Roycal

A footnote. If a plan does not provide for something that is legal, that is, would not disqualify the plan or result in a PT, remember that you may always amend the plan to fix whatever needs to be fixed before a distribution (or plan termination). Make the amendment first; do not try it "retroactively."

I would question the $100 charge in the first place. As I understand it, this is a charge that current employees would not pay. Looking at this solely from a legal standpoint, I don't see any reason to charge participants who are now former employees more than current employee-participants. [Note, however, I'm not a lawyer and am not attempting to give "legal advice" here.] I'd argue that this is a penalty for leaving your account in the plan (I assume here that the former employee participants could have cashed out), and could be a plan qualification problem. I speak from experience on a different but related issue with the IRS. I'm not up-to-date on regs and rulings, but this is something I'd suggest the plan sponsor check out carefully, and if not clearly covered by current rulings or regs, get a ruling of some sort. All that having been said, the question of how plan participants bear or pay plan expenses, how they are allocated, or should be, is complex, messy, and I'll leave it at that.

In the absence of other indicators that the use of "may" intended to confer discretion on the plan sponsor, the plan sponsor should accept tendered rollovers that meet the requirements. That's just my opinion, construing to favor the employee and retirement savings options. Obviously the drafter of this plan was too loose, so I expect it is not a prototype or the like. Words such as "may" and "shall" and "must" and their negatives should always be used very carefully.

Mr, Reish says: " As with any fiduciary decision, plan sponsors should investigate the arrangement—the services and fees—and satisfy themselves that it is prudent to provide the service to its nonresponsive participants." I think this is probably the most important piece of advice from Mr. Reish. This option provides the plan sponsor with another opportunity for a fiduciary violation. That's the risk for the sponsor, although from a purely practical standpoint the amounts involved, even in the aggregate, are likely to be relatively small and therefore the plan sponsor's financial risk would be relatively small. Just my thinking -- no advice intended.

Documents. Read the plan document and any relevant annuity contract(s). Although Gulia's ideas aren't advice, they are good ideas. What I say isn't advice, either. But . . . you may have a violation of the law here. Worry about that. Not saying you do, but you (or whoever) should be concerned. I second Belgarath, too. Note that trampling is bad. It should not be done. No trampling. (No help to your here, and I hate to say it, but this is an example of a reason to avoid annuity providers in plans. They may have pros, but I always found them to opaque and difficult to deal with from the compliance and administration side.)

I'd suggest that although not necessarily confused, you may not be clear. As MoJo points out, a the Trustee, whether directed or not, is the trustee. The employer/plan administrator(/plan sponsor) is undoubtedly a fiduciary as plan administrator, but that does not make them a trustee. If you've got a signature line for a "Trustee" signature, that would be the Trustee. However, read the documents carefully (as you do first step in any case)--that's what they are for. They may tell something more about signatories. You could also ask the individual who drafted the document in question if you wish to go that far.

What Paul I says generally covers it. Rather than say DC plans, I'd say profit-sharing (which is what 99%+ of 401(k) plans will be) and stock bonus plans, but not money purchase pension plans, a type of DC plan that's practically obsolete. I vaguely recall that there are special withdrawal limits that apply to matched employee contributions (having to do with the definitely-determinable-benefit rule) but again this is probably an obsolete design. As others have said, the withdrawal rules, like any benefit payment rules, must be expressly provided for in the plan document. This gets into technical areas that call for definitive answers by experts in the qualification rules.

Agreed. Your client should check with both its insurer for policy advice and lawyer for legal advice. Unless you are a lawyer, you need to stay far, far away from providing legal advice.

Agree with the others. Like lots of issues, this one can be solved by reading the plan documents. That's what they are for. If the employer wants to do it right, since the issue has been raised, the relevant plan fiduciary should make the formal loan decision and document it. A plan loan is a plan investment, and therefore an investment decision.

To say what others are saying in a different way. If you're interested, go back and read the joint committee report (I think that's the best to look at) when ERISA was enacted in 1974. The hour-of-service rules were intended to replace the strategies of part-time and temporary service exclusions. You can use job classifications, still, if they're not a subterfuge for evading the hour-of-service rules, and otherwise meet the coverage requirements. I think the meaning of the term "subterfuge" should be pretty clear to everyone. You can look at it this way. The benefits of qualification are suppose to accrue only to those employers who don't discriminate against lower paids. Seems fair enough, though not all would agree.

How to collect the loan balance? Take a look at the promissory note that the participant signed (by whatever means). Does it provide some sort of a right by the lender it could use call the loan in? It seems to me that there should be, maybe not precisely worded as such, i.e. for loans made to noneligible individuals, but in general terms. One would have to read the note carefully to see if this would work. Do that. Maybe just an offset-distribution of the account is called for. Notes typically include (or should) lots of boilerplate to give the lender all kinds of rights and options when things go amiss. As Paul I points out, looking ahead, you need to answer the questions: (1) who screwed up; (2) how did the screw up occur; (3) to what extent was it just a human failure or a failure at the system level (that is, poor system). If this becomes a big deal, who might be liable for the screw up? Obviously, making a loan is making an investment of plan assets, which brings the normal fiduciary prudence rules into play.

No disagreement with the above, but read the plan document carefully. It is bound to tell you what to do. More than likely the spouse-beneficiary will have the right to make an election or elections. I would also add that unwinding the private investments, as you call them, should be done by the appropriate investment fiduciary. Regarding time by which they must be paid, law and regs are clear, and they should be reflected in the terms of the plan. If there's a lot of money involved, bringing in tax issues, timing could be critical, so make sure the widow gets good advice from whoever handles the non-plan part of the decedent's estate, such as the probate attorney and/or the company's and widows tax counsel, who may be different people. Also, you might want to bring in the person who set the company up with this plan in the first place. The more I think about it, the messier it seems. You kind of wonder who put them into the private investments, though it matters little now.

