ldr

@RatherBeGolfing, thank you. That makes sense. @david rigby, I see your point. Under the terms of the plan document, he is now eligible to be paid out, when he has completed his withdrawal form. He would have been treated like any other terminated participant and paid his full vested account balance "as soon as administratively feasible" after his date of termination and completing his form, had it not been for his HR department sending us his marital settlement agreement. I understand all of the kind advice given, and I understand QDROphile's blistering, scathing attack as well. From what you all are saying, it would appear that the participant is entitled to withdraw 100% of his funds. The problem I see with this is that If the participant does not give his ex-spouse 50% of the proceeds, are we as the TPA or the HR department of the client somehow going to be held liable when the ex-spouse comes complaining? We can't say we didn't know. It would appear to be time to consult with the ERISA attorney we have on retainer for thorny issues.

Hi ESOP Guy, Excellent and thought provoking answer that has raised a host of new questions. The plan document and the written QDRO procedure are just peachy once we actually have a DRO. They are both silent on what happens when you know a DRO might be in the works. Does that little paragraph I quoted from the marital settlement agreement somehow constitute a DRO that just doesn't happen to be a QDRO yet because it does not contain all the ingredients to be qualified? I don't know. I don't know what the legal obligation of the employer was to send us the marital settlement agreement and I don't know what our legal obligation is to stop anything from happening to the funds until the issue can be addressed. Looking at it from your perspective, maybe both we and the employer are in the wrong for freezing his account, since there is not DRO. (Unless that little paragraph is a DRO).

Good morning to All, Have you ever had a case where no DRO or QDRO was ever done, yet the participant is demanding a distribution? This is a first for me. One of our clients has a 401(k) plan with a participant who was an unwilling party to his divorce. He says his ex wife "did it all" - hired the lawyer and paid for the divorce. The lawyer made a one paragraph passing reference to the participant's retirement account in the Marital Settlement agreement. "Respondent has a retirement plan with XX Company. Upon distribution of the funds in this plan, Respondent will direct the Plan Administrator to divide the funds equally between the Respondent and the Petitioner, that being 50% to each party, however distributed." That's it. The participant has now terminated employment and claims to be in very dire straits and wants his half of his money RIGHT NOW so he can move in two weeks. He does not know or care how a DRO or a QDRO might eventually be created and he does not particularly care about the rules and regulations we are all trying patiently to explain to him. He has stated that he most certainly is not going to pay any lawyer to do a DRO. His HR department knew enough to call me as the TPA, send me a copy of the marital agreement and question whether he wasn't supposed to have a QDRO before anybody could get paid. I knew enough to alert John Hancock not to process any termination requests from this person and effectively "freeze" his account until we can get this all sorted out. What the participant wants is for the Plan Administrator (the employer/ Trustee, effectively) to liquidate his account, send half to his ex and half to him, tomorrow if at all possible. I do not know of any legal way to accommodate this participant, but I thought I would run it up the flagpole to see if any of you have ever processed a marital division of an account without a QDRO. I have certainly never heard of any such thing. Your advice is appreciated, as always.

Thank you both very much! Tom, I see the distinction and the document is fine. The way I phrased it in my question left some doubt. Yes, each person is indeed in his or her own group. Have a wonderful day, both of you!

Hi to All, We have a 401(k) plan for a non-profit entity with a new comparability formula for the profit sharing. The intention in the design was to have each participant in his own group and to vary the contribution level at will. There are no HCEs and of course no "owners". Can the employer give 10% of pay to the 3 oldest employees and nothing to the 3 youngest employees? Can the contribution be literally whatever they feel like giving to each person? We are so accustomed to the world of small closely held companies that it's hard to think outside the parameters of normal non-discrimination testing. Our first instincts are to say "Oh no, you can't do that!" but perhaps you can! Any thoughts? Thank you as always.

Good afternoon to all, Our firm is reading this thread with great interest today because we are grappling with this same issue. Specifically, we are focusing on small clients who have few employees and are only a few days late on their deposits. Using the DOL calculator comes up with tiny amounts to be deposited, and we have to bill the client at least 1-2 hours of time for the person who does the calculation. We are not using the VFC program. A colleague suggested that we pick an interest percentage, like say, 10%, and give it to all the late deposits in gross without doing a detailed analysis. This results in the participant getting more than they would have if we had done the actual calculations, and we don't have to send the client a bill for 2 hours of our time. How do you feel about that? What are you doing in your shops? Thanks as ever for sharing solutions.

