Kevin C

If you are using the EPCRS correction method for overpayments to correct payment of non-vested amounts and the participant does not return the overpayment, the correction method says that the employer or another person must contribute the necessary amount to the plan to make the correction and it gets allocated using plan provisions. But, note that a retroactive amendment as discussed above is also an option under (f) below. If you are not correcting by retroactive amendment, I would expect the correction to be done under SCP with no IRS involvement.

I agree with Luke. It's an operational failure and too late for a discretionary amendment. It's not one of the allowable retroactive corrective amendments under SCP, so that leaves VCP. If it's an NHCE, I wouldn't expect any problems getting it approved.

My guess would be a 401(k) plan with Guardian Life, but you'll have to ask the client. As for its impact on the plan termination, that would depend on the details of what they are trying to do. There are some rules dealing with successor plans and distribution restrictions on plan termination if there is an alternative defined contribution plan of the employer. My suggestion is to get someone who is experienced with plan terminations to sort out the details for you.

This came up in a recent discussion. For having deferral eligibility be earlier than safe harbor match eligibility, here is the cite: If you are asking about imposing allocation conditions on the SHM, doing that would cause a violation of this:

Rev. Ruling 2004-13, Situation 4 for the loss of the TH exemption if eligibility for deferrals is earlier than the eligibility for the SH. 1.401(k)-3(h)(3) for being able to have the SH not apply to the otherwise excludable portion of the plan.

I agree with Tom.

I don't think you have a choice about including these deferrals in the testing, the regs say they are included. You should find your match question addressed in your plan document. Our VS document handles it the way you describe; the match is made and then the portion of the match attributable to the excess deferral is forfeited. You will find it in the regs at 1.401(m)-2(b)(3)(v).

If it's an HCE, it's in the ADP test. If it's an NHCE, it's only excluded from the ADP test to the extent the amount deferred in the plan(s) of the employer exceeds the deferral limit. In the case under discussion, it counts in the ADP test.

I agree. The guidance is clear that the "once in, always in" rule applies when the employee fails to meet the conditions for the <20 hour per week exclusion. If they wanted it to apply if someone was ever eligible to defer, it would have been easy to say that. But, they didn't. 403(b)'s aren't that bad, as long you don't try to use the <20 hour per week exclusion.

I agree that both of these are saying the same thing, but not that either allows a fiduciary's discretion in the timing of distributions to an alternate payee. For the second quote, from our VS document, my thought is that the word "may" is used because the alternate payee's consent is required if the balance is over $5,000. The plan can't force immediate distribution in a lump sum. I did a quick internet search and found a PPA adoption agreement from another document provider that allows the choice of 1) allowing immediate distribution for a QDRO or 2) not allowing distributions to an AP while the Participant continues to be employed before the earliest possible retirement age pursuant to Code section 414(p).

Our VS provides for immediate distribution of QDROs provided the distribution is consistent with the QDRO. It doesn't give a choice. I think a document that tries to allow employer discretion in determining the timing of benefit payments would have a problem under 1.411(d)-4 Q&A 6 (b).

Belgarath, the wording in Notice 2018-95 doesn't look like it would prevent it. It says: Our (ASC) pre-approved 403(b) uses the if and only part of the regulations <20 hour per week provisions. The next paragraph says for ERISA plans, the plan must also satisfy the minimum age and service requirements of ERISA 202(a). Then, it says once eligible due to satisfaction of this eligibility requirement, the employee continues to be eligible. If you could show that someone would have been excluded under the <20 hour per week rule as modified by Notice 2018-95 if it had been used, I'm not seeing anything that says they can't be excluded prospectively by adding the exclusion to an existing plan. Of course, one mistake and you can't use the exclusion. I'm thinking it could be difficult to determine how many hours they were expected to work in their initial year. Just because you can do something doesn't mean you should.

This question has come up several times. Here is a prior discussion:

The top heavy exemption says: Voluntary after-tax contributions are not part of a CODA [see 1.401(k)-1(a)(2)(ii)] and they are not match or safe harbor contributions, so a plan that has them does not meet the requirements for the top heavy exemption.

I don't see how a regular match allocated each payroll could become a QMAC mid-year. The definition of QMAC says it must meet certain nonforfeitability requirements and be subject to certain distribution limitations when allocated. It's either a regular match or a QMAC and that is determined when it is allocated.

Adopt the correct document(s) and file under VCP. I don't know if a current pre-approved document would work by itself, or if you would need to do a 2009 vintage document and a current one. Our document provider has said interim amendments were not required for 403(b)s.

