Kevin C

I agree with Tom that it would be considered a reduction in the SH contribution. If they do it mid-year, they need to comply with 1.401(k)-3(g). Is it worth losing the SH over?

Not sure how much it helps, but I did a VCP filing under similar circumstances in 2010 to correct 4 loans where the employer forgot to withhold loan payments from payroll. 3 of those loans were for owners. We asked that the loans not be taxable and it was approved. They did want proof that the loans had been re-amortized and payments started under the new schedule before they closed the filing. Is it a significant enough amount to consider an anonymous filing?

You can't do that mid-year. See Notice 2016-16, Section III D 2. Under prohibited mid-year amendments, it lists:

You are not missing anything. I agree with one of my co-workers who pointed out that controversy fills conference seats.

410(a)(1)(B) applies to plans that have service requirements for participation, or a situation having the effect of requiring service, of more than one year. Assuming the class exclusion doesn't have the effect of requiring more than a year of service, I don't think those previously excluded by class would have to be 100% immediately vested when the plan is amended to allow that class to participate. If the class exclusion does have the effect of requiring more than a year of service, the plan has other problems. Of course, service completed while in an excluded class counts for participation and vesting when that class is no longer excluded or the participant moves to an included class.

... and it would have gone off the books completely when you became eligible for a distribution. The technical term for that is an offset. If you received a 1099-R for the outstanding balance when the loan was defaulted, you should not have any additional taxable amount from the loan now. What does the letter say will happen when the loan is "foreclosed"?

As usual, Mike is correct. Under 410(a)(1)(A), a plan is disqualified if it requires more than a year of service as a condition of participation. The exception under (B) applies to plans that require not more than 2 years of service AND provide for 100% immediate vesting. Under 1.410(a)-3(e)(1), provisions that have the effect of requiring age or service requirements are treated as imposing those age and service requirements. Put it all together and the situation under discussion requires more than a year of service for affected individuals and they must be 100% immediately vested to meet the exception under 410(a)(1)(B).

I don't think there is a typical time period. The main thing that determines the length of the blackout is how much, if any, the old firm cooperates with the transition. We've had some where we received data files within a day or two after the funds arrived and they were out of the market less than a week. We've had others where we didn't get a data file until 1 or 2 weeks after the funds arrived and the data file was garbage. Those were out of the market closer to 3-4 weeks. Every one is different.

We've only had a few plans over the years with brokerage accounts. We don't take plans with them any more. The participants' brokerage account returns ranged from slightly worse than the designated alternatives to downright horrible. We didn't see any "winners". The all-time record was a partner at a law firm who had a 10-year annualized rate of return of -23%. Over those 10 years, he managed to lose more than 92% of his balance.

If the participant died in 2012, the beneficiaries are under the 5 year rule and the end of the 5 year period is 12/31/2017. My understanding is that even if they roll to an inherited IRA, they still have to withdraw the entire balance by 12/31/2017. You should advise them to consult with their tax adviser regarding RMDs from the IRA. If "around 2012" ends up being in 2011, the plan has an operational failure because the RMD was not paid timely. The 50% excise can be waived through a VCP filing or possibly by the beneficiaries requesting it be waived by the IRS.

If your final 5500 shows assets and a liability for the uncashed check for net assets of zero, you will probably hear from the IRS. We had one like that get selected for their terminated plans project. They initially insisted we amend the final return to not be final and file a final return for the following year. At that point, the following year return would have been late. It worked out ok in the end, but it was a pain. In your situation, I would rather file as not final for 2016 and file a final return for 2017 for several plans than take a chance on having to deal with the IRS again for one plan.

Following the plan document is a qualification requirement. The qualified status of the plan affects tax deductions, timing of taxation of plan benefits and the availability of rollover treatment for distributions. That should give them an incentive to fix this. The SCP correction period for significant failures is in Rev. Proc. 2016-51, 9.02(1). In general, you have until the end of the second plan year following the year of the failure. For ADP/ACP failures, the 2 year clock starts at the end of the statutory correction period. The correction will be to deposit the missed amounts, plus lost income. If the IRS finds out before the correction is done, they will end up in Audit Cap, with a negotiated sanction amount, plus being forced to make the correction.

I've never had an audit where the IRS agent insisted that information be faxed. I have had them ask if I would fax things to speed up the process. The few times they asked for a large amount of information, they changed their minds about a fax when I told them how many pages were involved. Personally, if she told me she wanted a 100 page fax, I would fax it. I prefer to pick my battles and save the aggravation of arguing with the government for times when they use an incorrect interpretation of the rules to justify penalizing our client.

