If a new comp allocation fails coverage (due to last day requirement) and the plan document contains "Fail-Safe" language does the plan sponsor have to make an additional contribution to those participants that are brought in to pass the Ratio test or can they just re-work the initial allocation to include the additional participants (as long as it still passes testing)?

If a Plan had a QDRO processed during say 2012, and the spouse (who received the funds) left the $ in the Plan, should that spouse and balance be counted in the Top Heavy test?

Has anyone else gotten a slew of IRS late notices this past week? I have had numerous clients receive late notices already. They all seem to be in error as 5558s were timely filed, and the 5500s were as well. Some of the notices are dated before the 15th, during the middle of the government shut down. I know much of the notice process is automated, I guess I didn't realize that they would be going out even during the shut down.

Regardless, they don't appear to be correct, and are a pain.

Thoughts?

Has anyone heard when the 2014 COLA limits are going to be released? If so, when?

Related to the delayed 2014 COLA limits, we are discussing how we are going to craft our Safe Harbor notices if the 2014 COLA limits have not been released, but we do not have a concensus. (At this point, we are going to wait as long as possible and hope that the 2014 limits are released.) Has anyone else had any discussions related to this topic? If so, what ideas have been discussed?

Looking for thoughts on an issue of first impression for me. Company A is the parent of Company B. Employees of Company B participate in a nonqualified deferred compensation plan maintained by Company A. Company A spins off Company B and, for business reasons, does not terminate the NQDC plan as to the employees of Company B (as would be permitted under Section 409A's termination rules in connection with a change in control). Employees of Company B have not undergone a separation from service because of the spin off because they still work for Company B.

Company A retains the pre-spin liabilities relating to the NQDC plan and arranges for Company B to notify Company A when an employee separates from service with Company B (and all the post-spin entities in Company B's new controlled group) so Company A can commence payment under the NQDC plan. Following the spin-off, for business reasons, Company A and Company B want to allow employees of Company B to continue to participate in the NQDC plan maintained by Company A for a period of years.

Can employees of Company B participate in the NQDC plan maintained by Company A once Company B is no longer in Company A's controlled group of corporations? If Company B wants to provide the same benefit post closing, does Company B need to set up its own NQDC plan that "mirrors" Company A's? What about funding - If Company B sets up its own NQDC plan, can Company B send the contributions to Company A to administer and not result in income inclusion under a constructive receipt/economic benefit theory because the contributions are no longer subject to the claims of the creditors of Company B?

It seems to me that Company B can leave behind with Company A the pre-spin liabilities relating to the NQDC plan without issue. Keeping any assets related to those liabilities with Company A makes sense because Company A is responsible for payment. Post-spin participation of Company B employees in Company A's NQDC plan seems problematic but can't nail down exactly why. It also seems that if Company B sets up its own mirror plan, any funding must be left with Company B or be put in a rabbi trust that is subject to the claims of Company B's creditors. Sending contributions for post-spin obligations to Company A, or putting in the rabbi trust for the NQDC plan maintained by Company A (which is subject to claims by Company A's creditors) seems problematic because the amounts are no longer reachable by Company B's creditors.

We are a TPA for qualified plans but sometimes get requests for nonqualified plans.

Thanks.

Has anyone had the situation where they went down the PBGC standard termination path and got about 90% done with all distributions and then the client discovered unanticipated losses on the final assets that will require some extensive time in order to come up with the money. Plan has already been on 2 extensions of time for different reasons and now the surprise losses will cause some extensive and unknown delays. What are the mechanics here ? Does the PBGC have you revoke the plan termination ? Any special rules or unique situations that arise when the plan term is revoked after 90% of the people have been paid out ?

LLC taxed as a sole proprieterdhip showed a net loss for 2012. The owner made 401(k) contributions & receieved a match during the year which need to come out of the plan. Is this treated as an ineligible contribution and forfeited or distributed back to the participant as an excess annual addition or excess deferral?

Thanks in advance for any guidance.

We have a plan that failed the ADP test for 2011. Corrective distributions were made by 12/31/2012. However, we discovered today that there was a miscalculation in the earnings portion of the corrections. Therefore one HCE needs to receive an additional $109. The other HCE actually received $3 too much. We are going to distribute the $109 immediately, but now the question is, did we fail to make the corrections within the first 12 month period. It seems very punitive to have to make a one-to-one contribution for this minor error (which would result in less than $2/participant) and it also seems a little over board to go to VCP for $109. To make matters worse, the client is moving to another TPA and this was discovered as we were reviewing the takeover files being sent. Any suggestions?

Given: 401(k) Safe Harbor Profit Sharing Plan

Given: Owner has no 401(k) deferral and no personal PSP contribution

Question #1: Does the owner still have to pay the 3% safe harbor to NHCE?

Question #2: If yes, how can suspend the safe harbor contribution (since you will pass the ADP test anyway)?

Thanks for all responses.

