fiona1

The ACP should reflect the amounts after the adjustment.

Thanks Sieve. Let me run something else by you on the topic of determination letters. If a plan sponsor wants to file a Form 5310 for qualificaiton of a plan termination - does it really matter when they file it? In other words... a. Can they file it before the actual plan term date? b. Can they file it after the plan term date but before money has been distributed? c. Or are they required to only file it after all of the money has been distributed?

Great. Thanks for the info...

401(k) plan is in Cycle D. They filed Form 5300 to the IRS (application for a determination letter) by the 1-31-2010 deadline. They just realized that they answered some questions incorrectly on the Form. Should they: a) Wait for the IRS to send them a letter and then correct the Form? b) Revise the Form and send a new Form 5300 to the IRS with a cover letter explaining the situation?

Control group. Employer A sponsers 401(k) Plan A and Employer B sponsers 401(k) Plan B. They both have a 1-1 plan year. They have the exact same entry requirements and the exact same match formula. Both plans only allow deferrals and match - no other contributions. The only difference is that Plan A uses the current year testing method and Plan B uses the Prior Year testing method. Can these plans be aggregated for coverage purposes? My gut feeling is no - since §1.401(k)-1(b)(4)(iii)(B) states: Thus, in applying the permissive aggregation rules of §1.410(b)-7(d), an employer may not aggregate plans (within the meaning of §1.410(b)-7(b)) that apply inconsistent testing methods. Thoughts?

An employer has a 401(k) plan with a match. The plan states that a match is calculated per pay period. I know that the plan sponsor has to transfer the elective deferrals to the plan in a timely manner. But what about the match? Can the plan sponsor hold on to the match for a longer period of time? I know some plans don't even calculate a match until the end of the plan year. When is the deadline to submit the match to the plan? Is it the end of the next plan year? Is it based on the employer's tax filing deadline?

401(k) plan with a 1/1 plan year. Plan terminated on 1/31/2010. Plan term payouts have not yet been distributed. Due to the prorated 415 dollar limit from 1/1/2010 to 1/31/2010, several participants have exceeded the 415 limit - and the excess includes matching contributions. The EPCRS states "Any matching contribution...is then forfeited and placed in an unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year(s). While such amounts remain in the unallocated account, the employer is not permitted to make contributions (other than elective deferrals) to the plan." Well, since this plan is terminated - there will no longer be employer contributions. So putting the match into an unallocated account is not going to do much good. Are there any other alternatives for a terminated plan?

You're referring to the "Certain terminating employee" exclusion in §1.410(b)-6(f). In order to use this exclusion: (iii) The plan has a minimum period of service requirement or a requirement that an employee be employed on the last day of the plan year (last-day requirement) in order for an employee to accrue a benefit or receive an allocation for the plan year, Let's just focus on the coverage test for the K portion of the plan. You definitley can't have any certain terminated employee exclusions on the K coverage test. So that gets back to the original question - regarding an employee is eligible for the plan, but earns no compensation and terminates in the middle of the year. Included in the coverage test but considered "deemed" to benefit? Included in the coverage test but considered "not benefiting"?

What about coverage testing? I agree that they could be excluded from ADP/ACP - as they didn't have the opportunity to defer on account of no compensation. But I don't see how you can keep them off a coverage test, assuming they don't fall under a bargaining or non-resident alien exclusion. And if they are included on the coverage test, how do you determine their benefiting status? I think you can make an argument that they could be "deemed" to benefit, as they would have had the opportunity had they earned compensation. But I think you can also make the argument that they could be "not benefiting". The fact that they were not paid any wages means that they are not allowed to benefit under the plan. What say you?

Service for an adopting employer on a multiple er plan?

401(k) plan is defined to use section 3401(a) wages as their definition of compensation. The employer awards 500 shares of restricted (a.k.a. contingent) stock to an employee after 1 year of service. The stock is subject to a 5 year vesting schedule. It has no value until it is vested. The value of the stock is reported on the W2 in the year it is awarded (1 year of service). The employee can pay taxes on it the year it's awarded (taxed as ordinary income), or they can file a section 83(b) form and pay taxes in the year it is vested. The stock is not part of stock option program. It is not publicly traded, not registered with the SEC, is not subject to payroll tax, is not used in the determination of 401(k) benefits, cannot be used for collateral, and cannot be sold other than when the employee terminates. So, should the value of the stock be included in the plan's definition of 3401(a) compensation - and be included in 415 compensation for purposes of the IRC §415 limit and determination of HCE status? Any thoughts?

Thanks for the clarification. My situation has to do with not posting the notice within the last 10 days of the cycle - in which case it would be too late. I appreciate the insight and info...........

Thanks for the replies. Sieve - I'm curious on your last comment in which you indicate you reschedule the application. Does that mean you wait another 5 years for the next cycle, or do you reschedule with an off-cycle filing?

