MWeddell

If it is an operational failure (and it sounds like it is), then the EPCRS is the only guidance from the IRS on how to correct an error. I agree with the earlier poster that it sounds like self-correction most likely is appropriate. There is no official category of "operational failures so minor that one does not have to use the EPCRS."

I agree with the above posts, but will add that under the Resources test, even if the safe harbor rules aren't used, the general test requires available plan loans to be taken as part of the "no alternative means available" requirement.

Going back to the original question, I believe the answer is yes. Providing a 3% nonelective QNEC to NHCEs and a 1% nonelective QNEC to HCEs satisfies Treas. Reg. 1.401(k)-3(b)(1): "The safe harbor nonelective contribution requirement of this paragraph is satisfied if, under the terms of the plan, the employer is required to make a qualified nonelective contribution on behalf of each eligible NHCE equal to at least 3% of the employee's safe harbor compensation." Post #2 of this thread asserts that if the contribution is provided to an HCE, it must be at least 3% of pay. I do not read the regulation to mandate that.

Thanks, Larry. At least you made me laugh!

Check out Treas. Reg. 1.401(k)-1(a)(3)(iii)(A). The 401(k) cash or deferred election may only be made on money that become currently available after the date the plan was adopted, which was 12/1/2011 in your case. In effect, that portion of the plan was effective for only one month, not the minimum of three needed for an initial short plan year for a safe harbor plan. This is not a valid safe harbor plan, which means the employer has not operated the plan in compliance with the plan document. This is a mess.

While it isn't entirely clear, I believe the amendment is still timely. Rev. Proc. 2007-44 establishes the deadline for discretionary amendments as no later than the last day of the plan year in which the amendment is effective. This amendment is effective for purposes of performing the discrimination testing for the 2012 plan year and defines who is a highly compensated employee for purposes of the 2012 testing. Even though it refers back to 2011 compensation, I think the amendment is still timely.

Assuming that the participant has not terminated employment or become disabled or have experienced a hardship withdrawal, the plan document may not allow the elective deferrals account to be distributed prior to attainment of age 59½.

No, the QNEC would have had to have been deposited within 12 months of when the prior year ended. Sounds to me like you are past that point in time.

A profit-sharing plan (including a 401(k) plan) is supposed to have a definite pre-determined allocation formula. The plan document shouldn't (but often is) be worded so vaguely that you have employer discretion over how to limit HCE deferrals to ensure that the ADP test passes readily.

Have you tried just performing a ratio percentage test on each plan? I'm not sure why you'd go straight to performing an average benefit test just because the plan years differ.

At least you are consistent, Tom! You gave the same answer in the first two posts of this thread -- http://benefitslink.com/boards/index.php?showtopic=43016 -- the only other time I could find that the question was asked. Any other opinions?

May two qualified plans in the same controlled group be permissively aggregated (combined for testing purposes) if they both share the same plan year end but one of them has a different plan year beginning because it is a short plan year? For example, may one aggregate a plan with a 1/1/2011 - 12/31/2011 plan year with a plan with a 7/1/2011 - 12/31/2011 plan year? It appears that even if one is performing ADP / ACP testing, through cross references one lands at Treas. Reg. 1.410(b)-7(d)(5) and the definition of plan year in 1.410(b)-9. The safe interpretation is that "same plan year" means both the beginning and end of the two plans' plan years are identical, not merely that they end on the same date, but I'm curious whether others have intepreted it differently or whether there is any other IRS or Treasury guidance on the issue.

Follow whatever method is specified in the plan document for allocating QNECs.

Thanks, Tom.

Plan is a calendar year plan that permits both employee pre-tax (elective contributions or elective deferrals) and employee after-tax contributions. The plan design includes an EACA, an eligible automatic contribution arrangement. Initial results indicate that the 2009 ADP test fails but the 2009 ACP test passes with room to spare. What is the deadline for recharacterizing employee pre-tax contributions as employee after-tax contributions? 2½ months or six months? Treas. Reg. Section 1.401(k)-2(b)(3)(iii)(A) states that "excess contributions may not be recharacterized ... after 2½ months after the close of the plan year..." That's a straightforward argument in favor of the 2½ month deadline. Treas. Reg. Sections 1.401(k)-2(b)(2)(vi)(A) and 1.401(k)-2(b)(5)(iii) extends the 2½ month deadline for making corrective refunds not subject to the 10% excise tax to 6 months for EACAs. Those changes are effective beginning in 2010. Is there room for a good faith interpretation argument to indicate that the extension of the 2½ month to the 6 month deadline could apply for the 2½ month recharacterization deadline too for 2009? It seems like the policy of not having to worry about testing results for six months would apply to both versions of the 2½ month deadline.

