As a practice, we always try to discourage plans from using "payouts on demand" for termination, especially for HCEs. Waiting until after the close of the year of service termination is the plan design we recommend, when possible.

Of course the one Client that decided to ignore that advice is the one that has an ADP Test failure where the person due a distribution of excess contribution has already rolled out 100% of his account balance. They want the person paid almost when the person walks out the door!

Any advice on how to correct a rollover of excess contributions to an IRA would be much appreciated. Thanks!

A Plan Administrator of a 401kPSP received a phone call from a former participant who has a large balance ($100k) that he wants to take a distribution (which he is otherwise eligible to receive) so he doesn't lose his home, and, that he and his wife are splitting and she wants half of his Plan account.

The Plan's QDRO Procedure states,
"Procedure prior to receipt of order: The Plan will apply the following procedure prior to the Plan's receipt of a Domestic Relations Order.

1. Suspension of Participant distributions or loans. If the Plan Administrator is on notice (verbal or written) regarding a pending domestic relations action (e.g., a divorce) and has a reasonable belief the Participant's account may become subject to a QDRO, the Plan Administrator may suspend processing the Participant's distribution or loan requests pending resolution.
2. Removing hold on the account. After placing a hold on the account, the Plan Administrator should notify the Participant of the hold on the account. In order to remove the hold, the Plan Administrator should request the Participant to provide written confirmation that a court will not issue a QDRO with respect to the account, such as a property settement agreement awarding the entire account to the Participant."

Questions:

1. Is such a phone call sufficient to place the Plan Administrator "on notice" of a pending domestic relations action, such that a "hold" should be placed on the Participant's account, for which he is otherwise eligible to receive a distribution?
2. Can the Plan process (at least) a partial distribution or a hardship distribution in amount necessary for the hardship (house) up to an amount equal to no more than 50% of the account, essentially only "holding" 50% of the account pending the purported domestic relations action?
3. If a "hold" is appropriate at this time on the Participant'saccount (full or partial), for how long should it remain on "hold" before the Plan releases it for inaction by either party?
4. What if the Participant does not ascertain a court order but he (and his wife if necessary?) does contact the Plan Administrator and say they were arguing and the phone call made today was without merit and should be ignored? Or would something more concrete be preferred such as a sworn affidavit? Could the Plan Administrator remove the "hold" on the account?

Thank you.

A safe harbor 401(k) plan with basic match formula wants to switch to 3% nonelective for the current year 2016. Is this permissible? It does not appear to be prohibited. Thank you for your comments!!

Can anyone point me to a chart with the PPA restatement deadlines for various types of plans?

Thanks!

In our ESOP, we had some distributions. We meant to distribute in shares and then immediately buy those shares from the participants in order to get them out of the ESOP (i.e. redeem the shares).

Instead of doing a redemption, we accidentally cashed out the participant with cash. Now the shares are stuck in the ESOP and have to be recirculated. Is there any way to go back and fix this? Can we simply take the shares out of the plan and pretend the cash payments to the participants were just the company paying for the shares that were distributed from the ESOP? What paperwork do we need?

I'm reviewing some form 5500's for a case I'm working on and I am very curious to understand where I can find the total amount that the plan paid towards health benefits.

I believe it is on the Insurance Schedule, but I am not sure. Also, what documentation is required to support those calculations?

Thank you so much everyone. Love the forum.

Client wants to amend plan to provide for the 3% non-elective safe harbor (no deferral requirement) and then match 50% of deferrals between 3 and 5% for an additional 1 % "safe harbor match". Is there a way to design the safe harbor so that both pieces qualify as safe harbor contributions? The regulations have an example with a discretionary match, but client wants to fix the match formula into the plan.

Do the rules regarding partial plan terminations apply to 403bs? For example, if we froze a 403b plan and started up a 401k plan, would that trigger 100% vesting?

It seems to me that those rules (411(d)(3)) appear to apply only to 401a plans.

Is Self Correction available to a Governmental 457 Plan that has a participant that exceeded the annual deferral limit for the past 10 years?

Health plan has two groups of employees (A & B). Both are currently operating as a single unit under the same trust agreement. They report using the trust's EIN.

Plan sponsor decides to merge group A with another plan--likely in August 2016. Group B will be left behind, but converted to a smaller, fully insured platform.

In order to transition Group B into a fully insured policy and avoid underwriting (group B is fewer than 50 employees), the broker/insurer want a separate EIN for this group.