Does anyone know what the penalty is or what happens when an employer doesn’t get the notice to interested parties to their employees within 10 days of when they file for a Form 5300 qualification?

8a on the 5300 asks "Do you maintain any other qualified plan(s) under section 401(a)?" Does it matter if the plans cover the same group of employee's or not? Or should this be answered "yes", regardless of whether the plans cover the same employee's?

I believe you need to use the EPCRS. The Final 415 regulations removed correction options and the preamble directs the plan sponsor to use the EPCRS. The EPCRS (Rev Proc 2008-50) was updated to include 415 correction options. Even if the plan had a specific correction method, I think it would be trumped by the EPCRS.

Line 3b of Form 5300 asks if the plan has rec'd a Determination Letter. If yes, it asks for the "Number of Amendments". I am uncertain if this means the number of amendments since the last determination letter, or the number of amendments since the last time the plan was restated. In my situation, the last Determination Letter was dated in 2005. My plan was restated for EGTRRA in 2009. Amendments made from 2005-2008 were obviously incorporated into the restatement. So, do I indicate on 3b the number of amendments since 2005 (last DL) or since 2009 (restatement)?

Well I found out that the refund needed is due to a failing 415 test. An employer has a 401(k) and an ESOP. Most people rec'd a $46,000 ESOP contribution - which is right at the 415 limit for 2008. Combine that with the deferrals and match made to the 401(k), and the employer had over 20 participants exceed the 415 limit. They are correcting the failure by refunding deferrals/match. There are actually 2 employee's who took 401(k) loans in 2009, however, and don't have enough money for the refunds. I suppose we could forfeit a portion of the ESOP contribution for those 2 people - but I'm worried that would be inconsistent. The employer would be using different correction methods for different people. I think adjusting the outstanding loan balance and taxing the excess seems like a reasonable approach. I just wasn't sure if there was any guidance on this or not. I doubt it. Thanks!!

What happens if a participant is due a 415 or ADP refund, but they don't have enough money in their account because they took a 401(k) loan? I assume you can just adjust the outstanding loan balance and create a 1099 for the participant. That seems to be the only alternative. Does anyone know if there is any guidance regarding this?

An employer has terminated their 401(k) plan and has already issued payouts. All employees have already received their funds, in July of 2009. The employer is now completing a Form 5310, qualification for plan termination. Are they required to issue a Notice to Interested Parties? Information from the IRS website says that for plan terms, the Notice goes to any employee with a vested benefit in the plan - but everyone has been paid out. Any thoughts?

Okay. Say I have a plan that matches 100% of deferrals. No other strings attached. Match is made as deferrals are made. John earns $30,000 a month and defers $1,000 a month. He's going to hit the compensation limit in September. I think we all agree that John can continue to defer after he reaches the compensation limit. So we'll assume he has deferred $12,000. But what should John be matched? Should he have $12,000 since that is what the plan matches? Or should his match stop in September when he reaches the compensation limit?

Employer A sponsors a 401(k) plan. They are in a controlled group with Employer B - who also sponsors a 401(k) plan. Employer A has an EIN that falls under Cycle B, but they are using the exception in Rev Proc 2007-44 - 10.06 - which states they can use the remedial amendment cycle for the parent company (Employer B). Employer B has a cycle D, which has to be filed by 1/31/2010. So - Employer A is filing a 5300 qualification for their plan using cycle D (the parent company's cycle). How should Employer A complete the plan sponsor and EIN section of the 5300 for the employer that is filing with the Parent Company of the controlled group? Do they use the employers name and EIN on the 5300 or do they put the parent companies EIN and/or Name?

A 401(k) plan with a 1/1 plan year merges into another 401(k) plan that has a 10/1 plan year. The merger occurs on 10/1/08. The 1/1 plan runs an ADP test from 1/1/08 to 9/30/08 and it fails. Are refunds due 12 months from 9/30/08? Or are they due 12 months from 12/31/08?

Participants in a 401(k) plan were set up for an auto increase in their deferrals, but those increases didn't take place because of system problems. Participants in a 401(k) plan were NOT set up for auto increase in their deferrals, but because of system problems - increases took place. The participants did not authorize these increases. Obviously, the first step is to get a new system! But beyond that - what kind of corrections should be made? I think we're dealing with operational failures, correct? Would these be Self Correction Program corrections? In the first scenario you would make up the missed deferrals and in the second scenario you would return the excess deferrals to the participants?

A plan that is exempt from ADP testing incorrectly issued ADP refunds for the 2007 and 2008 plan years. They are contacting the HCE's and asking them to return the funds to the plan as after-tax monies. One of the HCE's took a distribution and rolled his funds over. Any idea what the plan sponsor should do in this situation? I can't imagine the refunds should come back to the plan as after tax and then distributed. Thoughts?