Kevin C

No, The entire $70,000 is rolled over, since everything but the loan is being rolled over.

What does the document say about rollovers in? Our VS document allows the employer to have a written policy detailing what kinds of rollovers in are allowed. If yours is similar, you may not need an amendment, just a written policy or maybe no changes at all. I've seen other documents where the adoption agreement had a choice to allow loans rolled in. I would have the participant indicate on the distribution paperwork that they want to roll the loan.

Yes, Yes and Yes. As you have probably noticed, prior year testing is a good idea for an HCE only plan. It gives you time to react if they hire an NHCE. I imagine they will want to be SH for 2013.

No, there is an exception for the ADP/ACP tests if only HCE's are eligible. With prior year testing, it applies if there were no NHCEs eligible in the prior year. The same kind of rule is in the 401(m) regs.

It's too late for a calendar year 2012 SH for an existing 401(k). SH match requires a notice and an amendment before the beginning of the year. 3% NEC requires either an amendment before the beginning of the year or a conditional notice. Both options require the distribution of the SH notice (or conditional notice) a reasonable period before the beginning of the plan year. 1.401(k)-3(e) has the amendment timing rules. The new participant's entry date doesn't change anything mentioned above. What ADP/ACP testing method are they using? If it is prior year testing, the new NHCE entering 7/1/2012 won't affect the HCE deferrals and match until 2013. SH for 2013 is still an option. Changing the plan year and going SH starting 7/1/2012 would work, as long as the first SH year is 12 months long.

I don't see how an impermissible distribution could be anything other than an overpayment. The payment was $X. The participant was entitled to receive a distribution of $0 under the terms of the plan. That makes the entire $X payment an overpayment. If the participant doesn't repay the distribution the correction still may not be a big deal. That is, unless the employer doesn't want to contribute to the plan. The corrective deposit is used for employer contributions. We had this happen last year. A client had an employee who became legal and got a valid social security number. Without telling us what they were doing, they terminated him on their payroll under the old SSN and rehired him under the new SSN. He received a distribution while still employed before we found out what they were doing. Of course, the participant did not repay the distribution. As stated in the second quote in my prior post, the corrective deposit was held in an unallocated account and used towards their profit sharing contribution. They contributed the same amount they intended to contribute, they just designated part of it as the corrective deposit. Note, the participant's account did not get restored. All in all, the correction was fairly painless.

This is one of those areas where everyone seems to have a different opinion about what the rules are. The effective date issue has already been discussed. The other issue is how you interpret the mid-year amendment restrictions in 1.401(k)-3(e)(1). I'm of the opinion that it means what it says and the mid-year prohibition only applies to changing provisions that satisfy requirements of 1.401(k)-3 [or 1.401(m)-3 for ACP SH]. I don't see any requirements in either of those reg. sections dealing with eligibilty requirements for deferrals. I've amended SH plans mid-year to liberalize deferral eligibility a couple of times. If you search for mid-year in the 401(k) section, you will find some prior discussions. You'll find widely varying opinions.

A payment in excess of what the participant or beneficiary is entitled to receive is an overpayment under EPCRS. Rev. Proc. 2008-50 has correction methods for overpayments. Of course, you will have to determine which program you are under; SCP, VCP, etc. The easiest way to find information is to search the Rev-Proc for "overpayment".

If you go the VCP route, you can request that the excise tax be waived. We've done that a couple of times and had it waived.

You can have a 3/1/2013 -12/31/2013 short year to get it back to calendar years. Your first safe harbor plan year needs to be 12 months because you won't qualify for the short plan year exception until the plan has been safe harbor for at least a year. The plan also needs to be safe harbor for the year following the short year. 1.401(k)-3(e)(3). The question is whether it's worth the trouble.

Maybe not. You need to read through the correction by plan amendment sections of Rev. Proc. 2008-50. Start with Section 4.05 and follow where it leads.

That may be your firm's policy, but that's NOT what the regulations say. The prohibition on certain mid-year amendments to safe harbor plans is here: The same kind of rule is in 1.401(m)-3.

This has evolved into an interesting discussion, but I still don't have any responses to my original question. Has anyone heard of a fiduciary being charged criminally after cooperating and fully restoring the amounts to the plan?

I may be a little slow today, but why would anyone try to classify an alleged failure to accurately follow what the client considers to be investment instructions as fraud or dishonesty? I can understand trying to call it a breach of contract or malpractice. I just don't see how you get anywhere near fraud or dishonesty with the situation presented.

Thanks for the response. Yes, he had attorney during the process. Everything I did was discussed with and approved by his attorney before presentation to the DOL. I don't consider anything I did as a "smoking gun". Information about the withdrawals and where the funds went was in the open before I became involved. We were hired to determine an appropriate correction to restore the plan. The DOL approved that correction method and made sure it was done. I've been involved in some other cases where the DOL settled issues informally. Granted, none of those were this bad of a situation. But, it does happen. The cases you see published are just a small sample of the cases they settle. It seems likely the Trustee was suckered by the DOL. For reasons I won't go into, I don't see that they gained anything significant by doing it. As a policy matter, it seems counter-productive to me. They have plenty of cases this bad and worse where the fiduciaries fight them every step of the way. What they seem to be doing is telling this Trustee he should have saved his money to pay lawyers instead of cooperating and restoring the participants' balances like he did.

