RTK

A couple of comments. A top-heavy plan must provide a top heavy minimum contribution to eligible non-key employees. Thus, if your participant is an eligible non-key employee, a top-heavy contribution must be made. Note that (1) the top-heavy contribution percentage does not have to exceed the highest percentage of compensation contributued on behalf of a key employee (provided that the plan is not included in an aggregation group that permits a db plan to satisfy 401(a)(4) or 410) and (2) elective contributions made by key employees are treated as employer contributions to determine the required minimum contributions, but the elective contribtutions made by non-keys are not so treated. Most plans specify that excess 415 annual additions are to be first corrected by returning elective deferrals (and earnings) to the participant. This appears to be permissive under the Regs. Thus, your plan may in fact not provide for this order of correction. If this is the case, and assuming that the participant is a non-key employee (so that a top-heavy contribution is due and elective deferrals cannot be taken into account), there would be no choice but to credit the participant's elective deferrals to the 415 suspense account. If that amount is not ultimately allocated to the participant (say because of termination), it would be allocated to other participants (or returned to the employer if the plan were to terminate and the amounts in the 415 suspense account could not be allocated to participants). Have you thought about amending the Plan to specify the desired correction method?

Even the old proposed (401(a)(9)) regulations, with a little interpretation help from the private letter rulings, would allow separate IRAs to be established for the children to facilitate different investment and distribution objectives (at least for death before the annuity starting date). However, under the old regulations, the oldest child's life expectancy had to be used to determine the required minimum distributions. I know that a couple of the major players required the mother's IRA to be registered in the child's social security number in such case, but would designate the IRA as a beneficiary distribution account.

I looked at this issue a few years back in connection with an anticipated participant bankruptcy that never happened. My preliminary conclusions were: 1. A majority of courts would not consider the loan to be a "debt" under bankruptcy law. Thus, the loan would not be discharged and the plan could foreclose on the defautled loan. 2. Once bankruptcy case closes, plan could accept repayments and take collection actions. Before then, the automatic stay provisions would be at issue. If Ch. 7, the plan could generally accept repayments. If Ch 13, the repayments should stop. Some related comments: 1. I once had a bankruptcy trustee try to seize the participant's account as part of the bankruptcy estate. She did so by contending the ERISA qualified plan must (among other things) be tax qualified and asked to the bankruptcy court to rule that the plan was not qualified under the Internal Revenue Code. 2. Whether ERISA preempts state law on payroll deductions I think is a close call (and with the Sup. Ct. decisions, who could tell). The DOL Op Ltr is 94-27. Rather than forcing the issue, I typically require payroll deduction as a condition of eligibility for a loan make the revocation of the order an event of default. 3. I do not think that a bankruptcy stay on loan repayments changes the income tax consequences. Thus, I believe the deemed distribution rules, 1099R reporting requirements, etc. would apply.

It sounds like the account to be divided is a 401(k) plan account (and not an IRA). Since a distribution to a non-spouse beneficiary is not an eligible rollover distribution, I cannot see how the money could be rolled over or transferred to the IRA. Also, seconding mbozek's comment on guardians, make sure the guardian is the guardian of the minor's estate (responsible for the minor's property) and not the guardian of the minor's person (responsible for the care of the minor). They are often confused.

I do not know of any specific provisions off the top of the head. That does not mean there would not be any ERISA/IRC issues. A couple of ERISA issues that immediately come to mind: 1. Will the institutions be trustees? If so, who selects them as trustee? Typically plan sponsor has the duty. If not, what role will the current trustee play? 2. Who will be responsible for the investments? If the participants, will need to comply with 404 - otherwise, someone will have the investment responsibility. 3. Who will monitor the assets to ensure no violation of plan terms and ERISA duties? 4. Trust agreements and/or custodial agreements will be needed to document arrangement and responsibilities. A primary IRC issue is whether the right of the participant to move assets to selected institutions is a nondiscriminatory brf.

Not much time to respond. Take a look at IRC 401(a)(5)(G) added by Taxpayer Relief Act of 1997 . Basically, nondiscrimination and coverage requirements do not apply to state and local governmental plans.

When you look at the document, also look for any language that specifies the valuation date to be used. I have seen some balance forward documents that provide that the distribution is to be made and valued as of the valuation date following the date the participant applies for the distributions.

I do not recall the prior threads. Besides FICA, the employer could have state and local income tax withholding issues that would need to be dealt with, like here in PA. I believe that it would be easier to establish a 50% or 75% contribution limit, or at least specify in the document that the employee's (100%) elective deferral election is subject to withholding obligations, deductions and reductions due with respect to the compensation.

Off hand, I do not believe that you would be required to 100% vest the four participants. You could, though, amend the Plan to 100% vest the four participants if you want. Note also that as part of the sale, you could transfer the assets and liabilities of the four participants from your 401(k) plan to a 401(k) plan established by the new business. In that case, the four participants would continue to vest in accordance with the vesting schedule.

