Kevin C

There is informal IRS guidance on your question. Question 41 at the 2012 ASPPA annual conference DC Q&A session dealt with the situation you describe. The IRS representative agreed with the proposed answer that the amendment could be rescinded before it was effective and keep the safe harbor, provided sufficient notice was provided to participants so that their deferral decisions were not compromised by the amendment.

I'm still not following why you say the current plan would have to be terminated at least 12 months before the sale. The "employer" for purposes of determining if an alternative defined contribution plan maintained by the employer exists is determined at the time of the plan termination. If the termination occurs before the sale, the mid-size company pre-sale and the controlled group containing the Conglomerate (and the mid-size company as a subsidiary) after the sale are not treated as the same employer. That means Conglomerate's 401(k) plan is not an alternative defined contribution plan with respect to mid-size company's current plan. What plan are you concerned about being an alternative defined contribution plan? It also looked like 401 Chaos interpreted your comment as saying that the rules are different when a PEO is involved. With the facts stated, I agree there would not be a severance of employment.

Can you elaborate on this comment?

If the stock sale hasn't happened yet, they still have options. If the mid-size company terminates their portion of the PEO's multiple employer plan before the sale and mid-size company doesn't have an alternative defined contribution plan, the termination will be a distributable event. See 1.401(k)-1(d)(4)(i). They would also have the option of spinning off their portion of the plan and merging it into the acquiring company's plan. If they wait until after the sale to take action, they will not be able to allow distributions to those still employed by the acquiring employer because the acquiring company's 401(k) will be an alternative defined contribution plan. That basically forces them to merge the plans.

We had a participant try that recently, but in a slightly different way. He requested the maximum hardship amount and provided a stack of medical bills as documentation. As we went through the bills, there were duplicate bills included in the stack. The bills had different dates, but were for the same amounts and the same service dates. We sorted through the bills, culled the duplicates and totaled up the amount actually owed and recommended to the sponsor that the hardship distribution amount not be allowed to exceed the total owed, grossed up for taxes. That seemed a pretty obvious course of action given the circumstances. I don't think you should have a different result just because the participant splits the duplicate bills into two separate hardship requests.

It's been a while since I've had this come up, so I looked it up. Like Mike says, when you determine you have a discontinuance, it applies retroactively, so in most cases, you've already forfeited someone who becomes 100% vested by the discontinuance.

I think the presumption that no contribution for 3 out of 5 years is a discontinuance comes from Announcement 94-101. It's currently described on the IRS website, along with the mention that the history of profitability and the ability to make future contributions can affect the determination of a discontinuance. With no contributions in at least 8 years, I don't think you would be likely to convince the IRS it wasn't a discontinuance. https://www.irs.gov/retirement-plans/no-contributions-to-your-profit-sharing-401-k-plan-for-a-while-complete-discontinuance-of-contributions-and-what-you-need-to-know Planning Tips If you haven’t made contributions to your profit sharing plan for three of the past five years, consider the facts and circumstances to determine if a complete discontinuance of contributions has occurred: Your history of profitability/ability to make contributions. Whether you’ll be able to make contributions in the future.

Mike and Larry, thank you for the advice. The labor law aspect is something I've never had to deal with before. I have not heard back from the prospect yet. Your comments bring up a question about something one of the owners told us. He said the union sets the minimum compensation level, but employers can pay more. When he was an employee at other companies covered by this union he always made more than the union minimum. Wouldn't that have the same problems as what he wants to do with a plan?

Our largest plan in Relius is 16,000 employees, with 11,000 participants. The volume of data makes it very slow, but it works as well as it does for smaller plans.

Sanity check? In this business? i don't see a problem with the conversion after the RMD has been paid. See 1.408A-4 Q&A 6. However, I don't see death as an exception to the 5 year requirement in the qualified distribution rule, so it would not be a qualified distribution. See 1.408A-6 Q&A 1. In your scenario, the basis in the account would be basically the entire account, with the exception of investment gains for the short period. Even with it not being a qualified distribution, nearly all of it, if not all, should be a distribution of after-tax basis. It would be a death benefit, so there should not be a 10% penalty if there was positive investment income.

