KJohnson

I agree that the 401(k) rules clearly only apply to hardship distributions for elective deferral accounts. My point was that you have no real guidance of what would constitute a hardship for purposess of profit sharing and match accounts. Without such guidance, I think you could always feel comfortable in adopting in your plan the 401(k) hardship events as events which also allow for distribuitons from the profit sharing and match portions of the Plan (This also provides some simplicity in administration because there is only one set of hardship "events" for all of a Paricpant's accounts in the plan.) That said, I have seen prototypes where an employer can choose to 1)apply the safe harbor 401(k) definition of hardshp to such distributions 2)choose a broader but specific definition contained in the prototype document which often includes things such as funeral expenses for a family member, uninsured casualty losses etc. or 3) submit a separate addendum where the employer crafts its own definition of hardship. Where I have always felt uncomfortable, however, is with language such as "an event which the Plan Administrator determines to be a hardship". If the employer wants such an option, I have encouraged them to add the five years of participation or two year seasoned money rule as an additional condition to the distribution in the event that the IRS disagrees with the Plan Administrator on what constitutes a hardship.

I am with QDROphile. I believe that you can clearly have hardship distributions from both profit sharing and match accounts. I think the only thing that is "on edge" is the definition of hardship for these distribuitons. I always thought that you really ran no risk if you mirrored the safe harbor 401(k) hardship events for profit sharing and match hardship distributions. However, if you want to get more "daring" on what constitutes a hardship (e.g. uninsured casualty loss) then simply put the provisions in you plan, submit them to the IRS and flag them in your cover letter.

I just answered my own question-- Announcement 2001-18 took away this percieved loophole: "For this purpose, distributions for calendar year 2001 do not include a distribution that is required to be made by April 1, 2001, for calendar year 2000, such as for an IRA owner or retired qualified plan participant who attains age 70 1/2 in 2000."

If a calendar year Plan uses prior year testing for 2001 and wants to switch to current year in 2002 (and assuming no further extension of the remedial amendment period) what is the deadline for an amendment to change the method for 2002--12/31/01 or 12/31/02?

An individual who turned 70 1/2 in 2000 is preparing to take his first required minimum distribution sometime before April 1, 2001. Under the new proposed regs, however, 2000 remains the individuals "distribution calendar year" as defined in 1.401(a)(9)-5 A-1(B). The new proposed regs provide that "For determining required minimum distribuitons for calendar year 2001, taxpayers may rely on these proposed regulations..." My reading would be that the April 1, 2001 distribution for someone turnding age 70 1/2 in 2000 would still be a "required minimum distribution for calendar year 2001" even though it is based on a "distribution calendar year" of 2000? Do you think that I can apply the new regs in this situation?

You basically have to give the 3% to each person who is eligible to defer into the Plan. The 3% can be based on a full year of compensation or only the portion of the year while the employee is a participant. IRS notice 98-52 (which was the initial guidance on safe-harbor plans) provides that "an employer may limit the period used to determine compensation for a plan year to that portion of the plan year in which the employee is an eligible employee, provided that this limit is applied unformly to all eligible employees under the plan for the plan year."

I guess the question is "who makes the call" on whether it is a repayment or a rollover without a specific plan provision. If the money comes in the "form" of a rollover, I think that without a specific plan provision there may be a problem with automatically treating a portion of it as a repayment. However, if the employee and plan agree that $x are being placed into the account(s) from which you received a distribution and $x are being placed in a rollover account, then at least you have resolved any misunderstanding that may result.

Assuming that the repayment does not have to be with post-tax doallars, then I guess the prior posts had the right idea. Make the employee specify that a portion of the rollover is actually a repayment and inform the participant at the time of the rollover of the distinction between the two. This should provide you with some protection if the employee then ever wants to take a distribuiton from the rollover account. In cetain instances plan document issues might preclude such treatment, but if the Plan is silent this might be a reasonable way to harmonize the repayment and rollover provisions of the plan.

I guess I am confused now. When was the money taxed? If it was rolled from one Plan to another Plan and rolled back to the original Plan upon reemployment it was never taxed. Are you saying that the final "roll" would have to be segregated between a repayment amount (taxable) and a rollover amount (non-taxable). This puts the "away" Plan in a bind. How does it know that part of the requested rollover is actually a repayment? What is the withholding obligation of the "away Plan" on the repayment portion? I think that the best result would be that no taxable event takes place and the Plan simply separates the "rollover" portion from the "repayment" portion. This distinction might be "invisible" if the Plan does not have more liberal distribution options for rollover accounts. However if it does, I wonder what a Court would say if you refused to let a participant have a distribution of a potion of an amount tendered as a rollover saying that it was actually a repayment? Also, I don't know of any authority for this type of segregation. Finally, if prior posts are correct and the repayment has to be with after-tax dollars this would not work? But I am not aware of any authority in 1.411(a)(7) that it has to be with after tax dollars unless you think that a rollover is not a repayment by "the employee."