Without taking the time to think this through its possible ramifications, the easy and smart thing to do would be to advise your customer that loan fees should come directly from the borrower's account and be done with it. If the employer persists, then let the employer know that this would be against your advice and you will not be responsible for any problems the employer has as a result and amend your indemnification agreement with the employer accordingly. If the employer asks for your rationale, tell him that you cannot provide legal advice and refer him to his ERISA and employment law attorney. I dodge the underlying question, of course, because I don't believe it's worth the time to fool with.

Adding to my comment above, also make sure this decision is communicated to employees of the company, preferably in a clear provision, by way of example, in the SPD.

I'm not familiar with the "FTW" document referred to (which I take must be some sort of a "form" document), but for interpretive questions like this, look to the plan document itself. Per the document, who is responsible for interpreting plan provisions? Likely, the plan administrator (employer or a committee, for example). As others have said then, the plan administrator needs to make the decision. But more than that, the decision should be well reasoned and the process of making the decision, not just the decision itself, should be documented in writing for the plan's records. Obviously, the plan administrator should take into account appropriate advice from third parties, but should keep in mind that it is responsible for the final decision, not the third party. It may be difficult to convince the plan administrator of it's responsibilities for the plan, but that must be tried.

I've been retired from the business for 12 years. Keep that in mind. First, by a qualification letter they most likely mean a "determination letter." It's not unreasonable to ask for one, but also reasonable not to. Second, you'd think a big player like Fidelity would have it's act together on this sort of thing by now (2023), but if so you'd be wrong. Don't think Fidelity; think of the low-paid, inexperienced and untrained people they have working for them. That will explain a lot.

Justanotheradmin is correct. Follow the plan document and you will not go wrong. Very simple.

Austin3515. A couple of observations that will be of no direct help. First, the assumption that any employer, large or small, tracks hours by the rules written the plan document (which we will assume satisfy the ERISA/IRC requirements) is always a mistake, always has been. But there is nothing you can do about that from the standpoint of making sure they do comply. Second, whether you are talking about a 1,000 hr. rule for eligibility to become a participant in the first place, or to receive a contribution (along with some other rules, usually, in either case), or abandon the hours approach entirely, this is where your skill as an advisor/consultant or whatever comes into play. The right way to do it is to get a good understanding, as good as you can, from the employer regarding his objectives for the plan, and then put your knowledge of his options to use. In my experience, the employer response is often something like, "Well, I don't know, I just want to have a 401(k) plan." That puts you on the spot, does it not, and puts your business model to the test. Even going with an elapsed time rule for eligibility to become a participant isn't going to be foolproof. The employer's recordkeeping is still dependent on human inputs and humans paying attention, and on spending money to get it right, and there is no cure for failures in those aspects of the problem. Good luck.

Keep in mind that that our IRC income tax system relies on voluntary compliance. If you are thinking, "Can I get away with it?" (because in this case there is no bright line), then you are playing the wrong game. When you say "We decided to freeze our 401k plan (no contributions) a few years ago and use the 403b as our sole DC plan," doesn't that sound like you intended not to make further contributions to the k plan, but rather to just go with the b plan? That sure sounds to me like a complete discontinuance of contributions (match) to the k plan. Therefore, full vesting. This is not legal advice. Just my opinion.

A government shutdown would be bad for many reasons, although although a pause in regulatory activity relating to employee benefit plans is not one of them by a long shot. So-called guidance of various sorts is no doubt useful, but life would go on. One could always go back and refresh on the long-forgotten rules of old.

My advice would be to tell them to follow the terms of the plan document and not to try to do something "funny." The doc should spell out the "definitely determinable" rules. Amend prospectively only -- no cutback. Sounds like this is a customer you don't need, and should dump, absent some legal, contractual obligation or an ethical problem for you to abandon at this stage. The being "mad" part makes no sense--not a business rationale.

My opinion, upon which you may not rely, is that you can't do this retroactively for a plan on the calendar year for 2022. My opinion also is that if the sponsor wants to avoid an audit, that's a red flag in and of itself and I wouldn't want this employer as a client. Only more trouble ahead.

I second EBP. These folks need to hire an experienced ERISA lawyer to clean up the mess. They'll have to put out some money, but it should be worth it. Reminds me of the oil change commercial: "Pay me now or pay me later." Apparently the employer went cheap and now must suffer the consequences.

From quite a long time ago, when I was an "ERISA attorney," I recall running into a situation where a client had bought an ESOP plan product from a company that specialized in selling ESOPs with this sort of feature. Although I don't recall the details, I do remember that a "mess" had arisen, which is why the employer came to me. I contacted the ESOP product provider and questioned the design, which they admitted was, possibly, over the line. I in turn sent the employer back to ESOP provider for a solution. I didn't see the sense in my trying to help them out of what I thought was an impossible situation. This was well before the technical advice mentioned above, and even before the diversification option was enacted, I'm pretty sure. Did I do the right thing? (Don't answer that.) I never heard from the client again. I've always wondered why the IRS and/or DOL didn't pay attention to some of weird things going on in the ESOP world. Buyer beware.

"We all know insurance company personnel can be and usually are giving out wrong information and IRS requires 1099s for any money leaving the plan, whether rollover or cash distribution with withholding." All I can add is that this is just one more reason to avoid insurance company products for pension, profit-sharing (401(k)), or deferred compensation of any sort. This is based solely on my personal experience and is not professional advice.