Kevin C

Does this help? The plan document should have similar language. Our VS document has it in the definition of Earned Income.

If you follow the rules, you can eliminate installments from a DC plan. The cite is in your duplicate thread. http://benefitslink.com/boards/index.php?/topic/55322-defined-contribution-pension-planmoney-purchase-pension-plan/

The rules for eliminating optional forms of payment for DC plans are in

The different sources have different rules that apply, which is why we track each source separately. Whether or not you can cut corners without it coming back to bite you in the *** will depend on how much you know about what you are doing with the plan and how lucky you are. One thing I've learned about financial plans is to never say never. You didn't mention what type of entity you are. Contribution calculations for a sole proprietorship are more complicated than they are for a corporation. S-Corp calculations are different too. I like to tell clients that if this stuff was easy, you wouldn't need us.

What is the plan's PS allocation method? The only way I can see you possibly getting there is if it is new comp with everyone in a separate group. If it has a 401(a)(4) safe harbor formula, the plan will allocate the contribution based on current year compensation, so you won't be able to allocate now using 2012 compensation. You are more than 30 days beyond the due date for the 2012 company tax return, including extensions, so if this is done for the 2014 plan year, it would be annual additions for 2014 {1.415©-1(b)(6)(i)(B)}. Annual additions for the plan year are treated as contributions for the plan year for discrimination testing {1.401(a)(4)-1(c )(2)(ii)}. I don't see what you want to do fitting one of the safe harbor formulas, so you would be under the general test and would be testing this for 2014. It would be the same if they try to make it a 2013 allocation based on 2012 compensation. You say 415 isn't a problem for 2014, so apparently everyone who was entitled to a contribution in 2012 is still employed and eligible for a contribution in 2014. Otherwise, zero comp in 2014 means zero contribution. I'll second QDRO's suggestion to look at additional allocations for 2013 or 2014 to see if they get close to what they want.

If they deposited before a contribution calcuation for the year was done, I don't see that as a mistake of fact. If they asked for the calculation of a contribution amount, deposited the calculated amount and later found out that someone made a mistake or that there were errors in the data used, I see that as a mistake of fact. The IRS will look at it on a case by case basis. From Rev Ruling 91-4:

There isn't enough information in the OP to be able to tell if the return of assets to the employer was proper or not. If the Employer changed it's mind about how much they contributed, I agree it was improper. However if there was a mistake of fact that caused too much to be contributed and the plan allows the return of contributions made by a mistake of fact, the employer's timely actions would be proper. See Rev. Ruling 91-4.

During the 3/13/2014 IRS phone forum, the speaker said the announcement of the 2 year adoption window for DC plans should be out soon. He also said they are trying to stay on the same schedule as last time. The opinion letters for the prior cycle were dated 3/31/2008. Of course, you would have to restate to be able to submit. Could the client accomplish what it wants to do if you used a new comparability PS allocation with everyone in a separate group? We have clients that do unusual things with their new comp PS allocation. I don't see anything in our VS document that would allow extending the initial qualification provision to the later amendment of an existing plan. I'm guessing the purpose of the initial qualification provision is to avoid 411(d)(6) issues by not having any benefits accrue unless the plan receives a determination letter when it timely submits for one. I don't know if you could have the same type of provision for a later amendment. If your 2013 amendment did not have such a provision, I would expect your document to say all contributions are allocated and become part of the accrued benefit as of the last day of the plan year. If that is the case, I don't see you being able to retroactively remove those contributions if there are issues when you are able to submit for a letter in 2014 or 2015.

Is this a real concern?, or a "what if" question? I always thought the worst case scenario when you submit as a minor modifier of a pre-approved plan was that they decide you turned it into an individually designed document. I'm having trouble visualizing an allocation method that would satisfy coverage and non-discrimination testing but would cause the IRS to want to disqualify a plan submitted for a letter. If you were trying to add an allocation method that isn't allowed in that type of pre-approved document, for example, amending a standardized prototype to have a new comp allocation, I think you would be considered individually designed. But, I would expect a minor modifier to start with a VS document. Our VS document has the following provison: Failure to initially qualify. Employer Contributions to the Plan are made with the understanding, in the case of a new Plan, that the Plan satisfies the qualification requirements of Code §401(a) as of the Plan’s Effective Date. In the event that the Internal Revenue Service determines that the Plan is not initially qualified under the Code, any Employer Contributions (and allocable earnings) made incident to that initial qualification must be returned to the Employer within one year after the date the initial qualification is denied, but only if the application for the qualification is made by the time prescribed by law for filing the employer’s return for the taxable year in which the plan is adopted, or such later date as the Secretary of the Treasury may prescribe. Is this a new plan, or an amendment to an existing plan?

