It was discovered that the coverage testing has been done incorrectly for several years (more than 5). Plan fails coverage and there is no fail-safe language so we are proposing an 11(g) amendment and to file the correction under VCP.   The TPA's suggestion is to allocate a QNEC contributions to the lowest paid participants sufficient to pass the AVB.   While QNEC for ADP testing needs to be limited to no more than 5% or twice the representative rate, there doesn't appear to be any limitations for purposes of the QNEC for ABT.

Tres Reg 1.401(a)(4)-11(g)(vii) states that the QNEC should be equal to the NHCE's compensation multiplied by the ADP and/or the ACP  so I'm afraid that allocating a QNEC contribution to the lowest paid employees might be considered discriminatory by the IRS.   It does not appear to me that they would pass the reasonable classification test.

Is it permitted to target the QNEC allocation? Is there any guidance on how to allocate the QNEC?

https://www.erisapracticecenter.com/2018/01/annual-irs-revenue-procedure-includes-surprising-change-to-user-fees/

They got rid of the reduced VCP filing fees for stupid things like RMD's and loan defaults.  

Schedule of User Fees for VCP submissions, is revised to change the user fees to: $1,500 for plans with assets of $500,000 or less; $3,000 for plans with assets of over $500,000 to $10,000,000; and $3,500 for plans with assets of over $10,000,000.

(4) All other reduced or alternative fees previously set forth in Appendix A, .09, no longer apply.

so the small business which is likely to have loan failures and missed RMD's pays $1,500 or $3,000.  Plans over 10 Million pay just $3,500.  What a nice thing for the mega corporations.

What an awful decision.  I hate to be political but I swear the most important thing for this administration feels like undoing as much as possible from the prior administration.

A participant in a 401(k) plan with automatic enrollment e-mailed her initial enrollment on 12/18/17 to her payroll department. She requested 3% deferral. The payroll administrator missed the e-mail and auto enrolled the participant at 6%. Payroll was processed on 1/2/18.  So the participant's deferral was 3% more than requested.  The plan does not allow for distributions when opting out of automatic enrollment.  She also received a higher match as a result of the error.

I know what to do if the deferral was missed, but in this case the deferral is too much.  My thoughts are to keep the deferral as processed and make sure payroll is updated.

Thanks for any guidance!

Participant is going through a divorce and the plan administrator has been contacted by the spouse's attorney regarding information on the participant's 403(b) account.  Currently, there is no QDRO, although that likely will be coming.

The participant claims she needs to take a hardship from the plan.  However, is that allowable if the plan administrator knows that the spouse may be entitled to a share of this account, even if no QDRO has yet been produced?

Thanks

Quick question on hardships for medical expenses.

Would a participant be able to claim a hardship to pay for medical insurance? My first though is/was no, but as I look at the text I am unsure as the IRC seems to suggest that they can.

The SPD says: 

The Plan does allow for hardship distributions for the following qualifying expenses:

 Expenses for medical care (described in Section 213(d) of the Internal Revenue Code) for you, your spouse or your dependents....

When I look at IRC §213(d), 213(d)(1)(D) says for insurance covering medical care referred to in subparagraphs (A) and (B) or for any qualified long-term care insurance contract.

exact copy and paste of §213(d)(1)(D) from Cornell Law below:

Happy New Year -

A couple questions related to the prior 60 day rollover period and the extended rollover periods for plan loan offsets effective for tax years after 12/31/17.  By way of example, lets say the loan procedures provide that a loan is due and payable in full within 90 days of termination of employment or it is offset.  Participant under age 59-1/2 terminates 1/2/2018 with an outstanding loan that is not in default.  Loan is not repaid in full by 4/2/2018 and the participant has left their money in the Plan.  The loan is technically supposed to be offset on 4/2/2018.  However, TPA/record keeper does not offset the loan in their system until the end of 2018 and a 1099-R is issued to the participant in late January 2019.  Under the prior 60 day rule, when should the participant have "rolled over" the loan offset by making a contribution to an IRA or another employer plan to avoid adverse tax consequences?  Is it within 60 days of 4/2/2018, 60 days from the end of 2018 when the TPA offset in their system or 60 days from receipt of the 1099-R? I assume it is within 60 days of 4/2/2018 unless participant wants to submit a PLR requesting extension of time until receipt of 1099-R because they were unaware that loan was offset...one of the benefits of having this new extended period.  Under the new rules, participant would have until the due date of their tax return (4/15/19), plus extensions, correct? 

