A non-ERISA 403(b) plan was amended to include an automatic contribution arrangement.

1. Does that amendment make the plan subject to ERISA?

2. If so, if the plan is amended to terminate the ACA, does the plan again become a non-ERISA plan?

Facts: I have a non safe harbor 401k plan that's been in effect for 10 years.  Initially, the Employer adopted an "owner-only" plan that had no eligibility service or hours requirements, but he also owned another Company,  that (surprise!) had employees.  While not one of these employees ever worked 1,000 hours in a plan year, they were never excluded under the terms of the original plan document. 

There are no matching contributions, and the Employer deposited a 25% profit sharing contribution each year into his and his wife's accounts. the profit sharing allocation method is prorata under the terms of the document, and there are no allocation conditions (of course).

We had planned to submit under EPCRS, as the violations don't meet the requirements for self-correction.

Question: Assuming the ADP of the two HCE owners is 30%, I assume the correction for the "missed deferral opportunity' is 50% of an ADP for NHCEs that will pass the ADP test.  That is, do I take 50% of 30% divided by 1.2 to arrive at a correction percent of 12.5%? This seems like a really burdensome correction, especially since I need to give everyone a 25% of pay profit sharing contribution!!!

Has anyone tried to use a lower % for correction purposes?

Doctor who was 100% owner of his practice sells his practice to new owner (not related to the original owner), who is now the sole 100% owner.  The old owner continues to work as an employee in the practice now.  The 401k plan was top heavy before the sale.  The sale took place in 2018 (it is now 2019).

(1) since the sale, for the 2019 plan year, is the account balance of the prior owner now excluded for top heavy calculations.?  If so, does that continue for.....how many years?  forever?

(2) the adult son of the prior owner is also a plan participant and also continues to work after the sale.  He was a key by attribution before sale.  Starting in 2019, is he a key employee, non-key, or excluded from the top heavy calc?

Thank you.

QDRO - Alternate Payee died before receiving payment from a 401(k) QDRO

QDRO - states that if alternate payee dies - it is to be paid to the alternate payees estate. 

Mother of the Alternate Payee I guess has control of the Estate per the court.

Alternate payee has a 4 year old child.

If paid to the Alternate Payees Estate - does that mean that their are no rollover options and we have to withhold taxes?

We have a client with a self-funded health plan. Ex-spouse of employee in Nebraska claims he should still be covered for 6 months (until divorce decree is final for purposes of health plan per Nebraska statute). 

Question: because the plan is self-funded would ERISA preemption apply? Would the answer be different if the plan was insured?

Nebraska Statue Below:

42-372.01. Decree; when final.

(1) Except for purposes of appeal as prescribed in section 42-372, for purposes of remarriage as prescribed in subsection (2) of this section, and for purposes of continuation of health insurance coverage as prescribed in subsection (3) of this section, a decree dissolving a marriage becomes final and operative thirty days after the decree is entered or on the date of death of one of the parties to the dissolution, whichever occurs first. If the decree becomes final and operative upon the date of death of one of the parties to the dissolution, the decree shall be treated as if it became final and operative the date it was entered.

(2) For purposes of remarriage other than remarriage between the parties, a decree dissolving a marriage becomes final and operative six months after the decree is entered or on the date of death of one of the parties to the dissolution, whichever occurs first. If the decree becomes final and operative upon the date of death of one of the parties to the dissolution, the decree shall be treated as if it became final and operative the date it was entered.

(3) For purposes of continuation of health insurance coverage, a decree dissolving a marriage becomes final and operative six months after the decree is entered.

(4) A decree dissolving a marriage rendered prior to September 9, 1995, which is not final and operative becomes operative pursuant to the provisions of section 42-372 as such section existed immediately preceding September 9, 1995.

Company owner died on 1/1/18.  His 6 children were the benes of his plan assets.  They requested distributions from owner's account last year and each took their share of his 2018 RMD.  They kept the assets in the plan, but the platform allowed them to move the assets to each of their accounts as a rollover.

How do we calculate the RMDs each year?  TIA

I have a plan that failed the ADP test.  Several HCEs terminated and rolled their money out prior to the refunds being calculated so their balance is $0.  What's the fix?

Florida imposes a document tax on loan transactions that are made, signed, executed, issued in the state.  Before you ask, why would a Plan Sponsor care, the loan is under a Qualified Plan ( and ERISA), the Florida statue  specially states that  "promissory notes made in connection with a pension plan loan, 401(k) loans and share loans"  ARE specially included. 

Failure to pay the stamp tax, could result in a state courts inability to  enforce provisions of the promissory note. It has been suggested failure to pay the tax  could mean the 401(k) is extending loans that are not adequately secured and could result in prohibited and/or operational failures.

