A retirement plan, to tax-qualify under Internal Revenue Code § 401(a), must meet all conditions not only in the written plan but also in actual administration according to that written plan.  The Internal Revenue Service’s Employee Plans Compliance Resolution System presumes the point; the Revenue Procedure defines an Operational Failure as one “that arises solely from the failure to follow plan provisions.”  Rev. Proc. 2019-19, 2019-19 I.R.B. 1086, 1099 § 5.01(2)(b) (May 6, 2019).  (Thank you, C.B. Zeller.)  Unlike some other points made in the Revenue Procedure, this one cites no Treasury regulation as support for the point.

Writers often say a plan must tax-qualify not only “in form” but also “in operation”.  There are Treasury regulations and court decisions that support the in-form point.  But I’m not (yet) seeing a regulation, court decision, or other law source that clearly states or supports the in-operation point.

I’m hoping BenefitsLink mavens will teach me.  Will you please help me?

I have a (former?) client with a national payroll company that also sells a 401(k) plan and service.  He remits weekly payrolls to the payroll company and they calculate and mail the paychecks.  They debit a company account. 

The client has never been able to keep other than a catch-up contribution and tiny match in the plan because of non-existant NHCE participation.  He's finally having the best business years of his life and agreed to share his company's success with the employees and also solve the 401(k) deferral puzzle with a 3% SHNEC in 2019.

His desire is to fund the 3% SHNEC on a weekly basis along with payroll so as to avoid a big deposit requirement at year's end and to have his employees start seeing money go into their 401(k) accounts.  (They all have some money there since moving from a pooled account into individual accounts.)

He's (I'm) getting push back from the payroll company saying that this can't be done without amending the plan document.  They site two Adoption Agreement sections:

2. ADP Test Safe Harbor Contributions
For the Plan Year, the Employer will make the following ADP Test Safe Harbor Contributions to the Individual Account of each Eligible
Employee as described in item 1(b) above, in the amount of(select one):

Let me start by saying that I don't work on SIMPLEs - this was a call I took from a desperate advisor, and while I told the advisor that I don't know the answer (and he is now going to check with the company's accountant), now I am genuinely curious...

A small business has a SIMPLE, and all participants have signed on to have their SIMPLE accounts through one financial firm (let's say Merrill Lynch).  Now one participant brings in paperwork that says he wants to open his SIMPLE account somewhere else instead.  Does the plan sponsor have the authority to limit where the accounts are?  From what I can see, I don't think so, unless maybe the SIMPLE document is specifically a SIMPLE document from ML that specifies that all accounts will be held there... and even then, I'm not sure that would hold up.  Am I even in the right ballpark?

A company is owned 100% by an ESOP. The only contributions are made by the company. The company executives voluntarily decide they want to reduce the executives' compensation contribution percentage to a much lower percentage than is being contributed for other employees. Am I correct in assuming that to do so without a plan amendment to that effect creates a plan failure that needs to be corrected?

I terminated a Cash Balance Plan in 2018.  We were unable to locate two participants so their account balances were sent to the PBGC under the missing participants program.  The PBGC audited this termination and sent me and email stating that the payments made for the two missing participants was not calculated correctly.  Both individuals had benefit values in excess of $5,000.  I was told I needed to use their standard calculation method applicable to traditional defined benefit plans.

Is this correct?

If the lump sum value was less than $5,000 would the account balance be the correct amount to send to the PBGC.

Thanks,

Can an employer offer longer COBRA duration, for example 30 months instead of 18 for a class of employees - executives, or salaried but not hourly? Assume that the employer does not subsidize the premium.

If a plan transfers out of a MEP and into a single employer plan there would be a blackout notice provided to participants upon the beginning of administrative activities to transfer moneys out of the MEP. But when preparing the first year 5500 for the newly birthed plan does the single employer 5500 need to state that the plan went through a blackout period because moneys were being transferred from the prior MEP? I can understand indicating a blackout on say a record-keeper transfer within the same single employer plan, or even the MEP suggesting a blackout occurred when money left its plan, but I'm on the fence about the newly created plan. Thoughts?

