Patricia Neal Jensen

Nonprofit (501(c )(3)) plan sponsor provides a lump sum numberto each employee representing an amount which can be contributed to the HSA or, if not, to the 403(b ) plan. It has always been my opinion that such a choice makes this money, when contributed to the 403(b ) plan, an employee contribution because of the old cash or deferred rules. The employer would like it to be deemed an employer contribution. We could insert a Non-Elective provision with individual groups and test it, but I am just not certain that the fundamental question and answer are correct. Please share your thoughts! Thank you. Patricia Neal Jensen

Good points, Fiduciary Guidance. He did not mention it being a governmental plan or a church plan so I assumed the sponsor was a nonprofit 501(c )(3). (Probably should have articulated that assumption.) Your last sentence is also true, but they are ERISA now! When we are hired by a new client, I do not permit them to tell me they are/ were Non-ERISA without a thorough examination of the facts. Too dangerous as most think that employer contribution is the only rule. PNJ

Amend the plan to cease permitting the purchase of life insurance. That rule will then apply to everyone. Patricia Neal Jensen

1. Yes. Control over the plan is key to causing the plan to be ERISA and Auto-Enroll is control. 2. No. Once ERISA; Always ERISA. I am sure you would appreciate some back up to my responses. I did not have time to look today but can do so later this week. I am pretty confident that I am correct, though. Sorry. This seems a severe consequence for very little, but Non-ERISA plans are precarious and many do not seek competent counsel or advice before taking such action. Patricia Neal Jensen Patricia.Jensen@QBILLC.com

I defer to Luke's wisdom, but really? If the plan document says there is a 6 month deferral suspension, it would be ok to ignore that?

Sorry you ended up with this really old-fashioned contract. I assume there are no other transfers to other investments permitted within the contract? Some contracts have that option but usually not all of the money at once, I grant you that. Finally, I urge caution. You won't know how the insurance company views this issue until you ask them or attempt the withdrawal. They will not care what the TPA thinks. The MVA should not hurt a participant while they are still in the plan. You would not want to incur it and then try to fight your way back out of this. They hold all the cards and have lawyers that get paid every two weeks whether they are fighting your client or not. Good luck! PS... I would love to know how this turns out. Drop us a line, will you?

Agree with Luke. I would be careful to require an election to use such distributions at least 30 days prior to the constructive receipt event (termination in this case).

Private Letter Ruling. No reliance.

FP Guy has the item I would worry about. This is a Church. You may not be applying what you think are the FICA rules correctly in light of who this plan sponsor is.

Once eligible, always eligible.

Agree with Mike re asking the insurance company who issued the contract. Having written some insurance company annuity contracts, my guess is that this is going to be a problem. The annuity contract (according to your notes) says "The annuity contract specifies that "Participant retirement, as defined in the plan document" is considered a benefit sensitive withdrawal." This contract is "superannuated" (too many participants at or near retirement age) as issued to this plan and probably should not have been "underwritten" (assuming anyone underwrites any contract in this day) in the first place. I suggest you leave well enough alone if the interest rate they are receiving is a good one. On the other hand, If the interest rate is a good one (better than they can get now), the insurance company may be delighted to let them out of the contract. Market value adjustments are rare in this interest rate climate. Is there someone in this transaction making money by rolling these people to an IRA? I don't see the logic in this proposed transaction.

Look at the plan document. The definition of Compensation and what is included or excluded.

Thanks, CuseFan! Our internal tech group answered as well. Appreciate the help!

Question concerning a controlled group with matches which vary by division. I know ACP is required but assume there must be more testing (benefits rights and features?). What would the testing be which must be performed in addition to ACP? Thanks! Patricia

ErnieG gives the best Code cite. The confusing thing in this discussion is that a failure to meet the "deadline" does not mean a penalty, etc. It just throws the deduction into the year in which the contribution is actually made. If your client is "maxing out," they could run into trouble by creating a situation in which two contributions occur in the same tax reporting year. Talk to the CPA for the entity.

Had a situation in which the "refusing to sign" spouse died. The attorneys agreed that there was no QDRO and the total payout remained the property of the living employee spouse.

I use a document that permits a specific exclusion of this kind of payment. It is helpful because it is clear. You might review your document's compensation definitions clearly to be sure there is or isn't already language in there which would answer this question.

