MWeddell

Thanks, Dave. Looking through the 2020 results, I didn't see anything regarding the coverage and non-discrimination testing rules for Puerto Rico plans.

I faced this issue today and came to the opposite conclusion. One can't change the allocation conditions because it is a protected benefit once participants have satisfied them.

It is entirely a matter of interpreting the plan document language.

Like most of you, I'm in the mainland U.S. and seldom work on plans (either dual-qualified or stand-alone) that cover employees from Puerto Rico. However, I occasionally need to answer questions about those plans, especially regarding coverage and non-discrimination testing. Are there any good resources available? From 2018, I'm aware of this document: https://documents.popular.com/pdfs/PFS/02_Puerto_Rico_Qualified_Plan_Discrimination_Testing_and_Reporting.pdf

Yes, the participant's elective deferrals exceeded the 2019 limit. However, if the ADP test refund occurred no later than April 15, 2020, then the excess deferrals were timely corrected.

There is nothing wrong with what your client is doing. The 415 limit on annual additions is not affected by IRA contributions.

Luke, good counter-argument. I don't think there is anything more on point. I do infer the word "all" rather than "any" in that regulation but it is ambiguous. I looked at the ERISA Outline Book and the IRS Q&As from the various years of the EA gray book and didn't find any help there.

In terms of what is legal, I agree with the original post. The match is a protected benefit under Code Section 411(d)(6) only for the participants who have fulfilled all of the allocation conditions. See Treas. Reg. Section 1.4111(d)-4, Q&A-1(d)(8).

If that is the way it works, e.g. the match is a discretionary percentage of deferrals made from the first 4% of plan compensation, then there is just one moving variable. That is a definite predetermined allocation formula and my prior post's criticism is wrong because I misunderstood Derrin's post.

Yes, this is a fiduciary, not a settlor, decision.

Thank you, Derrin, for your very informative post. Note that despite the name "rigid," this match formula still has not one but two moving variables, the match limit and the match rate. If one didn't have an IRS opinion letter covering the plan document, it would still be problematic how this complies with the definite allocation formula requirement of Treas. Reg. 1.401-1(a)(2)(ii). Hence, future IRS enforcement positions could change.

Well, we can answer some of those questions. This website typically is frequented by employee benefit specialists who help employers, not those who help participants. Yes, your 401(k) plan balance increases or decreases depending on the performance of the investment funds that you select (or the default fund if you did not make an affirmative election). So the fund or funds you select will affect how much money your account gains or loses. There is not a minimum balance in your account that is protected no matter how your funds perform. If your plan offers a stable value fund, then money invested in that fund will not usually lose money, but bad things are still possible (such as insurance companies going bankrupt or something called a "negative market value adjustment"). Typical investment advice to participants includes: - Seek diversification to minimize unnecessary risk. If your plan allows you to select individual stocks, don't use that feature. - Funds can be aligned along a spectrum from low-risk, low expected return funds to high-risk, high expected return funds. There generally is a trade-off between those two variables so that there is not a low-risk, high expected return fund. - The percentage of your account invested in stocks or equities usually should be high early in your career for retirement savings. You have decades to go until retirement so maximizing higher expected returns and being less concerned with risk or volatility makes sense. As you approach retirement age and the date that you will start to spend your money starts approaching, then you want to gradually shift to a less risky mix of investments. - As a tiebreaking factor, generally choose indexed or passive funds over active funds if you are offered both within the same asset class. Indexed funds on average in the long run perform better than the average active fund. - If you are unsure what to select, the target date retirement fund with the year in which you'll retire (or the year in which you'll attain 65 if you have no idea when you'll retire) is a good place to start. Target-date funds are well diversified and shifts to be less risky as you approach retirement age. That is probably why your plan's fiduciary defaulted your account to be invested in SSDLX. Let me emphasize that the above is typical investment advice, not investment advice specific to you and your situation. Best of luck to you, AlohaGuy.

One can include or exclude all matching contributions. I agree that the second sentence of the regulations that C.B. Zeller quoted does not apply but the first sentence still does apply.

The first sentence of regulation that C.B. Zeller quoted says that a plan that satisfies the ACP safe harbor rules but needs to run an ACP test anyway because it accepts traditional (non-Roth) after-tax employee contributions is permitted to perform the ACP by disregarding all matching contributions. Doesn't that pretty clearly imply that the plan's ACP test may be performed without excluding all matching contributions? If none of the provisions of Treas. Reg. Section 1.401(m)-2(a)(5) apply, then the match is included in the ACP test.

I'm raising it as a possible issue under Treas. Reg. Section 1.401(a)(4)-5 if the owner's child is an HCE. Arguably, the amendment is being made when the only person expected to benefit from it is an HCE. I'm not resolving the issue.

If the owner's child is an HCE through family attribution, the timing of the amendment may be discriminatory under the 401(a)(4) regulations.

Thanks, John. Example 3.c.4 in that portion of the ERISA Outline Book has an example where there may be a discriminatory BRF available match rate. It strikes me as an unusual set of facts, but certainly worth mentioning.

Yes, I understand that the IRS (not just for the Corbel plan document but for many others) has approved plan documents even though they don't comply with the regulation I cited. Anyway, I can't really help you with your original question, Austin.

I've never understand how having a plan document allowing any discretion regarding how a contribution is allocated complies with the definite allocation formula requirement of Treas. Reg. 1.401-1(a)(2)(ii) unless there are multiple allocation groups.

I believe that you don't have a BRF issue even if the definition of compensation used to determine matching contributions does not satisfy Code Section 414(s). This is consistent with the ERISA Outline Book, Chapter 11, Section XII, Part E, Section 3, last sentence Unfortunately, the regulation is somewhat ambiguous. Compare Treas. Reg. §1.401(a)(4)-4(e)(3)(iii)(D) and (F) (for which the regulations expressly state that the plan's definition of compensation need not satisfy 414(s)) and (G) (which is silent on the matter).

It seems to me - if it is reasonable to retain this trustee - the trustee will not accept a contribution during a black-out period and - the length of the black-out period is reasonably short, then "the earliest date on which such contributions or repayments can reasonably be segregated from the employer's general assets" and transmitted to the trustee is the first full business day after the black-out period ends regardless of the employer's previous history of being about to transmit contributions sooner under a different set of circumstances. Whether the plan auditor will accept that argument, I do not know.

I think it works, yes. Make sure the client understands that an ACP test is still needed.

The provision is in Treas. Reg. Section 1.401(m)-3(d)(2), so it applies only to the 401(m) safe harbor. However, that provision applies to all matching contributions, not just the non-safe harbor match, so the prohibition against increasing match does not apply to this plan design.

I agree. You have a 401(k), but not a 401(m), safe harbor plan.

I agree with the earlier post that if there is a per participant charge, this includes terminated vested participants. Sometimes that fee is paid by the employer but sometimes it is paid by the participant.