I agree that the answer is most likely no, but depends on the document language. The definition of QMAC is in 1.401(k)-6. Notice that the definition says subject to the distribution limitations. Your plan document will have language in the QNEC/QMAC sections saying that the plan can not allow QNEC/QMAC to be distributed in-service prior to 59 1/2. The regular match provisions won't have that limitation, unless you have really unusual document language. So, a match made under the regular match provisions would not be a QMAC, even if 100% vested and not currently available for in-service distribution because it is not subject the same distribution limitations as deferrals. It would only be a QMAC if it is made under the QMAC provisions. Now, if it is a SH match, it is a QMAC under 1.401(k)-3(c)(1).

The effective date of the new document should be in 2019. The original effective date of the plan will depend on whether the new document is done as a restatement of the MEP document they previously adopted or as a new plan document. They were a sponsor of the MEP, so a new plan will be a successor plan under 1.401(k)-2(c)(2)(iii). That means a new plan won't qualify for a short initial plan year for a safe harbor plan 1.401(k)-3(e)(2). Having the new document be a restatement that mirrors the current safe harbor provisions avoids having a short initial plan year in 2019. Being a successor plan also means a new plan won't qualify for the deemed 3% ADP/ACP if it uses prior year testing 1.401(k)-2(c)(2). Hopefully, the MEP isn't going to offer distributions to active participants since the "new plan" would also be an alternative defined contribution plan under 1.401(k)-1(d)(4)(i).

We advise against installments as a distribution option. However, we do have some plans that allow terminated participants to take a partial distribution.

There are rules for distributions on plan termination for a 401(k) in 1.401(k)-1(d). In particular, plan termination is not a distributable event if the employer maintains an alternative defined contribution plan 1.401(k)-1(d)(4). The definition of "employer" used takes you to 1.410(b)-9 and includes members of a controlled group or affiliated service group.

I would have the client decide. There is risk either way. Guess who they will blame if there is a problem? We had a non-profit client like that years ago. We fired them as a client and I sent them a lengthy letter outlining what they needed to do going forward. The executive director did nothing. A few years later, I got a call from a DOL Investigator. The board had fired the director. Both the Board and the new director claimed to have no knowledge of and no records for the plan. The ex-director filed a complaint with the DOL because they refused to pay her benefits and told them we had the plan records. The last I heard, the DOL was pursuing sanctions against the ex-director and those currently in charge of the non-profit.

It's not part of the 414(s) rules. The safe harbor rules say you can't apply a dollar limit to the safe harbor compensation of NHCEs in 1.401(k)-3(b)(2). See the bold portion of the quote above.

The safe harbor rules require the use of a safe harbor compensation definition that satisfies 414(s). 1.401(m)-3(c) sends you to 1.401(k)-3(c) for the safe harbor match rules. As for limiting compensation to a maximum of $125,000, the plan would need to provide that the limit only applies to HCEs.

I don't think you will get a cite. It's not that simple. Employer contributions in a 403(b) are subject to coverage and discrimination requirements in the same manner as a 401(a) plan [1.403(b)-5(a)]. While it doesn't mention 410(a), I think the minimum age and service requirements of ERISA 202 would apply those rules. So, except for a rule of parity situation, you couldn't have a service based eligibility requirement of more than one year of service for employer contributions. But, there is nothing stopping you from excluding employees from employer contributions by some objective criteria like job classification, location, etc., provided the plan passes 410(b). The universal availability requirement only applies to deferrals. But, there are also exceptions to the 403(b) deferral universal availability requirement for employees who are eligible to defer under another 403(b), a governmental 457(b) or a 401(k) of the employer [1.403(b)-5(b)(4)(ii)(A) and (B)]. And, as mentioned above, the recent IRS guidance for the <20 hour per week exclusion includes situations where a rehire could be excluded from deferrals on rehire despite previously having been in the plan. So, there are still ways someone previously eligible to defer under a 403(b) can be excluded in a later year. Of course, if it is a Church 403(b), they have an exemption from 1.403(b)-5 under 1.403(b)-5(d).

If the amounts are too large to use the exception to full correction for small amounts, I think I would try something other than the correction method spelled out in the rev. proc. Section 6.02(2) says that other correction methods may be reasonable and appropriate. 6.02(5) at least implies that corrections should not have significant adverse effects on participants and beneficiaries. I would consider retroactively increasing participants taxable income for a prior year when they have already filed their tax return to result in significant adverse effects. While it isn't your exact situation, I think I would try proposing correction using the method specified for correcting an Excess Amount in 6.09 (5)(b). You are already filing under VCP. It doesn't hurt to ask.