LCARUSI

Based on Rsircar's comments, it sounds like a 401(k) plan might not be such a good idea for these employees. I have one follow up question for Rsircar: Can these employees take a distribution from the 401(k) Plan when they return to India? I'm thinking that if they are still employed (in India) in the same controlled group of companies, have they in fact separated from service? Is there a distributable event?

You might want to contact SPARK (stands for something like Society of Professional Recordkeepers). They might have survey information for you: SPARK (860) 683-0336 8 Griffen Road North Windsor, CT 06095

Take a look at my posting on this message board: "Discussion with Author of 98-52 (Safe Harbor 401(k)". It was last updated on 11/13/98.

What I am hearing from the supporters of DB Plans is that employees need a DB Plan to provide retirement security. Your typical employee today who makes frequent job changes will get peanuts from all the DB Plans he or she might participate in over the course of his or her career - even if he or she is fully vested in each benefit. Either the lumpsum cashouts will be minmal or the frozen terminated vested benefits will ultimately add up to an insufficient benefit. The employee would be better off participating in a series of 401(k) Plans and maintaining all those balances until retirement.

Sorry WESSEX, no IRS input, but here are some thoughts... I don't see why you can't do it (implement negative elections for an ongoing plan). I would send a contribution change to each eligible employee who is below the intended default contribution rate (x%). I would instruct the employee to complete the form (paper or electronic) and submit it with any contribution rate including 0%. The instructions will also indicate that the participant's rate will be changed to x% if he/she does not submit a form. You will want to have proof that each employee actually received the form. You'll also want to give employees sufficient time to return the form. Your next problem will be to deal with employees who claim either: -they never received the letter, or -they responded and you never processed their response for a lower contribution rate than 0% However, I assume these are standard problems in any plan with negative elections. [This message has been edited by LCARUSI (edited 11-23-98).]

Why are you waiting for your Employer to contact you? Why don't you contact them? I think it would be a nice policy for your Employer to contact you shortly after termination and layout your distribution options for you, but I don't see it as a requirement. You are a continuing participant in the Plan, and you have an SPD which should should explain your options under the Plan now that you have terminated employment.

It's different than an SPD, so there's really no comparison. It focuses on one fact only - that the Sponsor is taking safe harbor status for the year (and that the participants will receive the safe harbor level of contributions).

As 1/1/99 approaches, there is more and more discussion (and interest) concerning safe harbor 401(k) Plans. Do you think it's a good idea? My preliminary thoughts on it: Pro - It eliminates cost and aggravation of 401(k)/(m) testing. It allows employees at the lowere end of the HCE pay scale ($80k - $100k) to defer more. Con - It eliminates an incentive for sponsors to adequately communicate and explain the Plan to its NHCE group. The only requirement will be the annual notice to employees.

ESOPwizard - I agree with you that the Employer should do everything possible to avoid being in this situation - such as rejecting enrollment forms without investment elections. But you will still have this problem in 401(k) plans with automatic enrollment or money purchase plans or similar type plans where contributions (of one type or another) are going into the participant's even without an enrollment form.

If the participant has not given an investment election, the burden and responsibility of investing the funds in a prudent manner falls on the Sponsor. The Sponsor, therefore, must specify a default investment election. Many sponsors automatically use the most conservative investment option as the default. I disagree with this approach. The default should be an investment election which would be prudent for the long term investment of retirement funds. I don't think 100% money market (or GIC) is appropriate. I work with a Sponsor who recently selected this default from among their six investment options: 30% corporate bond 30% large cap equity 40% balanced fund This sponsor will also periodically review the default and adjust it if appropriate.

David - Thank you. I stand corrected.

I disagree with Beavis. 1.402(g)-1(ii)(8)(iii) provides that distributions after 4/15 can only be made when permitted under 401(k)(2)(B). 401(k)(2)(B) lists the conditions under which 401(k) funds can be distributed - separation from service, hardship etc. I am not familiar with the APRSC program, but it's hard to believe you can (under this program) take an action which violates the applicable code and regs.

Yes, after 4/15 you must have a distributable event.

Hi Rob - I'll toss out an opinion here because no one else has responded. I would guess it will not be necessary to "hardcode" the annual notice requirement into the Plan document. Other procedural requirements (402(f) rolloverover notice, SPD etc.) do not require plan language. Anyone else have any thoughts on this?

You might want to contact SPARK (stands for something like Society of Professional Recordkeepers). They might have survey information for you: SPARK (860) 683-0336 8 Griffen Road North Windsor, CT 06095

There are issues for the participant and the Plan Sponsor: For the participant: 1) excess deferral is includible in gross income for for the year 2) excess deferral is taxed again when it is withdrawn from the plan 3) excess deferral is subject to the same withdrawal restrictions as regular 401(k) contributions to the Plan For the Sponsor: If the excess deferral is due to participation in multiple plans of different employers(and no single plan exceeds $10,000), then there is no problem for any of the Sponsors. If the participant goes over $10,000 in a single plan and the refund is not processed in a timely fashion, it's a qualification issue. I don't know what happens in that case. Maybe someone else can discuss the appropriate procedure (VCR or whatever) for requesting mercy from the IRS.

I'm not sure if you have to exclude compensation for participants who are not employed on the last day of the plan year. Presumably, they were participants in the Plan during the year (401(k) eligible)even if they don't get a share of the year-end profit sharing allocation (I'm assuming they don't get a share and that is why you are excluding their compensation.) Other than that, I agree with your methodology.

At the risk of belaboring a point... What are my options with respect to testing in 2000 if I use the current year method in 1999? What are my options with respect to testing in 2000 if I use the prior year method in 1999?

I agree with Richard. If they want to avoid administrative complexities, I contend that a SEP or Profit Sharing Plan(no 401(k)) for each independent contarctor will be easier to maintain than this multiple employer thing (just kidding) that everyone is talking about.

MWEDDELL - Based on your comments, 1999 would not be the lock-in year for Dawn; 2000 would be. Do you agree?

First of all, I don't think the Employer should give the employee the option of writing a check to the Plan. Contributions are by salary deferral only. The Employer should give the employee the right to have increased salary deductions between now and the end of the year so that the deferrals for the year will be what they would have been if the contrib rate change had gone through properly. This is not entirely the employer's fault. The employee should have brought it to his employer's attention immediately when he or she realized the contrib rate had not been changed as requested.

I disagree with EREAD (a little). Let's say the plan has a contribution limit of 15%. I believe it would be permissable for the employee to contribute at a rate greater than 15% between now and the end of the year to correct the error. Remember, if this happens, the participant's aggregate contribution rate for the year will still be under 15%.

To LYWRRCM - Definition of successor plan and other relevant definitions for this discussion are contained in IRS notice 98-1 which can be referenced online in BenefitsLink. Click here: IRS Notice98-1 [This message has been edited by LCARUSI (edited 11-13-98).]

To John Smith: The later. The gist of the conversation was that mid-year changes are not permitted.

Even though it is the first plan year, you would still determine HCE status using the standard methods (even though the plan did not exist in the lookback year). So just because it is a new plan doesn't mean necessarily that you have no HCEs. If you do the HCE determination and you really don't have any HCEs for the first year(no 5% owners and no one over $80K in the previous year with the company), I guess you pass on the basis of there being no HCEs benefiting under the Plan for the Year.