LCARUSI

Let's assume initially that Plan A fails the 410(b) ratio percentage test as you described. (I'll explain later why that might not be true.) The Plan Document probably stipulates that you provide a benefit to a sufficient number of the 31 employees so that the plan will pass the test. So you wouldn't have to give a benefit to the entire group of 31. The plan document might also specify how the additional employees are selected from the group of 31. That having said, I don't believe you are applying the ratio percentage test properly and your plan A might, in fact, be in compliance. I'll give you a reasonable scenario under which your plan A would be in compliance. You can then use this approach to do the calculation based on your actual numbers: Total # of employees: 100 HCE group: 5 NHCE group: 95 Number of HCE satisfying last day/1000hr: 4 Number of HCE satisfying last day/1000hr: 65 HCE Percentage: 4/5=80% NHCE Percentage: 65/95=68.4% ratio percentage test: 68.4%/80%=85.5% 85.5% exceeds 70% ==> pass

SPIwowar - The blackout period is the period in which participants cannot inititate actions such as new loans, investment reallocations, withdrawals etc. This occurs during the transition between recordkeepers. For example, if you were changing as of 12/31/98, the prior recordkeeper might require that all of the activities I mentioned above must cease as of 12/15/98 to give them time to prepare a file for the new recordkeeper. Similarly, the new recordkeeper (as of 1/1/99) might not allow any of the above activities until 1/15/99 to allow them to setup the plan on the new recordkeeping system. In the above example, you have a blackout of one month (in total). That can be a serious issue to a participant with a significant balance - not being able to reallocate his or her account for on month. It is important that you communicate the blackout to partiicpants IN ADVANCE of the blackout period. Also, this should be an issue in your vendor selection, because different vendors will impose different blackout periods. Obviously, the shorter the better.

The limit on employee deferrals under sec 402(g) remains at $10,000

The trust should have an ID separate from the Employer's EIN. You'll need it for 1099-R reporting etc.

I would suspect you have high turnover among short service hourly employees in a manufacturing environment. For that reason, you might want to reconsider your plan to shorten the waiting period. Administratively, you don't want to deal with all those small cashouts

Sorry Bill, I don't have a clue. In case you don't get a response here, have you posted your question on the "Simple Plans" Message Board?

Fay - It seems to me that if the employee refuses to sign up for payroll deduction, he or she is refusing to accept the terms of the Plan's loan program and is refusing to request a loan. I don't think that opens the door for a hardship.

One safe harbor approach would be to calculate investment earnings for everyone assuming they were all invested in the fund with the best investment result for the period. I see two potential problems with this approach: 1) It could get expensive. 2) I don''t know if it would be an acceptable approach to the IRS. They might consider the excess of the amount calculated my (generous) way over the true lost income to be an additional contribution - and that creates lots of additional problems.

Check out the RFP prepared by SPARK. It's a nice starting point. You can download (free) the RFP from the American Express Plan Sponsor Website: http://www.americanexpress.com/401k/sponso...nse/index.shtml Also, if you need to contact SPARK directly: SPARK Headquarters 8 Griffen Road North Windsor, CT 06095 (860) 683-0336 [This message has been edited by LCARUSI (edited 11-05-98).]

A check was sent to a participant in 1997 and a 1099-R was issued for 1997. It now turns out the participant never cashed the check. What should the Plan Sponsor do with respect to the 1099-R which has, of course, already been submitted to the IRS?

I'm not familiar with the amount of the penalties in this situation. However, I can comment as to how the delinquency period is calculated. The Sponsor is not required to report an individual on the SSA until the plan year following the plan yar in which separation occured. So no violation would have occured until the sponsor neglected to include the participants on the 1995 SSA. I hope that helps.

