December 16, 2008
FYI: 401(k) Plan Design and Administration
Questions Answered
By Cindy Van Bogaert
Here is your latest FYI: Employee Benefits Update from Cindy Van Bogaert, Partner and Chair of the Employee Benefits Practice Group at Boardman Law Firm LLP.
This FYI provides information about a variety of 401(k) plan design and administration issues that I recently answered in my BenefitsLink 401(k) Q&A column.
Question 81: Can a plan use the Social Security Act definition of retirement age as the plan's normal retirement age (used for vesting)?
Answer: No. A plan generally cannot use the Social Security Act definition of retirement age as the plan's normal retirement age for vesting. For more information, go to: http://benefitslink.com/modperl/qa.cgi?db=qa_401k&id=81
Question 82: What is the distribution code that should be used on the 1099-R for a QDRO distribution where the alternate payee is under 59-1/2 and taking the payout in cash? The entire amount is taxable.
Answer: It appears you should enter Distribution Code 2 in Box 7. To find out why, go to: http://benefitslink.com/modperl/qa.cgi?db=qa_401k&id=82
Question 83: I have a 401(k) plan with a 10/1/2007 - 9/30/2008 401(k) limitation and plan year. All of the deferrals for the plan year for one participant were made during 2008. (No other contributions were made.) What is his 415 limit?
Answer: The Internal Revenue Code of 1986 ("Code") Section 415(c) cost-of-living adjusted limit is effective as of January 1 of each calendar year and applies to limitation years ending with or within the calendar year. Code Section 1.415(d)-1(b)(2)(iii). In this case, the limitation year ending 9/30/2008 ends within the 2008 calendar year, so the 2008 cost of living adjustments generally apply, but see the special rules for pre-January 1, 2008 contributions. Thus, the Code Section 415(c) limitation is the lesser of $46,000 (the limit for 2008) or 100 % of the participant's compensation. You can find more information, including the pre-January 1, 2008 rule, at the following link to the Q&A: http://benefitslink.com/modperl/qa.cgi?db=qa_401k&id=83
Please contact me if you would like more information.
This FYI is not legal advice. Individuals should seek advice based on their particular circumstances from their own counsel. Nothing in this FYI is intended to be used, and no information can be used, for the purpose of avoiding penalties under the Internal Revenue Code, or promoting, marketing, or recommending to another party any transaction or matter addressed in this FYI.
If you have any questions or need assistance, please contact Cindy Van Bogaert at (608) 281-7543 or Email.
Would you like to have FYI: Employee Benefits Update sent directly to your e-mail inbox? If so, please send your request, with e-mail address, to Cindy Van Bogaert at Email.