Kevin C

I'm not expecting the discussion in the other thread to continue. Like Sal says, the plan fiduciary needs to make a reasonable and prudent determination. I'm not seeing any grey in 414(n)(4)(B). If you feel otherwise, I would recommend documenting why you reached that decision in case it comes up later.

While the end result is the same, I think the regs are clear that when 2019 becomes a distribution calendar year, a portion of the 2019 rollover distribution from the plan becomes the RMD from the plan, is not eligible for rollover and must be removed from the IRA. That being said, I handled an IRS audit for a plan a few years back where a participant who had an RMD due in a terminating plan was allowed to roll over his entire balance to an IRA without taking the RMD. After making it clear that it was an operational failure, the agent checked to see if at least the plan RMD amount was distributed from the IRA during the RMD year. Since it was, he did not require any corrective action. However, he made it clear that if the participant did not have a taxable distribution from the IRA that year of at least the plan RMD amount, a correction would be required.

Keep reading Chip, you're almost there. The OP situation is not a leased employee and you stopped at the definition of leased employee. Pay particular attention to 414(n)(4)(B) when you get there.

Well, with neither 401(a)(9) nor the regs listing an exception to the RMD rules for a plan that terminates during the calendar year and the definitions of required beginning date and distribution calendar year not being conditioned on the plan remaining in effect, I think otherwise. If the plan remained in effect and a 70.5+ participant rolled over a distribution and then retired later that calendar year, part of the rollover becomes the RMD under 1.402(c)-2 Q&A 7. Unless you can show me something that says the result is different when the plan terminates, I will continue to think otherwise.

Can you provide a cite?

I don't think the result would be the same as unwinding the conversion to the extent of the ACP refund. I would expect the conversion to include some earnings on the participant's after tax accounts, so the conversion should have increased the participant's after tax basis. That would affect the calculation of basis and taxable portion of the refund.

Take another look at the definition of designated Roth account cited above. What you are describing does not allow Roth deferrals to be made, so there is no designated Roth account to roll into. I'm also guessing that the participant here is an HCE. If so, your suggested short term amendment would clearly be discriminatory under 1.401(a)(4)-5(a).

The first step is to look at whether the temps are common law employees of the employer. That determination is independent of the leased employee rules and being leased doesn't automatically mean you are not a common law employee. See Notice 84-11, Q&A 3. If they are common law employees of the employer, yes, the service counts. If the temp really is a common law employee of the leasing company and not of the employer, we had a recent spirited discussion on the topic, including some cites. I read the code as saying all of the service counts when the temp becomes an employee of the employer. If anyone still holds the opposite opinion, I'm sure they will join the discussion. https://benefitslink.com/boards/index.php?/topic/63341-temp-worker-initial-eligibility/&tab=comments#comment-287501

An ACP refund from a Roth account is not a qualified Roth distribution even if the participant is 59.5 and has had the Roth account at least 5 years. See 1.402A-1 Q&A 11, which refers you to a list in A-4 of §1.402(c)-2 for types of distributions that are not qualified Roth distributions, including ACP refunds in A-4 (c).

Did you intend to say effective 10/1/18 instead of 1/1/18? As for the Plan A entry date for the former Company B employees, the plan document should have provisions dealing with rehires and employees moving from an excluded class to an included class that will tell you when they enter Plan A based on their service with Company B. You should also look at 1.401(a)(4)-5(a). From your description, with Plan A being adopted immediately after all the NHCE employees in the controlled group were terminated and the initial participants in Plan A being all HCEs (owners, their spouses and a child), it sounds like the timing of the adoption of Plan A is likely to be discriminatory.

Did the new practice have a plan that is being merged into the group plan? If so, it affects the answer to your question.

Our pre-approved 403(b) document (ASC) allows allocation conditions applied separately to each quarter of up to 250 hours of service and employment on the last day of the quarter. Our VS 401(k) includes the same options. Note that is a maximum of 250 hours per quarter. Both documents prohibit the use of allocation conditions that would require more than 1,000 hours in the year to receive all or part of the contribution for the year. From prior discussions with our document provider, they feel that you can't require more than 1,000 hours of service in a year as an allocation condition. While they didn't have a clear cite, they said 2530.200b-1(b) implies it and requiring more than 1,000 hours as an allocation condition could be considered as a disguised impermissible service requirement.

With takeovers, we report old terms who are paid during the year as a D without worrying if they were correctly reported as an A by the previous provider. If they should have been reported as an A in a prior year, we assume they were. We haven't had any issues so far. If you are talking about people paid in previous years, I think I would be inclined to treat them the same way as long as the client has documentation that they were paid in full. I doubt the SSA system would even hiccup if someone is reported as a D more than once.

I don't think we are on the same page. The 12/31/18 valuation includes both the TH minimum contribution determination for 2018 and the 12/31/18 top heavy test that is used to determine if the plan is top heavy for 2019. The position taken by the EOB is that these two tasks use key employee determinations as of different years. Even though the determination is made only once each year, the Key/non key lists from both 2017 and 2018 are used in the course of the 2018 work. As for the spouse, I think you are saying the spouse is not key for 2018 because the spouse did not meet the definition of a key employee during the 2017 year. If so, then I have a great deferral only design that will let the couple defer without having to worry about TH minimums. Owner can't defer. Spouse is non key for 2018 so defers. Spouse doesn't work at all in 2019. Spouse is key for 2019, but it doesn't matter because spouse has zero 2019 comp and deferrals (and the owner didn't defer), so 2019 TH min is zero %. Spouse works in 2020. Spouse is non key for 2020 because spouse wasn't an employee in 2019. Spouse defers for 2020. Then, repeat.

