Kevin C

I don't know much about it, but it appears to apply to any banking transaction. The OFAC website has a link to a settlement with a bank for a $258,660,796 penalty for violating their rules. There is another settlement with Paypal for $7,658,300. They don't ask for this on everyone, just selected participants who have a name close to the name of someone on one of the government lists. We used to have one every few months. Lately, it's been a couple a month. So far, the funds get released when the requested information is provided. Some of the requests ask if the person ever lived or worked in a specific country, usually in Central or South America.

Our custodian is asking for this information because their banking institution will not release the funds without it. It appears to be a legal requirement and OFAC is part of the Treasury Department. http://www.treasury.gov/about/organizational-structure/offices/Pages/Office-of-Foreign-Assets-Control.aspx

About half of the ones flagged work for a large company that prepares food for restaurants. There hasn't been an actual match so far, just inquiries because their name is close to a name on the list. Here is the list of items requested for a recent one: Please provide the following information in order to release funds for payment to the participant. • Full Name • Full Address • Social Security Number and/or ITIN • Cedula Number (if applicable) • Date of Birth • Place of Birth • Citizenship • Passport Number (if applicable) • Driver’s License Number and State of Issuance • Detailed purpose of payment • Has the participant ever lived or worked in Cuba or Panama (yes/no)

I don't see any reference to 410(b)(6)( C) in 1.403(b)-5(b), so apparently it does not apply. Would 1.403(b)-5(b)(3) help?

Fidelity should be able to explain why they are doing this, what is needed before access can be restored and why it is needed. We don't deal with Fidelity, but we've been having an increasing number of participants with loan proceeds and distributions delayed by the custodian until additional personal information is provided due to a potential OFAC (Office of Foreign Assets Control) match. Apparently, if the participant is close to a name on the OFAC list, the custodian is required to verify the participant is not the person on the list before the funds can be paid. Could this be what Fidelity is doing?

If that is the only late deposit, i wouldn't file a 5330. If they could have reasonably deposited before the end of 2014, you would actually have two 5330s, one for 2014 and one for 2015. The amount involved for the PT will be the lost income and the excise tax is likely to be under $1. In cases like that, we have the client deposit the lost earnings and the amount of the excise tax in the plan, report the late deferrals on the 5500, but do not file a 5330. We had an informal discussion a few years back with the manager of our IRS region and she said she was ok with not filing a 5330 for a really small amount, but did note that we might have a zealous agent try to make an issue of it.

As for the missed deferral, it would likely fit within the brief period exclusion rule in Appendix B, Section 2.02 of Rev. Proc. 2012-13. Your description sounds like they may have missed out on some match because of the payroll error. If that is the case, they should receive the match they would have received if their deferral elections had been followed properly. With the EPRCS correction methods consisting of corrective deposits by the employer, I'm not convinced the IRS would consider doubling up on deferrals the next pay period as being an appropriate correction. Anyone have that come up in an audit and have the IRS approve of it?

If you apply the excess to a later payroll, make sure you don't violate the prefunding prohibitions in 1.401(k)-1(a)(3)(iii)(C ) and 1.401(m)-1(a)(2)(iii)(A). You may want to check your plan document for a mistake of fact provision. Most plans allow the return of contributions made due to a mistake of fact.

With the plan under examination, SCP is only available to correct insignificant failures( Rev. Proc. 2013-12, Section 4.02). The criteria used to determine if a failure is insignificant are in section 8.02 of Rev.Proc. 2013-12. The agent may be unreasonable about how that criteria applies, but I would exhaust that possibility before moving to something more expensive. We had an IRS agent insist that if more than one factor indicates the failure is not insignificant, then it is not insignificant. There was a discussion of how the criteria is supposed to be applied in an IRS phone forum on EPCRS within the last few years. The speaker was the head of the EPCRS group and his opinion was more reasonable than the agent we had the problem with. The transcript should be on the IRS website.

There are still a few custodians who refuse to write a distribution check payable to a participant.

Was the distribution sent directly to the participant? Or, did they send funds to the Trustee who then paid the distribution? If it's the first, I would notify the investment company in writing that the 1099-R was prepared incorrectly and tell them how it should have been completed. I would include a copy of page 8 of the 1099-R instructions, with the following paragraph highlighted: If it was the second, the best course may be to notify them that a 1099-R should not have been issued to the Trustee and then, as Bird says, someone needs to prepare a 1099-R for the participant. Years ago, we had a Trustee who cashed out some funds in an annuity policy held by the plan to fund a participant loan. The insurance company issued a 1099-R to him showing the asset transfer to be taxable. Over the phone, they insisted they were not going to change the 1099-R. After a letter, along with a copy of the instructions and a statement that he hoped he would not be forced to take legal action to correct the matter, they changed their mind and voided the 1099-R.