Hi justanotheradmin, thanks for your reply. I feel a little better. I do a separate email to my clients each year, not at peak time when everything else is going on, and I remind them of what their eligibility requirements are and that it's their responsibility to enroll people timely. I also tell them to obtain and keep documentation on those employees who decline to make salary deferrals. I think this year I will add something letting them know (if they don't already) that corrections have to be made if someone is omitted and to let me know if they find that someone was inadvertently left out, or if their directions were not implemented. I don't know what our service agreement specifies about this but I will find out.

Hi to All, If you saw the John Hancock webinar today on the EPCRS program and how to use it, you will understand where my questions originate. There was a lot of coverage of enrollment errors and the corrections seemed quite complex. Actually I should have said that the corrections themselves are not that hard, once you can identify what kind of error it is, what kind of money is involved, how long ago the error occurred, whether or not automatic enrollment is a factor, etc. That's the harder part - figuring out which kind of error you have. My question is, how would I even know an error had occurred, and ultimately, who is responsible for figuring it out and correcting it? Our non-producing TPA shop does traditional, annual reporting for retirement plans of small employers. We are not usually involved in periodic enrollment meetings after the plan is established. Unless the employer volunteers the information or the participant complains to us, we would never know if someone was enrolled late. If the employer distributes an enrollment kit in May to someone who was eligible on January 1, and that person starts deferring on June 1, all I will ever see is the total deferred for the year and the total compensation for the year from the return of the annual census data. I don't ask and I am not given any data about when participants begin deferring. I suppose I could go look at each new person in the plan, if a platform like a John Hancock is involved, and see when deferrals commenced but even then, I wouldn't know if the person initially declined and then changed his mind later on. What are the rest of you doing? Are you closely involved with the enrollments of your client's employees? Do you collect copies of the enrollment forms or the forms declining the opportunity? Is this your responsibility as a TPA? Do you rely on the investment advisor to be on top of this? Outside of informing the client and the HR department (if any) of their responsibilities when the plan is first installed, do you follow up to see if procedures are actually being followed? My colleague here says he has done these corrections a number of times over the years, but it was because a savvy participant complained about not being enrolled properly, not because he as the TPA discovered the error or because the employer let him know there was a problem. I could probably count on one hand the number of times I made these calculations and it was so long ago I don't even remember the circumstances. We would like very much to know how other firms are handling this issue. Thank you.

Thanks, XTitan, I appreciate your comments. We will see what happens next!

Well now that you mention this.......we are a little bit uncertain as to who is eligible. We've been told that it's not as simple as identifying the HCEs and calling it a day. Some rather vague phrases like "top management" and "decision makers" have been tossed around but we don't know whether there is a hard and fast definition of which employees belong in those categories. Is "top management" only the corporate officers and/or the shareholder employees? "Decision makers" could be a broader group than "top management", possibly. If anyone can provide a link to the law that governs this, we would be most appreciative. Or do we let the ERISA attorney who ultimately drafts the plan make that determination?

Thanks, BG5150. I actually hadn't thought about that yet but I am sure the primary person working on this case probably has. :)

@loserson: Thanks for your observations. They will not do what WE consider to be a "normal" 401(k) plan (in our world that's a Safe Harbor plan). The employer will not provide a Safe Harbor match or a Safe Harbor Non-Elective contribution. Period. They plan to put in a deferral only 401(k) plan for the NHCEs and to do something else entirely for the HCEs. We are pretty sure that other TPAs are talking to them about NQ plans and have gotten them interested in the idea. There is no point in enrolling 12 HCE employees into a traditional, non-Safe Harbor 401(k) plan subject to the ADP test because so few NHCE employees are going to participate that the HCE employees would end up having to take all or most of their deferrals back out of the plan, causing a lot of distress. They will never reach the $19,000 limit you refer to because even if they put it in, they will just have to take most of it right back out when the ADP test fails. Remember, we are talking about 600 participants in a plan without a match, and most of those 600 employees are really lowly paid. They have no incentive to participate. Why would the employer even bother to set up such a plan? My guess is that he wants to be able to say he offers a 401(k) plan when hiring people. Okay, that's not a lie - he will be offering a 401(k) plan. Just a plan without any employer contributions! The more we read about the NQ plans, the more we like the concept. It just depends on the company itself and the employees involved. Do they trust this employer? Do they believe the company will be in business 5, 10, 20 years from now? Do they want to stay and find out? Will they put up with not being able to roll the eventual distribution to an IRA? Will the employer and the 12 HCEs be willing to endure whatever disadvantages come with a NQ plan? We don't know. We have to find out. One contributor to this thread suggested a match so rich that greed overcomes caution and entices the 12 HCEs to overlook their reticence. Who knows? That might be a great idea. So all this is to say that no, sorry, one 401(k) plan for all is not a solution because the employer has no intention of making contributions for anyone except the HCE group.

