I have a calendar year plan with auto enrollment that missed auto enrolling certain new hires in 2016, 2017, 2018. The plan has 3 month eligibility for deferrals and  match. The auto enrollment % is 5%.

I have reviewed Rev. Proc 2015-28 and the IRS Fix It Guide and there are a couple of variations. I want to make sure all the facts are in order. For example the Fix Guide mentions fixing the failure promptly and also that in order for the reduced QNEC to apply, the employee cannot be terminated - if terminated then the 50% QNEC rule applies.

Here are my views and corrections on these missed deferrals and match based on this guidance:

1. 2016 failures - they did not get corrected by 10/15/17 (9 1/2 months after the end of the plan year in which the failure occurred) so the QNEC is 25% of the 5% missed deferrals to date(?), plus earnings, and 100% of the full 5% match.  The deferrals will get started by 3/9 the next payroll period, the notice will go out within the next week. The corrective contributions and earnings (through date of correction) will be calculated and posted as soon as possible. Did I miss anything?

2. 2017 failures  - as illustrated in the IRS Fix It Guide Example 2, no QNEC is due for the missed contributions during 2017. And for 2018, no QNEC is due for missed deferrals, since we are in the first 3 months. However the missed match is due plus earnings. The deferrals will now be started at 5% by 3/9 the next payroll period, and they will get a notice within the next week.

3. 2018 failures - no QNEC is due since we are in the first 3 months, but any missed match is due. The notice will go out and deferrals will start on the 3/9 payroll.

For any terminated employee, if a QNEC is due for missed deferrals is it 50%? What about for 2018 during the first 3  months, do we get a pass? Example 4 in the Fix It guide has illustration for a terminated employee - a 50% QNEC is due since none of the safe harbors apply.

Sorry for the lengthy fact pattern, hopefully it reads quickly!

Thank you for any help!

rp-15-28.pdf

401k-plan-fix-it-guide-eli.pdf

Client received IRS Notice CP-403, no 5500s were filed for 2015-2016 .  We had been after the client to send the information.

Now that the client receives an IRS Notice, he finally sends a spreadsheet with the employee and employer contributions for each year.

Upon review, we determined the safe harbor match was calculated incorrectly for 2015-2016-2017.

I know there is a 12 month period after the end of the plan year to make the safe harbor contribution, but what are the ramifications if the corrected contributions are made after the 12 month period?

When general testing for nondiscrimination, must you use the same measurement period (current year versus accrued to date) for your rate group determination and for the average benefits percentage? That is, can I determine accrual rates for rate groups on an accrued to date basis but calculate my average benefits percentage on a current accrual basis, because I don't have the DC balances, only current year contributions - or do I need to get balances and use same basis?

We are taking over a client from {redacted}.  Their plan document indicated that for purposes of elective deferrals, compensation shall not include bonuses.  When we asked the client for bonus data for 2017, they responded that they have never excluded bonus from comp.  I do not see a 414s test in what little we got from {redacted}.  I don't know the details of who got bonuses, and the plan has 1 HCE (one of the owners, the other two owners don't "work" there/receive no comp).  How would the plan sponsor go back and correct prior years thru the self correction process?

context

2 separate entities created a 501(c)(3) Joint operating company (JOC)- essentially a virtual merger with no transfer of assets-  there are no employees of the JOC - any expenses for the JOC are invoiced to the separate entities.  The separate entities share no common ownership.  the companies want to set up 1 plan and  align their other benefit programs, create efficiencies in management, finance, etc. 

Company A -  church 403b

Company B church 401(k)

My question is- Could the JOC sponsor a plan where the 2 separate entities are adopting employers? could the assets be merged into this plan? (i know the DoT hasn't ruled on the compliance requirements for church 401k/403b mergers resulting from PATH act, expected sometime this year) 

I think it is safer to keep both plans separate and align the plan design previsions across both plans. I would imagine that the JOC could be set up as a PEO and sponsor a plan but i think for simplicity keeping both plans separate is probably the most appropriate path - if anyone has any guidance on this issue or has worked with it in the past, that would be helpful - can provide more information as requested. 

I have a plan that during 2017 had 2 partners. One partner retired midyear.  The plan then went from being an LLC to a PC. The remaining partner received a Schedule K1 and a W2 for 2017. Not sure if I should combine the 2 for the SH calculation, or just use his W2.  The retired partner is just getting a K1.