Sorry, but I disagree. If they are otherwise eligible for the match, but don't defer at least 5%, they would still be included in the ACP test. 1.401(m)-2 says the test includes "eligible NHCEs" and "eligible HCEs". Those are defined in 1.401(m)-5. Someone who could defer, but doesn't consent to payroll withholding is still an "eligible employee", and I think it would be the same if they made an election to defer less than 5%.

The compensation definition used to determine the 3% SH has to satisfy 414(s) [see 1.401(k)-3(b)(2)], so yes you need to be concerned with 414(s). The question then becomes how do you test the definition? I can see how you could read 1.414(s)-1(d)(3)(iii) to say you don't consider the excluded HCEs when testing the compensation definition. But, there's still that pesky phrase in 1.414(s)-1(d)(1) that says "... if the definition of compensation does not by design favor highly compensated employees ..." If the SH compensation definition doesn't satisfy 414(s) when you count the HCEs, I think you would have an uphill battle trying to argue that your compensation definition designed to reduce the NHCEs SH contribution, but still allow the HCEs to defer the max, isn't designed to favor HCEs.

I don't think it does, but I doubt you will find anything addressing the question. The purpose of the corrective QNEC is to put the plan where it would have been if the error had not been made, or at least close enough to satisfy the IRS. I think that as long as this correction method has been around, the IRS would have said something by now if they thought their correction created a TH issue. It also doesn't make sense that a correction of salary deferrals in a SH plan could cause the TH minimum to apply.

If you have access to the IRS DC Q&A handout from the 2012 ASPPA Annual conference, Question 36 deals with amending a SH plan mid-year to have a short plan year.

Instead of terminating, you might want to consider adding 401(k) and 401(m) provisions to the ESOP. After the company buys all the stock, it could be restated as a 401(k) plan. We have a client who had a KSOP and sold the company to a private equity firm. After the stock was purchased, their plan was restated as a 401(k).

From the Safe Harbor section of the Explanation of Provisions in the 12/29/2004 preamble to the final 401(k)/401(m) regs:

You're on the right track. The effect of the provision is as important as the wording.

If the non-elective safe harbor is suspended, the employer contributions through the suspension date would count towards the top heavy minimum.

Austin, I read 1.401(k)-3(e)(3) the same way you do. To have a short SH plan year, you have to be SH for the preceding year , short year and the following year. But, I don't see any requirement that you be the same safe harbor for those years,

Looks like my wording could have been better. I agree that a contribution is not needed to correct the missed deferrals due to the short period exception, but I still consider the missed deferrals to be corrected. The intent of my reply was to say I think the match has to be corrected, not that I think any action is needed to correct the missed deferrals in this situation.

You are correcting the improper exclusion of a participant, so I don't see how a later election to not defer by the same participant changes the correction or the situation. If EPCRS was going to let you not correct in that situation, it would say so. The correction that applies would be based compensation for the improper exclusion period.

Mothership A appears to be in charge, so it would decide what, if anything, happens. Depending on what they want to do and the plan document provisions, there may be more than one way to get the same result. A blackout enters the picture if the transfer keeps participants from being able to take certain actions for more than 3 business days, With at least two different recordkeepers involved, I would plan on there being a blackout.

Does the plan allow for in-service distribution at NRA? The only 411(d)(6) relief I see in the final regs published 5/22/2007 was for timely removing the availability of in-service distributions at an NRA prior to age 62. There was a limited time period to make the change. Any other changes had to satisfy 411(d)(6). If they did not adopt a 2007/2008 interim amendment and it was not adopted for them at the document sponsor level, they are a non-amender and I'd suggest VCP. If the 2007/2008 interim amendment was adopted for them, but it was missing a provision to correct their NRA, I think you have a plan document failure with that interim amendment. We are well beyond the extended remedial amendment period for that change under Rev. Proc. 2007-44 section 5.03, so I think it would need to be corrected under VCP.

You can't change mid-year, but there are rules dealing with a short plan year in the safe harbor regs.