All,

Thanks in advance for your help. EPCRS has clear ordering rules for correcting excess allocations. See 6.06(2). When a 415 failure is attributable to both employer contributions and elective deferrals, unmatched after-tax employee contributions and unmatched elective deferrals are reduced first. However, these rules do not seem to apply to the correction of excess amounts. My question is does anyone know of any ordering rules when making corrective distributions of excess deferrals (i.e., Roth before Traditional or LIFO or unmatched before matched)> Neither EPCRS or Treas. Reg. 1.401(g)-1(e) seems to provide for anything other than making sure it is "reasonable."

Thanks again!

We have some unresponsive SIMPLE IRA participants who are terminated with their employer.  Is it possible to do some kind of "force-out" distribution similar to 401(k) accounts under $5000?  I am struggling to find specific information about this process.  Thanks!

Here is background:  client sold a portion of Company in May of 2016 and a large group of employees transferred to the new Company and were treated as termed under the old for payroll, benefits, etc.  The original plan remains in effect though much smaller.  (Partial termination rules applied)  Original plan has last day rule for profit share but does allow that termed participants who meet early (age 55 and 10 yrs) or normal (age 65) retirement will receive an allocation regardless of hours worked.    So....original Company intends to make a profit share for 2016.  Are those participants who went to the other Company that fall in to the "early" or "normal" retirement categories eligible to share in the profit share for the old Company?  I thought yes at first but then the question was asked because they did not actually "retire" but rather went to work for the other Company.    Thanks in advance.

I am not sure if I have an open MEP or a closed MEP.  We have an employer owned 100% by the wife, and her company A sponsors the plan.  The husband has a completely different company B where he owns 100%, but to save costs, he has adopted Company A's plan as a participating employer.  There is no crossing of employees, separate payrolls, and no direct ownership of the other's company.  The companies also do completely different things from each other and have no commonality in business dealings.  Is the family attribution between husband and wife enough to make this a closed MEP, or is it an open MEP? (it doesn't actually matter, we just want to report it correctly for this first year)

Upon termination of a plan, a participant (still employed) receives a distribution of her entire balance (comprised of employer securities, and some cash). Is this considered a lump sum distribution for reporting purposes?

The election of a retroactive annuity starting date must be voluntary.  As such, a participant must also be offered a future annuity starting date.  Is it sufficient for the distribution paperwork to make clear that such a future date is available, or does it actually need to contain both benefit calculations (i.e., retroactive and future)?  I was under the impression that the numbers were necessary, but I cannot seem to find a cite.  Thanks!

Is there any problem with filing Form 5310 now, with a plan termination date of 12/31/17?  A law firm ceased operations on 1/31/17 and all lawyers and staff moved to another firm.  But the shareholders (and two administrative employees) are still around collecting receivables, etc.  They set a plan termination date of 12/31 but fully vested all employees as of 1/31/17.  They want a termination date of 12/31 so that they can make a final profit sharing contribution based on salaries they will take out by year end from the receivables.  But they don't want to wait to first file the 5310 in 2018.

Will IRS entertain an application with a prospective termination date?

Thanks

A 401(a) defined contribution plan has discretionary employer contributions and pick-up contributions. Pick-up contributions are considered employer contributions. The plan failed 415 limits testing. EPCRS instructs to place the excess annual additions into an unallocated account to be used as an employer contribution in the succeeding year(s). Employee deferrals and after-tax contributions can be returned to the participant. 

Are there any special rules where all or a portion of the excess annual addition consists of pick-up contributions?

A client 'fessed up and said that they had given a participant $2,000 in severance pay (that isn't for the payment of unused sick or vacaton time - they actually used the word severance).  The participant deferred exacty 10% of gross pay, so while it's still being checked, I'm pretty sure that they took deferrals from the severance, too.  Let's say this is the case.

Obviously, that is not allowed - if it's not eligible for plan compensation, you can't defer from it.  So what is the authority to return those deferrals?  It's not a 402(g) failure, and 415 wasn't violated.  It's not an excess deferral.  What is it?  Mainly, I want to know for (a) timing, (b) taxation, (c) earnings calcluations, and (d) to look smart when I tell the plan sponsor. 

Thanks.

Let me set the scene...

Two separate companies (no common ownership).  Both are brokers.  Company A has two employees, other than himself.  Company B is a sole broker who performs services only for Company A.  However, due to how the "pay" is set up, he doesn't receive compensation from Company A.  He receives his commissions directly from the investment company (broker/dealer agreement).  However, the owner of Company A does have the authority to terminate him, tell him what do, and provides him an office within Company A, etc.  So, my question is this...

How would you classify this situation?  Affiliated Service Group, a Common Law Employee, or set them up as a Multiple Employer Plan...as they do want to be covered under one plan?  (My thoughts are at the very least, it would be an ASG, but I am questioning whether it could be a Common Law Employee situation.)  

Thank you in advance, for your responses.

Hi,

I recently read a provision that stated that for prototype plans, the number of allocation rates for NHCEs is limited to at most 25, but could be even less depending on the number of participants. Do you know if this provision still applies, or if it no longer applies after PPA or because of some Revenue Procedure?

Could someone please clarify if this provision still applies to Prototype plans?

Thank you.

Hello! I've read through a lot of old content on this board and just want to say thank you. It has been a huge help. Lord knows this industry in a minefield of misinformation and salesmen. 