Let me clarify this a bit. They don't plan for the 12 HCEs to be involved in the qualified 401(k) plan at all. That's because it will have at least 600 employees in it and they don't want to give anything at all to them. The qualified 401(k) plan will be deferral only, more or less a convenience for the NHCE employees but not a "benefit" in the sense of any employer contributions being made for them. So for those 12 HCEs, what we are looking at is a "mirror image" plan. It's not an excess plan on top of normal 401(k) participation; it's a plan to serve the HCEs instead of a normal 401(k) plan, in which the employer can and will make a matching contribution. We are still studying, calling people, and asking questions. We are a lot more amenable to the whole idea than we were a week ago. Thank you all for your comments and observations. We learn a lot about what to go study further just from your commentary!

Mike and C.B., thanks for your ideas. You are getting into pretty esoteric areas (for us) and we would need to do a lot of research on this. Our general impression is that QSLOBS are supposed to be extremely unrelated businesses, like say, a gas station, a hair salon and a pizzeria under common ownership. This prospect of ours has multiple corporations but they all do the same thing. We didn't think that could qualify for QSLOB status. As for a QSERP - we'd have to look into that.

All interesting ideas! Thank you all very much. I will let you know the outcome. david rigby, thanks and we may very well need to get in touch for a recommendation if the other 2 local ERISA attorneys here are not experienced with NQ plans.

jpod, thank for the 3% ideas. I doubt that the employees could afford a 3% pay cut, and I also doubt that the employer was planning a 3% pay raise for next year, but it certainly won't hurt to at least ask!

Hi Mr. Bagwell, We presented the Safe Harbor match plan to them and really tried our best to sell that idea. My guess is that they perceive it as potentially being too expensive if enough people participate. We really don't like the idea of a deferral-only plan even for the NHCE group without the HCEs because only a very few people will use it and as you say, we still have to process all those people for census purposes. It seems like such a waste of resources. We are not considering putting in a plan like you described, a non-Safe Harbor covering everybody. For all the reasons you cited, that will not work. My guess is that they are talking to multiple TPAs and someone else has suggested what they are now requesting, which appears to be the deferral plan for all but the HCEs and the NQ plan for the HCEs. Our shop is small and we do not try to do all things for all people. We don't do ESOPs for example, preferring to defer to the ESOP gurus on that. We haven't been doing NQ plans but we are wondering if perhaps we should. Meanwhile we are asking questions and researching the subject. What I initially was asking was whether there is some new technique for manipulating qualified plans to produce the desired effect. I don't see how that could possibly work with only using qualified plans. However after doing more research and reading the responses here, I am inclined to think that the combination of the deferral-only plan for the NHCEs and the NQ plan for the HCEs could get the job done if they are amenable to all the drawbacks of the NQ plan and if we decide we want to jump into this arena. Thanks!

Hi XTitan and jpod, Thank you both for your observations. I shouldn't have said that NQ plans are not popular without checking further. We were just told this on the phone by an ERISA attorney who said he hasn't had to write a document for one in years and that they had fallen out of favor. That's just one person's perspective and we should have looked further. XTitan, can you explain more about what you mean when you say that you would prefer to see the right qualified plan address this first? To our knowledge, what we have here is an employer who wants to offer everyone except the select group of 12 HCE employees a deferral-only plan (which will largely go unused but whatever). The employer apparently wants to be able to say that he has a 401(k) plan when hiring people but doesn't want to make any employer contributions to it. Then for the 12 HCE employees, he wants a separate plan, to which he will make a match of some sort but we don't yet know how much that will be. jpod, I like your idea about a match so rich that the 12 HCEs could overlook the hazards of a NQ plan. If you have a suggestion as to how to accomplish what they want using only qualified plans, we'd appreciate more details. Thank you both in advance.