KJohnson had good comments. I noted the case because it is the only one I am aware of on the issue. My recollection is that the participant in that case challenged the amendment as a reduction of an early retirement benefit, and not as the elimination of an optional form. But, it should help in the event of an ERISA challenge to an amendment of a plan's suspension of benefits provisions. Given the IRS's position on the application of 411(d)(6) to a SBJPA change to the required beginning date (which has always been a little irritating since the Code forced the provision into the plans in the first place), I suspect the IRS still does not think much of Spacek. Nonetheless, I have implemented more restrictive suspension of benefit provisions, but with the approach of securing an IRS letter for the amendment.

The 5th circuit, when considering a challenge to an amendment to a multiemployer pension plan's suspension of benefit provisions, held that the ERISA anticutback provisions did not apply. The case was Spacek v Maritime Association. 134 F.3d 283 (1998). I do not know if other courts have considered the issue.

Thanks for the replies. For the record, I agree with your comments, but not all of those who are involved with this issue here do, and the corroboration is helpful. The reference to fiduciary grounds was one person's argument to support the dollar threshold on the basis that the plan fiduciary would not want the responsibility of limiting mega rollover accounts to the selected core investments, particularly if the plan allows an in kind rollover. Thanks again.

Plan is a 401(k) PSP, with elective deferrals, profit sharing contributions, and rollover contributions. Participants direct investments of all contributions choosing from a mutual fund menu. Consideration is being given to adding a participant directed brokerage window for rollover contributions only. Consideration is also being given to requiring use of the brokerage window for large rollover contributions because of fiduciary concerns (and not providing access to the mutual fund menu). Raises some questions: 1. Is the participant directed brokerage window a separate benefit right or feature? 2. Is a participant directed brokerage window provided only for the rollover contribution accounts a discriminatory benefit right or feature if only HCEs have made a rollover contribution? Can testing be limited to rollover accounts, or must it consider all accounts? Can the brokerage window BRF be aggregated with the mutual fund menu BRF? 3. Is providing the participant directed brokerage window to rollover contribution accounts in excess of $500,000 a discriminatory benefit right or feature if only HCEs have accounts in excess of $500,000? Can the dollar limit be justified on fiduciary grounds?

If an individually drafted plan, I have generally prepared a termination amendment with the required GUST changes (plus other desired changes), and have not prepared a restatement. Often, this results in a fairly short (and relatively inexpensive) amendment.

My thoughts. If not sham separation, there are no Code or ERISA requirement that installments stop. If plan is silent, arguably installments should continue since there would be no provisions authorizing (or requiring) plan administrator to stop the installments.

Returning these assets could raise exclusive benefit issues. Generally only assets held in a 415 suspension account can be returned to the employer. See IT Reg. 1.401(a)-2. See also Rev. Rul. 91-4 for other permitted reversions.

For what it's worth, I agree with you Belgarath. Actually, I find it interesting that that the paperwork and payment could routinely be processed so quickly to generate 20 cases. Given the notice and 30 day requirements, the typical lag in getting elections from terminated employees, and the time to authorize and have payment made, I can't recall this issue coming up very often.

For the # at the beginning of the year, I have used active participants (and excluded retirees and term vested) - the idea being to compare the number of active participants terminated during the year by employer initiated action to the the total number of active participants for the year (which is equal to the number of active participants at the beginning of the year plus the number of active participants added during the plan year).

alexa48 You could write many pages on partial termination issues. Let me give a few thoughts to get you started. Regarding who is a participant, I believe only employer initiated terminations need to be taken into account. Thus, I have excluded quits, retirements (voluntary only), deaths, disabled, and discharge for cause in partial termination calculation. The issue of vested participants is not as clear. The IRS says yes. Some courts have said yes. Recently, the 7th circuit said no in Matz v. Household International Tax Reduction Investment Plan. 265 F.3d 572. An early 7th circuit Matz decision discusses the other cases on the vested participant issue. 227 F.3d 971. Regarding the signficant #, although the IRS guidance talks about "signficant percentage" and "signficant number," I have had success in IRS applications in focusing on signficant percentage only. A number of courts seem to have taken the same approach. One case is Halliburton in the Tax Court. 100 T.C. 15 (1993) I have done my percentage calculations by putting the number of employer initiated terminations during the plan year in the numerator and putting the number of participants at the beginning of the plan year plus the number of new participants added during the plan year in the denominator. This assumes the use of a single plan year for the partial termination calculation. Note that the Halliburton court permitted rehired employees to be excluded. Regarding adding in upcoming furloughs, you should do so to plan for the issue. This really raises the issue of the period over which to determine a partial termination - i.e., should multiple plan years be aggregated. This was addressed by the Matz and Halliburton courts. Note that I believe plan years should be aggregated only if related to some corporate event that continues for more than one plan year. Hope this helps.

In typical merger, no - see Rev. Rul. 94-76. Note though the MPP money may be distributed as in-service withdrawal at normal retirement age.