Assisting a 403(b) client with a question regarding whether to perform match true-up calculations and what may or may not need to be done for prior years.  Their Recordkeeper had prepared their plan document and the language is not as clear as one would prefer (Adoption Agreement or Basic Plan and Trust).  The client has been paying in their employer match on a payroll basis each year.  This year during the plan audit, it was determined that the plan document language bases the match calculation on Plan Year compensation and the Recordkeeper indicated that a true-up would be needed.  

This had never been mentioned to the client in the past either by the recordkeeper, prior plan auditor or their TPA that was hired on a limited-scope basis to perform certain additional tests that were not handled by the recordkeeper.  

The client is trying to determine if they do have to calculate and pay in the required true-up match, how will this impact all of the prior plan years that they have NOT done this or is there any other options available for correcting this problem.

Before getting ERISA counsel involved, I wanted to explore all possible options for the client.  

Everyone's comments are greatly appreciated!  Gotta love the Friday projects....

Trying to get a sense of what I'm up against before purchasing.  Only one of my coworkers has taken this exam and it was quite some time ago...  I have 3 years of experience in the retirement industry (got my QPA in February 2018) but would like to tackle this sooner than later. 

Specifically, how long do the modules alone take to complete? How much time should I allot to study for the written exam afterwards? Would it be beneficial to purchase all 4 elective modules?

Any help would be great..  Thanks!!

Can a deposit made during during one plan year be partially deducted in that year and partially deducted in the following plan year?  (The total amount was within the limits to be deducted in the first year.)

A non-electing 403(b)(9) church plan has an employer with several operational errors. The employer is currently working towards submitting a VCP application. It has been identified by one person in this organization that part-time employees working 20 hrs/week or more were never given the opportunity to participate via salary deferral. Now, the plan is not subject to the Universal Availability rule, BUT the overall plan document indicates default eligibility for deferral participation as 20 hrs/week UNLESS an employer overrides this eligibility with a statement on its Employer Adoption Agreement in which they can raise or lower the hour threshold. This employer did not indicate a threshold for eligibility on its Employer Adoption Agreement. However, one of the individuals believes because the employment offer to one or more part-time employees stated there would be "no benefits" with the part-time position(s), he believes that there was not an operational failure to follow the written plan document.

Is he right? Is this a case of "facts and circumstances" in which the employer could justify not giving an opportunity to participate because the employment offer stated no benefits would be available? 

Thanks in advance for your responses.

KJ

I got a question from a client and the person that normally handles our Cash Balance Plans are out.  They wanted to know what happens if the cash balance investments perform poorly.  Is the employer on the hook to make up the lost interest?  Is it annual (additional required contributions for the shortfall)?  

Sorry for the question, just wanted to hopefully get back to them quickly.

Thanks in advance!

Can a board resolution be used to state the maximum deferral percentage that can be deferred by the HCE group  and also state that any amount over the average by any HCE who has or will attain at least age 50 by the end of the 2018 calendar year will be considered a catch-up contribution?

A sponsor adopting an open MEP decided to start its own plan.   So they gave notice to the MEP and the balances for the active participants were rolled into the sponsors new plan.   Balances for terminated people were left in the MEP though.   Should the balances for the terminated people have moved as well?

Have another recent situation when the plan sponsor was acquired by another company and the acquired sponsor is transferring into the acquiring entity's plan.   Again, do the balances for participants terminated prior to the acquisition move into the acquiring entity's plan?

Both Relius and FTW will rollforward a plan and enter the end of year participant counts as beginning of year counts.

Are people increasing that figure by the 1/1 entry dates?  NOTE:  I would OF COURSE take them into account for purposes of determining an audit requirement.

Based on the fact that FT/Relius pre-fill those figures, I have to make the assumption that they do not think this is a big deal.  Just curious if others think maybe it's not worth the time it takes to count them up each year.

