years and then terminates employment. The employer does not have a retirement plan. The individual is rehired after 10 consecutive one-year breaks in service. The employer then establishes a retirement plan. Is the employee required to be credited with the prior 3 years of service or can the rule of parity be used to disregard the prior service? A. The rule of parity applies to non-vested "participants". An employee who terminated prior to the plan effective date was never a participant and, thus, that prior service need not be counted. However 410(a)(5) says that all years of service with the employer must be counted with the exceptions in paragraphs (B)©and (D)[with (D) being the rule of parity.] If D is not applicable because the employee was never a participant, it would seem that you are back to the general rule that all years of service must be counted.

Where in 410(a) can you find an exclusion for years prior to the inception of the Plan? Eligibility service can be disregarded only after breaks in service. It is my understanding that you cannot have a blanket exclusion of years prior to the establishment of the plan. See Sections 410(a)(3) and (5). Of course you can have an exclusion for purposes of vesting service See--411(a)(4) but similar language is noticeably absent in 410.

The plan administrator is correct. You have not terminated employment which would (presumably) allow you to receive a distribution. Also, under the "successor plan" rule the "old" 401(k) plan cannot be terminated and its assets distributed. The employers options are to either leave the old plan as a frozen plan or merge the old plan into the new plan. However, allowing distributions to participants under age 59 1/2 of amounts deferred into the plan is not an option.

Also Kocack I recall that the LRM's had the 30/90 provisions in them. That is why you may see those provisions in prototype plans.

2m--I am not sure I agree, but I do agree that the language is a bit ambiguous. By its terms, the provisions of 2000-3 only change the "content' requirement in Section V.C.1. of 98-52 and not the timing requirement in V.C.2. 2000-3 provides in relevant part. For purposes of the preceding sentence, in applying the content requirement of section V.C.1 of Notice 98-52: (1) Instead of stating the amount of the safe harbor nonelective contribution to be made under the plan, the notice given to eligible employees before the beginning of the plan year must provide that (a) the plan may be amended during the plan year to provide that the employer will make a safe harbor nonelective contribution of at least 3 percent to the plan for the plan year, and (B) if the plan is so amended, a supplemental notice will be given to eligible employees 30 days prior to the last day of the plan year informing them of such an amendment, and (2) A supplemental notice must be provided to all eligible employees no later than 30 days prior to the last day of the plan year stating that a 3 percent safe harbor nonelective contribution will be made for the plan year. For administrative convenience, the supplemental notice may be provided separately or as part of the safe harbor notice for the following plan year. Then the example given indicates that the "maybe" notice still must be given within the time described in V.C.2. of 98-52 Thus, for example, a plan sponsor that maintains a calendar-year 401(k) plan using the current year ADP testing method and that wishes to have the flexibility to decide toward the end of a plan year whether or not to adopt the 401(k) safe harbor nonelective contribution method with respect to its 401(k) plan could achieve that flexibility by providing the initial notice described in section V.C. of Notice 98-52 (as modified by this Q&A-1, and Q&A-7 and Q&A-8 of this notice) before the beginning of the plan year, as provided under section V.C.2. of Notice 98-52 (as modified by Q&A-9 of this notice). ...

There is one PLR regarding demutalization proceeds distributed to a terminated DB plan---200214031. Sal Tripodi has an interesting discussion of this in his 2002 ASPA outline (at page 152) that can be found here: http://www.aspa.org/archivepages/conferenc...odi-closing.pdf He goes into such "practical" things as 1099R implications "reactivating" a 5500 obligation etc.

Principal did demutualize. Old Banker's Life annuity contracts were part of this demutalization.

Assume that a profit sharing plan has allowed an in-service distribution when it is not provided in the document. The in-service distribution would have passed the "seasoned money" or five years of participation requirement if the provision had been in the document. Also assume that it is an operational defect that can be corrected under SCP. What do you think of this correction method? 1) Participant repays in-service distribuiton plus earnings. 2) Plan is then amended to provide for in-service distributions prospectively. 3) Participant takes out his total account balance in an in-service distribution. 4) Participant rolls all amounts other than the repayment amount into an IRA on a non-taxable basis. 5) Participant takes the repayment amount directly as a non-taxable distribution because his repayment was done with after-tax dollars and so he is entitled to a basis(or investment in contract) in this amount. Does this work?

