Kevin C

What does the plan's loan program say about the interest rate? I'm thinking of 2550.408b-1(a)(1)(iii) that says the loan must be made in accordance with the Plan's loan provisions to qualify for the PT exemption. Under 2550.408b-1(d)(2), the procedure for determining the loan interest rate is required to be part of the plan's loan provisions or loan program.

There have been previous discussions of this. One of the requirements for the EPCRS safe harbor correction method is that a notice be provided to the participant within 45 days of being given the opportunity to defer. The IRS website says the following: https://www.irs.gov/retirement-plans/401k-plan-fix-it-guide-eligible-employees-were-not-given-the-opportunity-to-make-an-elective-deferral-election-excluding-eligible-employees The old brief exclusion correction required that they be eligible to defer for at least the last 9 months of the plan year, so it doesn't apply either. If you want to stay with one of the pre-approved correction methods in the Rev. Proc., there will need to be a QNEC to correct the missed deferrals.

It looks like 1 refers to them not satisfying the safe harbor correction method in Rev. Proc. 2016-51 Appendix A .05 (9) since they did not provide the required notice. I agree that no notice means they don't qualify for the safe harbor correction, but there might be other ways to correct. The old "brief exclusion" correction in Appendix B 2.02(a)(ii) doesn't require a notice, but does require that they be able to defer for the last 9 months of the plan year and have the opportunity to contribute the maximum allowable deferrals for that year. Also, the correction methods in the Rev. Proc. are not required. I tell clients the Rev. Proc. methods are pre-approved correction methods because the IRS has to accept the correction if you use one of the listed methods. That doesn't mean other correction methods are not appropriate, but you may have to justify the correction used if the IRS comes calling. For 2, you are not required to re-run the ADP test after correcting for those who were improperly excluded. See Appendix A .02 (2)(g). If ADP/ACP testing fails, you have to correct that before you can do the correction for those improperly excluded.

Yes, pre-approved documents need to be up-to-date when you terminate the plan. If timely interim amendments have been adopted, you may not need an amendment to add new language on termination. Your document provider should be able to assist you. Most, if not all of them will have plan termination packages that include an amendment to terminate the plan, including any needed language changes. Our document provider, ASC, updates their plan termination package each year and during the year as needed.

It can also depend on the amount of correction for the terminated participants without balances. I read the last part as saying you still contribute the full amount of the corrective contribution, but don't allocate it to someone terminated without a balance if this applies. In effect, what they would have received gets spread among the others receiving the corrective deposit. At least, that's what we did when we had this situation come up.

I agree it depends. With a relatively small excess amount, you might be able to use it towards deferrals for the next payroll. 1.401(k)-1(a)(3)(iii)(C) says you can't deposit deferrals before the services related to those deferrals are performed. If they pay in arrears, you might have enough services already performed for the next pay date when the deposit is made that you are not considered to be pre-funding. If it's a significant amount, or if it doesn't get handled the next pay date, it either gets used as an employer contribution (other than a match) for the year of deposit or returned to the employer. It seems that about once a year we have a client make the deposit for a payroll twice. In that case, the extra deposit gets returned to the employer.

The regs also say that if the safe harbor provisions do not remain in effect for the entire plan year, the plan does not satisfy 401(k)(12) or 401(k)(13), which means it is not SH. See 1.401(k)-3(e)(1) above. It isn't whether or not the HCEs get the SH contribution that determines if you lose SH status. Reducing the SH contribution mid-year causes you to lose SH status and the TH exemption. If the TH exemption is important to them, then change the SH provisions for next year. We've been cussing and discussing the mid-year amendment rules in the SH regs since they came into effect. What you could have done at the beginning of the year is irrelevant. When you try to amend mid-year, the rules are different.

The regs aren't always logical, but we still have to follow them if we want our clients' plans to remain qualified. In this case, the regs make you follow the same rules to reduce a SH contribution mid-year as you would for a complete suspension of the SH mid-year. That may not always seem fair, but that's how the rules work. I tell clients that going SH is buying your way out of the discrimination testing on deferrals and match. The price you pay is the SH contribution and following the SH regs. And, yes, it can be painful to exit the SH mid-year.

Oops. I'll fix the typo.

Put them together and stopping the safe harbor contribution mid-year makes you lose the top heavy exemption, since you do not satisfy 401(k)(12) or 401(k)(13) for that plan year. For your last point, a reduction or suspension of the safe harbor contribution mid-year puts you under the rules of 1.401(k)-3(g). I don't see an exception if you are reducing only HCE safe harbor contributions.

Our service agreement also serves as our 408(b)(2) disclosure. That was an easy decision since our agreement has always described the services we provide and our fee schedule. I agree with MoJo and prefer to have clear documentation of the services we are agreeing to provide.

The 410(b) fail-safe language in our VS document only brings in people who fail to benefit due to a last day and/or hours requirement. That won't add anyone back in for the 401(k) portion of the plan. Unless the document is really poorly written, it should allow for other testing options, including average benefits testing, if the plan still fails ratio percentage after application of the fail-safe. I'm assuming the QNEC mentioned by the OP is for correcting people who would be retroactively added to the plan for deferrals as part of correcting the 410(b) failure. If the QNEC you are looking at to be able to test the excludables separately is outrageous, how bad are the testing results if you test everyone together?

