ccassetty

I would do a little more digging first. Why didn't the participants complete the forms before 1/4/04? Lack of opportunity or the participants just didn't get around to it? Was the SIMPLE plan amended to the 401(k) or is the 401(k) a totally new plan? Where the employees told that their SIMPLE plan elections would continue to be used unless they elected otherwise? Based on what we know so far, the amounts designated on the forms signed prior to 1/4/04 should definitely have been the basis for the deferral amounts for pay period ending 1/4/04. Although there is usually some sort of deadline built into the forms (i.e., they must be received no later than 5 business days before the end of the pay period to be effective for that pay period) The ones signed after that date would not be effective until the pay period after their signature. These are the ones that could create problems, depending on the answers to the above questions. Whatever the answers to the above, clearly there are issues about withholding the correct deferral amounts. Since it was discovered pretty quickly, I don't think there is a major problem. At minimum, the employer should communicate to the employees that the correct deferral elections will be used going forward and take steps to make sure that this doesn't happen again. If the differences are large enough, the employer could consider allowing the employees to make a special election to adjust their deferrals going forward as a result of the incorrect amounts being withheld. I don't believe the employer needs to "make up" any thing.

Yep, that's what it says. Never mind!

I disagree. The purpose of the notice to employees is to enable them to make appropriate decisions about deferrals. It is required to accurately reflect what safe harbor contribution will be made. If the notice said 3% safe harbor, meaning they would get the contribution whether or not they made or increased their deferrals, they were mislead. Instead, they got the match, which while it meets the formula for the safe harbor, didn't meet the notice requirements. The employees were not given the opportunity to increase their deferrals to make the most of the match. If the notice requirements were not met, I don't believe you have a safe harbor. In fact, I'm wondering if the employer is still liable for the 3% safe harbor contribution unless the notice given was a "maybe" notice.

Always sound advice. With all the mergers and acquisitions going on, you never know when you might be working with (or for) someone you never expected to see again. I've been seeing an increase of job postings, but I haven't seen any indication that starting salaries are improving.

The first thing you need to do is read through the plan's loan program, plan document, and the loan paperwork of the participant to see how, if at all, this is addressed. You need to use whatever methodology is given there. Absent any guidance, here is one way of doing it. The interest is calculated only through the default date, not through the end of the year and is based on the interest rate being used by the loan. (unless you are talking about someone who is away on military duty under USERRA, in which case the interest rate is capped at 6%). If the loan document doesn't say otherwise, I would base the compounding on the payment frequency. Example: Loan balance as of last payment received: $2,000 as of 4/15/03 Payments made twice monthly, on the 1st and 15th. Annual interest rate: 7% Date of default (no later than the end of the calendar quarter following the calendar quarter or as specified in the loan document, if sooner): 9/30/03 Interest per payment period is .07 divided by 24 payments per year = .002917 (if the loan documentation provides the interest rate per period, use that) Payment periods from last payment through date of default: 5 months (May-Sept) X 2 payments per month = 10 + 1 for the last half of April = 11 Lacking a fancy calculator, I just put 1.002917 into my constant in my calculator and then X 2,000 and hit the "=" key 11 times. This gives a loan balance of $2,065.12 for the 1099-R. If the participant ever asks for another loan, you will need to continue this calculation of interest from date of default through the date of the requested loan in order to correctly calculate the new maximum loan amount. There probably are other methods out there, but I think this works as well as any.

ljr I know you are right about getting a job, even if it pays less than what I would like. However, I'm wondering how potential employers would view someone who is willing to settle for substantially less than what they were previously making. Would they think the person is settling for that job to get by for now and would be looking again immediately hoping to find something that pays better? Would they wonder what deep dark secrets the person might be hiding about past employment that they can't get a better job? I know I would be suspisious if I were doing the hiring. Hence the need to get a good idea of my worth in the current job market so I can get a better idea of what might be too large a drop. Twitch I'm not having any luck with the Monster.com salary calculator. Can you give me any hints of what you did? Thanks!