By "expenses" they are not referring to the benefit itself, what they are referring to are the attorneys fees for drafting the amendment and the actuarial fees for determining whether the plan can afford it. As you can imagine, this is especially tricky for service providers. Let's say that the trustees of a multiemployer plan ask you to do a benfits study and price out various benefit increases. If any amendment to adopt the benefits increase is the trustees acting as settlor, then your fees cannot come out of the Plan without it being a fiducairy breach and PT. If you can finesse the meeting where you have to tell the Trustees that either the union or the employers (or both) have to pay your fees (rather than the plan), then you are wasting your skills as an actuary and should be in the State Department.

Keith a cautious yes... The settlor/fiduciary distinction means that if you are acting as a settlor you cannot be sued for fiduciary breach (because you are not a fiduciary). Thus, if the Trustees are acting as settlors in amending the Plan, they cannot be sued for fidicuary breach for adopting the amendment. DOL has taken a long time to acknowledge the settlor/fiduciary distinction for multiemployer plan trustees when they amend a plan. It gave a luke waarm endorsement to this proposition in certain specified circumstances in Field Assitance Bulletin 2002-2 which can be found here: http://www.dol.gov/pwba/regs/fab_2002-2.html The bulletin also includes DOL's "take" on Walling. Once a Plan is amended the Trustees then have a fiduciary duty to abide by the terms of the Plan under ERISA Section 404(a)(1)(D). However that duty is caveated by the condition that they can only follow the amendment if it is "consistent with the terms" of ERISA title I (including prudence). Then the quesiton is, are you back at square one? I don't know the answer, but frankly, I think there is a distinction in this respect to pure "plan design" issues-- which this falls under --and amendments that would infringe on traditional "fiduciary functions" such as an amendment to the Plan directing the trustee to invest 100% of assets in a speculative commodities future. You may want to look at the discussion on the Board that is currently ongoing with regard to "forcing a participant to sell investments."

For anyone who is interested, this is the string cite from DOL's ENRON brief about the duty to ingore the terms of the Plan where the Plan's provisions would otherwise be contrary to Title I (including general prudence). ERISA § 404(a)(1)(D) required Defendants to follow the terms of the plan document only "insofar as such documents and instruments are consistent with the provisions of [title I] and title IV" of ERISA. 29 U.S.C. § 1104(a)(1)(D). The Defendants had a duty under § 404(a)(1)(D) to ignore the terms of the plan document where those terms required them to act imprudently in violation of ERISA § 404(a)(1)(B). 29 U.S.C. § 1104(a)(1)(B). Central States, 472 U.S. at 568 ("trust documents cannot excuse trustees from their duties under ERISA"). The Fifth Circuit and other courts have uniformly held that ESOP fiduciaries must act prudently and solely in the interest of the participants and beneficiaries in deciding whether to purchase or retain employer securities despite plan language requiring the ESOP to purchase employer securities. See, e.g., Donovan v. Cunningham, 716 F.2d 1455, 1467 (5th Cir. 1983), cert. denied, 467 U.S. 1251 (1984) ("Though freed by Section 408 from the prohibited transaction rules, ESOP fiduciaries remain subject to the general requirements of Section 404"); Kuper v. Iovenko, 66 F.3d 1447, 1457 (6th Cir. 1995); Moench v. Robertson, 62 F.3d 553, 569 (3rd Cir. 1995), cert. denied, 516 U.S. 1115 (1996); Fink v. National Sav. Bank & Trust Co., 772 F.2d 951 (D.C. Cir. 1985) (ERISA's prudence and loyalty requirements apply to all investment decisions made by employee benefit plans, including those made by plans that may invest 100% of their assets in employer stock); Eaves v. Penn, 587 F.2d 453, 459-60 (10th Cir. 1978) ("While an ESOP fiduciary may be released from certain per se violations on investments in employer securities . . . in making an investment decision of whether or not a plan's assets should be invested in employer securities, an ESOP fiduciary, just as fiduciaries of other plans, is governed by the 'solely in the interest' and 'prudence' tests of §§ 404(a)(1)(A) and (B)"); Canale v. Yegan, 789 F. Supp. 147, 154 (D.N.J. 1992); Ershick v. Greb X-Ray, 705 F. Supp. 1482, 1487 (D. Kan. 1989), aff'd, 948 F.2d 660 (10th Cir. 1991) (plan terms authorizing ESOP fiduciary to invest up to 100% of plan assets in employer stock could be followed only if the investment decision was prudent); Central Trust Co. v. American Avents Corp., 771 F. Supp. 871, 874-76 (S.D. Ohio 1989) (ESOP trustee properly ignored pass-through voting provisions that would have prevented sale of an ESOP's stock where the trustee determined that such a sale would be prudent). This same rule applies to plans that are not ESOPs. Even if the plan document requires an investment, the fiduciaries must override it if it violates ERISA. Laborer's Nat'l Pension Fund v. Northern Trust Quantitative Advisors, Inc., 173 F.3d 313, 322 (5th Cir.) (investment manager must disregard plan if investing plan assets as required by plan would violate its duty of prudence), cert. denied, 528 U.S. 978 (1999); In re Ikon Office Solutions, Inc. Sec Litig, 86 F.Supp. 481, 492-493 (E.D. Pa. 2000); Arakelian v. National Western Life Ins. Co., 680 F. Supp. 400, 405-406 (D.D.C. 1987); see also Opinion Letter No. 90-05A, 1990 WL 172964, at * 3 (Mar. 29, 1990) (despite plan provisions to contrary, it is responsibility of fiduciaries to determine, based on all the relevant facts and circumstances, the prudence of investing large percentage of plan assets in qualifying employer securities); Opinion Letter No. 83-6A, 1983 WL 22495, at *1-*2 (Jan. 24, 1983) (same).