Can we apply for an EIN for group B now and allow it to continue to operate under the same trust agreement? The idea is to move Group B to a fully insured product as of June 1st while Group A remains on the self-funded platform until it's move in August.

Originally we thought it would be necessary to establish a new trust for Group B in order to spin them off, but the broker says multiple EINs are acceptable under the same trust umbrella.

Thanks in advance.

my employer is now union so they have created a new 401k for the union employee.the number one question is can the employees old 401k be rolled over to the new one?

For 2014, plan sponsor has a profit sharing plan (no 401k component) that is combined with a cash balance plan. Top Heavy test is above 60%, so the plans must provide the top heavy minimum in 2015 (5% provided in the profit sharing plan).

Without consulting the TPA, the client opens up a separate 401(k) plan with safe harbor match effective 1/15/2015. No other contributions besides deferrals and safe harbor in this plan. The 401k, of course, has no eligibility requirements and immediate entry. So all employees come in on day 1.

Key employees participate in the 401k, profit sharing and cash balance.

In my reading, the required aggregation group consists of all plans of the employer in the determination year, which would be 2014.

Since the 401(k) didn't exist in 2014, is there any way that I can get out of providing the 2015 top heavy minimums to people that are just participants in the 401k plan. These people haven't entered the profit sharing plan or the cash balance plan.

Maybe this doesn't matter since the required aggregation group tells us how to determine top heavy, but doesn't necessary tell us who gets the top heavy minimum.

I think the answer is that all the non-keys in all the plans need to get top heavy in 2015, but I'm grasping at straws....

One person plan in which participant seems to believe she is above the law.

Problem 1 - prohibited loan of $200,000 with no interest in resolving it

Problem 2 - no interest in taking out RMD by due date, she says there is no cash in the plan

TPA has explained the repercussions, qualification issues etc. but she simply is not concerned. Due to relationships, the easy solution of firing the client is not so easy.

So attempting to think creatively, looking for some thoughts - if the loan were corrected and 'converted' into a distribution from the plan, can that distribution be treated as the RMD? Loan is from a year prior though than the year of the RMD. Challenge is she does not want to submit for VCP on this.

Doctors Group, Inc. is owned 50/50 by two Doctors. Another 4 Doctors work for Doctors Group, Inc. Each Dr. owns his own P.C. Doctors Group, Inc. pays the P.C. for their services based on contracts. These are not "management" services. The P.C.'s are being paid for the medical services their respective owners render.

Something doesn't seem right about this. Clearly it is an affiliated service group, except that the services rendered are not management services, they are actual medical services.

Perhaps the issue here is that they shouldn't even be using the P.C.'s because they are common law employees? The PC's do not do work for any other entity.

Facts:

401k Safe Harbor with Profit Sharing Plan (cross tested plan design)

the 3% non-elective Safe Harbor is provided to NHCEs only

Calendar Year Plan

payroll is monthly

professional staff, mostly HCEs, a few age 50+, many less than age 50

2 employees who are HCEs, elected the maximum 401k+catch-up, 1 of whom unfortunately passed away early in the year

payroll vendor changed starting with April 2015 payroll

all prior 401k+catch-up amounts were accounted for with change by new payroll vendor (error is not because of this).

Error:

HCE (age 50+) elected BOTH the maximum 401k deferral be withheld proportionately from each pay for the 2015 Plan Year ($1,500 per pay) AND the maximum catch-up be withheld proportionately from each pay for the 2015 Plan Year ($500 per pay). Total per pay withholding $2,000, representing deferral + catch-up. In addition this participant elected 100% of any bonus pay be withheld up to the maximum limits permissible. As it turned out for 2015, the only bonus pay was late December (no deferral was withheld).

$2,000 deferral + catch up amount was withheld from monthly pay January through September (old payroll vendor and new payroll vendor). Starting with October's pay, the payroll vendor ceased withholding the $2,000 amount, and this continued through December 2015 (3 months). A late December bonus was paid but no deferral was withheld. Total missed deferral and catch-up:

October 2015: $1500 deferral and $500 catch-up

November: same

December: same

Total $4,500 deferral and $1500 catch-up

Starting January 2016, the same withholding recommenced $1500 401k deferral + $500 catch-up (2016 limits unchanged) and are to this date continuing.

Questions:

1. Given the withholding recommenced within 3 months is there a correction necessary, given the recent IRS new correction methods announced to avoid "windfall" to employee receiving full compensation and contribution?

2. If correction is necessary, is the catch-up amount included in the correction of missed deferrals, i.e. a corrective contribution is made for missed catch-up?

