buckaroo

Client wants recordkeeper to make a deposit directly into the plan for an error that was made. My understanding is that the recodkeeper cannot make a deposit directly into the plan account. The client is disagreeing. 1) Please confirm that I am correct. 2) Either way, please provide a cite for me to present to the client. Thank you in advance.

What is the timing of the forfeiture of related match contributions on an ADP test failure corrective contribution? Is it the same 12 months as the ADP refund? If so, what happens if the related match contributions are not forfeited with 12 months after the end of the plan year? Can anyone provide a cite? Thanks in advance.

I also agree that the entire contribution should be tested. I also think that the plan design should be re-examined. I understand that the client would like to increase the benefit to the HCEs, but it would be easier to write it as a new comparability plan and (if the deomgraphics do not work out) basically mirror the integrated allocation. If the demographics do work out, it could be processed in a fashion more beneficial to the HCEs.

jala, Recently ASPPA released an ASAP (08-33) regarding "Problems with "Deactivated" Trust Tax Identification Numbers". A portion of it said: "We were also informed that a taxpayer can verify the status of a Trust EIN by faxing a request to “EP Entity” (fax number 801-620- 6900). On the fax, you should request verification of the Trust EIN and provide the following information: 1. Trust EIN 2. Name of plan 3. Full address of plan 4. Contact name, telephone number, fax number and e-mail address 5. Copy of the original IRS notification assigning the Trust EIN (if available) The taxpayer can further request reactivation of the Trust EIN (if it was deactivated) and IRS EP Entity will reactivate it. (We’d recommend that the taxpayer request confirmation of the reactivation). Note that this status and/or reactivation request must either come directly from the taxpayer or if submitted by a practitioner, it must be accompanied by a properly completed and signed Form 2848." Maybe you could fax all of the info (without the TIN) and see if they could help you or point you in the right direction.

Nothing to the plan as long as the plan that he originally contributed to is unrelated. The issue comes in when he files his taxes. At that point, he will have a violation of 402(g) and may come back to you asking for a refund of contributions, which may trigger a forfeiture of the match contributions (depending how he has taken the distribtuion from the other plan).

AndyH I would agree that in your first scenario, the participant must get the TH min, but need not get the gateway as he can be considered an OEE. For your second scenario, I mostly agree. The reason I say mostly is that at 1 1/3 YOS, (s)he may still be an OEE because they may not have met the entry date (using statutory entry dates). For example plan year is a calendar year. Ptp is hired on 8/1/2007. If you use the statutory entry dates, he would be an OEE for 2008 and 2009 as he did not complete the YOS by the statutory entry date of 7/1/2009. If you are using plan entry dates and the ptp completes the YOS prior to the last entry date, then (s)he must get the gateway. Hope this helps.

This is the response I recevied on whether gap earnings were permitted: It does appear you can't use gap earnings on refunds. However, it's based on proposed regs and not final regs. Proposed Treas. Reg. 1.401(k)(2)(iv)(A) states that the "income allowable to excess contributions is equal to the allocable gain or loss through the end of the plan year." It deletes the entire section of the regs regarding gap earnings and its calculation. So, it appears that MSN's ERISA council was correct. Therefore, the OP is not an issue at all. MSN, Thanks for the correction.

I would say no HCEs in 2003 plan year (based on no prior comp). I would also say probably no HCEs in 2004 plan year unless someone earned over limit during when company was active (11/2003 --12/2003??).

I have not looked at this subject for a while, but I thought I would reply. My recollection is that the plans have to be aggregated for TH if key employees were benefitting from the plans. So, I think the question is was the k plan amended to exclude key employees from participation? Was this done prior to the beginning of the plan year in question? If the keys are still eligible for the k plan (or were for any portion of the plan year containing the determination date) then they would be considered benefitting because they had the right to defer (whether they did or not). Therefore, they would have to be aggregated to TH testing and, if found top heavy, they would have to provide a TH minimum. Any other opinions?

