Kevin C

Which IRS comments are you referring to? I've asked for several years for someone to provide documentation of a single time the IRS actually said this. No one has. I've heard and seen multiple claims that the IRS said this at the 2011 ASPPA annual conference. I was there and reviewed the recording afterward. No one with the IRS made such a statement. Last Fall, I had a chance to discuss this issue with an ERISA attorney and frequent speaker at conferences. I asked him what comments from the IRS were the basis for claims that absolutely no mid-year amendments to SH plans except for those specifically blessed in guidance. He said those claims were based on the same comments I've been hearing that the IRS was concerned about mid-year amendments to SH plans, which is why they put the rule prohibiting certain mid-year amendments in the regulations. He has not heard the IRS say that all mid-year amendments are prohibited. I don't blame the IRS because the only ones I hear making these claims at conferences are non-IRS speakers. As recently as the 2014 ASPPA annual conference, two of those speakers said that we still don't know if it is ok to change Trustees mid-year. I've also pointed out that if the IRS really has this draconian position, it should show up in many areas of published guidance. An improper mid-year amendment to a SH plan disqualifies the plan. Why isn't it mentioned in the review guidelines for determination letter requests? This is the second restatement cycle for pre-approved plans since the final 401(k)/401(k) regulations and the third since SH Plans started. Why isn't it mentioned in any of the guidance on restatements? Relius claims this supposed IRS position goes back to 1999, so why isn't it included in the final 401(k)/401(m) regulations? And, why aren't we hearing about all of the plans the IRS has threatened to disqualify over this? <Rant mode off>

The "pre-approved" correction methods are in Rev. Proc. 2013-12 as modified by Rev. Proc. 2015-27. Other correction methods may also be appropriate, but would need to be justified if the IRS looks at it. This link will take you to a page with links to both Rev. Procs. You will want to focus on the correction methods for overpayments. http://www.irs.gov/Retirement-Plans/New-Rev-Proc-Updates-EPCRS You will also want to read the sections on eligibility for SCP and VCP to determine which program the correction fits under. With multiple years involved, you may not qualify for SCP. Also, keep in mind that if the IRS decides your failure is egregious, they can ask for a higher filing fee under VCP.

Most of the new safe harbor plans we set up do not allow loans or hardships. We don't have any SH plans that delay distribution of deferrals until death or retirement age. But, we do have one SH 401(k) that doesn't distribute the employer contribution accounts until retirement age, death or disability. I agree it can be done, but would recommend that the employer make the extra effort to get a signed zero deferral election from everyone who does not want to defer, or at least keep a log of when each person was given their enrollment forms. With little participation from NHCEs, I would expect that if audited, the DOL or IRS will want to see documentation showing that the NHCEs were really offered the opportunity to defer. Depending on the size of the employer and turnover, delaying distributions until death or retirement age could eventually backfire on them. Those vested terms will increase the participant count and get them closer to large plan filings and an audit.

I don't see any rules in 1.401(k)-3 that a non SH match must satisfy. If the cap on the match causes the match to not be a SH match, then I don't see the cap as a plan provision satisfying a rule in 1.401(m)-3. I think your situation puts your question in the same category as asking if the profit sharing formula (or any other non-SH provision) in a SH plan can be changed mid-year. I agree there is a lot of foolishness regarding this topic. But, I don't agree that the IRS is behind it. http://benefitslink.com/boards/index.php/topic/55219-the-irs-continues-to-behave-badly/?p=240680

The IRS mention of prime+ 2% was during a phone forum on 9/12/2011. Here is a link to the transcript and the portion dealing with the issue. http://www.irs.gov/pub/irs-tege/loans_phoneforum_transcript.pdf

There are no rules in 1.401(k)-3 or 1.401(m) that the plan provisions listing the plan sponsor name and EIN must satisfy. The prohibition on certain mid-year amendments to safe harbor plans is in 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1). For amendments like this, our document provider advises informing clients there is a slight risk of a problem with the IRS. If it makes you feel any better about it, our PPA VS document says changes to the sponsor name, address and EIN can be made without amending the plan. We did that with a client's plan a few years ago. The sole proprietor dentist died and his wife sold the practice to another dentist. The new dentist kept the staff and adopted the existing plan. The same thing could have been accomplished at a much higher cost by terminating the old plan and adopting a new one with a short initial plan year. It seem ridiculous to force the client to take the expensive route.

If Fidelity won't go for a rollover, it may not be too late to return it as an excess IRA contribution. A search on the IRS website yielded Publication 590-A http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230873 From the discussion on excess contributions:

There is a timing exception in 1.414(w)-1(b)(3)(iii)(B) that allows the auto enrollment notice to be deemed timely if delivered asap after date of hire. If it is a QACA, waiting 45 days to start deferrals likely violates the timing requirement in 1.401(k)-3(k)(4)(iii). What they are doing sounds like an operational failure to me. Going forward, I would either change the process or amend the plan to fit what they are doing.

There is a difference between how/when the match is determined and when the match is deposited. The match determination should be specified in the document, The deposit timing may or may not be specified in the document. Our VS document gives the employer the discretion to decide when the deposits are made. It also says that if the employer deposits the match on a more frequent basis than is used to determine the match, a true-up is required. If the document does say that the SH match must be deposited after the end of the plan year, you can't amend that mid-year. I don't remember ever seeing a plan specify that an annually determined match must be deposited after the end of the year.

The only way you will find out how they split the employee contributions among partners is to ask them. Among our clients, the two most common methods are based on ownership % and based on partner earnings.

