Kevin C

The question of top heavy minimum when a non-key is moved to a non-covered class of employees during the year was discussed last year. http://benefitslink.com/boards/index.php?/topic/54458-top-heavy-minimum-for-participant-moved-to-excluded-class/#entry237265

http://www.irs.gov/pub/irs-pdf/f8554ep.pdf The instructions are at the end. Hmmm, it says they will send a new enrollment card. I never got mine, but I'm still on the ERPA list.

The plan can be safe harbor for a short final plan year if the plan termination is in connection with a 410(b)(6)(C ) transaction. They do have to make the safe harbor contribution through the termination date. See:

It's rare that we have a safe harbor plan wanting to make a change mid-year, but on those occasions, we followed the published guidance. If you go through the 401(k) and 401(m) safe harbor regulations, they tell you very specifically what kind of plan provisions can not be amended mid-year. Later published guidance responded to inquiries with examples of certain amendments that would comply with the published guidance. You'll have to decide for yourself about exactly what the IRS informal position on the topic is. I've been to the same ASPPA annual conferences and listened to the same IRS speakers, but never heard them say what others claim they said. I've even listened to the recordings of the sessions to see if I missed something and still couldn't find anything different than what I heard in person. ASPPA has requested that the standard for prohibited mid-year amendments be plan provisions mentioned in the safe harbor notice. That standard would create more problems than it would solve. As for mid-year changes to the profit sharing formula, there are other issues to consider. What are the requirements to receive the PS contribution? 411(d)(6) prevents you from amending to make someone who already satisfied the requirements to receive a contribution become ineligible to receive that contribution. There is also some disagreement over whether that protection applies to the having the current allocation formula apply for the remainder of the plan year. You may find a good reason to delay the PS formula change to next year without even considering the safe harbor plan rules.

Even ignoring that the excess amounts might be plan assets, I think you would have a problem since you would be receiving more than reasonable compensation, which violates one of the requirements for the PT exemption that lets service providers be paid by the plan. If it is more than your fee, how can the amount received be reasonable? What services is the plan sponsor providing to the plan to justify the indirect compensation you are asking if they can be paid? In my opinion, the best course of action is to have the extra amounts deposited in the plan. You should consult an ERISA attorney with PT experience before proceeding. From the link above:

1. Sounds like an operational failure to me. I would fix it under EPCRS, which means it would be annual additions for 2012. You should be able to self correct. 2. I'm thinking you would include the true-up, but you should look through Rev. Proc 2013-12 to confirm. 3. At this point I think you would need to correct the ADP failure under EPCRS, which should mean the on-to-one QNEC. I would review the Rev. Proc to confirm. For your final question, my opinion is yes.

Here is a similar discussion. http://benefitslink.com/boards/index.php?/topic/54458-top-heavy-minimum-for-participant-moved-to-excluded-class/#.VCxDLPldXRM The gist of it is that a non-key employee who was a participant in a TH plan for a portion of the year, changes to an excluded class during the year and is still employed on the last day of the plan year needs to get the TH minimum. I don't see that it changes when the exclusion involved is the statutory one for union employees. I also think you are misreading 416(i)(4). For the non-union plan they were in prior to joining the union, the retirement benefits under that plan were not subject to collective bargaining, so I don't see 416(i)(4) as applying to the non-union plan. 416(i)(4) would apply to the union plan if the benefits under it were subject to collective bargaining. I think you would count their balances in the non-union plan in the TH determination. Whether or not you count their balances in the union plan will depend on whether the union plan is part of a required aggregate group (1.416-1, T6) or permissive aggregation group (1.416-1, T7-T8) with the plan in question.