The following excellent analysis was provided by David Shipp: Following is the section dealing with significant detriments to participant consent from the QJSA Chapter of the Employee Plans Examination Guidelines in the Internal Revenue Manual. (Although this is in the QJSA guidelines, it is dealing with consent under 411(a)(11).) "Sub-Section 932: Significant Detriment A participant's consent to a distribution is not valid if a significant detriment is imposed under the plan on the participant for not consenting to a distribution. A significant detriment is created where a participant electing to defer receipt of a distribution is treated less favorably than other plan participants. The determination of what is a significant detriment to the participant is a facts and circumstances determination. One factor to consider would be whether the employer has a valid business reason for the disparate treatment between former participants and active participants. Disparate treatment between former participants and participants may result in a significant detriment to former participants. For example, the plan provides for immediate distributions upon termination of employment, but former participants electing to defer receipt of the distribution are not able to receive a distribution until they reach age 65." Based on the above, I would find it "iffy" to charge terminated participants for plan expense but not charge active participants. Admittedly the issue is a facts and circumstances determination, but I don't think I'd be comfortable with an IRS agent's determination on audit. Hope this helps.

If you send out a model RFP, you'll get model responses. Lots of marketing stuff and you still won't know who the best service provider is. I suggest you spend the time to understand your client's specific requirements and then write the RFP to make sure you get specific answers concerning their capabilities. All sponsors have different priorities concerns, and requirements.

David - In general, isn't it allowable for the Sponsor to pass all expenses associated with the operation of the Plan back to participants? And wouldn't this include expenses associated with distributions? (Admittedly, it wouldn't be a good idea from an employee relations point of view to do this.)

It's fairly common for sponsors to charge fees to participants for loan setup and/or annual loan maintenance. I have not personally seen plans where distribution fees, transfer fees or other transaction fees are charged to participants, but I see no reason why you could not do it. You should be sure the Plan document allows it.

Greg's approach doesn't seem fair to the participant. The participant might in fact have chosen a different distribution option if he or she had known the amount would be greater. I don't see how you can automatically apply the participant's first election to subsequent distributions - especially if the amount of the error is susbstantial.

Questions to those of you who require a loan before a hardship withdrawal: What if the participant will be unable to make the required loan repayments? And if the participant has a substantial account balance, will you require that he or she take a loan which might result in repayment amounts that are huge relative to his or her take home pay?

Question Posted by HOCKEYAMY: Do you think you can charge term vesteds account maintanence fees but pay for them (not with plan assets) for actives. Since it is not in the plan I dont think we have right benefits and features to worry about.

Question posted by HOCKEYAMY: I am getting differenting opinions and of course I can not get a clear read from the code regs Do you think the QNEC and or QMACs are eligible for hardship withdrawal?

Do you have something specific in mind when you use the term "reamortize"? I can think of many actions which I would call a reamortization which would be okay. For example, a participant is part way through a loan and wants to make a partial lump sum repayment and then continue reduced ongoing loan repayments. I would consider that a reamortization and okay to do. You should be sure the loan reamortization does not violate either 1) the general rules in sec 72 concerning loans or 2) the provisions of the plan.

I agree with boetgerinc that there will be no incentive for an employer to encourage NHEs to participate. However, there is a notice requirement and at a minimum the employer must give a notice to all employees before the beginning of each plan year.

If the 401(m) test is passed with a zero ACP for the NHCEs, then yes you can count each participant's match toward the required 3% of compensation contrib. (I assume the ACP for the HCEs is also zero.) Regarding your comment on the Plan in the first year: If you are saying that because the ACP is deemed to be 3% you can then use the actual contributions toward the top heavy contribution - I don't think so.

Thank you to everyone for your responses. The form was completed and filed on 10/15. The client originally said he "didn't have time" to thnk about the 5500 and would gladly pay a penalty for being a few days late after 10/15. Based on Laura's comment, it's a good thing we didn't do that, or the penalty would have been assessed from 7/31 and not 10/15. I wasn't aware of that!

Yes the participant can default by rescinding a payroll deduction agreement and yes it should then be treated as a deemed distribution. I think it creates some minor recordkeeping headaches. FOr example, you will have to consider the loan (technically still outstanding)in any future calculation for the participant of the maximum loan available - if he/she wants another loan.

I have a client who might not have all the data to file a 5500. They are on extension to 10/15 (using form 5558). What form is used to requesta second extension? How much time do you get and is the request generally granted?