One of the things that I would be concerned about is not really a plan issue. How are the faithful employees who remain going to feel about having to wait until year end to receive their contributions when they see terminating employees receiving their contributions right away? Could be a can of worms the employer is opening here. I could see people wanting to "terminate" just to get the contribution then get rehired. I could see long term employees being upset and productivity going down. I think there are bigger issues here than making life easier for distributions. What you are doing is rewarding people who terminate and in business 101 you learn that you always get what you reward. A better solution, since the plan has no last day rule and the employer is inclined to be generous to terminating employees, is to eliminate the 1,000 hours rule and just start making contributions payroll by payroll. This accomplishes the employer's wish to simplify distributions but doesn't overly benefit terminating employees compared to those who stay. From a plan standpoint, though, I think it could be done as you describe.

See 1.401(k)-1(f)(4), it says that the distributions satisfy the refund rules only if the refund is made after the end of the plan year. I don't see why you would want to do this anyway. Seems a lot more messy to me. Anyway, doing the test prior to year end has a fatal flaw, it's based on assumptions. If the assumptions are wrong, you come up with a different answer when the test is finally completed after the end of the year. What then? If you refunded too much, you have made a distribution without a distributable event. If you refunded too little, you still have to make a refund. Probably why the regs specifically prohibit it.

After mulling the original question over in light of the other posts, I have to admit that I am not as sure of my original assessment as I was before, but I am still not convinced that the participant is eligible retroactively. I still think that the 12 month requirement is the key. No, he doesn't have to be there on the last day of that 12 month period to meet the eligibility requirements, and if he were to be reemployed before the end of the year, he would be eligible for the retroactive entry to 1/1/03 upon rehire. This participant was employed on 1/1/03 but was not eligible to enter on that date. He was not eligible to enter the plan until the completion of 1,000 hours in a 12 month period. He therefore was not eligible to enter the plan (regardless that participation would be effective retroactively to 1/1/03) until 11/15/03 after the completion of the 12 month computation period. On 11/15/03 he was not there, how can he come into the plan? He was not there, as in he was not there at the time he was eligible to come into the plan, not in the sense that he wasn't there on the last day of the computation period. Maybe I'm just being stubborn, but I don't believe a retroactive entry date gives a terminated participant the right to join the plan. Gee, I wonder why I hate retroactive entry dates. Carolyn

You will need to look very closely at the plan document to determine exactly how eligibility is to be determined, but most plan documents provide for a year of service (12 month period) in which the employee has completed 1,000 hours. Unlike vesting, where the 1,000 hours alone is enough to get another year of service without regard to how many months the employee has actually worked, eligibility for plan entry generally requires the completion of the full number of months of service, in this case 12. I don't believe the participant would be eligible because he/she terminated before the anniversary of date of employment. However, you must look closely at the plan document to be certain of the wording. It is possible that the full 12 months is not required. Look at it this way. A full time employee will generally make the 1,000 hours of service requirement in about 6 months. But in a plan with quarterly entry and a one year/1,000 hour eligibility, you wouldn't bring the employee into the plan at the next quarterly entry date after completing 1,000 hours and 6 months of service, the employee would have to wait until after he/she had completed the full 12 months of service as well. You didn't specify, but I would hope that this is not a 401(k) plan with retroactive entry.

As someone who is looking for a new position, it is clear that it is an "employer's market" with many more candidates than jobs available right now. It seems to me that employers are reducing starting salaries by quite a bit to take advantage of this. Good for employers, bad for professionals who have been in the business for many, many years. Would anyone care to comment? Is there any reliable source out there that can provide information that I can use to determine a reasonable salary expectation in the current market? I haven't been able to find anything for qualified retirement plan professionals. Thanks to all who respond. Carolyn

I assume the participant really wants to keep the policy so I believe your solution of having the participant purchase the life insurance from plan A will work and is the best solution, if he can come up with the money. One other alternative is available that will allow the participant to keep some of the life insurance coverage without taxation of the cash value if he can't come up with $250,000 cash. This involves plan A taking a loan for the taxable amount of the cash value (cash value less accumulated PS-58 costs), rolling the the loan proceeds to the IRA then changing the ownership on the insurance policy to the participant. The drawback is that the death benefit provided by the policy is reduced by the outstanding loan amount, which, if not paid back will continue to grow with interest, continually reducing the face amount of the policy. Carolyn

Look on the DOL Web site and enter USERRA in the search. I can't tell you exactly where, but somewhere in all of that information it verifies that continued accrual of vacation days is not required. However, this is still confusing to me. Let's say the company has a policy of providing two weeks of vacation to employees every January 1. Let's say the employee leaves in mid 2003 and doesn't return until mid 2005. I have no problem with not giving the employee any accrued vacation for 2004 but what about 2005? Just because the employee wasn't there on January 1, does that mean no vacation for 2005 for the rest of the year after his/her return? Since the employee is basically to be made whole upon their return and the absence for military duty is to be counted as employment with the employer for seniority, I'm not sure this works. Anyway, when in doubt, contact your local DOL VETS office for assistance.

