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TPA fired - not fired - SH notice not issued


M Norton

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We are part of a CPA firm, and perform plan administration and reporting services for clients of the firm.  Mid-2019 we billed plan sponsor for 2019 plan work.  Plan Sponsor was not happy with the amount of the bill and told CPA they were going to find someone else to do TPA work, but CPA would continue to do their accounting and tax work.  Today we learn they did not like other TPA options and so decided to stay with us.  Unfortunately, they did not inform us (or the CPA) of that decision.  They want us to continue to perform TPA work and reporting for their plan for 2019 and going forward.

During the time we thought we were fired for TPA work, we prepared the SH notices for our clients, but did not prepare one for this particular client, thinking they had another TPA doing their retirement plan work.  So I think it is highly probably that no SH notice was distributed to participants.

They have had a SH 401(k) plan for several years, and deposit the SH contribution along with the employee deferrals every pay period.

Can they still be a SH plan for 2020?  Any options??

Thanks!

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Is it by any chance a 3% Safe harbor nonelective? If so - I would review the new SH rules in the SECURE Act. 

If it is a Safe Harbor match - well, then, i'll let other folks give their thoughts on that. 

I'm a stranger on the internet. Nothing I write is tax or legal advice. 

I'd like a witty saying here, but I don't have any. When in doubt, what does the plan document say?

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Yes it is the 3% SH nonelective - and yes the SECURE Act says plans that use the SH NEC will not be required to distribute notices to participants before the beginning of each plan year, beginning with plan years beginning after 12/31/2019.  That would be this particular plan.

Thanks so much, 'justanotheradmin' - you are my hero for today!

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1 hour ago, M Norton said:

Yes it is the 3% SH nonelective - and yes the SECURE Act says plans that use the SH NEC will not be required to distribute notices to participants before the beginning of each plan year, beginning with plan years beginning after 12/31/2019.  That would be this particular plan.

Thanks so much, 'justanotheradmin' - you are my hero for today!

But that doesn't solve your problem (if you have one) because it was the 2019 year that did not have a SH notice, and for 2019, they were still required.  This is a question that I dealt with during the IRS Q&As at the 2004 ASPPA Annual.

This is from the EOB:

6.b.2) Notice failures and suggested fixes informally discussed by the IRS. The IRS’ view may be affected by whether the safe harbor plan provides the safe harbor nonelective contribution or the safe harbor matching contribution, as evidenced by informal “guidance” provided by the IRS at the ASPPA Annual Conference in 2004 and in a newsletter publication posted at the IRS’ website.

6.b.2)a) Failure to provide notice under plan that provides for the safe harbor nonelective contribution. At the ASPPA Annual Conference in Washington, DC, a Q&A session with the IRS held on October 25, 2004, yielded an interesting dialogue on this issue. Where the safe harbor nonelective contribution is provided by the plan through a "hard wired" provision (i.e., the Maybe Notice approach is not used), then the IRS would consider the operational failure to be the failure to provide the safe harbor notice that is required by the plan. The corrective action would be to furnish that notice. The employer would still retain the liability to provide the safe harbor contribution and no ADP testing would be required since the plan is designed to be a safe harbor plan. Of course, repeated failures to issue the notice on a timely basis might prompt the IRS to require additional corrective action which might include performance of the ADP test or invalidation of the elective deferrals of the HCEs. The IRS' response, however, is encouraging that a reasonable method of dealing with a notice failure may exist without additional onerous consequences.

Bottom line: in this case, I would ignore the issue; I would bet big bucks the IRS would not care even under audit.

Larry.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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2 hours ago, Larry Starr said:

But that doesn't solve your problem (if you have one) because it was the 2019 year that did not have a SH notice, and for 2019, they were still required. 

I don't think so, the client fired them mid 2019, so I would assume they DID get the 2019 plan year notice.  It is the notice for the current year that wasn't provided since the TPA believed they were fired during the time the notice (and instructions) would have been sent to the client.

Notice requirement or not, I agree with you that the IRS probably wouldn't make a big deal out of it though.

 

 

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To clarify and confirm:  RatherBeGolfing is correct - the plan sponsor distributed the Safe Harbor notice in 2018 for the 2019 plan year.  The SH notice for the 2020 plan year was not provided to the client and so was not distributed to the participants.  Thanks for the responses and the advice!

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20 hours ago, RatherBeGolfing said:

I don't think so, the client fired them mid 2019, so I would assume they DID get the 2019 plan year notice.  It is the notice for the current year that wasn't provided since the TPA believed they were fired during the time the notice (and instructions) would have been sent to the client.

Notice requirement or not, I agree with you that the IRS probably wouldn't make a big deal out of it though.

No, the notice was REQUIRED to be distributed in 2019, so they were still subject to the notice requirement in 2019 and that is the year they missed it.  The 2019 plan year notice you mention should have been sent in 2018 (and we will assume it was).

Nonetheless, we agree that it is unlikely anyone would give a hoot!  I would not effort over the issue.

Lawrence C. Starr, FLMI, CLU, CEBS, CPC, ChFC, EA, ATA, QPFC
President
Qualified Plan Consultants, Inc.
46 Daggett Drive
West Springfield, MA 01089
413-736-2066
larrystarr@qpc-inc.com

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