From my reading of the EOB, I have come across a special rule for processing the ABT for coverage testing. Specifically, it states that if an employer maintains both a DC and a DB, then the ABPT can be calculated separately for both plans (with some caveats). Can someone clarify this rule? Is it as simple as assuming that the ptps in the DB plan only have a zero in the DC plan (for ABPT)? If they are in both plans, does this mean that the ABPT is calc’d solely on the figures in the DC plan? So, if I were to employ this rule for my DC plan, then I would not need any financial information from the DB plan provider, correct? All I would need would be a census listing with the indicative data (if the pops were different) or a count of those who were in the DB, (Not in DC), who met the elig requirements of the DC. Does this sound right? Finally, if the plans needed to be tested together for the ABPT, is the calculation as simple as converting the DB EBAR to an allocation % and adding it to the alloc % of the DC? (Or converting the DC Alloc % to an EBAR and adding it to the EBAR of the DB plan?) Any comments/help would be greatly appreciated.

I saw the same informaiton in the EOB. However, after the post from MSN, I took a look at PPA Section 902. It amends 401(k)(8)(A)(i). From what I read, it appears that the issue could be interrpreted as gap earnings no longer permitted. Since I am not an attorney, I have asked colleagues (one of whom is an attorney) for their interrpretation. I hope to get clarification soon.

I have been doing some thinking about the ADP/ACP testing for plan years beginning on or after 1/1/2008 and I think I have come up with something interesting based on the current status of our economy (at least for this testing season). Let’s say ADP testing is being performed on a 2008 calendar year plan on 4/1/2009. When I process the test, I find that one HCE (not CUC eligible) is due a refund of contributions of $5,000. When I calculate the earnings (through 12/31/2008) on the refund, I come up with -$2,500. Now I know that gap earnings are no longer required on ADP refund distributions, but they can be optional based on how the documents are written. Therefore, in this case, if the document supports the option for the calculation of gap earnings utilizing either methods, I think that I could use the safe harbor method. If I do so, I take 10% of the earnings for every month. If I wait for ten monthly periods, I will have gap earnings equal to -$2,500. If I add this to the earnings previously calculated (-$2,500), I have total earnings of -$5,000. When I add this to the contribution amounts to be refunded, the refund amount is $0 ($5,000 - $5,000). (I hope I have written this so that it makes sense.) Does this sound correct? I think it is, but I am trying to see if anyone can poke any holes in this. Any comments would be greatly appreciated. (Please note that the plan sponsor will still have to pay the 10% excise tax.)

My answers would be B for the first question because the auditor should be an accountant. C for the second question because the filings help IRS, not the DOL.

I have come across a question that I would guess has a relatively easy solution, but I cannot seem get my arms wrapped around it. I have a calendar year 401(k)/PSP. It has only the two sources: 401(k) and profit sharing. The elig and entry date for the two sources is as follows: 401(k) – Age 21/1YOS, entering monthly; PSP – Age 21/1YOS, entering on 1/1/ and 7/1. (At this point, no allocation conds. for the PS.) The plan defines compensation as while a participant in each specific source. The plan excludes a division of employees from all sources. When the ratio test is performed for coverage (for both sources), it fails. (No fail-safe language.) Therefore, we need to run the ABT. My question is which compensation do I use to complete the ABPT? Comp for the entire year? Comp while a ptp in the 401(k) portion? Comp while a ptp in the PS portion? The example is as follows: Person is hired on 2/1/2007; They are eligible for the 401(k) on 2/1/2008; they are eligible for the PS on 7/1/2008. When the ABPT is run, do I use 1/1/2008—12/31/2008 or 2/1/2008—12/31/2008 or 7/1/2008—12/31/2008. Is it optional? Any help would be greatly appreciated.

Jennyb473, I see what both you and Jim are saying, but I think your example has an oversight related to the person in your example being a full time ee. Unfortunately, I do not have the time to enter it into Relius, but if you do, what happens if the ptp does not make the hours by 12/31/2006. i.e. enter on 280 hours in the 12/31/2006 slot and 480 into the 3/31/2007 slot. Does this change your results? (How is the system calc the computation period? Does it switch to 10/1 -- 3/31?) I would think that since the participant did not meet the hours (500+) by 3/17, it may not properly calc the information depending on how the system is set-up... Just a thought...

For ease of operation, I would think you would need to get the data at least as often as the entry dates. For example, if it were quarterly entry dates, then you would need to upload the hours in the quarterly payroll slot prior to each entry date, this should probably allow for Relius to properly calc elig.