I am late to this party, but I agree. There are no "rules" concerning how much is matched during the year. A plan could contribute the entire match at year end (if the document language so provided) so anything contributed during the year is gratis, so to speak. As your discussion illustrates, I find that a permitted true up usually occurs when the payroll is uneven (bonuses, etc) or when a high paid person is intent on getting the limit in the funds as quickly as possible. I suggest trying to be clear in the enrollment materials or even adding a sentence or two to the SPD clarifying when the match is contributed and whether or not a true up will occur. It is usually someone "high up" in a client company who gets "pinched" by a "no true up" rule and then they make everyone sorry that additional clarification was not provided.

These are two entirely separate problems. As you point out, the plan document permits it and such contributions have nothing to do with "profit" (403(b) plans, for example) in today's world. He can make the contribution and it does not resolve the issue with the state contract.... either way.

Agree with both Fiduciary Guidance Counsel and QP_Guy. My firm has over 4000 DC clients, however, and we have opted to wait until we get pre-approved language from our document providers to make or recommend amendments across the board. We would, of course, be responsive to an individual request (have yet to hear from a client on this subject), but to handle this in a cost effective way (and not drive the Consultants actually administering the plans crazy!), we will wait until we have the pre-approved language and then recommend amending to all of our clients.

Never say "Part time!"

Agree with CuseFan. This question is answered in the plan document. Look in the section which provides the answer to the question of whether or not Compensation is counted for matching from before Participation date or from Participation date. You won't get a Code citation because either choice is acceptable under the law and, probably in the document. Here is the section from one of my plan documents. This shows that all Compensation for the year is counted for matching because the choice which would exclude it is not checked. Compensation Exclusions 16. Pay Before Participation [ ] Compensation earned before participation in the Plan is excluded from Compensation for the following purposes: a. [ ] Elective Deferrals, Voluntary Contributions, Mandatory Contributions, and Safe Harbor Contributions. b. [ ] Matching Contributions c. [ ] Non-Elective Contributions

Lou S. and Fiduciary Guidance Counsel have won the prize on this one. There are old insurance plans without loans which do not have trustees. ANY asset (loans) outside the insurance contract requires a trustee. Would not surprise me if Mutual of America had issued some of these. PNJ

I am a TPA and not an investment advisor but the plan sponsor should review with a licensed and experienced investment advisor the fiduciary issues raised by having different groups of employees in different investment packages. From an administration point of view, I recommend (and, in fact, would insist) that this plan sponsor choose a provider with a good service package and quality investments and that all future contributions from X date go to that provider and make sure that intra-plan transfers to the new provider are permitted. I also urge such clients to not permit loans, etc from the old vendors in order to consolidate administration and encourage transfers to the new vendor. My firm would decline this plan for administrative and pricing reasons if this client would not agree to at least cease active contributions to the 3 "former" vendors (unless one of them is selected as the new vendor). I assume this is an ERISA plan. And following on that assumption, there will be a sufficient number of challenges keeping track of the 3 sets of "legacy" accounts or contracts for every recordkeeping purpose (benefits, SAR, 5500, etc). I cannot imagine charging enough to compensate a TPA for dealing with individuals with different hire dates being in different recordkeeping packages. The bottom line as I see it is that this plan sponsor is probably not used to being responsible for and operating an ERISA plan. The Plan Sponsor is responsible for choosing and continuing to work with vendors. This responsibility cannot be delegated to Participants who might be "unhappy" if their first choice as a vendor is not the new package. The fact is that the very Participant who demanded that he or she be able to continue to use a vendor who does not meet the selection criterion could sue the plan sponsor later if he or she experiences performance or execution problems compared to another Participant who, hired later, turns out to have been offered a superior package. I always believe that one of the things clients hire me/us for is to give them advice on how to create and maintain a quality, well run plan which will not have compliance or administrative problems. My suggestion would be to try to help this client see that the idea initially proposed is not a good one. An ERISA plan needs to have one vendor and a plan which starts out with 3 vendors needs to have a strategy that results in a minimal number of vendors as soon as possible. All questions welcome! PNJ

We suggest lump sum and clients almost always agree. This may be "old school," but I discourage plans from holding assets that belong to terminated employees wherever possible. They move and we lose track of them (the terminated employees) and why should a client remain a fiduciary on assets that belong to someone who does not even work for them any more? As you correctly pointed out, almost all of the options a terminated employee would want are available with an IRA and then they have a direct relationship with the recordkeeper holding the money. Finally, if the plan sponsor is near the audited plan number, it becomes imperative to avoid holding accounts that might push them over this expensive number.