You've already done part of the EPCRS overpayment correction. I think you will need a separate calculation of earnings for the plan. There are some exceptions to full correction that may be helpful when you try to calculate the income adjustment.

It doesn't work that way. The employer is not supposed to make money off of the plan. If they insist on trying this, they need an ERISA attorney who is familiar with the PT rules.

I mentioned the letter forwarding program to an IRS agent here on audit once. He explained that they have a pile of letters that need to be forwarded and when someone doesn't have anything else to do, they get some letters, look up the addresses and forward them. They don't have a specific person assigned to forward the letters. That's why it can take so long. We've had fairly good luck using the program. You just have to plan well ahead if you have missing participants. If you are looking for no more than 49 per year, there is no fee. It's hard to beat that.

The prohibitions on mid-year amendments to safe harbor plans are in 1.401(k)-3(e)(1) and 1.401(m)-3(f)(1). The IRS also published Announcement 2007-59 with a couple of examples of changes that can be made. If you ask 4 people in this business, you will probably get 5 different interpretations. There have been a number of discussions here over the past few years. A search here might be helpful. If the advisor wants to amend in February to change a provision that satisfies a requirement of 1.401(k)-3 or 1.401(m)-3, the regulation cites above are clear that kind of change can not be made. But, the consequence for an improper amendment isn't just blowing the safe harbor. I read the regs as saying the plan won't satisfy 401(k) or 401(m), which means the plan would technically be disqualified, not just that you are no longer safe harbor.

We picked up a new client a couple of years back that made a mess of their plan. Over several years, one of the Trustees withdrew almost all of the plan assets and used the money to help fund company expenses. The prior TPA prepared valuations and 5500's showing a portion of some commercial real estate owned by the business owners as belonging to the plan. Nothing was done to transfer ownership of the real estate. The 5500's did not report any PT's. A participant complaint lead to a DOL investigation. At that point, their corporate attorney sent them to us for help. We went back through their records, identified all of the withdrawals, calculated lost income and presented a proposed correction to the DOL for them to repay everything, including the lost income. The DOL approved our proposed correction. The DOL investigator said that since they were cooperating and restoring all of the plan's losses, the case would be handled informally. That meant no closing letter and no DOL penalties. The corrective deposits were made early this year. After providing documentation of the deposits, the DOL investigator told me their investigation was closed. We prepared 5330's for each year showing the PT's for the improper use of the funds and they paid all the excise taxes. The 5500's we prepared for 2009 and 2010 properly reported the PT's. The Trustee just received a letter advising him he is the target of a federal grand jury investigation and inviting him to testify. It also mentions possible criminal indictment. He is contacting his attorney today. Now for the question. Has anyone heard of a plan related case where criminal charges were filed against someone who cooperated and repaid the full amount of the losses? The only DOL criminal cases I recall seeing are those where the target(s) did not cooperate.

My opinion is that all three options you listed will get the employer in trouble. I suggest a 4th option. 4. Find an independent qualified Third-Party Administration firm to do the plan work. Reasonable administrative expenses can be paid by the plan, so the plan can "pay its way". As previously mentioned, fees for settlor functions will need to be paid by the Employer. The employee can go back to working only for the medical practice. If you can't find someone to help you, I sure just about everyone on this site, including me, would be glad to help.

They call our clients on a regular basis. They are trying to find employers dissatisfied with the service they currently get. If you look at their website, they sell leads. I don't know anyone who has used them. Our clients who admit they received a call tell them to stop calling.

Sorry, but you are reading too much into my post. I have never heard this claim before, but looking at that old reg, it looks like it may have been the case at one point a long time ago. I do know that it is very common in the small plan market for the individuals, normally the business owners, to be trustees. I would ask the person who sent you the cite if they have something more recent. I find it hard to believe that pre-ERISA regulations dealing with qualified plan trustees would still be in effect.

Employer contributions must be deposited by 30 days after the due date for the employer's tax return to be considered annual additions for the year. See 1.415©-1(b)(6)(i)(B). Your document probably includes this in the 415 provisions. The only exception I know of is in EPCRS. You should also check the document to see if it has a deadline for employer contributions. It is fairly common for documents to say the employer contribution must be deposited by the due date for the employer's tax return including extensions. Even if it doesn't, the 415 issue should put you under EPCRS. We've corrected this way a couple of times and included lost income from the due date of the employer's tax return, including extensions to the deposit date.

If you are advising him how to correct the issues with late deposits, deferrals and employer, and reporting the late deferrals correctly on the 5500, I don't think you have an ethics issue. I would make sure you are giving written advice, so you have a record for your files. How late is he with the deferrals? If he isn't depositing at all, I can see pushing to terminate the plan before he gets himself in more trouble. But, if he is depositing deferrals consistently late, say a month or so, I don't think I would take that extreme an action. The situation has to be pretty hopeless before we recommend plan termination. We would charge for the extra time spent calculating the lost income for the late deposits and advise him of the issues. Eventually, a participant will complain to the DOL or the 5500 reporting will be noticed and he will get a call or a visit. My experience has been that the DOL is usually pretty good at convincing employers to deposit timely.