ljr

Hello, lgolden. The insurance company should be able to tell you the cash value of the policy and the exact amount of any loans. Assuming the loan is within the policy (which is probably the case but needs to be determined for sure). So, the net cash surrender value is as was said, the cash value minus the loan. Interest will continue to be due on the loan and if not paid is added to the loan balance as long as the policy has enough cash value. The insurance agent is probably still collecting renewal commissions and should be able to easlily provide the information needed. As to how to report on the 5500, can't help you there.

Then there's the question of whether the plan should have paid the premium by borrowing against the policy's cash value. I believe there are some issues with this type of transaction in a qualified plan but cannot recall the details.

What about non-standardized prototype plan adopters not planning to file for a letter of determination? If one of these folks misses the 9/30 deadline but signs by the extended filing deadline, would they be eligible for $250 to be deemed as signing by 9/30? Rev Proc 2003-72 doesn't cover this fact set so I'm wondering if anyone has posed the question to the IRS and gotten an answer?

The 403(b) deferral component does not have to be tested as if it were a 401(k) deferral. I believe this dates back to TRA 86. Some employers who offer 403(b)'s match those deferrals and this piece does need to be tested. I've seen separate 401 plans that hold just the match and also single plans that have a trustee that holds the 403(b) deferrals and the match. These plans are definitely different. It's a good deal since the deferrals are not subject to testing.

We're a bank trust department that was custodian of an ERISA 403(b) plan with only 3 participants remaining. The employer could not merge the 403(b) into their 401(k) and could not distribute to the participants who were still employed. What they finally did was transfer each participants account to a 403(b) account with a mutual fund company selected by the participant. Then the custodial account with us held no further assets and was closed. Each participant ended up with their own account and the employer was done with the 403(b) once they filed the final 5500. Everyone was fully vested so we didn't have to deal with that issue.

Someone just told me the IRS is coming out with a rev proc that will extend the GUST deadline beyond 9/30 for a $250 user fee. Has anyone heard anything about this?

What do you mean no assets?

Depending upon what the plan's loan policy says, you may be able to distribute the loan because the participant has terminated. The balance would then be under $5,000 and I believe you could force it out since the rule that said you could not if the balance was ever over that amount went away with one of the recent law changes.

I should have added that they do need restatement for GUST, etc.

No, I've never heard of an ESOP prototype. Maybe the first post refers to the firm's "standard" version of an ESOP document. Another situation for experienced ERISA counsel even if consulting another legal firm is necessary.

Sorry! Should have clarified that my state does not require mandatory withholding from distributions. Mbozek, can you tell us more about plans claiming exemption from state withholding taxes - I'm curious! What states currently require withholding?

Mariec - check the plan document. Right now we don't have any plans that require a participant to wait until retirement age for a distribution. Since you do, an alternative is to change to a more liberal payout timing. To force out the plan has to allow it. If you do a force out check, it's net of withholding and we send the withholding in right away. There is no requirement for state withholding and we don't do it. We have not done the 100% withholding but may do it for small (say under $100) amounts where a plan has terminated and the employer no longer exists. As to forfeiting after a reasonable effort to distribute, the plan has to provide for this and plans that do so must also include a provision that if the employee later appears and wants their money the plan has to pay it. Usually the money comes from forfeitures in the plan, and if there are not enough, the employer is required to make a contribution - whether deductible or not - to cover the distribution. So far, I've never heard of a single "lost participant" reappearing. There is a whole series of threads on lost participants and the bottom line is there is no good solution - yet. At a recent ASPA meeting one of the speakers said the IRS/DOL is planning to address this problem.

I assume TPA's don't come up with the cash to cover their errors since they are not a fiduciary and their service agreements specifically acknowledge their non fiduciary status? Does the service agreement cover errors? As a corporate trustee with an outside TPA accountable to us (as opposed to the client), we always immediately make the trust whole, including any income/gain, and then collect from the TPA or overpaid participant. If the participant won't pay back the excess distribution in response to our collection efforts, we've let it remain as a loss to us since, fortunately, the amount involved was never enough to make it worth going to court. If the loss is the TPA's fault, they reimburse us. I'd be interested to hear more about what others are doing. How much money is involved in the situation that started this thread?

