As an ERISA attorney, I always have an open phone policy with plan sponsors, financial advisors, accountants, TPAs, and other attorneys from around the country on questions they may have about their plan or a client\u2019s retirement plan. I never wanted to be that law firm attorney who was charging for every simple phone call and I just feel that this policy is a great way to build relationships in this tight-knit industry. That being said, some of the questions I get tend to be repetitive. So while I\u2019m not trying to dissuade people from calling me, I just want to educate everyone on some issues that they may not understand. Like I always say, the reason I love the retirement plan industry is that you can learn something new every day. So here we go:<\/p>\n
1. In a 401(k) plan, if you are under 59 \u00bd, you can only get a distribution of your salary deferrals for hardship, death, disability, or retirement. There can be no in-service distribution for salary deferrals in the plan document for less than age 59 \u00bd. If you did, it would be a disqualifying plan provision. You can have an in-service from the profit-sharing source at any stated age though.<\/p>\n
2. A transaction between a plan and a disqualified person is a prohibited transaction. So the plan to buy a building and leasing it to the plan sponsor is a prohibited transaction. Even a financial advisor serving as a plan fiduciary can\u2019t actively solicit rollovers from former plan participants.<\/p>\n
3. Any participant-directed investment that requires a minimum investment or account balance is subject to testing under benefits, rights, and features to make sure that these benefits, rights, or features of a plan don\u2019t discriminate against non-highly compensated employees. So investments with minimum investments of $25,000 can be discriminatory if enough non-highly compensated employees don\u2019t have $25,000 in their plan account. One solution to that dilemma is if the investment can be traded in a brokerage account, offer self-directed brokerage accounts to all plan participants.<\/p>\n
4. There is no statute of limitation for not filing a Form 5500. Using the Department of Labor\u2019s Delinquent Filing Program is far less expensive than getting socked with a penalty from the Internal Revenue Service of $50,000.<\/p>\n
5. Offering a new comparability profit-sharing allocation to a 401(k) plan should not be used in tandem with a safe harbor matching contribution formula because you can not use the matching contribution to offset any minimum contributions under a new comparability plan design (which a safe harbor profit sharing 3% contribution can).<\/p>\n
6. When terminating 401(k) plans, be wary of the successor plan rule which is only applicable to 401(k) plans. Under the successor 401(k) plan rule, generally, an employer may not terminate a 401(k) plan and then start a new one for at least 12 months after the original plan is terminated.<\/p>\n
7. Be careful of offering any incentives for people deferring or not deferring into a 401(k) plan. A 401(k) plan is not qualified unless it complies with the Contingent Benefit Rule. The Contingent Benefit Rule provides, in part, that no other benefit may be conditioned, directly or<\/p>\n
indirectly, on an employee electing to make or not to make elective contributions under the 401(k) plan.<\/p>\n
8. Many plan errors can be corrected without seeking submission to the IRS\u2019 voluntary compliance programs. It all depends on the size of the error and the years involved.<\/p>\n
<\/span><\/p>","protected":false},"excerpt":{"rendered":" As an ERISA attorney, I always have an open phone policy with plan sponsors, financial advisors, accountants, TPAs, and other attorneys from around the country on questions they may have about their plan or a client\u2019s retirement plan. I never … Continue reading