They will be reviewing all amendments since the last determination letter. The restatement itself is also an amendment. Many restatements are adopted during the year and effective retroactive to the first day of the plan year. If the IRS is really taking the position that virtually all mid-year amendments to safe harbor 401(k) plans are prohibited, why isn't it mentioned in the guidelines for reviewing plan documents? Adoption of a prohibited mid-year amendment means the plan fails to satisfy the coverage and nondiscrimination requirements for 401(k) plans. That is something they are supposed to be looking for before issuing a determination letter. 1.401(k)-3(e) says "In addition, except as provided in paragraph (g) of this section or in guidance of general applicability published in the Internal Revenue Bulletin (see §601.601(d)(2)(ii)(b) of this chapter), a plan which includes provisions that satisfy the rules of this section will not satisfy the requirements of §1.401(k)-1(b) if it is amended to change such provisions for that plan year." 1.401(k)-1(b) has the coverage and nondiscrimination rules.

Bird, that sound you hear isn't a drum, it's my head banging on the proverbial brick wall. You are more generous in your view of ASPPA, SunGard, etc. and their role in this nonsense than I am. I did a search on the IRS website this morning and found guidelines that the IRS will use in reviewing documents for determination letters. Given that a prohibited mid-year amendment to a SH plan disqualifies the plan, If the IRS really considers virtually all amendments to a SH plan to be prohibited, you would expect the issue to be addressed when they are determining if the plan document meets the qualification requirements. http://www.irs.gov/Retirement-Plans/Alert-Guidelines,-Explanations-&-Plan-Deficiency-Paragraphs Here is the 401(k) part. http://www.irs.gov/pub/irs-pdf/p7335.pdf The Safe Harbor part starts on page 15. 1.401(k)-3(e) is discussed on page 16: Generally, a plan that is intended to satisfy the 401(k) safe harbor requirements for a plan year must, prior to the beginning of the plan year, contain language to that effect and must specify the 401(k) safe harbor method that will be used. However, under Regs. section 1.401(k)-3(f), a plan that provides that it will satisfy the current year ADP (and, if applicable, ACP) testing method for a plan year may be amended to specify that the 401(k) safe harbor nonelective contribution method will be used for the plan year, provided special notices are given to employees. Also, a plan that provides for safe harbor matching contributions may suspend such contributions on future elective (or employee) contributions and change to the current year ADP (and, if applicable ACP) testing method for the plan year, provided that the additional notice requirements are met, as specified below, and in Regs. section 1.401(k)-3(g). Under section 416(g)(4)(H), for plan years beginning after 2001, a plan that consists solely of a safe harbor CODA and matching contributions that satisfy the ACP test safe harbor is not subject to the top-heavy requirements of section 416 provided contributions under the plan go to all employees eligible to make elective contributions

This topic has generated more fertilizer than any other topic in my 25 years in this business. The premise of the linked article, other similar articles, ASPPA comment letters and comments from some ASPPA speakers is that the IRS has been consistently saying at conferences that absolutely no mid-year amendments are allowed to safe harbor plans except for published exceptions. I've ranted on this before and no one has provided an example of a conference where an IRS speaker actually said this. I have seen several articles and heard several speakers claim that it was said by the IRS at the 2011 annual conference. The session recording proves that claim is false. Now SunGard claims the IRS has been taking this position since 1999. http://www.relius.net/News/TechnicalUpdates.aspx?ID=1004 Having attended the ASPPA annual conferences for 2001-2004 and 2006 to date, if the IRS had actually been making this kind of statement, I would have witnessed it. If this really was the IRS position back to 1999, the final regulations published in 2004 would have reflected it. One of the authors of the final 401(k)/401(m) regulations was a speaker for a couple of sessions at the 2006 ASPPA annual conference, including the DC Q&A session. Having attended her sessions and after speaking with her between sessions, I have no doubt that if that were truly the IRS postion, the final regulations would clearly prohibit all amendments. The regs clearly do not say that. I also find it strange that SunGard is claiming the IRS standard since 1999 has been to prohibit any amendment that would change the SH notice, yet ASPPA GAC sent the IRS a letter last year asking the IRS to impose that as the standard for mid-year amendments.