Would suggest you send those participants distribution forms with the cover letter suggesting they complete them and direct the funds to an IRA. Katherine makes a good point in the riks of the employer recommending any IRA rollover company. Then tell them if they don't respond by a certain date, the funds will be paid directly to them, less 20% withholding and emphasize they are taxable, possibly plus the 10% penalty for early withdrawal. This usually gets a good number of participants to respond. Those who don't have been given the opportunity and just get their checks. Then you hope they cash them!

Check the participant statements to see if there is any kind of message about a time limit to report errors. Many will say errors need to be reported within 30 days of receipt of the statement for corrections to be made retroactively. Ours go on to say errors reported after that time will be corrected as of a current date. In practice, we'd probably do a retroactive correction if reported within a "reasonable" time from receipt of the statement which would at least be prior to the issue of the following quarter. This is a tough one and I wish you luck. Interesting that no one ever complains when they make money on an error!

Some prototype documents do have a check the box as to whether the plan intends to be 404© compliant. When the box is checked, the appropriate language is included in the SPD. We have decided to check the box for 404© compliance when plans are truly trying to comply with all the rules. Current thinking seems to be you are better to try to comply even though it's almost impossible to get 100% of it right and so state. In the past, people thought it was safer not to say you were complying if there was any possiblity you might not be. This has been a matter of some debate so I'd agree it has to be an employer decision and it must be disclosed in the SPD.

While it is possible to have co-trustees, bank trust departments probably won't go along with it. Our bank won't do it.

You'll no doubt get details from several attorneys on this message board, but I believe a spouse is not a spouse for ERISA purposes until the marriage is a year old. You also need to look at the plan document provisions because not all 401(k) plan automatically have the spouse as beneficiary. Some only require that the spouse be the "automatic" beneficiary for half of the proceeds. Sounds like a real mess so hopefully not a lot of money is involved.

Yes, and such appraisals tend to be pretty expensive. Since the stock is a rollover asset of one participant, a possible alternative is for that one participant to roll the stock out to an IRA trusteed by their local bank trust department? While it would still need to be appraised, there could be more flexibility in an IRA as opposed to a 401(k) plan. I've heard of IRA trustees being willing to do an appraisal of closely held stock "every few years' and not require an annual appraisal until the minimum required distribution rules come into play. Good luck!

We are a community bank trust department and document costs have always been included in our fees based on past experience of required amendments happening about every 5 years. Now that's changing, and depending upon what happens over the next few years, we may need to add a charge for amendments. I'll be interested to see what others say

What remains unanswered is who would accept such IRA accounts anyway?

I'd agree with Blinky. If that bank stock is held in a trust account for the retirement plan, it would be a qualifying asset. Good luck and let us know if you succeed.

I'd suggest you check the rules on limitations regarding premiums paid on life insurance. It varies by type (whole life, universal life or term). Generally, up to 50% of aggregate contributions can be paid for whole life insurance on a per participant basis. There are special rules for profit sharing plans that can permit larger percentages depending upon how long the money has been in the plan. I don't do much with life insurance so would have to read the rules and get back up to date.

As to charging fees to the participant accounts, remember that even though the DOL thinks it's okay to charge terminated participants but not active ones, the IRS doesn't seem to agree.

Your employer can set up a plan to hold the matching contributions which you are correct in saying must be tested. I do not know if the existing 403(b) money can be rounded up as your employer wants to do. This may not be a good idea anyway because depending upon what people invested in there could be sometimes high costs to liquidate. The employer could have all 403(b) employee contributions go into the plan they establish for the match on a going forward basis. Caution: A good ERISA attorney is a must. There are no 403(b) prototype documents at this time. Note that the ERISA plan will have to file 5500's. There are costs that would be involved, but the 403(b) plan can be preferable to a 401(k) because you don't have to test the deferrals and some other advantages. Good luck!