My reaction would be no based on the "type" of money. Say this is a money purchase pension plan where, while you cannot receive a "normal" in-service distribuiton, you can receive a distribution of your rollover account (assuming the plan provides for such)at any time. Could a participant rollover the money into the Plan from a conduit IRA, claim repayment and restoration of the forfeiture, and the very next month (or day) take a distribuiton of his rollover account balance? Such a result would seem contrary to the whole concept of repayment or restoration. This transaction would really have no economic substance. I like the idea of "segregating" the rollover into two amounts, a repayment amount and a rollover amount but I don't have any cites that would support such treatment.

Not to complicate things, but here is an excerpt from a long article that Noel C. Ice published on benefitslink today on the new proposed regs. His view is, apparently, that beneficiary designations, without more, do create separate accounts. While I won't speak for him, it seems that from his comments he would not think that you need a PLR. 9.2 Separate Accounts. Q&A 2 tells us that if benefits under an IRA or defined contribution plan are divided into separate accounts (for which you may always substitute the term “segregated share” in the case of a defined benefit plan), then the MRD rules apply separately with respect to each separate account. So what exactly is a separate account? Q&A 3 tells us that “a separate account in an individual account is a portion of an employee's benefit determined by an acceptable separate accounting including allocating investment gains and losses, and contributions and forfeitures, on a pro rata basis in a reasonable and consistent matter between such portion and any other benefits.” So, how hard is that? If P designates A, B and C as death beneficiaries, do we have separate accounts without more? Of course we do, unless you can tell me that what B takes out will directly reduce what A and C get. Think about it. Is there any state in the union where if B gets to the bank first and says, give me more than one-third, the bank will give it to him, without recourse? If B takes one-third and A and C do nothing, will C continue to be allocated a share of gains and losses? Of course not. As far as I am concerned, it is very hard not to have a separate account. Perhaps the safest course would be to have the account physically divided after P’s death, but this really should not be necessary. What if P’s beneficiary designation says give D $100, and divide the rest between A, B and C? I think that this too creates separate accounts, but some would object that it does not, since D would not ordinarily be entitled to investment gains and losses. My own feeling it that this is quibbling (but, to be safe, I would concur in recommending against doing it this way). I think that the phrase “including allocating investment gains and losses” modifies “acceptable separate accounting,” as does “contributions and forfeitures” and that if allocating gains on pecuniary gifts is not an acceptable accounting practice, then one is not required to allocate them. In other words, I don’t think that allocating gains is a separate requirement applicable to pecuniary gifts, any more than a provision for allocating forfeitures is required if there cannot be any.

I think you've got it right (at least as I understand the proposed regulations).

In the PLRs dited above there was only one IRA, with three primary beneficiaries of the single IRA. The beneficiares were then allowed after death and post-RBD to divide the IRA three ways with each beneficiary using their own life expectancy. I had always thought that using separate IRAs with separate beneficiaries was the way to go, but these PLRs call into question whether that is really required. Then again, they are only PLRs. I did go back and look at the proposed regs and it seems like the separate account rule only needs to be met at the end of the year following the year of death in the case of distributions made prior to RBD. However, for death distributions after RBD it appears that the separate account rule still must be satisfied at the RBD. 1.409(a)-8 Q&A 2. I don't think that 1.409(a)-8 Q&A 3 provides any more guidance as to what constitutes a "separate account" beyond what was in the prior proposed regulations. So, I guess I am back to where I was before. Unless you are confident that that there were "separate accounts" as of the required beginning date or unless you want to get a PLR, I would use the shortest life expectancy even after the IRA is "divided"

I thought that under the old regs 1.401(a)(9)-1 Q&A H-2 the separate account rule also applied to distributions to beneficiaries for death after a participant's required beginning date as long as the accounts were separate as of the required beginning date. Then in PLRs 2000-52044, 2000-52043, 2000-52042 the IRS seemed to imply that simply naming separate beneficiaries as of the RBD was good enough to satisfy the separate account rule as long as each beneficiary received a proportianate share of gains or losses. In these PLRs the holder of the IRA was 72 or 73 at the time of her death in 1999 and she had begun receiving required minimum distributions. It does not appear that she had inherited the IRA (or at least not recently) since she named her beneficiares back in 1991 (before her RBD).