Of course you are right Blinky--I was focused on the 404 and 415 distinction and typed without sitting down and going through the earned income calculation.

While the 415 limit is $40K, you are still left with a 404 deductibility limit of 25% of comp (self employment income adjusted) plus the deferrals or approximately $22,500 in your example.

MJB-- I guess you missed the "As further evidence of the DOL's position ..." part of my prior post. DOL's position on this, I believe, has remained consistent. 404(a)(1)(D) still provides that the fiduciary duty to abide by a plan document only applies as long as the document is "consistent with" the provisions of Title I. What this actually means may be left up to the courts, but there appears to be little dobut about DOL's positon.

As to further evidence of DOL's position, you might want to look at Footnote 27 in the preamble to the 404© regulations where DOL states that "the act of limiiting or designating investment options" is a fiduicary function "whether achieved through fiduciary designation or express plan language..."

Again, I am not sure that Deak is good law if it is premised on the assumption that trustees of a multiemployer plan, in amending a plan, are acting as fiduciaries. You might want to look at Walling v. Brady 125 F.3d 114 (3d Cir. 1997) out ouf your own Circuit where the Court held that the trustees of a multiemployer plan are not acting as fiduciaries when they amend the plan. Also do a search on benefits link. In the last month the DOL published a letter that set out DOL's analysis of the settlor/fiduciary roles of multiemployer trustees when they act to amend a plan.

The first part is in 2000-20. The second part regarding "in conjuction with the adoption" was in the employee plan news (I believe last year). Also this exact language quoted in my prior post is in the IRS CPE training materials for agents regarding the remedial amendment period that can be found here: http://www.irs.gov/pub/irs-tege/epch902.pdf

The IRS has stated that. An M&P or volume submitter plan that has been amended in a way that would cause the plan to be treated as individually designed is still eligible for the extended GUST remedial amendment period under Section 19 of Rev. Proc. 2000-20, regardless of the nature of the modification or whether the modification was adopted subsequent to, or in conjunction with, the initial adoption of the M&P or volume submitter plan. How far can this go? Let's say that you have a volume submtter plan as a "base" for your TRA '86 restatement and there are thirty changes within the document that don't fit in the volume submitter? The document does not use an adoption agreement-- so all of these changes are not done with some kind of "snap off" amendment but rather are done internally in the document. The document was orignially filed as an individually designed plan with a 5300? The volume submitter plan of the practitioner is entitled to the extended remedial amendment period. Is the employer who adopted this "inidividually designed" plan still entitled to the extended GUST remedial amendment period?