SavingsRUS

But that's the question. Right now the QDRO names the ex-spouse as the alternate payee. If the ex-spouse is named as the alternate payee then the ex-spouse is the distributee and the taxes are the obligation of the ex-spouse alternate payee. If the parties intended for the assignment to satisfy a child support obligation, then shouldn't the QDRO name the child as the alternate payee and not the ex-spouse?

This is a really helpful thread! Follow up question: We have a participant whose attorney submitted a QDRO that names the ex-spouse as the alternate payee, but then directs the plan to pay the assignment amount to a local governmental entity responsible for collecting child support payments that are in arrears and specifies that the participant is the distributee for tax withholding purposes. Further inquiry revealed the participant is behind on their child support payments and the parties agreed to the assignment under the plan in satisfaction of those payments. To be consistent with the tax withholding requirements and distributee treatment, shouldn't the QDRO specify the child as the alternate payee instead of the ex-spouse?

Chip: The account balance reference in the guidance is important, but applying that guidance to the original question here does not result in the paid-out terminee being unaffected - it's exactly the opposite. Linda: Chip's comment does not answer the original question, because the terminated participant still had an account balance at the beginning of the "applicable period." The problem here is not paid-out terminees who received their partially vested distributions from the plan prior to the applicable period of the partial termination (and therefore did not have an account balance under the plan during the applicable period), the problem is paid-out terminees who received their partially vested distributions from the plan during the applicable period. Because the original question dealt with a scenario where the actual event that gave rise to the partial termination occurred September 2016, and the "applicable period" for the partial termination was the plan year (presumably calendar year 2016), the participant who terminated in March 2016 and took a partially vested distribution prior to the September 2016 event is an affected employee (according to the IRS guidance), and therefore (according to the IRS guidance) must be fully vested and receive a corrective distribution for the previously forfeited amount of his or her account balance.

David, can you please clarify your comment to the effect that a plan sponsor has the right to determine that some participants would not be affected due to F&C? IRS Revenue Ruling 2007-43 states: "All participating employees are taken into account in calculating the turnover rate, including vested as well as nonvested participating employees. Employer-initiated severance from employment generally includes any severance from employment other than a severance that is on account of death, disability, or retirement on or after normal retirement age. An employee’s severance from employment is employer-initiated even if caused by an event outside of the employer’s control, such as severance due to depressed economic conditions. In certain situations, the employer may be able to verify that an employee’s severance was not employer-initiated. A claim that a severance from employment was purely voluntary can be supported through items such as information from personnel files, employee statements, and other corporate records. Employees who have had a severance from employment with the employer maintaining the plan on account of a transfer to a different controlled group are not considered as having a severance from employment for purposes of calculating the turnover rate if those employees continue to be covered by a plan that is a continuation of the plan under which they were previously covered (i.e., if a portion of the plan covering those employees was spun off from the plan in accordance with the rules of § 414(l) and will continue to be maintained by the new employer). Whether or not a partial termination of a qualified plan occurs on account of participant turnover (and the time of such event) depends on all the facts and circumstances in a particular case. Facts and circumstances indicating that the turnover rate for an applicable period is routine for the employer favor a finding that there is no partial termination for that applicable period. For this purpose, information as to the turnover rate in other periods and the extent to which terminated employees were actually replaced, whether the new employees performed the same functions, had the same job classification or title, and received comparable compensation are relevant to determining whether the turnover is routine for the employer. Thus, there are a number of factors that are relevant to determining whether a partial termination has occurred as a result of turnover, both in the case where a partial termination is presumed to have occurred due to the turnover rate being at least 20 percent and in the case where the turnover rate is less than 20 percent." These paragraphs are discussing how the turnover rate is calculated, and the turnover rate is relevant to the analysis of whether a partial plan termination has occurred. However, while an employer can argue F&C to reduce the turnover rate in an attempt to avoid a determination that there has been a partial plan termination, once it has been determined that there has in fact been a partial plan termination, the Revenue Ruling clearly states that all participants who terminated during the applicable period must be 100% vested: "If a partial termination occurs on account of turnover during an applicable period, all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts." https://www.irs.gov/irb/2007-28_IRB/ar08.html In other words, F&C only allow you to avoid a partial plan termination determination; F&C don't allow you to avoid fully vesting all participants with account balances/accrued benefits under the plan who terminated during the applicable period of the partial plan termination. For the record, I do not agree with the IRS' interpretation of the partial plan termination rules and who constitutes an "affected" employee for purposes of the full vesting requirement imposed under Treas. Reg. Sec. 1.411(d)-2(b)(1). Nonetheless, this is the official IRS position on full vesting for affected employees, and it is on the lookout for plans that don't fully vest all plan participants who terminated during the applicable period of a partial plan termination. FWIW, there's a comment in the ERISA Outline Book mentioning that employers have found that the cost of fighting the IRS on this issue is not worth it.

