Gilmore

Plan Sponsor with a safe harbor 401(k) plan (basic safe harbor match), just learned that for 2017 their payroll company did not apply deferral elections to bonuses paid during the year. Plan Doc does not exclude bonuses for any plan purposes. Match is allocated at year end. In reading through the IRS 401k fix it guide, Example 2 under Mistake 3 (didn't use the Plan's definition of comp), would require a QNEC of 50% of the deferrals that would have been made from the bonuses had the elections been applied, plus earnings, plus applicable match. However the example goes further to say that with respect to the missed deferrals, "other correction methods may be acceptable to fix that part of this mistake", and refers to Mistake #6 which describes corrections for situations in which "Eligible employees weren't given the opportunity to make an elective deferral election (exclusion of eligible employees)." The Plan Sponsor just discovered the error (when putting together the year end census data). They are going to ensure that elections are applied to 2018 bonuses. I'm thinking based on the reference to Mistake #6, that the QNEC can be limited to 25% of the missed deferral, assuming the QNEC will be made in 2018. Am I off base on that? Thanks very much.

Got it. Total comp less all exclusions compared to total comp. I guess that makes sense. Thanks very much.

A plan uses the alternate safe harbor for 414 comp, excluding fringe benefits, deferred comp, welfare benefits, etc., for purposes of allocating their nonelective contribution. Additionally, now the client would like to exclude overtime and bonuses. Question, for purposes of the compensation ratio test, am I starting with my alternate 414 comp as my base for the test, and using only the excluded overtime and bonuses in the ratio. Or am I starting with all compensation, and excluding all of the excluded comp in the ratio. For example, assume total comp of $50,000, including $1000 in fringe benefits and a $5000 bonus. Is the compensation ratio 88% ($44000/$50000), in other words, starting at $50k and reducing comp by all of the excluded comp? Or is the compensation ratio 89.8% ($44000/$49000), in other words, first reducing the $50 by the $1000 fringe to arrive at a "base" 414 comp, then excluding the bonus? Hopefully I've phrased that correctly, and appreciate any insights. Thanks.

The idea was to have two additional, non-benefitting HCEs. My initial reaction was closer to Tom and D, although I appreciate the varied opinions.

The 2 new HCEs are the spouses of the owners. It is not anticipated that they will be benefitting.

An existing, 3% safe harbor nonelective 401k plan, calendar year, uses a One Year Wait for eligibility. The plan sponsor would like to amend the plan today, 12/1/2017, to permit anyone hired as of 12/1/2017 immediate eligibility. This would bring in 2 HCEs and 6 NHCEs. It seems that expanding the eligible ees is allowed mid year, but the timing seems aggressive, since the new entrants have only one month to defer? Thanks.

Hello Mike, Yes, I believe that is the VCP fee. Had this plan sponsor requested the correction earlier in the year I would not see an issue. My concern was if the IRS would still consider the correction acceptable if they were starting the 401(k) in the last couple of months of the year. Thanks.

Additionally, they were hoping to make an employer contribution greater than the simple match that they are currently making. They started exploring this much earlier in the year, the advisor thought the issue was dead, and then it got brought up again the other day.

There are a few of the participants who have maxed out the simple deferral limit and were hoping to defer the rest of the 402g limit into a 401k.

A small non-profit (no HCEs) has a simple IRA that they have been contributing to all year. They are considering a 401(k) and want to know if it is possible this late in the year to start the 401(k) and submit the simple IRA under VCP. Is this even possible this late in the year? I know the VCP process for correcting simples is more streamlined, but I had always thought that the later you get into the year the less likely the IRS would approve. Thanks.

Thanks.

Thanks Golf, the historical data is what we would be looking to retain on a plan year basis. I believe our current system does allow for that type of export, and the new provider said it is most likely possible as well. Since you mentioned going from Relius to FT (which is what we would be doing), I was just trying to get a general idea of how much data you were bringing over and how long a process that took.

I believe the answer to your question is, yes. We would be looking to bring over each plan with each year of data.

