Kevin C

Any chance this would apply in your situation?

I guess you've never had a recordkeeper give you a last minute surprise by delaying something they previously said would be done on time. We've had it happen a few times, despite repeatedly following up to make sure everything was in order and on schedule. Stuff happens and it's not always the plan sponsor's fault. From the comments section of the preamble to the 1996 final deposit regs:

It's a question every sponsor who uses the <20 hour per week exclusion faces or will face eventually. The wording in the regs [1.403(b)-5(b)(4)(iii)(B)] says that a person can move in and out of eligible status in future years based on their hours in the preceding years. We took the position that the caution about ERISA rules meant that at some point, ERISA would force you to include someone the regs said to exclude and you would lose the ability to use the <20 hour per week exclusion under 1.403(b)-5(b)(4)(I). As a result, we convinced our ERISA 403(b) clients to stop using the <20 hour per week exclusion starting with the regs 2009 effective date. At some point, the IRS decided that the ERISA "once in, always in" service based exclusion rule modifies the <20 hour per week exclusion. According to an ASC newsletter in April 2018, the IRS started informally communicating this position in 2015. It was also incorporated into the LRMs for pre-approved 403(b) documents. The current problem is the IRS wants language in the new documents saying "once in, always in" applied back to 2009. Document providers are still in negotiations with the IRS about what to do with sponsors who followed the regs. The regs say: Even with the "once in, always in" rule being part of the <20 hour per week exclusion, I wouldn't recommend using it. One mistake means that you've been improperly excluding <20 hour per week people.

A 457(b) for a non-profit also has be to in writing. See 1.457-3(a).

Start a little before the section PensionPro quoted: Put the two together and hitting the 415 limit triggers catch-ups. If the owner is catch-up eligible, there is nothing fast and loose about it. That's how it works. Catch-ups can also be triggered by a plan imposed limit [1.414(v)-1(b)(1)(ii)]. That could be a deferral limit that only applies to HCEs.

It depends on the details of the situation. The general rule under §2510.3-102 is that the amounts become plan assets on the earliest date they can reasonably be segregated from the assets of the employer. Unusual circumstances can affect when the deposit is considered late. For example, if the employer first found out about the situation when the new custodian returned their deposit check, I think you would have a strong argument that a later than normal deadline would apply to that deposit. But, they would still need to act to get the deposit made as soon as it could reasonably be done. At the other extreme, if the employer knew about this ahead of time and just waited until the new custodian got around to opening the new account, then I think the deposits are late. They could have opened a plan account somewhere else to deposit the funds and transferred it to the new custodian when they were ready. If they don't meet the small plan safe harbor, it's basically a facts and circumstances determination. If the DOL gets involved, the determination is made by the Investigator who handles the case. My experience prior to the small plan safe harbor was that some DOL Investigators would apply common sense to the determination, but others would not.

If you are looking for a cite, it's

ESOP Guy, there are current rules for corrective allocations that let you make the deposit when the mistake is discovered, even if it is years later, in 1.415(c)-1(b)(6)(iii)(A). It's also in Rev. Proc. 2016-51, 6.02 (4)(b) with different wording. But, I don't think these rules allow retroactive allocation or deposit of a discretionary contribution beyond the normal annual additions deadline of 30 days beyond the tax return deadline. In a case like the one you had, I think you would have a strong argument that the operation of the plan after the erroneous allocation made it part of their account balances, so it would be a required corrective deposit.

I'm comfortable with my position because the 72(p) regulations spell out when a loan is taxable and the situation described by smg doesn't fit any of the circumstances where a loan is taxable. If you are going to advise the payer that the amount is taxable, wouldn't you want some reliable authority indicating that the amount really is taxable? Reporting something as taxable when it is not taxable is also incorrect reporting.

1.72(p)-1 Q&A 10 addresses deemed distribution of a loan for failure to pay an installment when due. In this case, the payments were made when due and they became plan assets on the date they could have reasonably been segregated from the assets of the employer under 2510.3-102. If you think another part of 72(p) or its regs makes the loan taxable under the situation described in this thread, please provide a cite.

The loan payments were made on time, so the loan was not taxable under 72(p) and there is no need to request different tax treatment from the IRS under VCP. The employer may want to consider a VFCP filing with the DOL for the late deposits. Now, if the employer had failed to withhold the loan payments from paychecks, a VCP filing would be needed. But, that isn't the situation in this case.

Or, you can go to 2550.408b-1(a)(4), example 8.

For the part time issue, our VS document has an option that allows shorter eligibility requirements for full time employees while requiring part time employees to complete a year of service. The few times we've used it, it has been no minimum service requirement for full time and completion of a year of service for part time. Does your document allow something like that?

The SH notice is required to be provided a reasonable period of time before the beginning of the plan year. 30-90 days before is deemed to be a reasonable period of time. For less than 30 days, it's a facts and circumstances determination. See 1.401(k)-3(d)(3).

It appears the courts are split on whether ERISA 510 protection applies to internal complaints or only to complaints to Federal or State authorities. https://www.gpo.gov/fdsys/pkg/USCOURTS-mied-1_12-cv-10946/pdf/USCOURTS-mied-1_12-cv-10946-0.pdf

If all your loan payments were withheld timely from your paychecks, then your loan should not have gone into default. It may be difficult to convince the recordkeeper of that since they are going by the dates the payments were deposited with them, not the dates you actually made the payments. I would start by asking your employer to contact the recordkeeper about getting the incorrect 1099-R voided. If your employer held the amounts withheld from paychecks too long before depositing them, that is a separate issue that needs to be corrected. Deposits are required to be made as soon as the withheld amounts can reasonably be segregated from the assets of the employer. Small plan (<100 participants) deposits are considered to be timely if the deposit is made within 7 business days. The deadline for large plans depends on the circumstances, but generally, the DOL considers it to be faster than their standard for small plans. If the employer holds the assets too long, they are holding plan assets, which is a prohibited transaction under the plan rules. The employer's correction will include lost income and depending on how they correct, possibly an excise tax. They will probably need the recordkeeper/TPA's assistance with the correction.

