maverick

It's Friday afternoon and my mind is fried. Since there's a 2 year wait (with 100% vesting on entry date) for the p.s. source, what vesting applies to the top heavy contrib? Yes, I know that plans have a top heavy vesting schedule, but here's why I ask: Assume the plan was not top heavy until this year, so each participant's p.s. dollars are 100% vested. Person X, who isn't eligible for a p.s. contrib, gets a top heavy contrib. Now we have to set up another source on the recordkeeping system to track top heavy contribs for everyone w/less than 2 years service? Thanks.

You could always take on an attitude similar to that displayed by one of my old Commanding Officers. The military has something called NJP, or non-juducial punishment. Basically, the CO is the judge, jury, and executioner. Just before bringing a wayward Marine in for NJP, the CO told me: "I hold a fair and impartial hearing. Now bring the guilty party in." I also heard about a guy sitting in the jury box fiddling with a mini hangman's noose. Hurry back. p.s. Something like 99% of those receiving NJP are punished.

Gilmore: Lanning from Datair said it's okay to do a restatement eff. 1/1/03. Send me a private email and I'll forward his email for your perusal. Maverick

Mr. G: Datair told us it's okay to do a GUST restatement effective 1/1/03, as long as it's signed in 2002. Guess I'll ask them to clarify, and post the answer. Signed, Confused.

I have a situation similar to Gilmore's. Calendar year plan is on a std prototype and is switching to non-std. We want to add 1,000 hours and employed on last-day provisions to the profit sharing allocation. It's way past the time to add these requirements for the 2002 plan year, so I want to make them effective 1/1/03. Our document provider said to make the restatment effective 1/1/03, but make sure the adoption agreement is signed in 2002. While that sounds like a good idea, using a 1/1/03 eff. date on a GUST restatement doesn't sound "right." What to you document gurus out there say -- GUST restatement 1/1/03 ok??? Thanks.

Mr. Powers. You have my deepest sympathies. Maverick

actuarysmith: That too. McFly

Another hassle w/separate trust numbers is when the IRS "deactivates" a TIN due to inactivity. You make a distribution under the TIN, report it on a 945 in January, then 3 months later you get an IRS letter assessing penalties and interest because the IRS posted the withholding to the employer's regular tax ID #. Maverick

I get caught up on posting deferrals we split (for brokers, banks, etc.) to the 12/31/02 reconciliation spreadsheets. That way you're not faced with a year's worth of work in January. Also, this is a good time to get distributions processed so the terms have a zero balance at year-end. While I'm at it, I like to get all the 1099-R info loaded in anticipation of printing 1099 forms in January. We don't worry about people having nothing to do -- where I work, there's always something to do. Tom

Any takers on this one? Thanks.

Situation: - 401(k) Plan with 100% vested match. - Several years ago the tpa (not me, thank God) administered the plan using an SPD that erroneously stated that the match was subject to vesting. Why they didn't follow the adoption agreement is beyond me. - For the year in question, the tpa made distributions and forfeited matching dollars to the tune of approx $6,000. - The forfeited match was used to reduce the next year's matching contribution.Someone stumbled across this during the 5500 audit (large plan). Okay, what now? I figured the forfeitures need to be "restored" and distributed to everyone who was paid out. Plus make-up interest, of course. Here's the $64,000 question: Is this a 4975 prohibited transaction like late submission of 401k deferrals (by using the forf to reduce ER matching contribution, it is deemed that the employer/party in interest took an unauthorized loan from plan assets), thus triggering a "yes" answer to line 4d of Schedule H (did the plan engage in any nonexempt transaction with any party in interet?), Schedule G (Part III), and Form 5330, Part VII [tax on prohibited transaction (Section 4975)]??? Thanks in advance for your learned responses.

I asked around at Corbel's Adv. Pension conference last month; no bright ideas for fixing this. Right or wrong, here's what I did (had the plan sponsor direct me to do): - Prepared a new amort schedule and loan note for the original loan amount. - Used the same date for the last payment, so the loan will be paid off when the original one should have been. The participant didn't have the funds to bring the payments up to date, but could afford the higher payments under the new amort. Based on a couple recent IRS audits, I feel the same way Gruegen does about the new kinder and gentler IRS. One plan was top heavy, but contributions were not made in the past two years. The firm was not in a position to make the top heavy contributions (couldn't even get a loan). The IRS allowed the keys to "remove" their 401k deferrals, thus eliminating the need for top heavy contributions. No penalty/disqualification. Go figure. Thanks for your responses. Maverick

I've learned a lot from this scholarly exchange. I now understand the double-taxation deal -- it only applies to the loan interest (paid to the plan with after-tax $$, then taxed upon distribution). Apropos of nothing (I saw that in a W.E.B. Griffin novel), another negative about loans is the up- front processing free. People are willing to pay a $150 fee to get a $1,000 loan. They'd probably get a better deal going through one of those paycheck advance places. One guy applied for a $400 loan (not approved because the minimum loan was $1,000) and had "no problem" with the $100 fee. Thanks.