What does the plan say? The default in our VS document is that the safe harbor contribution calculation uses the eligibility requirements and compensation definition for salary deferrals. However, you can specify something different. We sometimes set up new safe harbor plans mid year that use full year compensation for the initial year safe harbor contribution calculation. Either way, the person who prepares the document should make sure the document clearly says how it works.

I haven't seen it mentioned, but 1.72(p)-1 Q&A 5 says " ... a principal residence has the same meaning as a principal residence under section 121." Looking at 121, it refers to property that is owned and used by the taxpayer as the taxpayer's principal residence.

If you are thinking of using the excess amount for 2018 match, keep in mind that 1.401(m)-1(a)(2)(iii) prohibits prefunding of the match. It doesn't happen often, but I have seen clients make the same deposit twice.

Our VS base document (from ASC) has a section dealing with amendments to age and service requirements. The default is those eligible before the amendment stay in, but you can subject everyone to the new requirements. Is there still a way to increase the font size for text pasted in?

If the missing service records are for periods before the subsidiary adopted the plan, 2530.200b-3(b) describes options for making reasonable estimates. For periods after they adopted the plan, if they don't have service records, they need to apply the equivalency method specified by the plan. 2530.200b-3 says: " ... If, however, existing records do not accurately reflect the actual number of hours of service with which an employee is entitled to be credited, a plan must either develop and maintain adequate records or use one of the permitted equivalencies. ..." There are several equivalency methods listed in the reg. It also says in (c)(1) that any equivalency method used by the plan needs to be set forth in the plan document.

According to Rev. Proc. 2016-51, unless the loan is corrected under VCP or Audit CAP, it is taxable when deemed and must be reported on 1099-R. It starts in 6.07(1) and continues into (2). Unfortunately, with the new VCP fee schedule, it is much more expensive to correct loans under VCP. Hopefully, the IRS will respond to the feedback they are getting and make it easier to correct loans again.

I'm not sure participant loans are a good example for a discussion of limits on BRF. I think you would have a problem with that limitation causing the loans to not be considered to be available to participants and beneficiaries on a reasonably equivalent basis under 2550.408b-1(b)(1).

I don't see anything in the definition of eligible rollover distribution in 1.402(c)-2 Q&A 3 that would make a distribution ineligible for rollover if the plan tried to require all of the distribution to be rolled over. (That doesn't surprise me since I read 1.401(a)(31)-1 Q&A 9 as saying you can't do that.) I think the plan would have the problem, not the participant. The distribution should still be an eligible rollover distribution. Peter, what did that document say about rollovers? Our VS document has this language in the Rollover section: "Direct Rollovers. Notwithstanding any provision in the Plan to the contrary, a Participant may elect, at the time and the manner prescribed by the Plan Administrator, to have all or any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan in a Direct Rollover. ..." Even if you changed the in-service distribution to require a rollover, it seems this language would still allow the participant to do a partial rollover.

I think requiring a complete rollover of an eligible rollover distribution would violate 1.401(a)(31)-1 Q&A 9.

If it's a large plan with them excluded, there may be minimal cost to include them. If adding them makes it a large plan, the cost of the audit isn't minimal. We have a couple of non-profit clients with a small full-time staff and a large number of < 20 hours per week people. After some discussion, they decided a small plan 401(k) fit their needs better than a large plan 403(b). Just because they can sponsor a 403(b) doesn't always mean 403(b) is the best option.

I think it matters. From Rev. Proc. 2016-51: "To be eligible for SCP, the Plan Sponsor or administrator of a plan must have established practices and procedures (formal or informal) reasonably designed to promote and facilitate overall compliance in form and operation with applicable Code requirements." I don't see how a procedure that ignores plan provisions during the year and then tries to "fix" it at or after the end of the year satisfies this requirement. Plus, part of the SCP correction is to revise your procedures to try to prevent the operational failure from happening again. So, it should not be an on-going issue.

I think the last sentence of 1.403(b)-5(b)(3)(i) is a good reason to not use it for deferrals. It reads " ... if any employee listed in paragraph (b)(4)(ii)(E) of this section has the right to have section 403(b) elective deferrals made on his or her behalf, then no employee listed in that paragraph (b)(4)(ii)(E) of this section may be excluded under this paragraph (b)(4)." (E) has the < 20 hour per week exclusion. Put another way, mess up on one person and you can't use the < 20 hour per week exclusion. With it most likely to come up a year or two down the road in an audit, you will have improperly excluded the other <20 hour per week people and it can get really expensive to fix. We had this come up in an IRS audit of a 2007 plan year. The IRS agent involved was the 403(b) trainer for the region. He told me he had never seen a 403(b) plan that used the <20 hour per week exclusion correctly.

I've never worked on a multiemployer plan and found it interesting that our document provider doesn't offer one. A search found that Rev. Proc. 2017-41, 6.02(1) and 2015-36, 6.02(1) both say that opinion letters will not be issued for multiemployer plans. Rev. Proc. 2007-44, 10.02 says multiemployer plans are on cycle D. So, it looks like a multiemployer plan would need to be individually designed.