The Q&A you copied deals with the section 415 limit, so I don't understand the comment that it only applies to ADP and not 415. Can you be more specific about your question? The determination of catch-up used to determine what deferrals are included in the ADP test is not exactly the same as the catch-up determination used in the 415 limit. See 1.414(v)-1(d)(1) & (2). Catch-ups triggered by statutory limits or employer-provided limits are not counted in the ADP test and are not annual additions under section 415. Catch-ups triggered by the ADP test count as deferrals in the ADP test, but they do not count as annual additions under section 415. The timing rules of 1.414(v)-1©(3) determine the as of date for catch-ups triggered by the various limits and tests. The catch-up limit applies to the participant's taxable year. The catch-up contributions for a non-calendar year plan year are the catch-ups as of a date during that plan year. Depending on the timing, you can have two taxable years of catch-up happening in the same plan year.

A VS document can provide for amendment at the document sponsor level. Our VS document allows it. But, if an employer wants an amendment that is not identical to the one adopted at the document sponsor level, they will need to adopt the amendment.

I don't see any reason you can't have the corrective amendment provisions remain in effect going forward. The corrective amendment can be written to only apply to those actually let in early, but you are not required to do it that way. Whether or not you file for a determination letter will depend on how the amendment is done.

What a mess. If it is a new 401(k) plan, it would be a successor plan and not eligible to have a short initial safe harbor plan year under 1.401(k)-3(e)(2). The definition of successor plan referenced by the regs is in 1.401(k)-2( c)(2)(iii). If you treat the "new" plan as a restatement and amendment of the prior plan, you have disqualified the plan because you fail to satisfy the plan year requirement in 1.401(k)-3(e)(1) since the SH provisions were not in effect for the entire 12 month plan year. I'm not sure if that could be corrected under EPCRS. Even if you ignore the suspension of the SH contribution, the participants were not allowed to defer for part of the plan year, so correction could get expensive. Hopefully, they followed the requirements to suspend or reduce the SH contribution from 1.401(k)-3(f) (including the proposed regs) or they disqualified the prior plan. My response was based on the original post stating the employer ceased participation in the prior plan. Are you saying now that they are still participating in that plan?

A 403(b) is not an "alternative defined contribution plan" that would prevent the 401(k) plan termination from being a distributable event, so the employees could take a distribution from the terminated 401(k) plan. If the 403(b) is the one terminated, the distribution rule is in 1.403(b)-10(a). In theory, a 403(b) can be terminated and the employees paid out. However, in practice it may not always work out that way depending on the language in the individual contracts. If you search the 403(b) section here, you should find some discussions about it.

If the plan doesn't use the few weeks rule (Tom quoted language for it), then the payroll period ending 1/3/2014 is compensation and deferrals for 2014. If the accountant doesn't accept that, I would tell them, sorry, but we won't be changing the valuation. If the plan does use that rule, then part of that payroll will be 2013 and part of it will be 2014.

Sounds like the accountant is trying to apply the few weeks rule that will likely be addressed in the plan's section 415 amendment. The amendment or the document if it has been restated, should clearly say if the plan uses that rule or not.

The quote is from 1.415(c )-2(b). Our document has basically the same language that applies if you elect compensation based on the Section 415 definition.

Severance pay is not included in Section 415 Compensation. That's one of the reasons we use it as the starting point for Plan Compensation in the documents we prepare. But you are not required to use 415 compensation, or even a compensation definition that complies with 414(s) when determining benefits (see 1.414(s)-1(a)(2)). So, the plan's Compensation definition determines whether or not it is included. If it isn't clear, then check to see who the document gives the authority to interpret plan provisions and let them make the decision.

What does the plan say? The definition of Compensation will provide your answer.

There is one other situation where a SH plan can have a short SH plan year. A terminating SH plan can have a short final plan year if the termination is in connection with a 410(b)(6)© transaction (or the employer incurs a substantial business hardship). See 1.401(k)-3(e)(4).

I think you are referring to 1.401(k)-1(d)(4)(i). It says that plan termination is not a distributable event if the plan sponsor has an "alternative defined contribution plan". If the sole participant had a distributable event under a plan provision allowing in-service at 59 1/2, I agree with QDRO and don't see that you have a problem.

