Kevin C

The term "eligible employee" used in the notice requirement under 1.401(k)-3(d)(1) is defined in 1.401(k)-6 as "... an employee who is directly or indirectly eligible to make a cash or deferred election under the plan for all or a portion of the plan year." Interesting idea, but I think you would have better results using prior year testing instead.

A deferral election can only apply to compensation that is not currently available when the election is made. See 1.401(k)-1(a)(3)(iii)(A). When did he make the election to defer for 2017? If he didn't decide to defer until 2018, it's too late for 2017 deferrals.

It also looks like prohibiting deferrals while a loan is outstanding would violate the universal availability requirement for catch-up contributions in 1.414(v)-1(e) when a catch-up eligible participant takes a loan. Even if they get past the other hurdles mentioned, do they want it bad enough to take catch-up contributions away from everyone?

It should be somewhere in the document. Our VS base document has a default provision in the forfeiture section saying that if a participant is being deemed as cashed out (because they have a zero vested balance) and they receive additional allocations for the year of termination, the deemed cashout (and forfeiture) happens on the first day of the next plan year. The adoption agreement has an option to change this to have the forfeiture happen without regard to whether the participant is entitled to an additional allocation.

I'm not aware of anything, even informal, on that exact topic. The IRS website informal guidance on correcting a late safe harbor notice is probably the closest thing available. The fix described for the late SH notice varies by person depending on the impact of the late notice on that person. https://www.irs.gov/retirement-plans/fixing-common-plan-mistakes-failure-to-provide-a-safe-harbor-401k-plan-notice I think part of the picture would be how much information the affected participants were given about the automatic enrollment. Were these participants given an SPD that described the automatic enrollment? What about enrollment forms? I don't think you would be able to allow them to remove deferrals, other than during the limited time period allowed by the regs. Anyone else have any suggestions?

From 1.414(v)-1(c)(1):

Even if you were to allow him to roll everything to an IRA, he would still be treated as receiving his RMDs from the plan and the RMD amount would be ineligible for rollover. So, he would still get a 1099-R from the plan showing a taxable distribution of the RMD amounts and he would have to deal with getting the ineligible portion of his rollover out of the IRA.

I'm with RBG, there should be more specific language in the document. The normal year of service requirement is the default in our VS document. It doesn't go into detail in the adoption agreement, but the base document says: There are choices in the AA that allow entry based on the date the hours are reached and those options are clear in the AA about how they work.

The cross testing / new comparability regs are in 1.401(a)(4)-8.

The default provision in our VS document is that the participant can designate which portion of a distribution from his/her salary deferral accounts is Roth and which portion is pre-tax. The adoption agreement allows you to override that and select either pro-rata, Roth first or pre-tax first.

The plan document should say when a participant can change their deferral election. It should be in a different section than the entry date provision. The default provision in our VS document for deferral election changes is "... as set forth under the Salary Reduction Agreement or other written procedures adopted by the Plan Administrator." The adoption agreement choices are the first day of each calendar quarter, first day of each Plan Year, first day of each calendar month, beginning of each payroll period and other. They are required to allow changes at least once per year. I doubt it is common , but I have seen a couple of plans that only allowed deferral rate changes to be effective twice a year (1/1 and 7/1).

We've looked into switching valuation software from Relius to ASC, but can't make the change until ASC gets their website in Spanish. Hopefully, someone who uses their valuation software will respond. We have been using ASC for plan documents and government forms. Our experience with them has been great. I really like the flexibility of the documents. Their customer service is fast and extremely helpful.

We've been a 3(38) fiduciary since well before the original proposed fiduciary regs. Most of our clients are small plans (under 100 participants). At least in our market, size doesn't seem to have much to do with making the choice to use a fiduciary advisor. We are a full-service firm and our clients appreciate that. I can see the argument that small plans might be more likely to focus on fees and avoid a more expensive service provider that is a fiduciary. Sorry, I'm not much help, but maybe there will be some other responses.

