We have a 403(b) plan that excludes commissions and bonuses for deferral purposes.  Is there any nondiscrimination testing involved or is this okay?  Thanks.

Can this be done?

Plan A and Plan B are not a control group, but there is common ownership.

The Employers would like the service from either plan to count for both plans.  So Bob in plan A is hired and terminated with 2 years of service.  Goes to work for Plan B, has a year of service.  So his vesting in Plan A and Plan B would be 3 years of service.  Oversimplification perhaps, but this is the scenario.

Yes? No?  Thoughts?

If yes, have would you write the language in the plans?

Hi yall,

I'm working on a 2017 Form 500 for a plan and have a small issue

There was one participant got refund of $50 loan principal overpayment in 2017 for a 2016 loan.

How can i characterize this refund on 5500? 

I was thinking about putting that $50 as negative ($50) in other income or $50 in the Benefit payment - directly to participants.

 I looked into 5500 instruction 

Line 2c. Other income.  Enter all other plan income for the plan year. Do not include transfers from other plans that are reported on line 2l. Other income received and/or receivable would include: 1. Interest on investments (including money market accounts, sweep accounts, STIF accounts, etc.). 2. Dividends. (Accrual basis plans should include dividends declared for all stock held by the plan even if the dividends have not been received as of the end of the plan year.) 3. Rents from income-producing property owned by the plan. 4. Royalties. 5. Net gain or loss from the sale of assets. 6. Other income, such as unrealized appreciation (depreciation) in plan assets. To compute this amount subtract the current value of all assets at the beginning of the year plus the cost of any assets acquired during the plan year from the current value of all assets at the end of the year minus assets disposed of during the plan year. 

Line 2e(1) Directly to participant. payments made (and for accrual basis filers) payments due to or on behalf of participants or beneficiaries in cash, securities, or other property (including rollovers of an individual’s accrued benefit or account balance). Include all eligible rollover distributions as defined in Code section 401(a)(31)(D) paid at the participant’s election to an eligible retirement plan (including an IRA within the meaning of Code section 401(a)(31)(E));

How do yall think this should be in the 5500? I'm leaning more on the Benefit payments directly to participant. This is a new situation for me.

I appreciate all the inputs.

Thank you.

We have a couple of participants who have not been cashing their required minimum distribution checks for a few years.  The plan administrator is moving the funds from the stale checks into a forfeiture account (this is for a 401(k) plan) to be used to pay plan expenses.  Is this kosher?  I guess the participants have already been taxed on the distributions.

I've seen a few prior threads on this but wanted to get current input.

A plan's loan policy allowed 15 year loans for primary residences. Loans longer than 15 years (but assume still reasonable) were made. Plan sponsor is fine with amending the loan policy to allow longer primary residence loans (both for outstanding and future loans).

Section 6.07 of EPCRS (including current version now in 2018-52) allows for correction of loans in violation of 72(p)(2)(B) and (C), but here the primary residence exception applies and allows for a reasonable loan term. No violation of (B) or (C). VCP would seem to be required, but 6.07 only mentions correction by re-amortizing, which isn't the plan sponsor's preferred course because the original term is permissible under 72(p).

I suppose the alternative is to retroactively amend to conform to prior operations under the more generic VCP provisions of Section 4.05. 

Section 2.07 of Appendix B allows certain retroactive amendments under SCP. Section 2.07(2) allows a retroactive amendment under SCP to add loans to a plan whose terms did not allow them. But it does not mention amending under SCP to extend the term of an otherwise permissible loan. 

Is VCP required to retroactively approve the longer term? if so, would Section 4.05 be the appropriate section? 

Try SCP and document file stating that extending the loan term seems more analogous to SCP under Appendix B? 

Thanks in advance. 

I just took over a plan who changed their EIN number during '17 (I'm not 100% sure why, but that's irrelevant).  Anyone have any experience on notifying the IRS of this change, so we don't have an issue when filing the Form 5500?

Thanks in advance!

no more paper filings permitted for VCP

in accordance with

sections 10 and 11 of this revenue procedure or by filing paper VCP submissions in accordance with the procedures in sections 10 and 11 of Rev. Proc. 2016-51. However, the IRS will not accept paper VCP submissions postmarked on or after April 1, 2019.

(3) Modifications to section 11. Section 11 sets forth filing procedures for VCP submissions. These procedures have been modified to reflect electronic filing of VCP submissions and payment of applicable user fees using the www.pay.gov website. An electronic VCP submission filed using the www.pay.gov website must include many of the same documents as a VCP submission filed on paper pursuant to Rev. Proc. 2016-51; however, there are procedural differences.

First, an applicant must use the www.pay.gov website to create a pay.gov account. This pay.gov account will be used when filing a VCP submission and paying applicable user fees.