I think you need to address this before you look at 410(b). Are you referring to eligibility for the plan? Or, whether they have satisfied the allocation conditions to receive the match? The plan provisions are required to be written so that the requirements for both are based on objective criteria that are clearly set forth in the document and not subject to employer discretion. See 1.411(d)-4 Q&A 6. What plan provision isn't clear about how it applies to these people? And, what about their situation makes it unclear?

I would not ignore the loan. Taking a loan in excess of the 72(p)(2)(A) limit results in a taxable deemed distribution. I don't see an exception in the regs for this situation, so the prior loan balance counts in the calculation. Ignoring the loan would mean intentionally treating a taxable amount as not being taxable. There is an unpleasant term for that. In this case, it's don't make the participant's problem your problem. The participant could have held the loan proceeds, made the scheduled payments and used the remainder when they found another house. Suppose you do ignore the rules in this case? What about a participant who borrows to pay for his daughter's wedding and it gets cancelled after the loan? Will you do the same if they reconcile and get married a few months later? What about a loan to fund college expenses when the student drops out after the loan and then goes back the next semester? I could come up with more examples, but you get the idea.

The preparer of a Form 5500 that contains false information can face consequences from agencies other than just the IRS. Years ago, we helped a profit sharing plan where before coming to us, a Trustee withdrew most of the plan assets over the course of several years. His attorney sent him to us when the DOL came to visit. The prior TPA initially tried to "help" by retroactively papering the withdrawals as participant loans. When the amount exceeded $50K, the prior TPA came up with the idea of showing part of the commercial real estate owned by the Trustee on the Form 5500 as belonging to the plan. The 5500s each year also said there were no prohibited transactions. The DOJ paperwork I saw listed the Trustee and prior TPA as co-conspirators and described the loan paperwork and 5500s as evidence of the conspiracy. The Trustee repaid the amounts with lost income and received deferred adjudication. I don't know if they filed criminal charges against the prior TPA. At the very least, I imagine he had a rather long and unpleasant visit from the DOL.

Loan offsets are eligible rollover distributions. Loan offsets occurring in 2018 or later have the extended time period to roll over an amount equal to the loan balance. (The regulation I quoted above has not been updated to reflect the 2018 change.) A deemed loan is not an eligible rollover distribution. Deemed vs Offset is a technical distinction. In your case, the determination is easy. The text at the bottom of your original post says the outstanding loan balance is immediately due and payable upon termination of employment. It also says that failure to pay any installment when due constitutes a default. That is the situation the text I put in bold above says is a loan offset. You said your last day was 1/2/18. If your loan payments were current through 12/31/17, the loan offset occurred in 2018.

The quoted section in the OP looks to me like it meets the definition of a loan offset.

I agree, don't give the IRS a choice. Submit the correction method you want to use and they will let you know if it is acceptable. If not, they will tell you. If the IRS comes back with a correction method you don't like, suggest your alternative method. If they don't like your original correction proposal, you can revise the filing. I wouldn't read too much into the SPD having the same error as the document if the SPD was printed from the software used to prepare the document. If you check the wrong box on the document, it automatically goes both places.

This thread seems have to evolved a bit off topic. The paragraph I posted was from the base document for our ASC VS document. The applicable sentence is: This is what the OP said they did and since they use the same document, showing it to the auditor should make the issue go away. The EPCRS reference later in the paragraph refers to what you can do if an allocation has been made that exceeds the 415 limit, which is not what I read the OP as saying happened. She asked a follow-up question about that sentence, so I'll address it. It would normally apply to a situation where someone has salary deferrals such that the allocation of employer contributions would cause a 415 violation and the sponsor wants to refund deferrals so that employer contributions are not reduced. From Rev. Proc. 2016-51, 6.06 (2): The OP situation has the entire allocation being PS contribution and no one exceeded 415, so there is no need to use EPCRS.

The plan document should have something similar to this paragraph from our VS base document section addressing the 415 limit:

You said asset purchase, so provided Company A and Company B are not related, the new plan covering only former employees of Company B would not be a successor plan under §1.401(k)-2(c)(2)(iii) and would be able to have a short initial plan year of at least 3 months under 1.401(k)-3(e)(2). This one is not as clear and there is more than one way to approach it. Notice 2016-16 III D 2. says you can do a mid year amendment to make an "otherwise permissible change under eligibility service crediting rules ..." with respect to those who have not yet entered the plan. A fairly common optional provision in pre-approved plans is to have employees acquired in a 410(b)(6)(C) transaction not be considered Eligible Employees until after the end of transition period. I see this as an "otherwise permissible change under eligibility service crediting rules", which means the Notice says it can be amended prospectively mid-year. Others may disagree. Another option would be to amend Plan A mid-year to exclude the former Company B employees by classification. Would that be considered an "otherwise permissible change under eligibility service crediting rules"? 1.410(a)-3(d) says that plans can use criteria other than age and service to determine eligibility. I think that makes a class exclusion an "otherwise permissible change under eligibility service crediting rules". I think it's worth noting that if Company A had set up New Company B with the acquired assets and employees, the acquired employees would not become participants in Plan A unless New Company B adopted Plan A and I don't think we would be having this discussion.