mbozek

The eligibility crieteria is usually salary reduction availability upon entry or first day of following month. Some offer a match of 25-50% with graded vesting over 5 years and lump sum only distribution option. Investment options are usually limited and some agencies offer opportunity to invest in company stock.

Why does the plan need to hold cash for stock redemptions in a 401(k) plan? If the stock is publicly traded the SEC requires that the buyer produce cash for the purchase within three business days. If the emplyee terminates the stock is distributed as part of a distribution. In a dc plan all assets must be allocated to participant's accounts so how can the plan hold a reserve of cash?

what do u mean by overfunded money? Are u referring to the surplus assets which remain after the participant receives the LSD equal to his interest in the benefits? Is the employer maintaining the plan a corporation? Is it a PC or other type of professional business? I dont know what you mean by retroactive distributions.

but too high a percentage is too vague a term in the real world. For example a corporation could establish a separate subsidiary with 2 employees -a president who makes 300k a year and a secretary who makes 40k a year. The employer could establish a top hat plan for the pres only even though 50% of the employees are participants in the t/h plan.

but the determinaton of whether it is a t/h plan is not based on the number of employees who participate in the plan. It is always a question of whether the plan is limited to a select group of management or hces- whether there in one participant or a thousand participants.

Huh? there is no requirement that t/h plans must conform to IRS nondiscriminaton rules after covering a certain number of employees. Some t/h plans of fortune 100 companies cover hundreds or thousands of employees. Or are you saying that covering too many people will require that the plan be submitted as a qualifed plan to the IRS?

The practical reason for limiting loans to active employees is that it is very time consuming and difficult adminstratively to process loan repayments manually especialy if there are larage number of loans. Also there is a high risk of default in non payroll deduction loans which requires that the plan loan be distributed. This all adds up to a lack of interest by the employer in continuing loans to former employees. Also if you allow loans to former employees you have to allow loans to beneficaries and ex spouses who retain the assets in the plan.

Prudence is not the operative term because the design of a t/h plan is a settlor issue - not a fiduciary decision. While you are correct in that most t/h plans are established by large corporations for senior exec-- there is nothing in the law which makes it inappropriate or illegal for a small employer to establish a t/h plan for one or two HCEs or for a select group of senior mgt who are hces. Therefore there can be no regulation which discriminates against small employers who establish such plans in lieu of a qualfied plan. Under your analysis a small employer who has not established a retirement plan should refrain from establishing a t/h plan because it discriminates against NHCEs while large employers can establish them because they maintain qualified plans for the NHECs. Last time I looked ERISA does not contain any nondiscrimination provisions. The fact that the DOL has not issued any regulations in 28 years is an indication that it does not have a clue of how to define these plans and will leave it to the courts.

If you have a fixed rate investment such as a cd I dont think you will get a comparable rate of return at another financial institution. A better option would be to open an IRA for this year at another financial institution and transfer the funds from your existing roth to the new account when the investment matures.

Neither prudence nor nondiscrimination are applicable to a top hat plan. Many small employers cannot afford to sponsor a qualified plan for all employees but need to retain top management. Therefore counsel will advise of the availability of the t/h exemption. Since there is no definiton of "select group" under the statute it is within the employer's descretion to define such a group-- In most corporations only a handful of employees make over 85k. By definiton a t/h plan can be limited to a select group of highly compensated employees.

K : Based upon what authority---? I know employers that limited the t/h plan to hces because there were so few in preportion to the non hces. There are ers where all hces are less than 5% of the total ees. The problem with the T/h plan exemption is that it is completely idiosyncratic. There can even be a t/h plan for an employee who is not an hce, e.g, in a non profit where the director or ceo makes less than $85k a year.

Isn't the logical outcome that the employee will be taxed on the deferred compensation in the year of termination but will be able to claim a miscellaneous deduction in a future year to the extent the benefits are forfeited because of the non compete clause. The only way for the employee to avoid taxation in year of termination would be argue that there is no claim of right to extent the benefit are subject to the noncompete clause because of the potential forfeiture but this would be difficult since the benefits are statutorily taxed as income under 457(f) when there is no requirement to perform substantial services. Further the forfeiture of the benefits would be contingent on the employees voluntary act after receipt of the funds.