3. Is there any way to recharacterize the contributions totaling $18,000 (withheld as $1500 401k * 9 = $13,500, and, $500 catch-up *9 = $4500) that were made as $6,000 catch-up, $12,000 401k deferral? In this way the employer PS contribution can be maximized, assuming passes n/d testing, and the overall total maximum to this participant still achieved... in a good faith effort to make the participant's total annual additions for the year "whole."

Thank you

If a traditional, frozen DB plan was timely amended in 2012/13 for 436/MAP-21/PRA-210 (Basically IRS Notice 2011-96 stuff) and hasn't made any discretionary amendments since, are there any required amendments that must be adopted now if plan is currently terminating? I don't think so, but maybe I'm missing something...

Thanks.

Employee A received a profit sharing contribution in 2012. In 2013 the employee terminated employment 0% vested. She only had 1 YOS. Plan forfeits her unvested balance as of 12/31/13.

Employee A is rehired on July 15, 2015 and is still employed as of 12/31/15. Employee A is not entitled to a profit sharing contribution as she only worked 528 hours and plans requires 1000 hours for contribution.

Should the unvested funds be restated as of 12/31/15? If so, how is that done. Just an FYI, the profit sharing funds are pooled (employer directed). If not, when must they be restated?

One of our clients is a large multi-employer profit sharing plan. Participants come and go all the time in this plan, but many times simply drop off the radar screen indefinitely. My questions are,

• Does the plan have to continue to attempt to deliver statements every quarter even though statements have come back as undeliverable for many many quarters?
• Is there some obligation to use a locator service to try and get a valid mailing address?

This would be with respect to participants that are not subject to force out distributions.

Due to bad information received from our client's accountant, we incorrectly included an insurance policy in the PSP trust accounting (and Schedule I) for 2011-2014. This policy was segregated from all other assets and was entirely part of the owner's account balance; NO OTHER PARTICIPANT WAS AFFECTED.

Rather than amending several years, we thought we could simply remove it from the plan's assets in 2015 by listing its value on Schedule I - probably as Other Expenses (line 2i). We would then include a "Schedule I - Other Attachment" with the filing, explaining the adjustment to correct for an accounting error and stress that this affected no one other than the owner.

Thoughts/comments please.

A participant worked for 12.9 years under an union negotiated plan that provides for $50 per year of credited service. in 2010 at the age of 66 1/2 he transfers to a different job within the same company that has a defined benefit plan which is based on a formula that takes a percentage of his highest 5 years of salary multiples it by the years of credited service offset by the same percentage of his social security times years of credited service. the formula looks like this (1.5% X Average Monthly Earnings X Yrs Credited Service) - (1.5% X Monthly Social Security Benefit X Yrs Credited Service) = Monthly Benefit. the participant is now 73 years of age and wishes to retire. The current plan specifies that after 5 years of vesting service under the new plan all benefits will be calculated under the new plan provisions. (This is referred to an an all service benefit)

Under the plan provisions the participant must apply for benefits to establish his retirement date.

The plan states that a participant becomes vested the earlier of 5 years of vesting service or attaining his 65th birthday.

The plan provides for continued accruals until the actual date of separation.

The plan requires an actuarial increase of benefits after December 31st of the year the participant reaches 70 1/2 and for every year following.

There are no provisions in the plan for offsets or 'higher of' type calculations.

The plan allows for suspension of benefits but none was issued.

The plan provides for actuarial increases of benefits at NRA or actual separation form employment, whichever is later.

On December 31st, 2013 the participant is still employed and has passed his 70 1/2 date triggering the first actuarial increase and an added year of accrual.

The participant was still under a split calculation. i.e. $645 + (1.5% X AME X 4) - (1.5% X SSB X 4) = Benefit.

On December 31st, 2014 the participant has 5 years vesting service under the new plan and there should be both an actuarial increase and an added year of accrual.

The calculation now becomes (1.5% X AME X 17.9) - (1.5% X SSB X 17.9) + Benefit.

The same scenario continues until 2016 when the participant request a retirement date.

The first question is how do you deal with the split calculation of December 31st, 2013. Do you do an actuarial increase on the union negotiated plan result starting on December 31st, 2013 or starting on December 31st, 2009? The participant was fully vested and did not accrue any additional benefits form that date.

The second question is how do you bring the 2013 adjustments into the later calculations? The all service calculation of 2014 and later is much higher than the fully adjusted benefit of 2013.