First of all check your plan document. Does it allow the plan to accept rollovers? Does it accept rollovers from any employee or only those who have the met the plan's eligibility requirements. You have to be certain that the rollover can be accepted by the plan. If the participant is able to rollover the money into the plan, you will need to be certain that the participant completes at minimum a beneficiary designation form and an investment election form, assuming your plan is participant directed. If the participant is already making deferrals and has completed these forms previously, there is no need to have them completed again, unless it is your policy to offer the employee the option of selecting different investments for the rollover money. You will also want to check with your plan's service provider to see if they have any special forms they want completed. The participant's prior plan may require that the accepting plan (that's you) complete a form verifying that you will accept the rollover. The participant will also need information on how to have their prior plan make out the check and where to send it. You will want to verify this with your service provider, but it is usually something like Trustees of the XYZ 401(k) plan fbo John Doe. Hope this helps! Carolyn

I'm not sure there is any better guidance. It's clear from the guidance we do have that an employee must be considered to be on a leave of absence and not terminated when serving in the military. None of the guidance that I am aware of addresses the situation you describe. So, it's time for a "reasonable interpretation" of what we do know. Since the employee cannot be deemed to be terminated until he/she fails to returned to work by the applicable deadlines given in USERRA, one possible reasonable interpretation would be to allow the deferrals. As to your original question about updating the vesting schedule based on the pay being received by this employee, in looking at DOl Reg 2530.200b-2 sections (a) through (a)(2)(i)it says: Since (i) specifically says no more than 501 hours is required to be credited, that leaves the door open to credit more. So this period of absence in which the employee is being paid for military duty could be credited for vesting purposes. Either way, the document would have to allow for it. If only those on military duty are allowed to make deferrals from pay received during a leave of absence or have more than 501 hours credited, it could open the door to some BRF issues.

Have you tried your local DOL VETs office, they should be able to help you. Look here for contact information for your local office: DOL

Refunds of deferrals made within the 2 1/2 month deadline are taxable in the tax year in which the first deferrals were made for the plan year, so the answer in this case could be 2002 assuming the participant was making deferrals in 2002. You didn't ask about match refunds, but note that the rules are different. Match refunds are taxed in the calendar year ending within the plan year. So, you could have an interesting situtation with an employee who didn't start making deferrals until 2003 having to receive separate 1099-Rs, one for 2003 for the deferrals and one for 2002 for the match. There is an exception if the total of all deferral and matching contribution refunds totals less than $100 (excluding gains/losses) which allows the distribution to be taxed in the year in which it is refunded. Of course, if the refunds are made after the 2 1/2 month deadline, all monies are taxed in the year the refund is made. See Mike's suggestion to avoid the mess and wait until after the 2 1/2 month deadline.

Since I started this thread I have also spoken with someone at AIG who claims that each state has the option of going by this law or not. When I read it, it seemed to me that this would only be allowed during a transition period which has already ended. Do you read it the same way?

FYI - I found it, and it is a federal law. It was part of the Victims of Terrorism Tax Relief Act of 2001. This act imposes a 40% penalty tax on the buy out company on the transaction. So buyouts aren't forbidden, but who in their right mind would want to do it now? Thanks for responding. Carolyn

The plan will need to treat the distribution as two separate distributions. This will mean that when January rolls around, there will be two 1099R Forms. One will reflect the refund amount and the other will reflect the remaining distributable amount. If the participant did role the money to an IRA, then Tom's suggestion for the HCE to treat the amount as an IRA contribution would work. However, weather he/she decides to do this has no effect on the how the plan must handle the required refund. The participant will just have to determine if he/she is able to take the deduction for the IRA contribution since he/she was clearly a participant in a qualified plan. You should provide a letter to the rollover IRA/qualified plan provider that explains the situation so that the participant can withdraw the funds, if that is his/her preference, without being taxed twice on them.