So let's assume there is a successor plan rule violation - 401(k) or 403(b) plan, doesn't matter for purposes of this question. All participants in the terminated plan rolled their assets over to the new plan, which was established prior to the 12-month period.

How would one even present this for correction under VCP? Anyone tried this, asking the IRS to allow it? Etc., etc.? - I don't recall ever seeing this - successor plan questions usually come up prior to the termination of the first plan. Any "fixes" that the IRS approved? I wouldn't think that this is very common, but maybe it is.

Individual currently owns a non-qualified VA, he is the owner and annuitant, contract had a ratchet and guaranteed minimum withdrawal benefit.  The ratchet has expired so he is looking at exchanging into a new 
VA contract.  

The current contract has the owner as the annuitant and his spouse as designated beneficiary.  He is looking at exchanging into a VA where he will be the owner and he and his spouse will be joint annuitants.  Does this qualify for a 1035 exchange?   Best I've found in trying to research is that the Service has not directly addressed this.  The wording in the code and regs is vague at best, saying: 

The exchange, without recognition of gain or loss, of an annuity contract for another annuity contract under section 1035(a)(3) is limited to cases where the same person or persons are the obligee or obligees under the contract received in exchange as under the original contract.

Clearly the current owner/annuitant would be the same obligee.  But is the spouse, who is currently the designated beneficiary in the existing contract an "obligee", as she would be under the new joint contract?

Thanks.

I'm talking to a plan I'm looking to take over, and they are getting close to the audit threshold.  Luckily, they have two separate businesses in their controlled group, so I'm thinking about splitting the plan into two identical plans to avoid the audit (yes, we'll charge them a little more, but nothing near what the audit costs).

The assets are on a product platform.  One of the issues of the plan is that very few of the participants have balances, so I can deal with manually separating the download, but is there a problem with all the participants staying in the same 'contract'?  Is this a master trust?

Thanks.

Small DB plan Trustee pays for investment courses from Trust assets (about $1,500 from $750,000 of assets).   Could this be construed as a plan expense?  I think probably not, however, in the context of a DB plan for which the Trustee is main participant and ultimately having to meet minimum funding it may not make a difference.

The ultimate question is whether this type of expense is proper to begin with or legitimately a settlor or personal (to the Trustee) expense.  In the context of a DC plan it could make a difference.

OK, I know this has been asked, but some threads are from 2003 & 2004, so I wanted to ask again.  A client received a DOL letter (out of Philly) last month about the late deferrals reported on their 2018 5500.  This client had already contributed lost earnings to participants and filed Form 5330 with the excise tax payment.  The letter says "It is important to note that some plan sponsors who make late remittances of participant contributions decide merely to calculate lost earnings using the VFC calculator, and deposit that amount into the plan, but do not file a VFCP application. This informal process is not the same as filing a VFCP application, and does not protect a plan sponsor from potential audit by EBSA."

In the last month, I went ahead and filed the VFCP application on behalf of the plan sponsor because I don't know if they would otherwise be targeted for an audit.

Questions:

1) If it will be time consuming and costly (to the plan sponsor) to determine actual earnings for each affected participant and payroll, are you using the DOL calculator even when not filing a VFCP application?  I believe the answer is yes for the majority.

2) What potential penalties could the DOL impose if they audit a plan that has corrected the prohibited transaction by filing the 5330 and paying the excise tax, albeit with earnings determined using the DOL calculator.  I would think none, but maybe they would require the full application?  Either way, no one wants the DOL to audit a Plan and I would like to reduce the probability.

3) Are any of you opting for the VFCP filing for all late deferrals from the get go (before the client receives a DOL letter)?  We give our employers the option, but we charge an hourly rate for this that would always FAR exceed both the lost earnings and the excise tax, so it is cost prohibitive.  Unfortunately, with these DOL letters being sent to plan sponsors, they are getting freaked and we end up doing the filing anyway.