I am the new administrator of a 20 year old group deferred annuity plan with MetLife for a mid-sized non profit. We are looking to terminate this plan and start a new 401k (or 403b) with much lower fees. We have calculated that each participant is paying an average of 2% in AUM fees annually (1.25% annuity fee + .75% ave fund fees). This plan also comes with a 7% surrender fee that decreases by 1% each year. 

We have been advised by a TPA to leave the plan open and start a new 403b with a different provider. However the provider that I'd like to work with (Guideline Technologies) does not yet offer a 403b. This would also drag out the closure of the MetLife account. Unless people are really pushed out of the plan, I imagine a lot of people will drag their feet. I'd like to avoid having to manage 2 separate providers for any longer than necessary. 

So I'm thinking it would be better to immediately terminate the 403b and incur all surrender fees (which I've calculated to come out to around 65k). I've run a cost analysis (attached) that shows that if we move to a low cost provider such as Guideline which has only .15% AUM fees, then our participants would be better off moving their assets immediately and incurring all surrender fees rather than wait a few years for the surrender fees to subside. 

So my question is... do you see any downside to this plan? Since the surrender fees would be paid by the individuals, could the organization be held liable for any damages? Or do you have a better solution for us? 

Thanks so much in advance. I'd be happy to answer any questions for clarification as well. 

Asset Loss v Surrender Fee Cost Analysis.xlsx

I'm seeing this recurring problem with floor offsets.  Strategy is to provide a 5% DC contribution as the floor offset for DB.  In order to pass 401a26, this needs to be provided to everyone including the owner.  If 401a4 requires higher PS allocations to pass, we are exceeding the 6% of pay DC threshold under 404a7.  Owner would be fine foregoing his 5% PS, but then we fail 401a26 because everyone else is 100% offset. 

After a few years of 31% of pay contribs, the DB gets underfunded enough that we can get bigger contributions to fund the 412 'minimum' given by 404a7 but that still doesn't fund the full 415 LS. 

Any solutions?

Plan requires cashouts of vested balances under $1,000.  PA has been negligent is this regard.

Is there any sort of penalty that could arise from not doing this?  (It has been universal, no one has been cashed out involuntarily)  What if it's cought in audit.  Is it one of those, just cash 'em out now and be more diligent in the future, type of thing?

Would you consider commissions to be classified as irregular pay?  If so, why?

We use Relius documents and bonus is listed as irregular pay.  Client I have has a plan doc that states deferrals come out of irregular pay unless the participant elects otherwise.  This plan also has commissions.  Plan sponsor did not withhold deferrals from either bonus or commissions.  I realize that this is part of the administrative procedures, but we want to make some things clear to the client so they know how to handle this properly going forward.

Thanks!

when taking over a plan with a volume submitter or prototype plan document, say that plan doc is up to date and there is no particular amendment or restatement necessary, at what point do you restate the plan under the following two scenarios:

1. prior tpa had their own determination letter

2. they used a provider document (ie datair, ftwilliam) with an Opinion Letter, but the new tpa uses a different plan document provider

Immediately upon takeover, or at such time as some kind of amendment (required or optional) is necessary?

Understood there are a variety of plan document provider scenarios.

We have a client with a prior employee who threatened to sue for wrongful termination.  She terminated in 2015, but the employer settled with her through arbitration.  She was therefore paid an agreed upon amount (not yet provided to us) through payroll in 2016 but worked no hours.

Q:  For 2016, is she included in testing as non-benefitting, or excluded altogether? Since she worked receive pay in 2016?  And if I include her, do I include at 0 hours, or equate the pay to some amount of hours? 

I know that if a PS for a year is deposited more than 30 days after the ER's tax return is due, then those amounts are annual additions for the year in which the deposit is made.  (Let's assume a calendar year plan and tax year)

However, what if it's a pooled plan, and some of it was already deposited timely?  Do I prorate the late amount across the participants?

For example, there are $25,000 (out of $60,000) from the 2015 PS allocation that hasn't been deposited yet.  For 2016, the owner is due $40,000 between deferral, SH and PS (under 50, no catch-up).  Is the owner's portion of the $25,000 prorated over the 2015 allocation?  (If he was going to get 40% of the 2015 contribution, then $6,250 of the $25k is slated as an annual addition in '16?)

I have a similar question to one posted earlier. This is in reference to a single employer, defined benefit plan. A former employee who is currently receiving a pension under the aforementioned plan will be brought back to help with training as a consultant for a month or two. The employee retired last year. The employer and the former employee have entered into a consulting agreement, whereby the consulting work is not considered reemployment under the plan. The question is, are there limits on the total compensation a former employee who is participating in the employer's pension plan may be paid? What is considered compensation? Do bonuses received at the time of retirement (a holiday bonus given to all employees) count as compensation?

Hey,

I had a question regarding successor plans. Let's say a company terminates a plan and immediately starts a new successor plan. What would happen to the sources (deferrals, Safe Harbor, match, etc.)?

I believe the deferrals and Safe Harbor sources would have to be directly transferred and still be treated as those same sources in the receiving plan (subject to the distribution rules applicable for deferrals). However, what about the discretionary match and profit sharing? Would those be transferred as the same sources or would they be treated as a rollover? Would a 1099-R have to be issued for the discretionary sources, but not for the deferrals and Safe Harbor contributions?

The thinking is that when there is a successor plan, the discretionary sources can be distributed, so just wanted to know how they should be treated if transferred to the successor plan.

Any help would be appreciated.