Second, after a pay.gov account has been established, the applicant must complete Form 8950, Application for Voluntary Correction Program (VCP) Submission Under the Employee Plans Compliance Resolution System, using the www.pay.gov website. Beginning April 1, 2019, applicants are not permitted to submit a paper version of Form 8950.

Third, documents relating to the VCP submission, including the description of failures, Form 14568 (Model VCP Compliance Statement), Schedules 1 through 9 of Form 14568, and any other applicable items (as set forth in section 11.04) for a VCP submission generally must be converted into a single PDF (Portable Document Format) document and then uploaded onto the www.pay.gov website. However, there is a 15 MB size limitation for uploading a PDF document onto the www.pay.gov website; thus special instructions are provided for PDF files that exceed that limitation.

Fourth, section 11 provides new procedures relating to the payment of user fees using the www.pay.gov website, including the generation of a payment confirmation. For submissions made using the www.pay.gov website, the IRS will no longer mail an acknowledgment letter to the applicant. Receipt of a submission will be acknowledged through the generation of a unique Pay.gov Tracking ID on the payment confirmation after the VCP submission is filed and the user fee is paid. A Plan Sponsor may designate an authorized representative to file a VCP submission with the IRS using the www.pay.gov website. Section 11.08(2) sets forth specific instructions on how to designate an authorized representative using the Form 2848, Power of Attorney and Declaration of Representation.

Would appreciate someone confirming the thought process here.

Governmental 457(b) plan document terms do not require spousal consent to name a non-spouse beneficiary. 

The only other relevant requirement would be 401(a)(11), which requires spousal consent as part of naming non-spouse beneficiary for exception of QJSA/QPSA requirements. 

Section 401(a)(11) does not apply to governmental plans or 457(b) plans. 

No requirement for spousal consent to name non-spouse beneficiary. Correct?

Terminated DB distributed all participant benefits, satisfying all benefit liabilities.

Rather than pay surplus excise tax, the surplus will be transferred to a qualified replacement plan. Then allocated to participants (same as DBP participants).

Is Form 5310-A necessary?

For a plan year ended 12/31/2017, an auditor determines that, during 2017, there were multiple failures to timely remit participant deferrals and loan repayments to the trust. The TPA does not agree with this assessment, as the plan became a large plan on 1/1/2017 and the employer was following the small plan safe harbor (7 business days) in remitting contributions. Even using this guideline, the auditor found multiple violations of the 7 day window.

The TPA now realizes that they must file a Form 5330 regarding the IRC Section 4975 excise tax; however, no extension was filed, and they are concerned about possible Penalites and Interest for a late filing of the return. Does the TPA have any possibilities of filing the extension now, providing a "reasonable cause" for not filing the extension, and see what the IRS does? I have never had this particular circumstance come up before and was wondering if anybody had experience with this scenario.

Thanks for any replies.

Treas. reg. 1.409A-1(g) says that a controlled group is to be treated as a single service provider. 1.409A-1(h)(3) says that for the purposes of the definition of "separation from service," the required quantum of ownership to determine a controlled group is reduced from 80% to 50%, whether you are dealing with a parent-sub (1563(a)(1)) or brother-sister (1563(a)(2)) relationship, but I can take the 50% up in my plan document, apparently for any reason, but not above 80%. I can also, but this time only if I have a business reason, instead reduce the 50%, but not below 20%. I think I've got all that right.

However, either for some policy reason that escapes me or because it simply slipped the minds of the reg writers, the ability to ratchet the 50% down to 20% or any point in between is tied to the statute's reference to "80%." Works fine if the relationship you are dealing with is a parent-sub, but if you have a brother-sister, ratcheting down the 80% requirement (i.e., 5 or fewer individuals, estates, or trusts must own at least 80% of each company) will not help if you cannot also reduce the separate 50% requirement (i.e., looking to the lowest percentage that each of your five individuals, estates, or trusts own in each company, the 5 or fewer group must own at least 50% of each company).

It's possible that part of the problem (either mine or the reg writers') stems from the fact that 1563(a)(2) is really 1563(f)(5) for purposes of 414(b) and (c). I'm pretty sure, however, that the references in 1.409A-1(g) and1.409A-1(h)(3) to 1563(a)(2) are really (i.e., really "really," not just intended "really") to 1563(f)(5), but I'm not sure if even that is absolutely certain.

So say you have a fairly large 401(k), 100's of employees, a few million dollars in deferrals ever year, $100k or so in deferrals each payroll period. CPA says that employee contributions should have been made, say, within 2 days of payroll date. That's reasonable. Most were, but some were made 3, 4, 5, or in one case 8 days later. Out of 24 payroll dates, maybe 10 have a problem. You calculate the lost interest and it is, say, in the 10's of dollars for each payroll, maybe $1,000 for the entire year.