Would someone please explain how it is "simpler from an administration standpoint" to use two different sets of key employees with my 2018 valuation? The position it is describing says that for purposes of determining who gets the top-heavy minimum for 2018, you determine keys based on their status in 2017. For the top-heavy ratio calculation that is done with the 2018 valuation as of 12/31/2018 (to determine if the plan is top-heavy for 2019) the keys are determined based on their status in 2018. While in most cases, it might be the same list, there will be times the keys are different from one year to the next. For those who take the approach described in the EOB and the Q&A, how would you handle the following situation? On-going calendar year top heavy 401(k) plan with immediate eligibility for all sources. The 100% owner's spouse is hired 1/1/2018 and works the entire year. Does the spouse receive the top heavy minimum for 2018? Are the spouse's deferrals for 2018 considered in determining the amount of the 2018 TH minimum? The definition of key employee starts with "an employee who ... " and the spouse was not an employee during 2017.

Luke, under the duty of consistency rule, with 1.72(p)-1 Q&A 19 saying the interest accruing after the loan being deemed is not taxable, would that mean that if the participant didn't treat the loan as taxable in 2006, he couldn't treat the additional interest as not being taxable?

With an asset purchase, 123's 401(k) is not sponsored by ABC unless ABC adopts the plan. If ABC doesn't adopt the 123 plan, it won't matter if the plan is terminated before or after the sale. If it was a stock purchase or if ABC adopts the 123 plan, the answer is different. If the affected employees are common law employees of ABC at acquisition, then the leasing arrangement doesn't change that. Being leased does not affect whether or not someone is a common law employee. See Notice 84-11 Q&A 3. You haven't mentioned what the eligibility requirements are for ABC plan or whether service credit will be given for prior service with 123. Both will impact when the purchased employees enter the ABC plan.

I've always interpreted the 416 regs as treating the determination of top-heavy status and the determination of who receives the top-heavy minimum separately. For a calendar year DC plan, the key employees for the top-heavy calculation as of 12/31/2018 are determined based on their status during the 2018 plan year. I think T-12 is clear that is how it works. For determining who receives the top-heavy minimum for the 2019 plan year, I think the determination is made based on their status during the 2019 plan year. While the regs don't specifically say this, to me, it's the most logical way to do it. It also matches how the valuations systems I've used handle it. The top-heavy calculation as of 12/31/2018 is done in the year end valuation for 2018 using 2018 information. The determination of who receives the top-heavy minimum for 2019 is done in the year end valuation for 2019 using 2019 information. The Q&A Tom cited says that IRS person thinks the most reasonable interpretation is that an employee's status during the 2018 plan year is used for both the 12/31/2018 top heavy calculation and determining who receives the top-heavy minimum for 2019. Does anyone have valuation software that does it this way? Fortunately, the Q&A points out that there is no clear guidance on this and it doesn't say that interpretation is the only reasonable interpretation, so either method should count as a reasonable good faith interpretation. We've never had an IRS audit where the agent has questioned or had any issues with how we did the top-heavy testing or top-heavy minimum.

Our document provider, ASC, sent out an update yesterday including an operational checklist. The update says they will include the new hardship rules in a 2019 interim amendment and that it doesn't need to be adopted until the end of the 2019 year. The checklist is intended to be used to document employer decisions for plan operation prior to the interim amendment being adopted.

In a theoretical real world, 1.72(p)-1 Q&A 10 says the loan becomes deemed at the end of the cure period. The only way I know of to change that is through a VCP filing. So, it appears the loan was taxable in 2006. The sporadic payments since then would create an after-tax basis under Q&A 21 and the additional interest that accrues does not become taxable under Q&A 19. Of course, it sounds unlikely the participant reported the deemed loan on the 2006 tax return.

The rules you are looking for are in a different place. The way participants vest can not discriminate in favor of HCEs. See 1.401(a)(4)-11(c).

My reading of Rev. Proc. 2016-51 6.07 (1) & (2) is that the tax treatment can only be changed under VCP if the loan is corrected using one of the correction methods in 6.07 AND that those correction methods are not available if the maximum allowable repayment period for the loan has expired. Unless it was a principal residence loan, the maximum allowable period for a pre-2006 loan has long since ended and I don't think you can correct under VCP.

As long as the compensation definition is the same for everyone, you can run it either separately or for the plan as a whole.

What does the plan say? Our VS document allows a discretionary match of either a uniform percentage of deferrals or as a flat dollar amount for each participant and allows the match to be applied only to deferrals not in excess of a discretionary amount determined by the Employer. That provides a lot of flexibility, but doesn't allow you to vary the match formula by person. I've never seen a discretionary match provision that would let you do what you want. If they are concerned about giving additional match to the non-owner HCEs, amend the plan for next year so they don't share in the discretionary match.

Have you asked the person who sent the subpoena? He/she may be able to suggest an easier format to use. I've found most IRS and DOL people to be pretty reasonable when the format they request for information causes problems. Most of them have horror stories about plan sponsors that do not cooperate and they appreciate those that do.