Kip got it right the first time. This is an issue for the State Insurance Commissioner. If Oregon is anything like Wisconsin, I would expect them to take immediate action. Unfortunately, a lot of time has passed, so retaining an attorney may be the only way to get coveage reinstated retroactive to when you were dropped from the health plan. Maverick

R.Butler: Can you provide a link to the IRS web address that shows the current 6621(a)(2) interest rate? Thanks. Maverick

A few years ago I worked for a bank that administered its own plan, and charged participants standard trust/admin fees. The DOL came in and made them refund fees (and back interest) going back several years. Everyone who had been paid out had to be made whole as well. Fortunately, I wasn't involved with this arrangement. The head trust officer definitely liked taking care of the bank's plan, since the fees made up a large part of the trust dept's income. When the D.O.L. asked about this his answer was "oops." Maverick p.s. What Katherine said is correct, okay to administer for cost/overhead but no profit. The DOL guy said we would have to start tracking the time each bank employee spent on the bank plan in a detailed log. BTW, as soon as the auditors left, the bank started paying the fees "outside" of the plan.

Situation: - 401(k) safe harbor plan, 1/1 - 12/31 plan year - Company sold 6/02, plan terminated - Notice of elimination of s.h. 3% ER contribution provided timely My ERISA outline talks about s.h. plans and the reqr for a 12 month plan year, and mid-year elimination of the s.h. contribution. It does not specifically address a plan termination. So, in this scenario, can we still take an automatic pass on the ADP/ACP tests? Thanks. Maverick p.s. Of course, the ADP test fails miserably, and most of the people have already been paid out.

Thanks for all your responses. I'll be in Chicago Wed - Fri for Corbel's advanced pension conference, and will talk to an ERISA attorney. Lesson learned: make sure the company starts taking loan payments. Thanks again.

I believe Business Insurance lists pension admin firms once each year.

Plan loan granted w/first payment due 2/20/02. The company forgot to start payroll loan deduction payments, and it took the participant 6+ months to ask why. I think we'll be okay if the loan is paid back by the end of the payment period (3 years), but I'm wondering how to handle the approx 600 in back principal and interest. Our loan notes are worded to not allow partial payments (you either make each periodic payment, or can pay the entire loan off early) Any ideas? I know there was a post similar to this, but I could not locate it in the distributions and loans area. Thanks. Maverick

I believe it was a Baby Ruth.

I have used the SS to contact people in the past w/o much success. Has anyone out there used those services that do this for a fee? One of my takeover plans has more terminated participants than active, and I'd like to do some payouts. Thanks Maverick

It's my understanding that for the age 55 exception to apply, you must terminate employment during the year in which age 55 is attained. If you terminate while 54 (and don't turn 55 during the year of termination), then take a dist in the year you turn 55, the 10% penalty applies.

We charge a $100 set-up fee, and no annual maintenance fee. We're going to up the set-up charge soon, probably to $150. I agree with MR, we have more than $100 in charge time, probably over $150 in some cases. - Receive the app - Check to make sure that the person has enough vested $$ to support the loan amount (employer doesn't bother checking, just signs the app) - Run an amort sched - Prepare the note - Sell the funds - Cut the check - Answer participant phone calls throughout this process. - Etc., etc. Here's a good one: Last year a guy applied for a $400 loan to "purchase a vee-hickle." He was willing to pay the $100 fee to get $400. Too bad the min. loan is $1,000. Anyway, he called the VRU every week or so until his vested balance hit $2,000, then resubmitted for a $1,000 loan. The bottom of the loan app says (in bold) "Please allow 4 to 5 weeks from the day the app is submitted until you receive the loan check." He called the day I received the app wondering when he could expect his $$!!!!!!!!! Maverick

Thanks for your responses. I'm having trouble understanding the "reduced by the highest outstanding loan balance during the immediately preceding 12 month period" mentioned by actuarysmith. Does this rule only apply to the $50,000 max loan?? I found and reviewed Sal's analysis of the new loan regs; he makes no mention of this. In the instant case (I heard someone say that a long time ago), let's say his highest loan balance in the past 12 months was $2,400. Would the "reduced by the ..." rule apply? Thanks again. Maverick