Thanks in advance!

Corporation A sponsors a 401(k) Plan. Corporation B sponsors a SIMPLE-IRA. Corporation A is purchasing Corporation B in a STOCK sale, not an asset sale. Question is, can the employees of Corporation B participate immediately in Corporation A's 401(k) plan?

I don't think so. While there is the IRC 410(b)(6)(c) transition period and the 408(p)(10) period available for continuing to run the plans separately, since this is a stock sale rather than an asset sale, the corporation still exists, and the SIMPLE can't be terminated mid-year.

If it were an asset sale, then no problems.

Any other thoughts/opinions?

For anyone who cares, yesterday the IRS announced a revised (downward) HSA contribution limit of $6,850 (a $50 reduction from previously announced limit) for participants with family coverage. Participants with self-only coverage are not affected.

https://www.irs.gov/pub/irs-irbs/irb18-10.pdf

I have a 401(k) Plan that uses base compensation of "wages, tips, and other compensation as reported on W-2".      Bonuses are included for deferral calculations.   Bonuses are excluded for match contribution calculation.      Plan document says to use 414(s) compensation for ADP/ACP testing, but doesn't define 414(s).      Do I use the total base OR total base less bonus for ADP/ACP?    

 A 401(k) plan provides for 100% vesting upon becoming "disabled,' defined as, "a physical or mental condition that makes him unable to engage in any substantial gainful activity and that can be expected to result in death or has lasted or can be expected to last for at least a twelve-month period or results in death." A determination of disability is currently made by the plan administrator. The plan sponsor desires to amend the plan to change the definition of disabled to mean a disability as determined by the Social Security Administration. Would this amendment to the definition of "disabled" under the plan constitute a change to the vesting schedule under Section 411(a)(10) that would require an election to be offered to those participants with 3 years of service? As a side note, the Social Security definition of disability seems to align with the current definition of disability in the plan, so arguably this plan amendment would affect only the party making the determination.

Can anyone provide guidance on if corrective distributions should be reported on the Summary Annual Report?  If so, do you include them with the distribution amount or should the amount be reported some other way?

Let's say an owner who is over 50 deferred $25,000 in 2017. So, the $1,000 is excess deferral and will be refunded by April 15 of 2018. Would the excess $1,000 be counted in the 415 limit? So, if the owner wanted to max out with a Profit Sharing contribution, would he be able to put in $36,000 or $35,000 in 2017?

Thanks.

Entity A sponsors a retirement plan.  This employer is now part of a control group due to common ownership with Entity B.   Entity B is a newly formed entity - not a result of a merger or acquisition.   All of the conditions of the grace period are met.  However, I am unclear if the grace period only applies to mergers and acquisitions or if it also applies to newly formed entities.

This strains the imagination, but it is so.  The only employees covered by the union are owners (albeit of a very small percent). The owners make hundreds of thousands of dollars each.  They are covered by some union multi-employer plan getting benefits.

Has anyone seen this before? I see nothing that suggests that I am prohibitted from maxing them out in this Plan.

I assume I have to comply with the 415 limits taking into account both "my plan" and any DC plan maintained by the union.  But let's say the union plan is defined benefit.  I can give them all the 415 max in this plan and nothing to the employees.

If it's true, then yeah for my clients.  But this seems to fall into the category of too good to be true.

Has anyone seen anything like this??  I went through the regs and found nothing in the definition of collectively bsargained employees that would be problematic. 1.410(b)-6(d)(2).  So disaggregation appears to be mandatory.

A consultant referred a plan to me.  He said they have a safe harbor plan with the 3% QNEC. 

He said they realized this year that the plan's safe harbor QNEC failed 410(b) last year.  All they have are the 3% QNEC and 401(k) deferrals.  They want to correct with an corrective amendment under 1.401(a)(4)-11(g).  The problem, the consultant says, is some of the employees they are going to add did not receive the safe harbor notice.  He wants to know if they can adopt an 11(g) amendment and separately correct the failure to provide the safe harbor notice under EPCRS.

I am struggling, however, with the idea that they somehow failed 410(b) "after the fact"  with a safe harbor contribution.  It is not as if they have a last day of the PY requirement with terminated employees, which can cause an "after-the-fact" 410(b) failure.  