If that wasn't bad enough, following the plan provisions regarding loans is also a requirement for the PT exemption for participant loans. §2550.408b-1(a)(1)(iii).

Looks like some clarification is in order. Union members in the proposed plan would receive the benefits in the union plan PLUS contributions in the new plan. Union members not in the proposed plan would receive the benefits in the union plan. Future non-union employees will be office staff, accounting, etc., not anyone who works on the job site. The supervisors currently work for them and also work union jobs for other companies, depending on the job. The goal is to get them to only work on union jobs with their company. The owners were clear that neither they, nor any of their union employees will leave the union. Besides the benefits, they are construction workers who only work on union jobsites that do not allow any work to be done by non-union labor. A non-union supervisor would not be able to work the way they need their supervisors to work. ETA, I agree that they would either be collectively bargained or non-collectively bargained under the regs. But, I can't find anything dealing with how to classify them if they were to receive some retirement benefits under a CBA and other retirement benefits outside a CBA. I agree that under one scenario, the same compensation would be collectively bargained under one plan and not under the other. I'm just not sure that's any more of a strange result than the other scenario having a plan that is not maintained under a CBA get a free pass on 410(b) for the portion of the plan covering union employees. If labor law prevents this, that would explain the lack of guidance. It will be interesting to see what their labor attorney says. The owner also said he would contact the union.

It seems odd that giving union employees more benefits than the CBA calls for would create labor law issues, but then pension law doesn't always make sense, either. I contacted them and recommended they consult with a labor attorney.

Yes, this is would be a single employer plan. The negotiations between the employer and union would not include this plan. The owners and supervisors have been in this union for 20+ years and want to remain in the union because of the union benefits and because of jobsite rules. Per the EOB, under the Labor-Management Relations Act of 1947, retirement benefits are a mandatory subject that must be considered in the collective bargaining process. All of the union employees are currently participating in the union plan and that will continue. The union plan is one of the reasons that no one will be leaving the union.

We met with a prospect yesterday that wants an interesting plan design I haven't seen before. I've been going in circles with the definition of "collectively bargained employee" while trying to decide if their idea works. It's a new company. Currently, all employees, including the owners, are union employees and are participating in the union plan based on their service with the employer. For a variety of reasons, none of them will leave the union. They want to adopt an additional plan that will cover some, but not all of the union employees. It will also cover non-union employees when they eventually hire some. One goal of the plan is to entice those they use as supervisors to work for them exclusively. The other union workers are provided by the union for each job and it may not be the same workers for the next job. The by-the-job workers are the ones they want to exclude. My initial reaction was that this design shouldn't work, but now it looks like it probably does. I see two different scenarios, depending on how you interpret the definition of "collectively bargained employee" in 1.410(b)-6(d)(2). Scenario 1: The new plan covering some of the union employees doesn't affect the determination of status as "collectively bargained employee". In addition to any possible benefits from the new plan, they are still included in a unit of employees covered by a CBA that includes retirement benefits. Under 1.410(b)-2(b)(7), a plan that benefits solely collectively bargained employees is deemed to satisfy 410(b). The 401(a)(4) exception under 1.401(a)(4)-1(c)(5) would not apply because this plan would not be a collectively bargained plan, since it would not be maintained pursuant to a CBA. Their idea looks like it works. Scenario 2: The new plan covering some of the union employees does affect the determination of status as "collectively bargained employees". Those excluded from the new plan would receive all of their retirement benefits under a CBA and would appear to still be considered collectively bargained employees. For those included in the new plan, I think you could read the definition in a way that they would not be collectively bargained employees with respect to the new plan since their benefits under the new plan are not covered by a CBA. Under 1.410(b)-6(d)(1), collectively bargained employees are excludable with respect to a plan that benefits solely noncollectively bargained employees. They are not wanting to exclude any noncollectively bargained employees, so they should be able to pass 410(b). Their idea looks like it works. Does anyone see anything I'm missing? Any opinions about which scenario applies? It would affect how the plan document is set up.

