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I submitted a vcp filing where this issue was squarely put before the IRS. The IRS position was to the effect that it would not bless HCE waivers of missed contributions. Policy consideration: The employer/employee relationship is not horizontal. Bottom line: it is unseemly for an employer to even ask an employee to sign such a waiver.

We are the recordkeeper and we pre-fill in most of our paperwork but have an area for changes. With that being said, the address that we have is the one supplied by the employer or the payroll company. If a participant sends back an address change, their distribution is frozen for 18 days, which allows us time to send a notice out to the old address and to the new address and for them to respond to us if they did not authorize the address change. (The participant is informed on the paperwork that they should contact their employer to update their address, which would remove the freeze when the employer verifies the new address with us.) We also have procedures in place for when a person is requesting a cash distribution of more than $10,000. If it is an in-service, we call the particpant at their place of employment and verify. For a terminee, we start with a phone number provided by the employer and then dig deeper if we need to. We also don't permit distribution requests online. They must be done via a request form (loans, in-service, hardship, etc.) or initiated by the employer (terminations). As one of my IT guys says, "The more secure you want the system, the more inconvenient it is going to be."

Assuming the Plan Sponsor, not the TPA, is the Plan Administrator then the Sponsor should be the one authorizing cash out distributions and default rollovers and failure to do so in accordance with the plan document is an operational defect. If 402(f) notices have been sent, the proper time elapses, and rollovers are not made then you have a compliance problem - this is no different than if someone returned an election saying pay me and withhold taxes but then never gets paid. Also, ignoring a cash out provision altogether, which doesn't appear to be your case, is an operational defect as well.

I believe so. Rev. Proc. 2019-19 5.01(2)(B) defines Operational Failure as "a Qualification Failure (other than an Employer Eligibility Failure) that arises solely from the failure to follow plan provisions."

I believe this boils down to a technicality - if the participant wants to pay all of her remaining 2019 payments at once, and NOT get interest credit for the early deposit, then it is equivalent to a series of payments that just happen to be made at one time, and no problem at all. If the participant wants to ultimately reduce interest for making a prepayment, then it should be treated as a principal payment, and it does not eliminate the need for the regularly scheduled payments. Of course the custodian might have its own (made up) rules and whether you want to fight them or not becomes part of the equation. I'm almost certain that American Funds Recordkeeper direct will treat a lump sum as a series of individual schedules payments, so if you went to the amort. schedule you'd see a Dec scheduled payment being made in July with no adjustment to interest.

I've done payroll for many years (13+ now) along with HR/benefits and I've never heard of a payroll system that can't add a deduction code and a start/stop date. How are they reporting out other deductions (even just 401k employee deferrals)? Honestly someone in payroll needs a boot on their backside on this one.

There are two issues here. First, does the plan's loan policy allow for it? Second, can the recordkeeper handle it? Most recordkeeping software is built to basically use an amort checkoff. It does not matter when the loan payment comes in. The payment is just checked off of a loan amort and the full interest is still applied, even though the payment comes in early. Keep in mind though, the participant is still just making a lump sum payment on the loan, the normal loan payments will still be due.