FYI: 401(k) Plan Design and Administration Questions Answered

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