You are welcome. Rev. Proc. 2016-51 has lots of good stuff in it, but it can be difficult to find what you need.

Yes, correction is needed even if the participant elects to not defer going forward. You are close. The sections you need in Rev. Proc. 2016-51 are Appendix A.05 (9)(b) and Appendix B 2.02(1)(a)(ii). When you put them together, I think you will find that the pre-approved correction method is for the employer to deposit a QNEC of 25% of the applicable missed deferral rate times the participant's compensation for the portion of the year he was excluded, plus lost income and 100% of the missed match for the portion of the year he was excluded based on the applicable missed deferral rate. Note that a notice to the participant is one of the requirements to be eligible for the 25% rate. You don't say if the plan is safe harbor or not. If it is, the applicable missed deferral rate will be based on the SH formula instead of the NHCE average deferral rate. If you are looking for a summary that is easier to read than the Rev. Proc., try this page on the IRS website: 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 conditions for the reduced 25% rate are listed in the Corrective Action section of the page. Note, they add a requirement that the employee be employed at the time of the correction, which I don't see specifically mentioned in the Rev. Proc.

We use ASC and are very happy with them. Simple to use and great customer support. We just had a plan with over 2,300 listed on their 8955-SSA. Since it was so large, they had their IT guys import it for us.

Failure to follow the terms of the plan is only a problem if they want the plan to be qualified. Have you looked at 1.401(a)(4)-11(g) to see if your situation would meet the requirements to do a retroactive corrective amendment to have the plan terms match what was done for 2016? If it doesn't, the EPCRS pre-approved corrections are to either 1) increase allocations to those who didn't get a little more to the same level as the one who got the most "a little more than they should have", or 2) reallocate the PS contribution correctly under the plan terms.

And the same requirement should be included in the plan document in the section covering the duties of the Plan Administrator.

Our VS adoption agreement is 52 pages. The base document is 165, including the cover page. We try to cover at least the highlights of the adoption agreement with each client. Only about 2-3% want to go through the entire adoption agreement line-by-line. We only have one client that tried to read the base document. I was impressed that he made it most of the way through. My experience has also been that very few actually read anything we send, including the SPD. A few do look at the SPD when they have a question about the plan.

The total employer contribution may be the same, but it's not necessarily the same for each participant. We don't know the PS formula or the allocation conditions. When we use full year comp for the initial SH contribution, it's because that's what the client wants. It's their plan. If the rules don't prohibit it and the document allows it, they get what they want.

There is no requirement to use entry date compensation for determining the safe harbor contribution. If the plan is set up to use compensation prior to entry for the initial safe harbor contribution and have it calculated on an annual basis, it will accomplish what your boss wants. When I do that, I typically use our VS document's special effective date section to specify that the initial year uses compensation prior to entry and starting the following year, entry date comp is used. Whichever way it is done, make sure the document is clear about how it works.

Try 408(p)(10)

So, what happens if B becomes the sponsor of Plan A and then terminates the plan? 1.401(k)-1(d)(4)(i) says the plan termination will not be a distributable event, since Plan B would be an alternative defined contribution plan of Company B. With no distributable event, what happens to the balances of active participants? The only option I can think of is to transfer (merge) their balances into the alternative defined contribution plan. You've already mentioned that Plan A can have a short final safe harbor year if it is terminated in connection with a 410(b)(6)(C) transaction [1.401(k)-3(e)(4)]. It would be nice if the IRS gave additional guidance on mergers. But, existing regs get you close. Or, they can merge the plans at the end of the year.