Kevin C

Disqualification is supposed to be their last resort. From what you are saying, you should at least be able to correct using Audit CAP. While that isn't pleasant, it should be much better than disqualification. It does sound like you need to get an ERISA attorney involved. Sometimes the IRS lives up to their reputation.

Based on comments from several IRS representatives at conferences over the years, I suspect there is significantly more going on here than just a failure to timely distribute the assets of a terminated plan. Based on the reason listed in the OP, I would have expected an offer of Audit CAP, not a proposal of disqualification. While under examination, the only EPCRS options available are SCP for insignificant operational failures and Audit CAP. I doubt the IRS would classify this as eligible for SCP. The sanctions under Audit CAP are a negotiated percentage of the Maximum Payment Amount. Rev. Proc. 20013-12 Sections 13 and 14 deal with Audit CAP. There are other references to it throughout the Rev. Proc. Among others, Section 4.07 says Audit CAP is available for terminated plans, 4.11 says Audit CAP is available to correct egregious failures, 4.12 says Audit CAP is not available to correct a diversion of assets and 4.13 the IRS can decide that Audit CAP is not available if the failure is related to an abusive tax avoidance transaction (listed transaction).

The reg you cited does allow for the mid-year reduction or suspension of an ACP SH match. Without seeing the language in the EOB you are referring to, we can only guess about what Sal says. My guess is that he is saying that to be ACP safe harbor, the match formula can not be modified during the year. One of the conditions for being able to reduce or suspend an ACP SH match mid-year is that the plan amend to have the ACP test apply for the year -3(h)(1)(E).

Maybe yes, maybe no. Some or all of the line 3a could be qualifying assets under §2520.104-46 (b)(1)(ii). Non-traditional assets are not automatically non-qualifying assets. The non-qualifying assets could be less than 5% of plan assets as of the beginning of the year. The bond requirement only applies if the qualifying assets are less than 95% of plan assets.

This little gem comes from a Q&A session in the mid 90's. The best I can recall, it was either 95, 96 or 97. It was a general 401(a)(17) limit question asking whether the $150,000 limit meant the first $150,000 of compensation. The IRS response was yes with no further discussion. Shortly thereafter there started being claims within our industry that deferrals were only allowed from the first $150,000 of compensation. Within a year or so, the IRS started informally stating that you were allowed to defer from all compensation, not just compensation below the 401(a)(17) limit. There was a Q&A question at the 1998 ASPPA annual conference that specifically says this. But, this nonsense refuses to go away.

Belgarath, I think you would have trouble getting the DOL to agree with that. http://www.dol.gov/ebsa/programs/ori/advisory2001/setq&are.htm The response to Hypothetical 1 says the both the study used to decide if a spin-off would be implemented and the amendment adding it to the plan are settlor functions. The administrative part starts after the amendment has been adopted. Here are the two paragraphs of the response to Hypothetical 3 that follow the one quoted above. I read these as the DOL draws the line between settlor and administrative functions after adoption of a non-required amendment. While I don't agree that the plan should pay for the restatement under discussion, I think an argument that the restatement is somehow necessary for proper plan administration, like parts of Austin's post #18, would have a better chance of convincing the DOL.

The employer is not required to use the EPCRS correction methods. See Rev. Proc. 2013-12, Section 6.02(2). The correction methods listed in the Rev. Proc. are deemed to be reasonable corrections. Other correction methods may also be appropriate, but that is a facts and circumstances determination.

http://www.dol.gov/ebsa/programs/ori/advisory2001/setq&are.htm From the answer for Hypothetical 3: I would classify restating when not required to either make things easier on a new service provider or to accommodate a new service provider who refuses to work with someone else's document as plan design. I don't see that as being any different than amending to change other plan provisions like distribution timing so that it matches all of the other plans of the new service provider. Obviously others have a different opinion. I don't think anything anyone says will get us to all agree about this.

By ERISA budget, I assume you are referring to revenue sharing. If all recordkeeping fees are currently being paid by revenue sharing, I think you will have a problem if a $50 fee is allocated to terminated participants. For one thing, they would be paying their share of fees through revenue sharing plus an additional $50 of other peoples' fees. Second, the $50 amount has no relation to the actual fees, so I don't see how the fee allocation method could be considered reasonable. I also wonder if an additional $50 annual fee for terminated participants would be considered a significant detriment under 1.411(a)-11(c )(2) imposed on participants who do not consent to a distribution. A better approach is to make an arrangement with the recordkeeper where some or all of the fees for the active participants will be billed to and paid by the employer, while the fees for the terminated ones will continue to be paid by revenue sharing. That is IF the recordkeeper is willing to change the way they bill. We have a few clients that pay fees for the actives, but not for the terms. The same fee structure still applies, the only difference is who pays the fees.

Are the service providers currently charging $50/yr. per participant? You are asking where this fee should go, so I doubt it is something currently being charged. FAB 2003-3 addresses charging terminated participant their share of the fees while the employer pays the fees for actives. I may be reading your post wrong, but I take it as they want to start charging an extra $50 to each terminated participant and use it to offset plan fees for everyone else. If the terminated participants will be paying more than their share of the fees, I think you have a problem. If the fiduciary making the decision to do this benefits from it, the FAB points out there could be issues with self-dealing.