PBGC covered DB plans are required to issue the annual funding notice instead of the SAR. I may not be correct, but I assumed CPA firm and small company meant a professional service employer with under 25 active participants exempt from Title IV. My suggestion is to contact the DOL. They have more leverage in getting information from plan sponsors than participants do. I've had a few DOL investigators tell me that when they have an unresponsive plan sponsors, they issue a subpoena for the information they need.

The search engine on the DOL website is very picky and requires an exact match to the search terms. If you have the EIN, it usually works best using only that to search. Enter it without the dash. If you have a copy, the Summary Annual Report they are required to provide each year will show the EIN they are using for the filing. If they stopped filing, there is another website (freeerisa) that should have the last filing or two that were done, even if it was before 2009. If it turns out they are not filing a 5500, that's even more of a reason to contact the DOL.

The Form 5500-SF for years starting in 2009 or later should be available on the DOL website. The Schedule SB asks for the AFTAP. For the actuaries, would SB line 15 be the applicable percentage? Would line 16 be the applicable percentage for the prior year? The OP can search for the filings here: https://www.efast.dol.gov/portal/app/disseminate?execution=e2s1

I think you would still have a problem with that. Notice the "or" before the phrase 5 months in any plan year. What you are wanting to do would have the same effect as the example's exclusion of those who do not work more than 5 months in any plan year. You would need the 21 & 1 year failsafe to keep from disqualifying the plan. If they work 40 hours a week for 4 months, they would be around 700 hours each year. Would any of these people ever have 1,000 hours in a 12 month period? I'm not understanding your desire to avoid the failsafe. It seems the failsafe would be unlikely to bring into the plan any of those you want to exclude.

Does the plan document allow the return of contributions made due to a mistake of fact? Most plans do. With the regulations prohibiting prefunding of deferrals and match, it often works out better to return the excess to the employer.

You said they started a new plan. Spinning off their portion of the MEP and merging it into the new plan is typically what happens. As I said before, leaving a MEP is not a distributable event if the employer has an alternative defined contribution plan. The new plan is an alternative defined contribution plan. Participants have to be eligible for a distribution before amounts can be rolled over. A spin-off gets the assets and liabilities for the employer's participants out of the MEP without there being distributions. As others mentioned, there could also be successor plan issues with having a short initial plan year for a SH plan. I suggest you find a consultant or ERISA attorney who is qualified to help your client and provide him/her with all the information you have on the plan. Again, I wish you luck.

No, you can't do that. Whatever eligibility requirements they select apply to all employees. The Form 8905-SEP or document used to establish the SEP should clearly say that. We have a huge volume of rules in ERISA and the Internal Revenue Code intended to prevent the type of discrimination you are asking about.

Yes, they are out of compliance. It's impossible to tell how much of a mess they created without copies of the new document, the MEP document, including amendments and merger paperwork and accurate information on what actually happened. I wish you luck.

The IRS has never provided any guidance about spin-offs and mergers of safe harbor plans. 1.401(k)-3(i) just says "reserved". Was your situation a spin-off from the MEP and merger into the new plan? If so, do the new plan SH provisions mirror those in the MEP? Leaving the MEP would not be a distributable event for the active employees because the new plan is an alternative defined contribution plan under 1.401(k)-1(d)(4)(i). If the new plan says deferrals start 7/1/16 and they did not start until 12/1/16, there are problems. Were there no deferrals from 7/1/16 - 11/30/16? Or, were deferrals made to the MEP until 12/1/16? What about SH contributions?

The only way I see for them to avoid reducing the NHCE allocations is to deposit the additional amount needed to bring the two who were shortchanged up to the same percentage of pay allocation that the others received, adjusted for lost income. That is the EPCRS pre-approved correction for someone who is improperly excluded from the PS contribution and should be equally valid for someone who received less than they should have under the allocation used. They didn't follow the document and that needs to be corrected. Their two options are reallocate the contribution amount or make a corrective deposit.

I read it as saying the vested balance from prior to the break is kept separate from the new after-rehire balances until the participant becomes 100% vested. It addresses rehire after the non-vested portion has been forfeited, so any remaining balance at rehire would be vested. If they are not fully vested, new money would be subject to the vesting schedule, but the old vested balance would remain vested. I don't see anything there that would let someone with >5 yrs BIS repay a distribution and get forfeitures restored.

It's a chain of pawn shops. But, we have participants in other plans that get flagged, too. I don't think she is missing, she just doesn't want to respond. It's a shame, because if she had provided the information they requested, she almost certainly would have received her money. So far, everyone else has provided the requested information and had their funds released. If she won't provide information to us, I doubt she would go to the government and give them the info. jpod, that's the direction we are leaning. If she does ever get the funds from the government, I don't see them issuing a 1099-R. But, I think the most likely outcome is that she won't ever get the money.