Good afternoon to all, We have a prospect that has about 1800 employees, mostly in lower paid jobs, in the service industry (think restaurants as an example). Of the 1800, only 600 would be eligible if we use 1 year of service, dual entry, age 21. There are 12 HCE employees. All these employees are spread out over several corporations, but they are all owned by one man, so it's a controlled group. They have been presented a standard 401(k) plan with a safe harbor match to cover everyone and have rejected it. What they say they want is a deferral-only 401(k) plan for the NHCEs and a separate "carve out" plan (their terminology, not mine) that benefits only the HCEs for which the company would be willing to provide a match. We are somewhat aware of the existence of Non Qualified Deferred Compensation plans but our understanding of them is that they have so many drawbacks that they are not very popular anymore. We don't really think that the 12 HCEs will appreciate their contributions being a general asset of the employer, being subject to taxation if they leave and take the funds, etc. We understand that the contributions could be put into a Rabbi trust, but even then, they are still subject to the claims of creditors if the company experiences bankruptcy. All that makes this look like a doubtful solution. Are we missing some cutting edge, new plan design possibilities within the world of qualified plans? How have you addressed such requests, if you can share? As always, your comments and experiences are much appreciated.

401king, thanks. I was wondering about that. I didn't want to annoy people by asking TOO many questions this morning so I didn't say anything but it stood to reason that you can't go indefinitely on LOA.

Hi again Bird, A little more information became available. The man is only 47. The loan was actually financed originally for 2 years, not 5. Someone else in the firm came along and said to check to see what the loan policy of the document says about repayments during a leave of absence and indeed, there is a checkbox that is marked, saying that repayments are suspended during a leave of absence. So the decision was made to just let the loan rock on, accruing interest, and deal with it when the man actually dies or when the employer changes his status to terminated instead of being out on leave of absence. Thanks just the same!

Thanks, Bird! That's the part I didn't know - that the loan has to be brought completely current in order to prevent the default. Good idea on the 1099-R - hadn't thought of that yet.

Hi to All, We just got a phone call from HR lady of our client to say that a certain participant who has a participant loan is in the process of dying of pancreatic cancer and has been out on medical leave for the last 6 months. He's not really expected to ever come back to work, but she hasn't really officially declared him to be terminated, either. The participant took out a participant loan on 12/18/2018 in the amount of $11,650.00. He made two bi-weekly payments of $119.40 on 01/14/2019 and 01/22/2019. He went out on medical leave at that point and has not made any more payments. This quarter ending June 30 is his cure period and so far he hasn't made a payment. HR lady wants to know what his options are. Can he make some little tiny payment like $100 and get another cure period running July 1 to September 30th? Could he do that twice and thereby keep his loan from going into default in 2019? I think she's asking if he can just keep this thing running until he actually passes away and then it becomes someone else's issue at that point. All the situations I have seen so far were "all or nothing" - the person was either making payments, or stopped. I don't know what happens when someone pays a little something but not enough to bring a loan up to date. Of course I know that the loan is supposed to be paid within 5 years of the loan initiation date, but does it get re-amortized each quarter, with higher payments, such that it would still be paid off theoretically within the original 5 year period? Is that even permissible? He could, of course, just let it default and pay the taxes on the deemed distribution at the end of 2019 if he's still alive and has the money to pay them. Any of your thoughts and experiences will be appreciated. Thanks in advance!

Good advice and we have been having that very discussion lately. Every place I have worked has had its strengths and its weaknesses, and as one problem after another gets fixed, some new area comes into focus. This is the issue of the moment, and this is the year we have all promised each other to really scrutinize the timing of deposits and to hold the clients' feet to the fire. We usually did, for egregious cases and habitual cases, but we haven't really drilled down on every deposit every time for every client until now. We ask, on the annual questionnaire, whether or not the client had late deposits. A rare one sometimes answers the question truthfully. However, with a platform provider handling the funds, we can easily run off a copy of the deposits made for the year and compare it to the payroll runs and see for ourselves whether they were late or not. That's the extra step we will be taking going forward.

Thanks, Rather Be Golfing. Right now I'd rather be golfing too and I don't even play! I like your idea about having it go through the platform so there is a clear paper trail. Even if it becomes stupidly cumbersome to distribute these pennies. Yes I know it's the law. I'd be very surprised if every TPA in the country makes every single client deposit interest every single time they are late. We have been a little too lax on this, trying first to warn the client that they had better shape up or we would have to start making these calculations and charging them extra to do it. Most of them do start making their deposits on time after that. In this particular case, I do feel for the client because he's new in his position and he took over a mess he did not create. He's the first and only person in the organization who has ever taken a genuine interest in doing things correctly and there have not been any more late deposits since he took charge. I did find out that the platform provider will not charge anything except an asset fee and that they will write a check to the participant for pennies if necessary. However, they won't use distribution instructions that are any older than 6 months so it looks like we may be sending out more distribution forms for tiny amounts. Or the amounts will waste away with asset fees over time. If checks do get issued, people may not bother depositing them because they are so small. We will cross that bridge when we get there.