The employer has some flexibility in limiting the available custodians without losing the safe harbor, but I think a restriction that all accounts be at a single vendor would cross the line and make them ERISA covered. I read the highlighted sentence as saying to remain under the safe harbor, they would have to allow transfers/exchanges to other 403(b) providers.

Are all of those K-1s from trades or businesses that adopted the plan? See 1.401-10(b)(2).

jpod, it sounds like you need to find someone else to do your documents and amendments. Going forward, address changes should be easier. Our newly approved VS documents specifically say that section 1, the basic employer information, can be updated without amending and without affecting reliance on the opinion letter.

At another session at the 2012 annual conference, Sal stated that they never said you couldn't amend a safe harbor 401(k) mid-year to change things like the employer's address, phone, etc. and to think they did is just silly. Then, ASPPA GAC sent a comment letter in October 2013 asking the IRS to let us know if it is ok to amend a safe harbor plan mid-year to update the employer's address, phone number and Trustees. ASPPA also recently requested IRS guidance on whether an amendment mid-year to change the definition of spouse to comply with the Windsor decision was allowed mid-year for safe harbor plans. Given that the word "spouse" does not appear anywhere in 1.401(k)-3 or 1.401(m)-3, I put this request in the same category as ASPPA's request for the IRS to specifically bless amendments to update the employer's address or phone number. I agree with a co-worker who pointed out that controversy fills conference seats. <Rant mode off>

http://benefitslink.com/boards/index.php?/topic/55427-expand-sh-401k-to-related-entities-during-year/?hl=mid-year If they let the new companies' employees defer before the document said they are eligible, you will need to look at EPCRS (Rev. Proc. 2013-12). That should be correctable under SCP by amending the document to reflect when they were allowed to enter.

Section 19 of the Rev. Proc. lists the rules for reliance on the opinion letter. The one before that was Rev. Proc. 2005-16 I don't see anything that requires you to remain a client of whoever prepared the document to have reliance. If you don't do anything with the old document, you would eventually have a problem because any amendments adopted by the document sponsor probably would not apply to your plan. But, those would be interim or model amendments, which can be adopted by the Employer without losing reliance on the opinion letter. It's been a while, but I do remember seeing a couple of documents that had provisions that would prevent them from being used if you left that TPA. The provisions I'm thinking of were in the base document and required the assets to be held in a Trust account with XYZ Company. That provision could not be amended without making it individually designed. That's why I mentioned unless there is a compelling reason you haven't told us ... Your impression may come from older rules.

Your old document is only an individually designed plan if you have amended it in a way that makes it one. Interim amendments and amendments to choices allowed by the pre-approved document do not cause it to be individually designed. See Rev. Proc. 2011-49, Section 19.03. Unless there is a compelling reason you haven't told us, I don't see that an immediate restatement is required. The current restatement window opened May 1, 2014, so you should be able to restate using a newly approved PPA document. That gets them in your document and covers their required restatement, which can be paid for by the plan. I also think there would be fiduciary issues with trying to use plan funds to pay for a restatement into an old version document that will need to be restated again in less than 2 years when it is possible to restate now using the new document.

If the contemplated restatement is going to use a newly approved PPA document, then I agree it can be paid for by the plan since it would also be a required restatement. If the contemplated restatement would use an EGTRRA document, I disagree.

I thought service providers claiming "free" services were the main reason we have fee disclosure regulations.

The statutory exclusion requires more than just nonresident alien status for the person to be excluded. From the OP, this person has US source income and would not be excluded.

The IRS website has the 5500-EZ forms and instructions back to 1990. http://apps.irs.gov/app/picklist/list/priorFormPublication.html?resultsPerPage=50&sortColumn=sortOrder&indexOfFirstRow=0&criteria=formNumber&value=5500-ez&isDescending=false

I was really shocked to see Blackrock and "low cost" in the same sentence. Then, I followed one of the links and found out how the plan is "low cost". https://www.tsp.gov/investmentfunds/fundsoverview/expenseRatio.shtml The published TSP expense ratios are calculated using net expenses after they are offset by forfeitures. Then, they compare it to the average expense ratios of other mutual funds. Anyone can look "low cost" if they exclude most of the fees and expenses they are paying from the expense calculation.

The large providers we've seen have it in their contracts that they are not responsible for anything except processing deposits based on the client's instructions. The client is even responsible for reviewing and approving their work. At least one puts a certification line at the bottom of their ADP/ACP test for the client to certify that the testing is correct. From the obvious errors in some of the plans we've seen, there is no way anyone at the large provider looked at anything.

The plan document must also say that is how the match is calculated. And, those provisions must be adopted before the beginning of the plan year and remain in effect for the entire plan year. The SH match allocation formula/method is a provision covered by 1.401(k)-3(e)(1).

What about employer contributions? My guess is there would either be a single required level of employer contributions or none allowed. Otherwise, there would be discrimination issues the Thrift Plan has never had to deal with. Can you imagine the fun of trying to keep track of contributions under several million different allocations in a single plan and trying to make sure everything is done properly?