Thank you!

DB plan NRA is 62 & 5 YOP. The plan sponsor wants to amend to add an in-service distribution provision upon reaching NRA. My question is: Does the law allow the in-service distribution to be mandatory upon reaching 62 or NRA?

I should know this, but DB plans are strange. Suppose someone is still working (100% owner) and becomes vested AFTER attaining age 70-1/2. Now must start taking RMD's.

Question is: if the RMD method selected is 100% J&S with his spouse as beneficiary, and he dies, since this is an RMD, the spouse should be able to elect a lump sum payment of the death benefit (assuming proper waiver had previously been executed, and plan allows a lump sum), correct? In other words, an RMD method election doesn't lock in that method as a post death payment method for the beneficiary, does it?

DC RMD's are so much simpler...

P.S. - it seems like 1.401(a)(9)-6, Q&A-14(a)(5) covers this? Or am I all wet? Thoughts on this situation - evidently participant is concerned that if both he and spouse die together while taking the RMD's that nothing further would be paid out to contingent beneficiaries.

Assuming the plan document does not preclude the following, can "Excess Allocations" placed into an "unallocated account" pursuant to EPCRS, Rev Proc 2016-51, Section 6.06(2)be used to fund corrective QNECs required under EPCRS, Rev Proc 2016-51, Section Appendix A.05(2)(b, for a missed deferral opportunity? 

Situation: Sponsor failed to withhold deferrals for an eligible participant, but contributed $7000 to his deferral account anyway.  Since the amounts were not deferrals, the amounts are being removed from his deferral account and placed in an unallocated account.  This participant now has missed deferrals and is owed a QNEC.  Can the amounts removed from his account and placed in an unallocated account be used to fund his corrective QNEC?  Please assume there is nothing in the plan document that would preclude such a practice.

Thanks in advance for your thoughts.

Has anyone tried using the IRS website to request a trust identification number recently? 

What should be listed for line 7a, and 7b?

I would think the "Name of responsible party" would be the Plan Sponsor as the trust grantor, and then the EIN of the Plan Sponsor would be used, but the instructions say to use EIN only if the Name of the responsible party is a government entity. 

The website will not accept an EIN, and that screen cannot be by passed?

Should the instructions for listing a responsible person for the business entity (principal officer, etc) be followed instead? but we aren't applying for an EIN for the business, its for the trust. 

what have folks been doing? 

We have a 1 participant DB plan with the unusual scenario of the business owner being over age 70 when the plan was started. The NRA is 65 and 5 yrs partic. Vesting is 3 year cliff excluding yrs prior to effective date. He works one week per month. 

Suppose the plan had 500 hr. requirement to accrue a benefit but 1,000 hours for vesting purposes. Would think he would not need to take an RMD until his 5th year of participation. Anyone disagree with this?

Thanks.

I had a former 401k from a couple years back that held many individual stocks. The trustee failed to send out a blackout notice but the current broker called me saying they were moving plans and I could transfer my account “in kind”. I submitted all the paper work through proper channels on my end as of December 28th. I called the current broker as a courtesy and he said he sold all my positions at the request of the trustee the previous day. My distributon paper work said I had 12/31 or sooner. The trustee made those unauthorized sells without my approval. They claim a blackout notice was sent. I got a copy via email yesterday. Assuming I had received it. It makes no mention that individual positions will be sold into cash or that new provider will not allow individual stocks. I’ve asked them to reverse trades. They say they won’t my Ira is waiting to transfer in kind. It’s several $100,000. What recourse do I have?