Is it possible for a safe harbor plan to fail 410(b) after-the-fact, e.g., due to demographic changes that occur during the year?  Could this be a result of the method they use to test 410(b)? 

I guess I will need to ask the consultant for more details, but I was wondering if anybody here has seen a safe harbor contribution fail 410(b) due to mid-year employee changes, and, if so, how do you correct the failure to give the notice?  What if the safe harbor had been a match instead of the 3% QNEC?  Something is nagging me and making think it is impossible for a safe harbor that meets 410(b) at the beginning of the year to fail it later during the year due to employee changes.

Employee went on line at investment company and made a positive election to have a Pretax deduction of  $100 per pay, starting  10/1/2016.  Some how this never went to our payroll system.  We just found it last week and started deducting 2/23/2018.

I think the QNEC correction would go like this.

50 percent or $50 per pay from 10/1/2016 to 12/31/2016.

25 percent of $25 per pay from 1/1/2017 to 11/30/2017.

Zero for the last 3 months, 12/1/2017 to 2/23/2018.

What do you all think?

Census reports zero hours for the owner of a company but maximum limit of pay. Just contemplating this before I get back to them - would he be counted in the ADP test as a zero? Is this W-2 pay?

I am attempting to figure out how to vacate a federal QDRO~  My client and his x-wife are both in agreement to vacate the QDRO, she is willing to walk away from it.  Does anyone know the process?

Rev. Proc.  2007-71 provided model plan language that may be used by public schools to satisfy the final 403(b) regulations plan document requirement. The student exclusion used in the Rev. Proc. was a "student-teacher" definition (see below in bold) and did not point to IRC 3121(b)(10).

There is no mention of student-teacher in the applicable IRC or Treasury reg. sections.

The pre-approved 403(b) document LRMs has the following exclusion: " Employees who are students performing services described in section 3121(b)(10) of the Internal Revenue Code." (This language is being used by several 403(b) pre-approved document providers.) There is no mention of student-teachers.

For those plans that used the IRS 2007 Model document language would you use the pre-approved LRM student 3121(b)(10) exclusion or write in the student-teacher definition from Rev. Proc.  2007-71?

Section 2 Participation and Contributions

 2.1  Eligibility.  Each Employee shall be eligible to participate in the Plan and elect to have Elective Deferrals made on his or her behalf hereunder immediately upon becoming employed by the Employer.  However, an Employee who is a student-teacher (i.e., a person providing service as a teacher’s aid on a temporary basis while attending a school, college or university) or who normally works fewer than 20 hours per week is not eligible to participate in the Plan.  An Employee normally works fewer than 20 hours per week if, for the 12-month period beginning on the date the employee’s employment commenced, the Employer reasonably expects the Employee to work fewer than 1,000 hours of service (as defined under section 410(a)(3)(C) of the Code) and, for each plan year ending after the close of that 12-month period, the Employee has worked fewer than 1,000 hours of service.   Note: This model language assumes that the plan has immediate eligibility, that the plan is limited to pre-tax elective deferrals, and that the plan has no matching or other employer non-elective contributions.  

 The model language in Section 2.1 also assumes that employees who normally work fewer than 20 hours per week or who are student-teachers are not eligible.  Either of these exclusions may be deleted on a uniform basis for all employees.  If this model language is used by a § 501(c)(3) employer that is not a public school and the plan is subject to ERISA, the plan should delete the exclusion for employees who normally work fewer than 20 hours per week.

Employee A is a participant in a hospitals 403b plan and contributes 24,500 to that plan.

Employee A is also an employee of a foundation and they also sponsor a 403b plan, to which Employee A makes no contributions (because he already maxed out in the hospital.

The foundation ALSO maintains a Profit Sharing Plan (401a) and contributes $54,000 on behalf of Employee A. 

There is no overlap on the Boards, so no controlled group.

I know that any additions to the 403(b) Plans would be considered subject to one 415 limit because the ee is deemed to sponsor their own 403b arrangement.

But what about that profit sharing plan?  What makes me nervous about 415 is that 415 tends to pull in "all plans of the employer."  Does the fact that the foundation sponsors a 403b plan make Employee A aggregate all of his contributions under all plans sponsored by the same employer (i.e., the two 403bs plus the 401a)?

Am I over-complicating this?