I doubt an IRS auditor who works from home is able to adequately safeguard the personably identifiable financial information for all of the employees whose data is included in the records and information the auditor is requiring the plan to provide. Given the sensitivity of the information and the current regulatory landscape with respect to the disclosure - whether intentional or unintentional - of private data, an aggrieved participant could argue that the company had a duty - as both the employer and a named fiduciary - to act in the best interest of participants by safeguarding the data. Unless the SSNs, DOBs, addresses, etc., are redacted from the records, faxing them to an IRS auditor's home office - or mailing them there - is not taking due care.

Who is "they"? The organizations are very clear on their plans' non-ERISA status and would not have checked the wrong box. This seems to be happening at the document provider level, and it is happening often enough now that I wondered if there was some obvious reason for it that I somehow missed.

Yes, that's exactly what that means. And no, that doesn't make any sense. And yes, you need to restore the forfeitures (plus earnings). The IRS believes that employees who terminate during the applicable period must be 100% vested, even if that termination was voluntary. They state the following in their online FAQ (linked below): "An affected employee in a partial termination is generally anyone who left employment for any reason during the plan year in which the partial termination occurred and who still has an account balance under the plan." https://www.irs.gov/retirement-plans/retirement-plan-faqs-regarding-partial-plan-termination It doesn't make sense that voluntarily terminated employees would have to be fully vested due to a partial plan termination. That seems at odds with the intent of the partial plan termination rules, especially since you don't count such employees to determine whether there has been a partial plan termination in the first place (see the following, excerpted from the exact same IRS FAQ linked above): "Do employees who voluntarily quit count for purposes of determining a partial termination? Generally, voluntary terminations do not count in determining whether a partial termination has occurred as they do for determining who must vest after partial termination. However, in some cases employees who appear to terminate employment voluntarily have been found to have terminated involuntarily under a constructive discharge theory. The employer's intent, working conditions and the reasonably foreseeable impact of the employer's conduct on the employees are factors in evaluating a constructive discharge." IRS Revenue Ruling 2007-43 states, "If a partial termination occurs on account of turnover during an applicable period, all participating employees who had a severance from employment during the period must be fully vested in their accrued benefits, to the extent funded on that date, or in the amounts credited to their accounts." The IRS is actively enforcing this position. See the 2016-11 issue of Employee Plans News (linked below) describing the EPCU project that contacted over 2,000 Form 5500 filers asking questions about potential partial plan terminations: "In almost 10% of the cases, it was determined during the compliance check that a partial termination had occurred and affected participants had not been fully vested. In most of these cases forfeitures were reinstated. In a few of these cases, it was not necessary to reinstate the forfeitures for some or all of the affected employees because no distributions had as yet been made. In these cases the vesting percentages were corrected. The amount of forfeitures plus interest that was reinstated for cases with forfeitures totaled $2,208,678." https://www.irs.gov/retirement-plans/employee-plans-compliance-unit-epcu-completed-projects-with-summary-reports-partial-termination-partial-vesting

Is anyone else encountering situations where a non-profit organization's non-ERISA 403(b) plan document has for some unknown reason been restated onto an ERISA 403(b) plan document, even though nothing about the organization or its plan provisions changed that would subject the plan to ERISA? Am I missing something? Why are the document providers not using a non-ERISA 403(b) plan document for these plans?