Before you pay him a cash distribution, you should take a look at 401(a)(31)(B). I read it to say that involuntary distributions in excess of $1,000 must be rolled over. I don't see an exception for amounts paid on plan termination. While not the same situation, I think a participant with less than $1,000 vested from the plan and a rollover account greater than $5,000 is close enough that the results should be the same. In this case, it can be involuntarily distributed because the plan can provide that it ignores the rollover account in applying the $5,000 cashout limit, but any involuntary distribution over $1,000 including the rollover account must be auto rolled. Notice 2005-5

It could be something other than religious reasons. There are some government programs that you become ineligible for if you accumulate more than a certain level of assets in a retirement plan.

Now, you are making me read all of the reg. Did you notice the fourth sentence of 1.401(a)(4)-11(g)(1)? To me, a literal interpretation is that the correction must have substance.

The regs also say: What is considered to be a reasonable interpretation will vary by person. As I mentioned, I don't feel comfortable with a position that a zero allocation for those added to a plan to correct a 410(b) failure is a reasonable correction. It looks like you disagree. If the plan loses in audit lottery, the IRS will decide whether or not it was a reasonable correction.

Well, an -11(g) amendment has to have substance [1.401(a)(4)-11(g)(4)]. If you can't correct by giving additional allocations to only non-vested terminated participants, I wouldn't feel comfortable trying to argue that giving a zero allocation has substance. I think I would be inclined to use either the NHCE ADP from plan 1 or the NHCE ADP calculated by combining both plan 1 and plan 2. You should also note that 1.401(a)(4)-11(g)(3)(vii) includes a specified QNEC for correcting a 410(b) failure in a 401(k) plan. I had the IRS point this out in a VCP filing and tell me that you don't get to use the reduced QNEC allowed under EPCRS to correct an improper exclusion from a 401(k) when you are correcting a 410(b) failure.

The compensation definition used to calculate the safe harbor contribution must satisfy 414(s). See 1.401(k)-3(b)(2). So, yes you need to test it under 414(s). If the test fails, your plan document may have a provision telling you what to do. Our VS document (from ASC) has a provision that if you fail 414(s) on the SH compensation, the SH comp definition automatically changes to Total Compensation. If your plan doesn't have a similar provision, you would need an -11(g) amendment to change the SH comp definition for the year.

Yes, you are missing something really big. The SH match is required under the terms of the plan. Failure to give the participants the contributions they are entitled to receive is an operational failure that needs to be corrected to avoid disqualification. You don't need to do ADP/ACP testing, you need to correct the operational failure. Stick a fork in me, I'm done.

No, there is an operational failure because the terms of the plan were not followed. If the client wants the plan to remain qualified, it needs to be corrected under EPCRS. But, the plan will still be SH.

You will need to correct under EPCRS (Rev. Proc. 2016-51). Corrective contributions under EPCRS count as annual additions for the year being corrected. Otherwise, you will likely have section 415 issues because you will be allocating amounts to people who termed in prior years. Note, EPCRS does not change when the amounts can be deducted. It's not an easy read, but the Rev. Proc. covers your situation.

1.72(p)-1 Q&A 10 addresses the effect of the cure period and gives an example. The regs aren't precise, but the example clearly says the deemed distribution happens at the end of the cure period.

Does this help?

I'm a little slow getting back here, but I received some additional information from the OP via PM. The loan start date was 12/1/2015 and it was a 60 month loan. The final payment was scheduled for 12/19/2020. The letter was dated 11/2/2017 and says: The letter also mentions what needs to be done if you have terminated employment, or if you are on a qualified military leave. It looks like a form letter covering several different situations. Payments were made each pay period after the missed pay period in May 2017 and those payments show up on the Wells Fargo website. The OP will ask her employer to ask WF for a written explanation of why the loan was defaulted. l think it will be helpful to know if they deemed the loan because the missed payment caused the loan to extend beyond the original 5 year period, if they deemed it because they are still treating the missed May 2017 payment as outstanding, or if they have a different reason. Hopefully, they will also review the situation and see if they still think it should have been deemed. My limited experience with large firms is that they initially resist when you ask them to correct an incorrect 1099-R, even if the 1099-R is obviously wrong. In the cases I've dealt with, it took a detailed explanation of why the form was incorrect and getting high enough up the food chain to get someone to act.