The 1099-R in question shows a direct rollover to an eligible retirement plan. Now they have been notified that the funds were deposited into his checking account and not into the IRA. Since it was not paid directly to an eligible retirement plan, how is it a direct rollover? 1.401(a)(31)-1 Q-3: What is a direct rollover that satisfies section 401(a)(31), and how is it accomplished? A-3: A direct rollover that satisfies section 401(a)(31) is an eligible rollover distribution that is paid directly to an eligible retirement plan for the benefit of the distributee. A direct rollover may be accomplished by any reasonable means of direct payment to an eligible retirement plan. Reasonable means of direct payment include, for example, a wire transfer or the mailing of a check to the eligible retirement plan. If payment is made by check, the check must be negotiable only by the trustee of the eligible retirement plan. If the payment is made by wire transfer, the wire transfer must be directed only to the trustee of the eligible retirement plan. In the case of an eligible retirement plan that does not have a trustee (such as a custodial individual retirement account or an individual retirement annuity), the custodian of the plan or issuer of the contract under the plan, as appropriate, should be substituted for the trustee for purposes of this Q&A-3, and Q&A-4 of this section.

I don't see any wiggle room for setting an arbitrary length of service. The way I read the regs, you have to use age 21 and a year of service in the determination of otherwise excludables. The only thing I see some flexibility on is the entry date used in the otherwise excludable determination. Since the regs don't specifically reference entry dates, some feel the plan's entry dates should be used. Others feel the statutory semi-annual entry dates are implied and should be used. The EOB says both approaches should be considered reasonable in the absence of clear regulations.

From page 0-8 of the 1099-R instructions: Corrected Form 1099-R If you filed a Form 1099-R with the IRS and later discover that there is an error on it, you must correct it as soon as possible. For example, if you transmit a direct rollover and file a Form 1099-R with the IRS reporting that none of the direct rollover is taxable by entering 0 (zero) in box 2a, and you then discover that part of the direct rollover consists of RMDs under section 401(a)(9), you must file a corrected Form 1099-R reporting the eligible rollover distribution as the direct rollover and file a new Form 1099-R reporting the RMD as if it had been distributed to the participant. See part H in the 2013 General Instructions for Certain Information Returns or Pub. 1220, if filing electronically. From the OP, it sounds to me that you have been notified that the distribution was not rolled over to an IRA. If the financial institution can't/won't fix it, then I think you will need to amend the Form 1099-R. Otherwise, you will be incorrectly reporting a taxable distribution as non-taxable.

It will drive you crazy if you look for logical reasons for what the IRS does.

I saw it as part of the IRS effort to locate non-filers. I'm sure they will process the new form with the same efficiency and accuracy they currently use for Form 5558. Or, it could be part of the effort to keep the post office afloat.

Here is a TAM dealing with a similar situation. http://benefitslink.com/src/irs/tam9735001.html In the Q&A scenario Tom cites, the initial allocation under the existing plan terms maxes out the owners, but does not pass 401(a)(4). The corrective amendment discussed would leave that initial allocation in place and add additional accruals for NHCEs. That meets the requirement under 1.401(a)(4)-11(g)(3)(ii) that benefits not be reduced determined based on the terms of the plan in effect immediately before the amendment. It also meets the requirement under 1.401(a)(4)-11(g)(3)(iv)(A) that the additional contributions resulting from the amendment separately satisfy 401(a)(4). When you start with a pro-rata allocation, I think those two requirements will probably prevent what they want to do. I say probably because you didn't give any details about what they want to do.