Seems everyone I have spoken to about this matter is aware of it but no one is enforcing the stamp tax.  Obviously the recorkeepers are not doing anything on their end and TPAs processing loans, state it is not their responsibility. Ironically, the TPAs I have spoken with do not address the stamp tax with their clients.

Since the loan is issued under the regulation set by ERISA, could the State of Florida come in and challenge the loan? While the plan followed  ERISA guidelines with issuing the loan, not sure why some feel there is a prohibited/operation issue if the stamp tax is not paid.

For group who deal with Florida clients, are you recommending they file the payment and have the loan recorded with the state? Or is everyone just sweeping this under the carpet until the first major blow up occurs!!

Participant terminated 12/31/2018.  In March of 2019 he told a lump sum payment and rolled his benefit to his new employer's plan.

At the time of distribution he had an outstanding loan balance. The recordkeeper issued two 1099Rs, one for the rollover and one for the offset loan amount.

Under the Taxs Cuts and Jobs Act does the  participant have until 4/15/2020 to fund the "outstanding" loan amount to an IRA or his new employer's plan as a rollover contribution?

Any restrictions on funding the outstanding loan balance by the due date of tax return?

Plan has increasing rates of match based upon years of service.  Top rate has insufficient # of NHCEs so fails.

Top rate is 50% up to 12% deferral.  Second rate is 50% up to 10% deferral.

No one in the second rate deferred more than 10% so moving them up to the top rate and applying the formula would have no effect on the contribution.  So, can I:

1. Just give them 1% of pay anyway and be ok, or

2. Do I have to elevate lower years of service people with 12% or more deferral?

ER would like #1 since they are longer service employees but would it be a valid correction of the match problem?

Thank you

401(k) plan participant turned age 70 1/2 in 2018.  Attained age in 2018 was 71.  RMD should have been made by 4/1/2019.  Because it will be late, earnings will also have to be calculated.

The distribution is being made for 2018 when attained age was 71.  The distribution will actually be made in 2019 when attained age will be 72.  

If attained age in 2019 is used to determine the factor for the first RMD for 2018, then the same factor would be used again to calculate the RMD for 2019.

So the question is: which age factor to use to calculate the first RMD? 

Thanks!

Many of our clients plans permit participant loans to be repaid through "home bill" or "direct bill" (i.e. non-payroll deduct).  Is there a best practice for handling an automatic stay issued pursuant to a Chapter 7 or 13 bankruptcy filing in connection with these type of loan repayments?

We understand the bankruptcy code (section 362(b)(19) exempts payroll deduct loan repayments from the automatic stay, but the code is silent on non-payroll deduct repayments. Does that mean non-payroll deduct loan repayments are subject to the automatic stay? If so, are defaults suspended too during the stay?

Thanks!

The Employer is an S Corp tax filer, calendar year, cash-basis.

The Plan covers the owner and 2 staff members, 1 of whom terminated in 2018. The other staff member terminated end of Q1 2019. There is no last day reqd for any contributions. Employer contributions: 3% SHNEC plus discretionary PS.  Plan is cross-tested.

We have just been notified that the business return was filed on time and was not extended. This is the 1st plan year and the company prepared their own returns. [... today, they did hire an accounting firm...]

• 1120 reported $41k in retirement contributions
• the employer had intended to contribute $49k employer contribution (SH+PS) for the year but reported $41k because it is "cash basis" and this was the amount actually deposited into the plan during 2018 (note, this $11k included 401k plus SH deposits)

Of the $41k contribution reported, only $11k was contributed by the due date of the tax return (3/15/2019). The balance remains due, therefore is outside the 30 day Annual Additions window for 2018 Limitation Year. The $11k deposited was SH but there is about $1k SH contribution remaining due for the year.

Q1: Does EPCRS provide a correction such that the employer can deposit the $30k balance ($1k SH + $29K PS) at this time and in doing so avoid amending the 2018 tax return? Or can it be deposited under EPCRS however they must amend 2018 to reduce the deduction to $11k, and deduct the $30k on the 2019 tax return, along with any 2019 plan year contributions, of course subject to 404 limits?

Q2: Also, wouldn't depositing it now for 2018 PY count towards the 2019 Annual Additions LY for each participant who shares in the allocation of it because outside the 30 day window?  If so, one participant terminated in 2018 therefore 2019 Annual Addition limit is zero for him - is there any correction available for this? The other staff member terminated at end Q1 2019... may be okay with 2019 Annual Addition limit. Will this ultimately make it impossible for the employer to contribute any PS for 2018 because of this Annual Addition issue, limiting the employer to only the SH for 2018?