DOL official position is that HCE definiton under ERISA is not congruent with HCE under IRC for top hat plan eligibility. However the DOL has refused to issue regs on this issue for 20 years because there is 0 legislative history on what congress intended by the defintion of highly compensated ee or a select group of management. There are several dol rulings and cases that describe the top hat group as consisting of the top 2, 3 or 4 % of employees by salary or job title in order to be a select group. But there is no bright line test. Prior to 1997 some employers offerred top hat eligibilty to every employee who was in the super hce group or about $100,000. Some lawyers recommend a $150,000 or the a17 limits as the cut off but that is only a guideline if the employer is located in a large metro area. Many employers pay their ceos/cfos less than $150k a year and would be regarded as members of the top hat group. In some financial institutions 20% or more of the ee make over 200K and negotiate their own employment terms and no one knows until the end of the year what their bonus will be.

SD plans are either welfare plans or top hat deferred compensation plans for ERISA regulatory purposes but they are never funded retirement plans. LI is part of a funded plan only when it is used to fund retirement benefits under a DB plan. See IRC 412(i)?

I thought the DOL position was that any costs necessary to maintain the plan's qualified status, e.g, submissions to IRS were legitimate plan expenses. If an IRS audit is conducted for the purpose of determining whether the plan is qualified in operation then the expenses of responding to IRS requests for information, issues, etc should be required as a cost necessary to maintain qualfied status. There is a dol opinion 2001-3 plan expenses and some examples on what are acceptable expenses on the DOL web site. I dont know what is the significance of a no change letter since virtually every plan has a ding somewhere and most dings are minor and result in no fines or penalities. Also in my experience the IRS does not give out no change letters in every audit-- sometimes they just stop asking for info and the plan never hears from the agent again. Correcting an operational defect is necessary to maintain the plan's qualfied status. However, the cost of fines or penalties for operational failures should not be paid from plan assets.

Q- Why is the TPA refusing to change the 1099? Is the TPA the payor? My understanding of reg 31.3402(0)-2(g) is that the party actually making the payment is the payor for 1099 purposes and not the agent for the payor. You need to review the agreement with the TPA to determine who has the final say on correcting a 1099-R. As far as the 72(p) regs are concerned there is no specific reference to when a payment is deemed made. Q/A-10 of the regs state that the failure to make an installment payment when due in accordance with the terms of the loan results in a violation of IRC 72(p)(2)©. If the terms of the loan require that repayment be made by payroll deduction then the loan has never been in default if the amounts were withheld. It can be argued that under applicable law the employer is the agent of the plan for the collection of loan instalments and therefore payment under 72(p) was made in a timely manner by the ee even though the plan did not recieve the funds. Frankly I dont know why the TPA is making such a big deal out of this minor issue. U need to find counsel to discuss this mater with the TPA.

There is no regulation of the repayment of a plan loan after termination of employment but most employers do not permit it because the checks have to manually processed and transferred to the participants account in the plan. There is also a high probability that the employee will default and the employer will have to treat the loan as a distribution. Also some TPAs do not permit manual check depositing because their systems can accommodate only transfers from a payroll deposit system.

The 403(B) plan contributions will not be aggregated with the qualfied plans as long as there are no employees who own more than 50% of the employer who sponsors the qualfied plan

jehmig : It wasn't my intent to allege that you option was coercive-- I was just pointing out that to avoid an allegation of coercion it would be necessary for an employer to get legal waivers and reps which will cost money to prepare.

While that is possible, there could be a 510 claim by the employee that the employer coerced him into retirement to avoid making a contribuution under the plan. Client would need to get some form of voluntary termination agreement/ independent contractor agreement that would specify employee's duties, e.g., cost of a lawyer to avoid potential liability, and I question whether the employee will sign any agreement.

my understanding from previous posts is that this insurance is no longer available.

becareful before u download -its 110 pages in the fed register.

Mary: Maybe I put this into perspective with one observation: What is this employee going to do if the employer makes a 3% contribution to his account???Quit. If the er elects to make a contribution to the plan I dont think the employee will do anything except withdraw the money.

I reviewed a memo describing a "secured trust" about two years ago but it was short on facts - I remember that memo claimed that the secured turst claimed to get around the requirement that nq benefits be subject to risk of forfeiture by transferrring funds prior to insolvency but I havent any more information.

Employees cannot be excluded from plan on account of age. However plan can provide for a waiver of participation by employee, Rev. Rul 80-351, if nondiscrimination rules are not violated. Waiver may be permissible if it is to employees advantage e.g, employee can make larger contribution to an IRA then benefit accrued under s/h plan. See Olmo, 1979 -286 TC Memo. Perhaps plan can be amended to define eligible employee to exclude any employee who has waived participation in the plan.