You cannot impute disparity on the SHNEC. 2007 EOB 11.519

fiona1, Thanks for the section from ERISA outline book. Can you specify chapter and page? Much appreciated.

Thank you for allof you repsonses. Blinky, I don't know that I understand your response. It seems that you think it is not a viable solution, but then you say to do exactly what I am proposing. Maybe I am just being dense, but can you explain. (Hoping to not be "purple monkey dishwashered") All: We considered the 1-to-1, but that would involve re-running the test as it was originally run with the carveout of the early NHCE entrants. We did the quick estimate and the refunds would be much higher and the QNEC would be higher than the original calculated number. Any more ideas or anlysis???

I have been doing some reading and some thinking about cross testing and the gateway requirement. (I know, very dangerous.) My understanding is that in order to pass 401(a)(4) when cross testing, the plan must satisfy the gateway requirement. When a plan allocates a profit sharing allocation to group of NHCEs that does not satisfy the gateway requirement, then their allocation must be increased to satisfy the gateway. (i.e. NHCE participants get a 3% TH min cont and the gateway is 5%. The cont is increased to those who only got the 3%.) I know that the allocation needs to be increased, but here is where I need additional confirmation. It appears that in order to do this increase, the plan may require an amendment to allocate the additional amount. Is this correct? Can a document be written such that it states that the increased allocation is required to select participants? Even if this violates the terms of the plan which may allocate the contribution comp-to-comp inside the allocation group? Does anyone inform their client of this and require them to execute an amendment?

Client has a calendar year plan which has failed the 2007 ADP/ACP test. They were provided with a QNEC number which they were going to contribute. They were under the impression that they had until 12/31/2008 to make the QNEC to correct. While this is correct, they only had until 10/15/2008 (corporation with Fiscal Year = Calendar Year and taxes on extension) to make the contribution to be counted under the 2007 415 limit. Since they have not made the contribution, it now needs to be recalculated for those participants who term’d in 2007 and have no comp in 2008. The QNEC is increased 3.5 times the original figure. As usual, the client is upset and wants to know what can be done. We have been brain storming and have come up with many off the wall ideas. The one most interesting is as follows: Make the original QNEC amount to the original group of participants. The argument is that the 2008 415 test does not get run until after the end of the year and we would not know who would violate 415 until that point. What if all of the people who were terminated were re-hired in 12/2008? If not, then we would simply process the 415 violations through EPCRS and process distributions. I firmly believe that this cannot be done, but I wanted to get some opinions/confirmations. As it says above, this is grasping at straws, but I wanted to explore every avenue and see what everyone else thought. Thanks in advance.

I just found the language specifying that the method of satisfying the gateway must be stated in the doc in LRM 94. Sorry for the confusion.

Tom, Can you clarify this point? For "give the gateway min", I thought if you were going to cross test, you had to increase the cont to anyone who was not receiving the gateway to stay in compliance? If not, you would not be able to cross test. Also, "must specify which of the gateway you will use" I thought this was a restriction for M&P plans only. Is this correct? Also, can you point out the reg for this item? I thought this was removed, but apparently not. So any help would be greatly appreaciated.

Not having done any research or reading, my thought process would be that you could not increase the match from the standard to 100% of 5% for the year. My thought is that you have not properly notified the employees of the match. For example, some may have elected only 3% based on wanting to receive $1 for $1. If they had known that 100% of 5% would be the case than they may have elected 5% instead of 3%. Also, what about those who terminated prior to this amendment. I think it would be discriminatory for them as well. Evan if you disagree with this or find a way around it, I do not know how you would get around the notice requirement. I do not think that a notice can be made during a year unless it is to (i) establish a safe harbor or (ii) terminate a SH match. Two other thoughts: 1) They can simply make the match as a discretionary match after the end of the year. It could be 100% of first 1%. This should allow them to maintain both ADP/ACP safe harbor statuses. 2) I would tell them that they will have to wait to change the match for the following plan year. Hope this helps.

Mr. Poje is correct. The way I think of it is that it folows the same rules as coverage when it comes to ideitfying employees in the coverage group.