DOL's VFCP Notice says the correction is to contribute the "Lost Earnings," but does not elaborate further. So good, you contribute the $1,000. My question is, how do you allocate it? The lost earnings arguably should be allocated as of each payroll date that had a late contribution, to the accounts of the participants who deferred on that date, in proportion to their deferrals. This will result in hundreds of separate allocation amounts, many less than one dollar. The administrative expense of doing that may easily exceed the amount being allocated. And some of the participants will have left and already cleared out their accounts.

Assuming your plan document can be interpreted to permit this and it passes nondiscrimination, can you do something different, like allocate per capita to anyone who (a) deferred during the applicable year, e.g. 2017, and (b) still has an account in the plan?

I am aware of the recent EBSA regional office letter urging employers to use the formal VFCP process, even for small amounts, rather than self-correcting, so my question is not directly about that, although maybe that is involved because if you go through the VFCP process you could get your short-cut allocation method approved by EBSA?

If you've heard this one before and it's got an answer, just point me to it. Thanks in advance.

We have a one person DB plan sponsor: FY is calendar.  PYE is 9/30/18.  He contributed for the 2017 plan year in Feb 2018 and filed his 2017 tax return without extension.  Then he made the 2018 deposit in September 2018 before the 2017/2018 PYE.  Since he deposited the money during the plan year it will be listed on the 2017 SB but he'll deduct it in 2018.  The 2017 PY max deduction doesn't cover the entire amount, but we have room in and time to amend the formula back to 10/1/2017 so it is deductible.  We are concerned with the deposits during being split between the 2 tax years.  I think that it is ok but would like another opinion. 

Company A was bought out by Company B on April 1, 2018. Company A funded 3% SH and NCPS. The previous owners would like to fund the contributions for their compensation with company A from Jan 1 -  March 31 along with the participants of company A's plan too of course.

According to Co A, the acquisition was neither a asset or stock sale ?. They said " The entities are LLCs, therefore, the way the merger worked is that Company A contributed all of its assets and liabilities to Company B, and in return it received an ownership interest in Company B".

1. Sounds like an asset sale to me but i may be wrong. Has anyone heard of this?

2.  Does the safe harbor profit sharing have to be funded pre merger (1/1/2018 -3/31/2018) for Company A’s Plan? Can a discretionary new comparability profit sharing be contributed pre merger (1/1/2018 – 3/31/2018)for  Company A’s Plan? 

3. Is it considered a short plan year, does the ER contribution get pro-rated. I feel like this depends on whether it was a stock or assets sale.

Below is one of Mr. Watson's Q&As, wherein he states that an option to acquire stock cannot break up a controlled group of companies, and provides an example to illustrate this.  Does anyone know where in the Code or the regulations it says that an option to acquire stock from the corporation - as opposed to an option to acquire stock from another shareholder - cannot break up a controlled group?

Hello, 

VSP (as well as other carriers) report on their Schedule As as if the contract is experienced-rated even though the contracts are confirmed non-experienced. This is causing a bit of confusion and frustration for the Plan Sponsors. Delta Dental use to conduct their Schedule As in this manner and have since reverted back to just reporting the premiums, commissions, etc for non-experience. By chance has VSP made any declaration on why they have switched their approach? Any insight would be greatly appreciated.

If we set up a profit sharing plan with CODA now, make the plan effective 1/1/18 but the 401(k) provisions effective 11/1/18, do we need to include in the ADP test an employee who terminated employment before 11/1/18?

Thanks.

I have a client for whom the original service agreement indicated all fees were to be paid by the employer.  The participant disclosure reflected so.  THEN, the employer changed the agreement with a portion paid by the employer and the remainder deducted from participant accounts.

The participant fee disclosure was not updated and has reflected paid by the employer for the last 4 years.  Quarterly statements are sent in which participants can see the amounts deducted attributable to fees. 

At this point, I have updated the disclosure to properly reflect a portion paid by the employer and the remainder deducted from participant accounts. 

What other action must be taken?

A small business client has a 401k Plan that has to pass the ADP test for 2018.  They are not Safe harbor.

As of 10/1 the 100%  owner  is selling the stock to  two previously  rank and file employees .  The plan has always passed the ADP test  in prior years because the owner only deferred 2 percent more than these employees did.  

So my question is this - as of the end of the year - who is considered an  HCE for the ADP test??.  Do the two new owners join the former owner in the HCE group?? - or does the previous owner  become part of the NHCE group for ADP testing?    There are 3 other eligible  NHCE"s who defer nothing.   Any way around this for the year of sale?  It looks like a possibility of the plan failing ADP.  There is no match to consider.

A plan made a profit sharing contribution to the 2017 calendar year plan that utilized incorrect compensation during nondiscrimination testing. Lets say this contribution was 50,000. When the nondiscrimination was corrected, the correct allocation should have been 10,000. So 40,000 was forfeited for use in future years.

The problem here was the tax deductible contribution threshold for 404 lowered to 40,000 from its original amount of 160,000.

Is there a way to avoid paying excise taxes on form 5330 for 10,000 of contributions that were over and above the 404 limit?