I thought there had to be a unity between the two. 1.410(B)(3)(a)(2) says that an employee is benefiting under the 401(m) portion of the plan for 410(B) purposes only if the employee is an "eligible employee" under 1.401(m)-1(f)(4). Under 401(m) you only consider "eligible employees" in your ACP test. Therefore I would think they would either have to be benefiting and in ACP or not benefiting and out. Based on the definition of "eliglble employee" I would think that it would be the former. The employees would be "eligible to receive" a match even though one was not made for the year. However, I think arguments could be made for going the other way.

Any comments on this? Most hardship forms that I have seen for 401(k) Plans that are subject to QJSA rules have a fairly cursory spousal consent section of no more than one or two lines. Is it the practice to go ahead and send the whole QJSA notice package with such a request for a hardship distribution explaining the QJSA provisions, all optional forms of benefits under the plan and their relative values and the right to 30 days to consider etc?

You can defintely divide it into two IRAs but put you need to keep each IRA in the name of XXX, deceased (father), for the benefit of YYYY (son 1), and XXX deceased (father) for the benefit of ZZZ (son 2). Whether they can each use their own life expectancy is a closer question. The regs require that you must use the life expectancy of the eldest unless there were "separate accounts" in the father's IRA for each beneficiary. However, in a private letter ruling late last year, the IRS appeared to take a fairly broad view of what could consitutute separate accounts. You can't rely on a PLR so unless you are confident that there were separate accounts or unless you want to get your own PLR, I would use the life expectancy of the eldest for both. I don't think the new proposed regulations alter this analysis, but I have not gone back and looked at them on this point.

I think you are misconstruing the reg. What Q&A 3 (and the statute) state is that unless you provide that the spouse is a 100% beneficiary in a DC plan, then you must comply with the 401(a)(11) and the QPSA/QJSA requirements. However, look at Q&A 32 and 33 where it talks about waiving the "spousal benefit" for plans not subject to 401(a)(11) but speaks of waiving the "QPSA" for plans subject to 401(a)(11). Then look at Q&A 20 where a QPSA can be as little as 50% of the account balance. Thus under a non-401(a)(11) plan you need spousal consent if you seek to name a beneficiary for any portion of the "spousal benefit" (i.e. the entire account balance). However under a 401(a)(11) plan you only need sposal consent if you seek to name a beneficiary for a portion of the QPSA (i.e. as little as 50% of the account balance). You can name anyone you want as a beneficiary without consent to the portion of the account not subject to the QPSA. Also, thanks Wessex for clarifying my clarification.

For many 401(k) plans there is no requirement for a spousal signature or consent when an amount is distributed from the plan (whether or not in the form of a rollover). While in the plan your husband was required to name you as the 100% beneficiary of his account unless you agreed otherwise. However, once he is eligible for a distribution, your consent was not required to enable him to "roll" the account over into an IRA. There is an exception if the 401(k) plan was subject to the "joint and survivor" requirements. In that case your husband was required to obtain your consent. You should try and get a copy of the Plan's summary plan description or SPD to determine whether the joint and survivor rules were applicable to his 401(k) plan.

APPLEBY JUST FOR CLARIFICATION ON YOUR FIRST COMMENT: IF A PLAN IS NOT SUBJECT TO 401(a)(11)THEN SPOUSE MUST BE 100% BENEFICIARY ABSENT CONSENT BY THE SPOUSE TO ANOTHER BENEFICIARY. HOWEVER, IF PLAN IS SUBJECT TO 401(a)(11), THEN THE CODE AND ERISA ONLY MANDATE THAT THE SPOUSE BE A BENEFICIARY OF 50% OF THE ACCOUNT BALANCE. (OF COURSE THE SPOUSE'S 50% IS ALSO SUBJECT TO DESIGNATION OF ANOTHER BENEFICIARY WITH THE SPOUSE'S CONSENT.) SO IF FOR SOME REASON THE PLAN DOES CONTAIN J&S PROVISIONS SHE COULD NAME HER SON AS A 50% BENEFICIARY WITHOUT CONSENT.