Thanks, Lou. Treasury Regulation section 1.401(a)(17)-1(a) states that a defined contribution plan may not base allocations on compensation in excess of the annual compensation limit. Treasury Regulation section 1.401(a)(17)-1(b) also states that the compensation taken into account for any employee in determining plan allocations is limited to the annual compensation limit. It would seem that "allocations" means profit sharing and match, but not deferrals.

Is it possible that section .05(5)(a) of Appendix A to Revenue Procedure 2013-12 applies? It states "The employee's missed deferral amount is reduced further to the extent necessary to ensure that the missed deferral does not exceed applicable plan limits, including the annual deferral limit under 402(g) for the calendar year in which the failure occurred." If so, then the missed deferral would be reduced to zero, and no amount would be required to fund the missed deferral opportunity.

Is it possible that section .05(5)(d) of Appendix A to Revenue Procedure 2013-12 can be applied so that the plan may rely on the ADP test performed with respect to those employees who were not impacted by the failure to implement the bonus deferral election, and may disregard employees whose elections were not properly implemented?

When a participant has compensation greater than the $265,000 compensation limit for 2016, is his deferral election percentage applied based only on his $265,000 compensation, or on his full compensation for the year? For example, if a participant with $300,000 in compensation elected to defer 6% of pay for 2016, is his deferral election applied to his full $300,000 compensation to result in a total deferral amount of $18,000? ($300,000 x 0.06 = $18,000)? Or is his deferral election applied only to his compensation up to the $265,000 compensation limit, resulting in a total deferral amount of $15,900? ($265,000 x 0.06 = $15,900)?

Thanks, 2 cents, but *how* exactly may a benefit escheat to the state when even the estate cannot be located?

Missing participant passed away some time ago. No beneficiary designation, and no relatives or spouse. Benefit goes to estate under plan terms. Unable to locate estate. May benefit escheat to state?

What if a plan does not provide for the forfeiture of missing participants' benefits in its document, and the plan sponsor now wants to amend the plan to add that provision? Is this permitted?

The sponsor of an individually designed Cycle E plan restates the plan using a volume submitter plan document. Based on section 17.04(2) of Revenue Procedure 2007-44, was the deadline to adopt the volume submitter document 1/31/2016 or 4/30/2016? Section 17.04(2) of Revenue Procedure 2007-44 states: .04 An employer is an intended adopter if: (1) the employer currently maintains a qualified individually designed plan and (2) such employer and a sponsor or practitioner who maintains an existing pre-approved plan or an interim pre-approved plan execute Form 8905, Certification of Intent to Adopt a Pre-approved Plan, before the end of the employer's five-year remedial amendment cycle as determined under Part III of this revenue procedure. However, if the employer's five-year remedial amendment cycle ends during or after the announced adoption period described in section 16.03 and 16.04 associated with the applicable six-year cycle, rather than execute Form 8905, the employer should instead adopt the newly approved version of a pre-approved plan (and will be treated as a new adopter under section 17.03). The current adoption period for pre-approved defined contribution plans is 5/1/2014-4/30/2016. If a Cycle E IDP is restated on a volume submitter document, is the deadline to do so the same deadline as executing the Form 8905 for Cycle E plans (1/31/2016)? Or is the deadline the same deadline as executing the pre-approved plan document (4/30/2016)?

Company with Volume Submitter document (adopted prior to 1/1/2016) amended the document after 1/1/2016 and, as a result of the amendment, it no longer has Volume Submitter status. It can no longer rely on its 3/31/2008 VS opinion letter and is therefore an individually designed plan. Notice 2016-3 states that sponsors of individually designed plans now have until 4/30/2017 to adopt a pre-approved plan, but also states that employers who adopted pre-approved plans prior to 1/1/2016 continue to only have until 4/30/2016 to restate their plans. If the company wishes to regain VS status for its plan document by restating the plan onto another VS document, what is the deadline by which the plan document must be restated? Is it 4/30/2016 (because it previously adopted a pre-approved plan prior to 1/1/2016)? Or 4/30/2017 (because its previously adopted pre-approved plan is now an individually designed plan)?