The prefunding prohibition for the match is in I've highlighted the part that describes what a prefunded match is. There is no problem with depositing the match during the year as long as you comply with this reg section. With the match allocated at year end, it could be interesting to show that you don't violate this rule. If the plan in question provides the match to all participants who defer (no hours or last day requirement), you should be fine calculating and depositing the match periodically throughout the year. But, if the plan has an hours or last day requirement to receive the match, estimating and depositing the match throughout the year is almost guaranteed to result in part of the amount deposited being prefunded and considered as not being match. I say that because you would be estimating a match amount early in the year for someone who ends up not being eligible for the match. When you try to use that amount for someone else later in the year, you end up with a prefunded amount.

Your description sounds like he wants to use his account to purchase stock of the plan sponsor. Does the plan allow that? Who would the stock be purchased from? How would the purchase price be determined? I can see some possible PT issues. As for the 5500 filing, a plan that holds non-publicly traded securities or employer securities cannot file Form 5500-SF. The SF filing is only available for small plans that are 100% invested in assets with a readily determinable market value and do not hold employer securities. Non-publicly traded assets can also affect whether or not the plan qualifies for the small plan audit waiver.

There is no official guidance on mergers of safe harbor plans. When asked, the IRS refused to comment. The normal standard in areas with no guidance is to use a reasonable, good faith interpretation of the code. I'm not sure I completely follow your situation. If you are saying that contributions to the LLC-P 3% SH stopped when they became employees of LLC-C, 1.401(k)-3(e)(4)(ii) allows a short final SH plan year if the plan termination is in connection with a 410(b)(6)( C) transaction. With LLC-C now sponsoring the LLC-P plan, terminating the LLC-P plan is not a distributable event for the deferral and SH accounts. I think that will force you to transfer balances for the actives from the LLC-P plan into the LLC-C plan. As for timing, I think many would suggest a year end merger to avoid having to worry about any possible mid-year issues. While that is certainly the "safe" approach, I'm not convinced it is required.

If the hours equivalency in the document applies to everyone, I don't think the regs support your position. If your plan document says the equivalency only applies to employees for whom hours records are not maintained, you should be ok. That is an option in our VS document.

The after-tax basis doesn't affect the cost basis of the stock. The after tax basis does affect how much of the distribution is taxable. With NUA treatment, the reportable distribution is $80,000. The $64,000 of after tax basis means that of the $80,000, only $16,000 would be taxable. The more likely situation would be something like: Vested Balance $300,000 Includes $200,000 of stock (with a cost basis of $80,000). Distribution amount is $180,000, ($100,000 of other investments + $80,000 for the stock) with $116,000 of it taxable (180,000 - 64,000). If it's a partial distribution, the after-tax basis is treated different depending on if it is pre-87 or post 86.

The latest revision for EPCRS correction of overpayments was in Rev. Proc. 2015-27. http://www.irs.gov/irb/2015-16_IRB/ar06.html

It sounds like someone is confusing the cost basis of the stock used for NUA treatment with the after-tax basis in the account. I would suggest going back to the recordkeeper and asking for a written explanation, then let us know what they say. Is the participant's after-tax basis pre 87, post 86, or some of both?

Failure to pay an RMD is a qualification issue for the plan and results in a 50% excise tax for the beneficiary. If it reaches that point, I would look to EPCRS for the correction.

From the model tax notice in Notice 2009-68: The plan will also need to make sure the current year RMD is distributed. I looked into the RMD issue last year with a plan we terminated that allowed retirees to elect a lump sum and reached the conclusion that the remaining amount scheduled to be distributed during the year under the annuity form was the RMD portion of the lump sum.

We take the same approach as Bird. I'd also like to point out that this is the second restatement cycle since the final 401(k) / 401(m) regulations were effective. If the IRS really takes the draconian position on all mid-year amendments that certain ASPPA speakers claim, you would expect to see the topic mentioned in the guidance on restatements, with an earlier deadline listed for safe harbor plans. It isn't. As Bird mentions, if you do this long enough, following certain ASPPA speakers' position will put you in a catch-22 situation. If you feel that restating prospectively by 12/31/15 is the "safe" approach, that is your choice. There is nothing in the published guidance that requires it, but there is nothing in the published guidance that prohibits it.

The participant's obituary may have helpful information. They usually list names of surviving family members and where they live. If you can't find it on-line, some of the genealogy websites include access to archived obituaries. We were able to track down two default beneficiaries last year using information found in obituaries. If you know someone who does genealogy research, they can be a big help in the search.

What fee level did the service provider list in their 408(b)(2) disclosure? If they disclosed .5% and received 1%, that would affect whether their services were provided under a reasonable contract. That can impact the PT exemption for all of their fees. Depending on the situation, the fiduciary may need to seek the recovery of more than just the overpaid amount.

The proposed instructions say: http://www.irs.gov/pub/irs-dft/i5500sup--dft.pdf

JOHN HANCOCK FUNDS LLC JOHN HANCOCK LIFE INSURANCE CO OF NEW VALHALLA, NY JOHN HANCOCK LIFE INSURANCE COMPANY BLOOMFIELD HILLS, MI JOHN HANCOCK RETIREMENT PLAN SERVICES, LLC These all have PPA documents on the IRS pre-approved documents list. See page 81. Is one of them the John Hancock you are dealing with? http://www.irs.gov/pub/irs-tege/ppa_listdc.pdf

The Plan document should specify the sources used for a distribution. The default ordering in our PPA VS document is pro-rata from all sources. If the participant has both pre-tax and Roth deferrals, they can elect what portion of the distribution from the salary deferral source is from Roth and what portion is from pre-tax. The adoption agreement has selections that let you modify how the Roth portion is handled. The base document also allows a separate written distribution procedure to specify a different ordering.