For what it's worth, this isn't new. It was in last year's budget proposal too.

I agree with your summary largely. If you have access to the 51st Annual PSCA Survey, Table 18 provides documentation that most profit sharing contributions are merely discretionary, without a formula written into the plan document.

See ERISA Section 107. For IRS requirements regarding the retention of computerized records, see Rev. Proc. 98-25.

Yes, it can have a one-year wait but ... There are some tricky issues about the timing of the auto enrollment. It might have to be done when the person becomes eligible for the QACA match, not just when they become eligible for deferrals.

Welcome to the message boards, Bob. The employee deferrals made to the 401(k) plan count as employer contributions under the Internal Revenue Code. Since they are made every pay period, there is no problem at all with having substantial and recurring employer contributions to your plan. I could only think of one possible problem to having the plan document permit profit-sharing contributions and have the employer never use that feature. I thought it might mess up the exemption from the top-heavy rule that applies to 401(k) plans with the safe harbor plan design, but Rev. Ruling 2004-13 (I believe -- I didn't look it up just now) indicates that one loses the top-heavy exemption only if there is an allocation of employer contributions or forfeitures. I can't think of any other reason why having the profit-sharing language in the plan document but never actually funded would cause harm.

401karl, Typically, the employer has to make up 50% of the employee pre-tax deferrals that were not made due to the operational failure. This is covered somewhere within Rev. Proc. 2008-50, which is not the easiest thing to read: http://www.irs.gov/pub/irs-drop/rp-08-50.pdf

I've got three questions for posters. I'm trying to find out what others are doing with these issues. Assume that a 401(k) plan is intended to satisfy the QACA safe harbor for employees who have attained age 21 with 1 year of service. Match is 100% on 1% + 50% on next 5%. There is auto enrollment beginning at 3% + 1% annual contribution increases stopping at 6% - 10%. Eligibility for deferrals begins 2 months after hire date and eligibility for the match begins one year after hire date. Assume a calendar plan year. 1) Arnold is hired April 1 of year 1. Arnold does not make an affirmative election to contribute. As of what date should Arnold be automatically enrolled: June 1 of year 1 or April 1 of year 2? 2) Beth is hired April 1 of year 1 and earns over $110,000 during that calendar year. For year 2, is Beth included entirely in the age 21+ and 1+ YOS group that does not require testing because it is a QACA safe harbor plan? Or does one include Beth's data from January 1 - March 31 of year 2 in the otherwise excludable group and (because there is now at least one HCE in that group) perform an ADP test on the otherwise excludable group? 3) Carmen is hired April 1 of year 1 and earns over $110,000 during that calendar year. Carmen terminates employment on March 15 of year 2. Does Carmen have to be included in the ADP test for year 2 for the otherwise excludable employees? I'll suggest an answer to question 3 but will leave questions 1 and 2 open for discussion. Yes, Carmen must be in the ADP test for year 2. There is an early participation rule whereby HCEs from the nonexcludable group can be included in the age 21+ and 1+ YOS testing group, but after looking at Treas. Reg. 1.401(k)-1(b)(4)(iv)(A)(last phrase), 1.401(k)-1(b)(4)(vi)(Example 2), and 1.401(k)-2(a)(iii)(A), it appears that the early participation rule only applies if the age 21+ and 1+ YOS testing group or "plan" is subject to ADP testing instead of relying on a safe harbor. Besides, Carmen never received a QACA match, so it really doesn't seem right to put her in that testing group. Thanks for any help you can provide.

We're talking about benefits, rights or features testing under Treas. Reg. 1.401(a)(4)-4. Presumably there is one "plan" (in the 410(b) sense of the term) that includes 4 matching formulas.

I'm not sure I can explain my thinking in writing any better, but I'll try. You can test all of the different matching formulas separately, which is the first method I indicated. Alternatively, you can test each match formula that is at least as favorable as the A formula, at least as favorable as the B formula, at least as favorable as the C formula, and at least as favorable as the D formula. When I consider which formula is at least as favorable as B, then I include the employees eligible for the D formula because regardless of how much they contribute, D is >= B. I agree that the two formulas are not equal because if an eligible employee contributes more than 0% but less than 5%, D is better than B, which is why test 4 is still required on Group D alone.

The PSCA released a survey quite recently: http://psca.org/Portals/0/pdf/research/pub...vey%20Final.pdf Mercer did a global survey in May at http://www.mercer.com/ltutsurvey. Click on the executive summary and there are some statistics on global % of companies who have reduced retirement contributions. In the podcast discussing U.S. results, about a third through it, there are some U.S. statistics. Watson Wyatt had a survey updated in October with similar types of statistics: http://www.watsonwyatt.com/news/press.asp?ID=22602