Gilmore

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.

I understand that if a safe harbor 401(k) plan limits the safe harbor contribution to only the statutory employees and disaggregates the otherwise excludable employees, then the plan cannot use the special rule deeming the plan to not be top heavy as it no longer is solely a safe harbor 401(k) plan. Does the same thing apply if the plan does not provide safe harbor contributions to union employees. An employer with a top heavy safe harbor 401(k) plan is considering allowing union employees to participate. If the union employees do not receive the safe harbor contributions is the plan no longer deemed to be not top heavy? Thanks.

Thank you very much!

Thank you both. Tom, is that conference question somewhere in the archives on ASPPA's website that I would be able to locate? Thanks.

Tom, I appreciate your input on the forfeiture allocation, but would also appreciate your opinion on the main question, which is, if an Officer is hired in 2016, and the 2016 plan year is top heavy, and that Officer makes a deferral in 2016 and at the end of the year they end up with more than $170,000 in compensation, would they be considered a Key Employee for 2016 and trigger the minimum contribution, or are they not considered a Key Employee until 2017? In Sal's book he discusses differing opinions with respect to who is a Key Employee for receiving a top heavy accrual. In the discussion he describes one opinion in which the Key Employees used for determining who is required to receive a top heavy contribution are the same Key Employees who are used to determine if the Plan is top heavy. So the Key Employees determined as of 12/31/2015 are the same Key Employees used to determine who is NOT a Key Employee for the 2016 top heavy contribution. Contrasting that is a differing opinion, in which the Key Employees used in the 12/31/2015 are only used to determine if the plan is top heavy for 2016. Any other employee that meets the definition of a Key Employee on 12/31/2016 would be considered as a Key Employee for determining who is NOT a Key Employee for the 2016 top heavy contribution. So in the contrasting view, if the Officer hired in 2016 makes more than $170,000 in 2016, and the plan does not provide the top heavy to Key Employees, the new Officer would not receive a top heavy contribution. Under that view I would think that if the Officer also deferred, he would trigger the need for a top heavy contribution to be made. Sal does indicate that the first view, the one in which the new Officer would not be a Key Employee for 2016, seems to be the preferred view of the IRS, but I was wondering if you had ever come across a similar situation or your thoughts in general. Thanks.

Thank you for the confirmation that the new employee would not be a Key Employee for the 2016 plan year. No forfeiture issues, but appreciate the heads up on that.

A 401(k) plan has been approaching the 60% top heavy ratio for a few plan years. The current Key Employees, the owners and one long time Officer, have agreed not to defer until the top heavy test is completed each year, to avoid having to make a top heavy minimum. For 2016 the ratio exceeds 60% for the first time. The Keys stopped deferring after 12/31/2015 and have decided among themselves not to defer in 2016. The company is hiring an employee in 2016 whose job functions will classify the new employee as an Officer and the new employee will be eligible to defer in 2016. His compensation will exceed $170,000 in 2016, and no Officers are excluded under the 10% rule. Question is, for 2016, although the new employee will most likely meet the Key Employee definition on the 12/31/2016 determination date for determining the 2017 Key Employees, am I correct that this employee IS NOT a Key Employee for the 2016 plan year, and would not trigger a top heavy required contribution if he defers in 2016? Thank you.

Ok, thanks Mike. Would you have a cite, or Q&A that might address this? Unfortunately my document provider does not agree. They are telling me that the HCEs can be excluded or required to meet allocation requirements, but if they are allowed to receive the safe harbor match at all, it must be the full match. I have a client with a traditional 401(k) plan in which the current match is capped at $5000. They are considering going to a safe harbor but are concerned about the expense. I thought an alternative might be to continue to cap the match at $5000 for the HCEs only, which would reduce the overall cost of the safe harbor match, but not totally exclude the HCE from a benefit they are used to receiving.

Is it permissible for a safe harbor 401(k) plan (basic match) to cap the amount of safe harbor match received by an HCE? I know that the plan can provide that HCEs are excluded from receiving the safe harbor match, or that there can be allocation restrictions for HCEs, but is it permissible to put a dollar limit on the safe harbor match to HCEs? Thanks.

Ok, thanks.

Hi Tom, Thanks. I saw that example as well. But the example illustrates a formula in which the rate of match changes with increased service. I think the example used a 100% rate of match with 10 years of service, with a decreasing rate for fewer years of service, with a 10% rate for less than 3 years. So even though that example illustrates a decreasing match rate, do you agree with Doghouse that, in the formula that I have laid out, each year of service would need to be tested even though the actual rate is the same, but the increased cap causes an increased amount of match. Makes sense, it's just that Sal is usually so thorough and I don't see any mention of an increase in the cap only in any of his examples.

Thanks. So the benefits, rights, and features test for the availability of the match rate is not a concern because everyone gets the same rate of match?

Here is a proposed match formula. Appreciate any thoughts on whether non-discrimination testing of the availability of each rate of match would be applicable. The match rate would remain the same at 50%. The cap on the match would increase with each year of service earned. Less than 1 year of service, no match. More than 1, less than 2, 50% match capped at 1% of compensation More than 2, less than 3, 50% match capped at 2% of compensation and so on up to 5 year and beyond, with the cap staying at 5% of compensation. So the rate of match remains consistent. It seems to me that the increasing cap is more of an ACP issue. Thanks.

Thanks.

I'm not sure of the reasoning behind why they want to limit the plan to a select group, but apparently that is what they want to do.

Company has two 50/50 owners, who are the only HCEs (comps for all others below limit). Owners want to start a 401(k) as a tool to recruit a certain class of their employees. They are not concerned with participating themselves. In order to cover just the certain class of employees and exclude all others the Owners are ok with excluding all HCEs so as to not be concerned with the coverage test, which would be right around the 70% ratio if the HCEs were covered. Should there be any concerns with excluding all employees, including HCEs, with the exception of the targeted group of NHCs? Thank you.

I will ask. I was thinking this might be more of an IRS requirement regardless of what the document provider says.

Is it acceptable to sign a plan Adoption Agreement using a digital signature generated by Adobe Acrobat? Thanks.

BTW, my son is a Combat Engineer in the Army Reserves whose job duty is route clearance, so I would say any pension problem pales in comparison to an IED that is ready to detonate.

Thank you for all of the input.

It will be interesting to see if there is a big increase in the number of people seeking an ERPA designation with the last test cycle in the beginning of next year. It is a benefit, especially for a smaller firm, to have an ERPA on staff. If they are going to do away with my ERPA designation at some point then they should rescind the rule that a non-credentialed practicioner cannot sign a 2848, or they should make exceptions for other industry groups' designations.

I'm trying to think through what a correction might look like. The plan sponsor allocated the safe harbor to every participant that was entitled in 2014, and deposited the contribution within 12 months. If a participant terminated in 2014 and did not have compensation in 2015 does that mean the correction is to take away their 2014 safe harbor contribution? Is the plan no longer a safe harbor plan for 2014 even though the contribution was made within the permitted time?