Plan terminated and we have found that one participant is currently in prison serving a 34 year term for a sexual assault. Is the plan required to send distribution paperwork to the participant in prison?

Plan has no age or service requirement with monthly entry dates.

Employee A has been employed since 2011. He has never worked 1000 hours to earn a year of service.

On the 2011 ADP Test, he is listed as an 'otherwise excludable'. For the 2012 ADP Test, he is listed as an 'otherwise excludable'. Is this correct? Can you be otherwise excludable forever?

Client has upcoming audit; last item on auditor's notification was loans; plan allows multiple loans.

Profit Sharing with all funds pooled; 3 participants had multiple loans and sponsor continued deducting on loans past payoff date. We didn't know this until the following year when doing the trust accounting.

In 2 cases, the excess on paid off loan was credited to subsequent loan(s), and in the third case, it was refunded to participant.

Any ideas on how the IRS auditor might look at this? Any suggestions on how to present the facts in the best possible light?

Does a governmental entity (with more than 100 participants) that sponsors a welfare benefit plan have to file a 5500 for it?

We are the TPA on a 401(k) plan at Mass Mutual. In 2012 a participant who is still employed by the plan sponsor received a "termination" distribution due to erroneous information provided to Mass Mutual. The employee has repaid the distribution in 2013.

Mass Mutual is saying that the employer must make up the difference between the amount the participant repaid (exactly what she received) and the current value of the shares that were sold to make the distribution originally. They also plan to issue an amended 2012 1099-R to make it appear that the distribution never happened.

Any suggestions how to persuade Mass Mutual that their approach is wrong?

A 401(k) Plan uses the Safe Harbor definition for hardships. A participant has an issue with their water supply into their house. The water has become contaiminated. He wants to take a hardship under the casualty deduction under code section 165. The insurance does not cover the issue. Will this qualify?

Hypothetically - A plan is adopted effective 01/01/12 and never files the report for 2012 (the first year). How does IRS ever catch wind of this?

Hypothetically - you are an ERPA. Your employer starts a PS in 2012 and rolls over some IRA money into the plan then proceeds to withdraw most of it. No ER contributions or salary deferrals were ever made. No 1099-R ever issued and no 5500 report ever filed. Because of your function in the company, you are fully aware of all this, but of course your boss wants you to look the other way. What would you do?

Any insight as to how the IRS might catch wind of this and what impact this might have on you?

We work with a 401k plan with two owner/employees who hit the 402g limit and with profit sharing, hit the 415 limit. They've adding 9 staff members in 2014 with a payroll of $1.1 mil exclusive of the owner’s compensation. Of the 9 staffers, two will make in excess of the compensation limit and the other 7 will hover around or above $100k. None of the 9 will be owners or officers and there are no family member-employees. We're expecting 100% participation from the staffers.

In considering plan design, we initially considered incorporating the staffers and adding safe harbor since as near as I can tell the plan instantly will be top heavy. However, the owners are balking at the cost of either the basic match or the non-elective given the size of their payroll. Similarly, we considered new comparability design but anticipate that will be cost-prohibitive as well.

We're considering starting a separate plan for the staffers, which would exclude the owners and vice versa. From what I've read, as long as no key employees participate in the staffers' plan, they do not need to be aggregated for top heavy testing. We're aware, however, that if any of the circumstances change and a staffer becomes a key employee, they must be tested together for top heavy.

What I don't understand and cannot seem to find is what other impacts (other than administrative burden/expense) to nondiscrimination testing sponsoring two plans will have. Would the plans have to be aggregated for benefits, rights, and features if they use two different profit sharing formulas? Since neither plan will exclude employees or have allocation conditions on employer contributions, we don't anticipate coverage to be an issue if they have to aggregate the plans. Likewise, with ADP/ACP.

There has to be something I'm missing. Thoughts? Will setting up a separate staffers' plan work?

I know this has been brought up before, but I can't find any examples and I'm looking for some clarification. I’m hoping that you can help me with a question since it was brought up during a recent audit of a termination of a cash balance plan.　 It is specifically in regards to IRC 411(b)(5)(B)(vi)(I) and the 5 year average of interest crediting rates and when/how they apply.　 This is a purely hypothetical example.

In the following example, how would the Cash Balance Account be determined as of 12/31/2013?

Plan Term 4/30/2011.　 Cash Balance Account as of 12/31/2010: $1,000 no more pay credits.

Interest Crediting Rate as defined in plan

2006: 4.50%

2007: 4.50%

2008: 4.50%

2009: 4.50%

2010: 5.00%

2011: 6.00%

Would you use the 2011 rate of 6.00% for 4 months of 2011 and then the average for the other 8 months of 2011 and then 2012 and 2013 (ie, 6.00*4/12 + 5.00 + 4.50*3 + 4.50*8/12)? Or would you use an average for all of 2011-2013 (ie, 5.00 +4.50*4)?

How would this change if the plan term date were 12/31/2011?

Thanks for any help you can provide.