Note that there is another fiduciary issue here as well: The Plan Sponsor is obligated to enforce the terms of the loan, even where it has been deemed distributed for taxation purposes. In other words, technically the Plan Sponsor is required to pursue repayment of a deemed distributed loan, and it seems like the lack of notice from the RK and the lack of communication with the participant regarding both the need to bring the loan current and then the need to continue repayment after deemed distribution is something that could be viewed by some auditors as a fiduciary breach.

Technically yes - and no. The disclosure requirements are still under 2550.404c-1(b)(2)(i)(B), but 2550.404c-1(b)(2)(i)(B)(2) now cross-references to 2550.404a-5 to specify the information that must be disclosed in addition to the information required to be disclosed under 2550.404c-1(b)(2)(i)(B)(1) and (3).

I think that's right, jpod. White-label funds have generic names that do not reference a fund company name. Their names reflect their asset class or objective. A plan sponsor would use multiple investment managers within a single plan option (fund-of-fund) to combine investment strategies. There's lots of internet articles about why a plan sponsor would use these and why their use is on the rise. But white-label funds don't have ticker symbols and have short historical performance periods. These and other complexities make the typical required disclosures under ERISA 404© difficult. Are these funds already addressed under the regulations?

Looking for guidance about what needs to be provided to meet the ERISA 404© disclosure requirements for white-label funds... can't seem to find anything that addresses white-label funds... does anyone have any suggestions?

Is the use of the DOL online calculator to determine the earnings to be paid when correcting late 401(k) deferrals, and the payment of the excise tax on that amount by filing Form 5330, sufficient to correct the error? Is anyone finding that the DOL is requiring a VFC application as well in order to rely on the use of the DOL online calculator?

Bumping this topic in the hopes that someone - anyone? - has personal experience with this issue with the IRS that they can relay for the benefit of the forum.

Plan permits participants to take out participant loans at 0% interest. Is this commercially reasonable? If not, are the loans prohibited transactions? If so, do the participants have to repay the entire amount of the loans back to the Plan before the prohibited transaction can be treated as corrected? Or can the interest rate on the loan be renegotiated without the participants having to actually repay their loans?

I think this has come up before but can't seem to find anything definitive/official regarding what to do when a plan sponsor has a cycle-changing event and its determination letter expires before its next applicable cycle. Example: Plan sponsor has EIN ending in 8 so its plan is Cycle C, with an EGTRRA RAP deadline of 1/31/2009. In 2008 the plan sponsor changes its EIN to one that ends in 0. This means the plan is now a Cycle E plan with an EGTRRA RAP deadline of 1/31/2011. Under Section 11.03(3) of Rev. Proc. 2007-44, because both Cycle C (pre-change cycle) and Cycle E (post-change cycle) are still open as of the EIN change in 2008, the plan may (but is not required to) treat the pre-change cycle as the applicable cycle until the pre-change cycle ends. The plan submits a Cycle C determination letter application by 1/31/2009. When the IRS issues the favorable DL, it issues it to the plan sponsor under its new EIN ending in 0 and specifies a DL expiration date of 1/31/2011, which is the EGTRRA RAP deadline for Cycle E. But the next filing deadline is 1/31/2016, which is the post-EGTRRA RAP deadline for Cycle E. Based on Rev. Proc. 2007-44, it seems that a plan in this situation has a gap between the expiration date of its pre-change cycle DL and the deadline for its post-change cycle DL. In the example above, there is a full 5-year gap between the DL expiration date and the next Cycle E filing deadline. How is the plan sponsor supposed to handle this when it comes time to submit the Cycle E DL application by 1/31/2016? I know some people say you need to submit another DL application again before the DL expiration date so you don't have a gap, but that would mean a plan sponsor has to do two DL applications in a single 5-year cycle, and that doesn't really make sense. The ERISA Outline Book talks about how the IRS does not provide an example for this scenario and states that it would not make sense for a plan to have to be restated and reviewed twice in the same RAP cycle. That certainly sounds reasonable, but how is this actually happening when the IRS is reviewing the DL applications in these scenarios and there is a gap in the DL coverage? Is anyone getting pushback because the DL expired before they next submitted a DL application? Is there anything more definitive from the IRS about this?