If the DOL or IRS wants a response, they will tell you that in the letter. The letters I'm referring to were form letters with information about VFCP and inviting you to take advantage of the program. We have not responded and so far, no issues. it's been a couple of years since I looked at the details of VFCP. We rarely have a client with enough late deposits to make it worth the trouble of using the program. If you go by the Regs those early deposits are employer contributions. If the 3% SH has already been funded, profit sharing is probably the only other reasonable option. Of course, that also means they would have to deposit the amount of the early deferrals again along with lost income for the now late deferral deposit. If they choose to not follow the regs, they run the risk that if the IRS/DOL comes looking, the agent may notice the issue and make them correct. That will probably be two years farther down the road when the cost of correction will be more.

As mentioned, VFCP is voluntary. The main reason to file under VFCP is to get the exemption on the PT excise tax. Filing the 5330s is another option. If you report late deferrals on the 5500, you get a form letter from the DOL inviting you to use VFCP. The letters our clients have received do not require a response. They don't automatically come to visit if you don't use the program. Most of our clients that have late deferrals are only a few days to a couple of weeks late with the deposits. The "amount involved" ends up being small and the excise tax is usually under $10. For those, we have the client deposit the lost income plus what the excise tax would have been into the plan and we go on. It's not unusual for deposits to include deferrals, loan payments and employer contributions in the same check, ACH or wire. If the IRS/DOL is verifying deposits they will ask for cancelled checks or other documentation of the deposits and a list of the amounts withheld by paydate. If deposits are combined, they will need a breakdown of each deposit so they can tie the deposits to the list of amounts withheld each paydate. In your situation, I would start with the worst case. Start by looking at each deposit and applying it first to deferrals where the services have already been performed. Then, apply the rest to the 3% SH for the year. After you do this for all of the deposits, identify late deferral deposits, see if all of the deferrals have been deposited and see if the employer contribution exceeds the amount needed for the 3% SH. This is what I would expect the gvt to make you do if they were to audit. Ultimately, it's up to the client to decide what they want to do.

I haven't worried about how long it takes for the attachments to be shown on the DOL website, but it does seem to take a few days. From what I understand, they are still receiving a fairly large number of 8955-SSA filings and other items with participant information attached to the 5500's. The AckID# listed for the filing on their website starts with the submission date, so you shouldn't have any problem showing when it was filed, even if you don't have a copy of the confirmation e-mail. I checked a couple of our recent large plan filings and they show a submission date that matches the AckID#. The signing date should come directly from the filing since it isn't necessarily the same as the filing date.

The regs are clear that amounts deposited before the services are performed are not salary deferrals [1.401(k)-1(a)(3)(iii)©. If you treated prefunded amounts as deferrals and the IRS catches it, I would expect them to treat the prefunded amounts as employer contributions and ask for the rest of the deferrals to be deposited with lost income. That would be under Audit CAP, which has a negotiated sanction. I would also expect them to want the Forms 5330 filed along with the excise taxes, late filing and late payment penalties and interest. I'm not sure how the DOL would view it, although it would be an interesting conversation trying to explain how some of the deferrals were deposited that far in advance. Oh, and the DOL does refer cases to the IRS when they feel it is warranted. I'm not aware of any prefunding restrictions on deposits of the 3% safe harbor. Maybe you'll get lucky and when the dust settles on determining what really was deferral deposits and what was employer contributions, you just have more late deferral deposits than you originally thought.

For more detail on what is protected and what is not, see 1.411(d)-3 and 1.411(d)-4. A loan provision can be removed prospectively. I've ranted a number of times about the "advice" some are giving about mid-year amendments to safe harbor plans and timing of restatement of safe harbor plans. http://benefitslink.com/boards/index.php?/topic/55219-the-irs-continues-to-behave-badly/?p=240680 That was a fairly long thread and I'm sure a search will turn up several others.

Peter, I don't think I follow you. We use an adoption agreement format VS document. There are two choices in the AA for timing of the use of forfeitures. You either check the box that says they are used in the year of forfeiture or you check the box that says they are used in the year following the year of forfeiture. I don't see where discretion would enter into it.