I have a friend whose father was given a workman's compensation settlement in 1997 via an annuity. The ownership of the contract remains with the employer's workman's compensation carrier. His father did a partial buy out of the annuity for a lump sum through one of the companies that buys structures settlements. His father died about 2 years ago, and now my friend is receiving the payments which were guaranteed for 15 years. He wants to buy out the remaining payments for a lump sum, but is being told that there has since been a new law at the federal level that prevents this. The same company that did the original buy out is saying that they can't do it again because of this law but they are unable to provide a cite . Can anyone confirm or dispute this and provide a cite or cites for this? Thanks! Carolyn Cassetty

Yes, I suppose 126 lives in one state that has legalized assisted suicide doesn't constitute a "large" problem as a percentage of the population as a whole. But neither did the massacre at Columbine or the World Trade Center tragedy. I don't think percentage of population is the issue. The issue is right and wrong. The issue is, if something isn't done, it could happen to me or mine or other innocent people. The movement to legalize assisted suicide and euthenasia is growing in this country. And the time to stop it is now. Just how many people have to die to constitute a high enough percentage to where we should start worrying? Just how many states have to make it legal before those of us who see this as absolutely wrong should take action? If you want to call it unwarrented hysteria and ignore it, you certainly have that right. I will continue to try to be active as much as I can in any small way I can to try to stop this insanity before it gains a larger foot hold.

I think you have a little more research to do. Oregon has legalized assisted suicide and Vermont is thinking about legalizing it. And groups such as the Hemlock Society are pressuring for this kind of legislation throughout the country. There have been 126 physician assisted suicides in Oregon in the last 5 years and there is some evidence that this number is less than the actual number because of a querk in the way these assisted suicides must be reported. Subscribe to the free newsletter or browse through the stories at Lifenews.com for some eye opening information.

GBurns It is apparent that we have two fundamentally different views of this. The rush to allow mercy killings and assisted suicide is exactly what is leading to this kind of disregard for the innate value of the life of Terry Schivo and others like her. The point is she shouldn't be dying at all, by starvation or a "mercy killing". She has not been given the chance to even try to recover because her husband has refused to squander the 1.3 million dollar settlement he received for her care and rehabilitation on her care and rehabilitation. For all we know if she had received the rehabilitative care she should have received, she could be feeding herself by now. But rather than recognize that she is a human being who has not been given the treatment and care she deserves, all the courts see is a "vegetable" that has the "right to die." This is the mentality that the "right to die" folks are creating and it is the easy way out. If someone is dying or severely disabled, rather than put ourselves through the arduous process of keeping them comfortable and meeting their physical and emotional needs in the process, its just easier to put them out of their misery. Some day the people of this country are going to look back on this period in our history and wonder how we ever let our society become so hard hearted and cruel. And it won't be the "so called civilized and religious" who appose these mercy killings and assisted suicides that they will be condeming. Carolyn

GBurns You are right that no one wants to be kept alive artificially with ventilators and whatever else when there is no hope of recovery. In these situations it is appropriate to pull the plug and let nature take its course. However, the fear of having this kind of inappropriate, uncontrolled extension of life should not open the door to the kinds of "killing for convenience or gain" that we are seeing. Terry Schiavo could live for who knows how long and the only "artificial or extreme" measures being taken to keep her alive is feeding her. She is not in a "vegetative" state as her husband asserts, she opens her eyes and reacts to people around her. She has never been given any rehabilitative therapy to see what, if any, progress she could make towards a recovery. Now she is being sentenced to die by the cruelest method short of outright torture, being left to starve to death over the next two weeks. There is nothing "right" about it and this kind of treatment is exactly what the courts should be protecting citizens from, not aiding and abetting it. This is just BS, pardon my French. Because someone trusts a flim-flam man who takes their money, they got what they deserved and person who stole the money shouldn't be held accountable because is was their decision to trust him? Because someone chooses a physician who turns out to be grossly incompetent, they should have no recourse because they chose the physician? All those people who were misled by bogus health plans shouldn't be compensated because they chose the plan? People are misled every day. And while I agree that as adults we should be held accountable for our actions and our choices, this doesn't give someone else license to take advantage of us just because they have the ability to fast-talk or deceave someone into making a bad choice. This case should scare the living daylights out of anyone with a pulse and it should be the catalist for people in this country to start working to reverse this "worship of death as the answer" trip this country is on. If its inconvenient for us to have a baby, we kill the baby. If its inconvenient for us to care for someone, just kill them. If its too expensive to care for someone, just kill them. If we can make money off of killing human embryos, by all means. It just sickens me. Carolyn