Q3: If the Employer decides to leave the 2018 Return as filed, make the deposit now and the plan is later audited and the $41k deduction is  reduced to the $11k, how are the contributions over and above the $11k allocated for 2018 corrected (i.e. the $30k)? Both of the staff members are now terminated and 0% Vested in the PS portion. Assuming they elect distributions, the non-vested PS portion will forfeit ... 

Thank you in advance if you are still reading this and can provide assistance.

A coworker has a plan where everyone's his/her own group, but still has a last day/1000 hours rule.  Also there's a safe harbor 3% for everyone.

There's a young HCE (owner's daughter) who made 108,000 or so in 2018.  And a couple of NHCE terminees who only got the 3%.

The profit sharing allocation was run such that each individual's group was allocated the exact same amount they would have gotten if the plan were written to be integrated at $80,000, with the percentages backed into by solving to get the parents to $61,000.  (Maybe something like 13% of pay plus 4.3% of excess over 80k.)

That, in and of itself, would be a safe harbor formula.  But since it's not actually written that way in the plan document, is it enough to simply pass the coverage on the additional profit sharing?

I'm concerned that because the integration level is 80,000, the young HCE got an extra "integrated piece" that would not normally have come into play had the actual TWB been used as the integration level.  And so, when general testing the actual amounts, her total allocation rate (imputing disparity) ends up being just slightly higher than everyone else's, thus failing her rate group.

So - does that matter?  In other words, is it enough to run the plan as though it were an integrated formula and hang our hat on that?  Or does the fact that the document doesn't actually say it's integrated, mean that we have to general-test it with the actual taxable wage base in those calculations?

Thanks!

--bri

If a participant takes a $200,000 in-service withdrawal (and pays the 20% mandatory tax withholding), then they decide they don’t need the money after all, can they put it back into a plan or an IRA?  Or is it a done deal since it was a cash distribution to the participant?

Under Rev Proc 2019-19, can we can correct a delinquent loan that has not yet been defaulted?  The Rev Proc says that a “defaulted loan” is any loan that is not repaid in accordance with plan terms.  Can SCP be used to correct a loan in which several loan payments were missed because the employer’s payroll messed up and failed to withhold the loan deductions?  The cure period has not expired so there is no default yet. 

The question arises because the Rev Proc states that it applies to “defaulted loans” and does not mention delinquent loans.  My thought is that the term “defaulted loan” is being used differently than the conventional definition in the Rev. Proc. and we may correct a delinquent loan.

Thanks in advance for any thoughts.

Rev. Proc. 2019-19, Section 6.07(d) states:  Defaulted loans. A failure to repay a loan in accordance with loan terms that satisfy § 72(p)(2) may be corrected by (i) a single-sum corrective payment equal to the amount that the affected participant would have paid to the plan if there had been no failure to repay the plan, plus interest accrued on the missed payments, (ii) reamortizing the outstanding balance of the loan, including accrued interest, over the remaining payment schedule of the original term of the loan or the period remaining had the loan been amortized over the maximum period that complies with § 72(p)(2)(B), as measured from the original date of the loan, or (iii) any combination of (i) or (ii).

Client is closing down his medical practice on July 31, 2019.  He sponsors a safe harbor 401(k) plan. 

1. Does he have reliance on safe harbor status even though plan is not a full year?

2.  Is a notice to participants required?

3. Is there any special language needed in the amendment to terminate?

The small firm that I was employed by has been bought by another firm whose termination procedures were very different from the way we handled plan terminations.  I am looking for guidance on how others handle plan terminations.  Thanks for your reply.

I am taking over a CB plan that provides NHCEs have to work 1000 hours to receive the contribution credit but HCEs must work 1000 hours AND be employed on the last day of the plan year?  Is this allowed for HCEs?

A client's 401(k) Plan is undergoing an IRS audit and the auditor requests both an Allocation Schedule and a report of 401k contributions for each pay period. 

Anyone know the difference, or what exactly they're looking for in an allocation schedule?

Let's say the plan requires 1 year of service with 1,000 to become eligible. The entry dates are 1/1 and 7/1 (semi-annual). Also, let's say if the participant did not complete the 1,000 hours by anniversary date, the plan changes the eligibility computation period to calendar year.

An employee is hired in 2018 (let's say on 1/10/2018). He is terminated in 2018 before completing 1,000 hours. He is then re-hired in 2019 (let's say on 2/10/2019 - so he hasn't completed 1,000 hours by anniversary date) and works 1,000 hours in 2019 calendar year. Would he become eligible on 12/31/2019 (and enter the plan on 1/1/2020) or 2/9/2019 (and enter the plan on 7/1/2020)?

Basically, would the plan switch to calendar year eligibility period because the employee did not complete eligibility by anniversary date? Or, would he be treated as a new employee as he did not complete the eligibility requirements by his initial anniversary date?

Thanks.