It's eligible to defer. Eligible Employee is defined in 1.401(k)-6 1.401(k)-2(a)(3)(ii)ADR of HCEs eligible under more than one arrangement (A)General rule.— Pursuant to section 401(k)(3)(A), the ADR of an HCE who is an eligible employee in more than one cash or deferred arrangement of the same employer is calculated by treating all contributions with respect to such HCE under any such arrangement as being made under the cash or deferred arrangement being tested. Thus, the ADR for such an HCE is calculated by accumulating all contributions under any cash or deferred arrangement (other than a cash or deferred arrangement described in paragraph (a)(3)(ii)(B) of this section) that would be taken into account under this section for the plan year, if the cash or deferred arrangement under which the contribution was made applied this section and had the same plan year. For example, in the case of a plan with a 12-month plan year, the ADR for the plan year of that plan for an HCE who participates in multiple cash or deferred arrangements of the same employer is the sum of all contributions during such 12-month period that would be taken into account with respect to the HCE under all such arrangements in which the HCE is an eligible employee, divided by the HCE's compensation for that 12-month period (determined using the compensation definition for the plan being tested), without regard to the plan year of the other plans and whether those plans are satisfying this section or §1.401(k)-3.

The IRS reserved a section in the safe harbor regulations for merger issues, but has not published anything. I haven't even heard any informal discussions about merger issues for SH plans. I think we are better off not asking for additional guidance. I agree with you that in your situation 1.401(k)-3(e)(4) says you can have a short final year when Plan B terminates. If the Company B employees will be eligible for Plan A, 1.401(k)-1(d)(4) prevents distributions to those who are still employed. That leaves you with no choice but to transfer their balances from Plan B to Plan A, which is really a merger. Of course, three people can read the 401(k) regs and get five different interpretations of the rules on mid-year changes to safe harbor plans. You'll have to decide if you think a reasonable interpretation of the regs supports what they want to do.

I'm guessing you corrected with a pre-approved EGTRRA restatement. I think you are going to need both Schedule 1 and Schedule 2. Schedule 2 will show a failure to adopt the 2004 cumulative list changes because that list was used for the EGTRRA pre-approved documents that were supposed to be adopted by 4/30/2010. If there were any other missed interim or discretionary amendments prior to the EGTRRA restatement deadline that are not listed in Schedule 2, I would add them to the other line on Schedule 2. The late interim amendments added to the EGTRRA restatement (PPA, HEART, etc.) will go on Schedule 1.

We had that happen once and they asked for the check when they contacted us about the filing. It did not cause any problems. I don't know if that is their policy or not.

First of all, have you checked with Corbel to see if an employer signature was necessary? Most VS documents allow the document sponsor to amend on behalf of the adopting employers. If that was done, an employer signature would only be needed if the employer wanted to elect something other than the default provisions of the amendment. If the amendment is late, the extended remedial amendment period is the end of the 6 year cycle that the due date for the amendment falls in. You should be able to file using Schedule 1 Rev. Proc 2007-44, Section 5.03 This section 5.03 extends the remedial amendment period for the disqualifying provisions described below as follows: (1) The remedial amendment period for any disqualifying provision described in § 1.401(b)-1(b)(1) that would otherwise apply under § 1.401(b)-1 is extended to the end of the applicable remedial amendment cycle described in section 6.01 that includes the date on which the remedial amendment period would otherwise end if the disqualifying provision was a provision of, or absence of a provision from, a new plan and the plan was intended, in good faith, to be qualified. The same extension of the remedial amendment period applies to a disqualifying provision (including a disqualifying provision described in section 5.01) in the case where the employer adopts an amendment to an existing plan (without regard to whether that amendment was required to be adopted) if the amendment was adopted timely and in good faith with the intent of maintaining the qualified status of the plan. The Service will make the final determination in all cases as to whether a new plan or an amendment was adopted with the good faith intention of being qualified or maintaining qualified status. The quote feature isn't working.

Your understanding is correct. 414(q)(2)5- percent owner.— An employee shall be treated as a 5-percent owner for any year if at any time during such year such employee was a 5-percent owner (as defined in section 416(i)(1)) of the employer.

My kids (11 & 13) were watching Gilligan's Island when I got home on Friday. They have DVDs of all three seasons. Get Smart is another of their favorites. Some of our local broadcast TV stations have Retro channels where they play a lot of the old shows. Most of the time, when our TV is on, it's on one of the those channels.