Participants in government 457(b) plans must sever employment before they can make withdrawals from their accounts.  

Q.:  Does the soon-to-be new law allow for in-service withdrawals upon attainment of age 59.5?

a one person defined benefit plan terminated 10/31/2017. the plan assets will be distributed during the 2018 plan year.  the participant who has more than 10 years of participation and average compensation in excess of 265,000 is at the 415 dollar limit (215,000/12 or 17,916.67).

the plans actuarial equivalence factors are 5% pre-retirement interest and 5% post-retirement interest and the 1994 GAR mortality table.

the maximum lump sum for the participant at the current date (age 65) is limited to the lessor of the pvab calculated using the plan's actuarial equivalence factors  or the 2018 applicable mortality table at 5.5%. 

the pvab using the plan rates is 2,535,730 (17,916.67*141.5291).  the pvab using the 2018 applicable mortality at 5.5% is 2,601,698 (17,916.67*145.2110). therefore the maximum lump sum is limited to 2,535,730.

although the plan terminated 10/31/2017, can an amendment be adopted in 2018 before the cashout date in order to change the plan's actuarial equivalence factors to a more current mortality table?  the goal is to increase the maximum lump sum to 2,601,698 and not have the plan's actuarial equivalence be the limiting factors.

One of the common mistakes resulting in erroneous IRS 2015 ESRP assertions is failure to properly report eligibility for 50-99 or 100+ transition relief on the 2015 Form 1094-C.

I know that box C in line 22 (Section 4980H Transition Relief) needed to be checked along with either code A or B entered in line 23 column (e).

What I'm questioning is whether the Yes or No box (MEC Offer Indicator) was supposed to be checked in line 23 column (a)?

Page 8 of the 2015 instructions could be interpreted either way, what are others doing?

Thanks

I'd thought I'd seen it all, but here's a new one: a company and its CEO have a provision in his employment contract that requires him to get a (sizable) contribution to the Company 401(k) plan for the current calendar year.

The company does not otherwise offer a match or profit sharing or QNEC contribution.  I'm waiting to receive the plan documentation to confirm, but I don't see how this could pass nondiscrimination testing. 

I'll probably have the company revise the employment agreement contract so that the specified amount can be paid another way - but not in the 401(k).  Just wanted to share. Have never seen an outside contract specify a 401(k) contribution before. 

Do you all generally agree that this is a terrible idea?

qualified plan adopted by plan sponsor in 1973 (now a 401(k)).  In 2017, separate (related) company set up, and joinder agreement signed to allow employees of new company to participate in the 1973 plan.  Can sponsorship of the existing plan be transferred to the new company?  The old company will not have employees beginning in 2018.  Owner wants to remove old company from sponsorship so plan is solely sponsored by new company. 

A participant leaves one adopting employer under a Multiple Employer Plan (MEP) for another adopting employer under the same MEP.

The participant has their 401k balance  transferred from the first group to the second group.

Assume that the employers are not a control group or an affiliated service group and that their only nexus is that they are a part of the MEP.

Question. Would the second group need to include this balance in their own top heavy ratio?

Any response would be appreciated.

A CPA firm went from being a PC to being an LLP during 2017.  One partner bought out the other partner and the partner who was bought out has retired.  The remaining partner received compensation that will be on a W2 for 2017 for him, but also had some income on a K1.  I thought I read somewhere that in this case only the W2 compensation is  used for testing, employer contribution calculations, etc., but now can't find anything on it.  Is that true?

Thanks!

I swear the other day when I went to congress.gov and searched the bill there was language in there about opening up hardships to other sources and eliminating the restrictions on 401k gains. I went back today, and nothing?

Did that get nixed??