RBG, when you made the switch from Relius to FT, how many years of data were you bringing over? Thanks.

When is a QDIA required?

What is the max size that you would consider for a pooled plan? Let's say it is an owner and 3 employees? Is everyone on the investment committee? Who decides what the investments will be? Does the owner want to take on that responsibility alone? I've seen some nice small groups get pretty ugly in a break up, and I'm sure a pooled 401(k) would be just one more straw for the camel's back. A balanced account sounds nice until the market shoots up and one guy wants to know why he isn't seeing the gains he is reading about in the paper.

Never mind. I see in the EOB where it explains that elective transfers between 401k and 403b are not permitted except in the case of certain church plans.

An employer has a 401(k) plan for the staff and a 403(b) for their union employees. A former staff 401(k) participant is not a union employee. There are no distribution options available to the employee in the 401(k) plan. Is it possible for the participant to request an elective transfer from the 401(k) to the 403(b)? Did EGTRRA create an exception that allowed an elective transfer between dissimilar plans, and if so, would that apply in this situation? Thanks.

We recently had a client that used their "wait and see" option to amend the plan to include a 3% nonelective safe harbor. HCEs are excluded from receiving the safe harbor, mainly as a cost control issue. QP's comment brings up an interesting point. If the profit sharing portion of the plan does have more relaxed inservice distribution options, could the plan be considered discriminatory if HCEs are given 3% as a profit sharing contribution, and the NHCEs are stuck with the more stringent inservice distribution options of the safe harbor source?

Ok, thanks guys. I was misreading the instructions in Section IIA to skip B entirely if A is "No". Thanks again.

Thanks ETA, I should have been clearer in my facts. There are no Keys involved in the correction. My question is specific to the fees. Am I permitted to correct without using Form 14568-E, and still have the reduced $300 fee. Or is the fee based on the total number of participants in the Plan, which is more like a $5000 fee. Thanks.

A plan with 150 participants failed to start the loan payments on 10 loans. The error was not found until after the cure period had ended. The sponsor would like to file a VCP request to correct the loans and not issue a 1099-R. On the IRS website, the Voluntary Correction Program Fees page says to reference Rev Proc 2017-4 Appendix A.08. That page also lists out fees in effect for corrections made after Jan 1, 2017. In the Loan Failures section it lists the reduced fees, which are based on the number of participants with loan failures. It also references Form 14568-E. Rev Proc 2017-4, in Appendix A.08 contains similar information to the website, however it does not appear to mention Form 14568-E. It only mentions section 6.07 of Rev Proc 2016-51 as the source for the correction procedures. In this case, with 13 or fewer loan failures, and less than 25% of participants affected by the errors, is the $300 VCP Fee still applicable, even though the request to correct and not issue a 1099R is not one in which Form 14568-E can be used? Thank you very much.

Four doctors own Surgery Center A. Each personally owns 25%. They are paid through their S-Corps. The same four doctors and another doctor each own 20% of Surgery Center B. Each will be paid by through their S-corps. I am thinking there is an ASG with the four S-Corps and Center A. A controlled group with Center A and Center B. And an ASG with five S-Corps and Center B. There is only one plan, sponsored by Center A. Center B is going to adopt the Center A plan. Am I correct in assuming that the fifth doctor owner of Center B's S-Corp can adopt the Center A plan as well, and further, because it is part of this overlapping group, the S-Corp could not adopt it's own plan without taking into consideration the other members of the related group? Thanks.

Thank you very much.

An employer exceeded the 100 employee count for their Simple IRA in 2013. 2014 and 2015 they operated under the grace period, but continued to operate the plan in 2016. They ceased contributions in May, 2016 and started a 401(k) plan in June 2016. They are going to correct the "Employer Eligibility Failure" through VCP, completing Section A of the 14568-D for both the 100 count exception and the exclusive plan rule. Would anyone mind confirming that neither of these failures would result in the need to request a relief of an excise tax. Thank you.