I still think all of this still depends on when a participant is entitled to an "allocation" for the year. If there is a 500 hour requirement in the plan for an allocation and you terminate prior to anyone accruing 500 hours no contribution is owed. If you terminate afterword, you owe a contribution for anyone who has earned 500 hours based on comp up through the termination. If there is no hours requirement at all, then a contribution must be made based on comp earned through the date of the termination of the Plan. The following is from the Reish and Luftman Technical Tips column (as reprinted from the 1998 ASPA conference Q&As with the IRS). Tip 16: The following question and answer were from the IRS Q&A Session at the 1998 ASPA Annual Conference: Revenue Ruling 79-237 and PLRs 8329098 and 9109067 state the IRS position that amendments (with proper notice) prior to a money purchase pension plan's contribution Allocation Date can reduce or eliminate the contribution requirement for the Plan Year. The positions taken in the Revenue Ruling and PLRs do not depend on the Plan having a separate 1,000 hour and last day contribution eligibility requirement. While some standardized prototypes have, in essence, a daily contribution Allocation Date, others have a contribution Allocation Date as of the last day of the Plan year. Please confirm that the IRS position is still that amendments (with proper notice) prior to a money purchase pension plan's contribution Allocation Date can reduce or eliminate the contribution requirement for the Plan Year. If not, please state the IRS revenue ruling which changed the position taken in Revenue Ruling 79-237. IRS Response: The position of the Service can be more accurately stated as holding that the Allocation Date is the date when the requirements for the allocation have been satisfied, not necessarily the specific "Allocation Date" stated in the Plan document. We believe proposed Reg. 1.412(B)-4©(3) and (4) should be examined for a better understanding of how we see the definition of Allocation Date. Comment: The cited proposed regulations states: "(3) Due date of contributions. For the purposes of paragraphs ©(1) and (2) of this section, a contribution is due as of the earlier of-- (i) The date specified in the plan, or (ii) The date as of which the contribution is required to be allocated. (4) Date for allocation of contribution. For purposes of paragraph ©(3)(ii) of this section, a contributions is required to be allocated as of a date if all the requirements for the allocation have been satisfied as of that date." For example, a money purchase pension plan which requires only that a participant work 1,000 hours to receive an allocation cannot be amended to reduce the contribution requirement once a participant has worked 1,000 hours during the plan year. Technical Tip 13: The following question and answer were from the IRS Q&A Session at the 1998 ASPA Annual Conference: A calendar year 10% MP [that is, money purchase pension] plan has no last day employment condition, no hours requirement for receiving a contribution, and defines compensation as compensation paid during the plan year. It terminates on 6/30/98 with all participants having accrued 1,000 hours of service in the plan year to that date. On the same day, the sole NHCE [nonhighly compensated employee] terminates employment. The sole HCE [highly compensated employee] continues in employment through the end of the year and beyond. The participating NHCE had $10K in compensation to the date of termination; the participating HCE had $50K in comp to date of plan termination and a total of $100K in compensation for the entire plan year. Is the contribution required to satisfy 411(d)(6) (and 412): a) $0 [applying RR 79-237]; b) $6,000 counting compensation to date of plan termination; or c) $11,000 counting all compensation for all participants for the entire plan year. IRS Response: B is the correct answer.

You can get a determination letter for the Plan. You just can't use the opinion letter for the prototype for a reduced user fee

You should check your state's rules on continuation coverage (as well as conversion as Kip suggested). Here is a good web site sponsored by Georgetown University which gives a nice description of continuation/conversion and coverage rights under various state laws. It also gives telpehone numbers of state insurnace commissioners and the like. http://www.healthinsuranceinfo.net/ (I am not sure if they are updating this site for state legislative changes)

You can have a multiple employer 401(k) plan, you simply cannot get a opinion letter for a prototype document see Revenue Procedure 2000-20. That said, I have seen regional prototypes that have a multiple employer addendum as an option. I think the only implication is that you don't get the reduced user fee for a prototype document but have to pay the ordinary fee for a multiple employer plan which varies with the number of adopting employers.

I think you are stuck for 2000. Since this is a MPPP you are subject to minimum funding standards which basically means you are obligated to put in whatever the plan says is required. Not making the 2000 contribution would subject you to an excise tax under section 4971 of the Code. This excise tax can grow to 100% of the defficiency. In addition a "retroactive" termination would be a "cut-back" in benefits that is not allowed under the Code or ERISA. Whether you are stuck for 2001 depends on the terms of the Plan and whether someone has "accrued" a benefit for the year and the extent of the accrual. Under a standarized prototype the 3/15 date may be a guesstimate on the date when someone would have accrued 500 hours and be entitled to a contribution for the year. Finally, you need to watch out for 204(h) notice issues. I believe that practitioners are divided on whether a 204(h) notice is required for a termination. A 204(h) notice basically means you have to give "advance notice" of any reduction in benefit accruals.