MWeddell

I also see nothing special about 2013, but will point out that the % of 401(k) plans offering Roth 401(k) contributions has been rising steadily since Roth first became available. "Nothing special" about 2013 still means an increase in plans offering the Roth feature.

It sounds to me that what happened to the participant's paycheck is correct. The error is that money was deposted that shouldn't have been. The deposited money, adjusted for earnings, should be treated as forfeitures.

Legislators, regulators, employers and employees all have been spending more time addressing health care changes, which to a mild extent probably means less time on retirement issues and other employee benefit concerns. We've probably been coasting with fewer 401(k) plan changes than would otherwise be the case. (Most employers would say that less government action is a good thing.)

Santo Gold, Yes, according to the EPCRS, if you are going to correct it by making a retroactive amendment to the plan document, it has to be a VCP filing, not a self-correction. PensionPro, Seems like you'd want to self-correct by reversing the invalid portion of the rollover. With just one participant affected, it seems like an insignificant operational failure. Of course, there are a host of other conditions to use the self-correction program.

This will not be eligible for self-correction in my opinion. Considering how widespread the error is and that it began more than 2+ years ago, the operational failure is "significant" as that term is used in the Employee Plans Compliance Resolution System revenue procedure. Since you probably will recommend to the client that it do a Voluntary Correction Program filing, then also suggest: - They consider proposing to amend the plan document retroactively to allow for after-tax contributions as a correction method. - They retain legal counsel to advise them and work with you on preparing the VCP filing.

Is that last post correct? Note in post #4 the phrase "unless made through a cafeteria plan."

Seems to me that you should encourage your client to discuss the matter with legal counsel, given that there is not a clearly valid method of self-correction available.

There also is a fiduciary concern about whether investing in life insurance is a prudent investment, regardless of the fact that the participant is asking the plan to accept this earmarked investment.

Belgarath is right. The exemption from the 10% early distribution excise tax for distributions to first-time home buyers applies only to IRAs. See Code Section 72(t)(2)(F). Typically, the participant can apply for both a loan and a hardship, but the loan must be granted first unless the circumstances make it appear that the participant will not repay the loan.

It seems to me that (in general) any loan repayment is made with after-tax dollars, so that's not a point of differentiation when comparing a loan from a qualified plan with a loan from a third party.

You are welcome, Dave. Thanks for maintaining a great website!

A rule of thumb is that if participants have a decision to move dollars into an employer stock fund, then the stock must be registered (i.e. publicly-traded). Given that your situation violates the rule of thumb, make sure to contact a knowledgable securities attorney to see if it is permitted.

Click on the large dot or bulletpoint immediately preceding the name of the thread. If you hover your cursor above the dot, it will indicate that going to the first unread post is the purpose of the dot.

Are you using the prior year method for NHCE averages? That could be a problem.

I don't think we've answered the original poster's question yet. Must the compensation limit be prorated? Is that because a plan that terminates on a date other than the last day of the plan year necessarily has a short plan year? Any citations to support one's answers?

I agree with the above. The employer is going to have a much better argument that discontinuing the non-elective safe harbor contribution is permitted now (with a notice rescinding the earlier participant notice) than it will after the plan year has started.

There are no regulations explicitly requiring that a trustee retain records that a plan loan with a repayment period greater than 5 years was made to acquire a primary or principal residence. However, because the trustee did not treat the loan as a taxable distribution with withholding tax obligations, Code Section 6001 probably imposes this record retention obligation on plan trustees. (In an analogous situation, the Treasury Dept. has cited Code Section 6001 as requiring the retention of hardship withdrawal documentation.) What satisfies this requirement in practice is probably a judgment call. I am satisfied if the plan administrator or trustee (or third party recordkeeper on their behalf) retains a copy of a signed purchase agreement for a residence.

If you search for Forms 5500 at DOL.gov, you will see a fair number of plans called "The 401K Plan" "The 401(k) Plan" "401(k) Plan" and "401K Plan" so it is not unheard of to have plan names that don't repeat the plan sponsor's name.

Yes, this is permitted. If you take this to an extreme position, you may eventually have a problem. Suppose the match was paid only to eligible employees who contributed the 402(g) limit for employees < age 50. While the match is currently available to everyone, it may not be effectively available to everyone, so the match may be discriminatory benefit, right or feature. I don't see the problem for restricting the match to those who contribute 2% of pay.

I think one can argue that the "benefit, right or feature" that must be tested is the available rate of match, looking at examples of what constitutes a BRF in the definitions near the end of Treas. Reg. Section 1.401(a)(4)-4. Some employees have one method (spreading contributions out evenly among pay periods) of getting all available rates of match and some employees have two methods (spreading contributions among pay periods and benefitting from the true-up match feature). However, they all have at least one method of getting all available rates of match, so no BRF test is needed. That being said, it's an aggressive position, so have the client check with its legal counsel.

A profit-sharing plan (including a 401(k) plan) has to have a definite allocation formula. Unless each HCE is specified as a separate class of employees, you may not be complying with the plan document if the limits vary by HCE.

Matching 20% of all deferrals will increase the cost of the matching contribution (of course) but it also is likely to make the ACP testing more difficult to pass (but still no more difficult than the ADP test is to pass). I'd guess I'm not telling you anything you don't already know. Has anyone told the senior manager that his/her stance isn't the typical way of looking at the situation? There are many other elements of a typical compensation & benefits factor for which internal equity is measured based on % of compensation, not based on raw dollar amounts. It's not breaking news that an employee with a higher base salary might also receive a proportionately higher benefits package.

Yes, that's what I am claiming. Treas. Reg. Sections 1.401(a)(4)-1(b)(5) and 1.410(b)-2(b)(7). There is no 401(a)(4) testing for the collectively-bargained employees. If I'm wrong, then I will have learned something new which is a good thing, but so far I don't see where I went wrong. There is always the kind of provision in Treas. Reg. Section 1.401(a)(4)-1©(2) which makes me believe that if a discrimination testing tactic feels aggressive, then it is aggressive, but I don't yet see why you believe my position to be wrong.

There are enough liquidity concerns with pink sheet traded securities that you really need to press the plan fiduciary to consider seriously whether this should be permitted.

Yes, this is possible assuming that the plan document language permts it. You can move the QNECs for just the NHCEs into the ADP test. 1) Because this is a union group, no 401(a)(4) testing on the QNECs not moved into the ADP test. 2) Shouldn't have a problem with the rules on targeted QNECs. It does feel too good to be true, so I would caution the client that it is an agressive position so check with legal counsel.