Kevin C

We are still waiting for an IRS response to our attorney's letter. It's been four months. The audit started in the Fall of 2008. Our proposed correction is to retroactively amend the plan to make that one NHCE eligible to defer. The reasonable good faith interpretation option listed in Notice 89-23 requires that the opportunity to defer be available on a basis that does not discriminate in favor of HCE's. Announcement 95-33 has a discussion on the reasonable good faith standard and says that nondiscrimination issues should be pursued only in cases involving clear, egregious violations. It gives examples of egregious violations.

It's probably due to the rule in the final regs where if you allow one person who could be excluded under the <20 hours per week exclusion to defer, then you are not allowed to use that exclusion. One mistake and you have improperly excluded everyone who was previously not eligible because they were < 20 hours per week. If the 403(b) is subject to ERISA, you could have someone that ERISA forces you to allow to participate who would be excluded under the < 20 hours per week rule. Except for a church plan, it doesn't seem worth the risk to use the <20 hrs per week exclusion. We have a client's 403(b) under audit where had the <20 hour exclusion and had a single person who was full time for several years, then reduced hours to <20 per week. The person wanted to keep deferring and HR said OK. The IRS agent is saying this violated the universal availability requirement and disqualifies the entire plan. He's auditing 2006-2007 and insists the all or nothing rule applied then, but that's another story.

1. It sounds like your client exceeded the deduction limit, not the 415 limit. The 25% of pay 415 limit went away after 2001. 2. When was the deposit made? The situation may be different if the deposit was made during the plan year vs after the end of the plan year. 3. If your client proceeds with withdrawing the funds, they need to make sure everything done complies with the plan provisions regarding return of employer contributions, which Sieve referred to. Otherwise, they will create a bigger mess.

It depends. Is the beneficiary the surviving spouse?

What does the plan document say about the amendment procedure? The plan language should be helpful in determining if it was a valid amendment.

Even if deposited on 12/31/2009, a 2008 SH contribution is most likely still late. Our documents say the employer contributions must be deposited by the due date for the employer's tax return including extensions thereof. If this plan says the same, that sets the deadline for making the SH contribution. If it is deposited late, that is an operational failure, so EPCRS is available. But, note that a correction doesn't help with the deduction issue.

The frequency of the statements for DC plans is determined by whether the participants are able to direct investments. Participant directed plans must provide at least quarterly statements, non-self directed plans must provide at least annual statements. From PPA Section 508(a)

You have to drop below 100 participants as of the first of the year to file as a small plan. Look at page 7 of the Form 5500 instructions, in the right-hand column. A small plan has less than 100 participants at the beginning of the year. A large plan has 100 or more as of the beginning of the year. The exception is that if you have 80-120 at the beginning of the year, you can file the same way as last year. For 2008 your plan was a large plan filer. It is a large plan filer again for 2009.

If you are talking about getting EFAST2 signing credentials using the sponsor/administrator's name, I agree you are not supposed to do that. If you are talking about getting signing credentials under your own name and using those credentials to submit clients' filings, that's how the new filing option is supposed to work.

http://www.pbgc.gov/practitioners/law-regu...nt/tu17239.html This is in the Benefits in the News section today. It looks like the PBGC changed their mind.

Rev. Proc. 2008-50 has a reallocation correction method that you'll want to look at. Basically you go back and re-do the allocations like they should have been done. If someone no longer has a balance on the correction date and was paid more than their corrected balance, the employer makes up the difference. Otherwise, you take away the incorrect allocations and then allocate the correct amounts.

You may be able to self correct the operational failure from using the 7 year vesting schedule post 2006. If the failure is insignificant in aggregate, you should be able to self correct that part. If not, the two year correction period may have lapsed on part of the failure, so you would be looking at VCP. Unless the plan is collectively bargained, the lack of a PPA vesting amendment by the end of the 2009 year is a plan document failure, which means VCP. I'm not sure you actually had until the end of the 2009 PY to amend, but the amendment would still be late even if you qualifed for the 2009 deadline.

What vesting schedule did they use starting in 2007? PPA Section 1107 gives the amendment deadline of the last day of the 2009 plan year, but requires that the plan operate as if the amendment was already in effect.

Was it a leveraged ESOP? PPA Section 904©(4) delays the effective date of the vesting schedule change for ESOPs with an outstanding loan as of September 26, 2005.

What a mess! If you are looking for additional CE, ASPPA has some recorded webcasts that count for ERPA credit, even some for ethics credits. Some of the other ERPA CE providers may do the same. http://www.asppa.org/Main-Menu/confswebcas...ved/022310.aspx

Don't the Treasury Regulations under Section 411 also apply under ERISA as a result of Section 101 of the Reorganization Plan No. 4 of 1978? The Reorganization Plan transferred the DOL's authority to issue regulations under certain ERISA sections, including the minimum vesting standards, to the Treasury Dept. Here is a link to Reorganization Plan No. 4 http://benefitsattorney.com/modules.php?na...wpage&pid=7

Definitely get all the problems fixed before you file. If you file for a determination letter and they find a problem, you are not eligible for VCP and SCP is only available for insignificant failures. Filing a 5300, 5307 or 5310 means the plan is "under examination" per Rev. Proc. 2008-50, Section 5.07(3). When a plan is "under examination", VCP is not available and SCP correction of significant failures is not available. See Section 4.02. We had an operational failure come to light during the 5310 filing for a plan last year. The agent insisted that meant audit CAP. Fortunately, we were able to convince them it was an insignificant failure and correct under SCP.

What does the plan document say about when the SH contribution is due? Typically documents have a provision saying that employer contributions are due by the due date for the tax return, including extensions thereof. Hopefully, your document says that. If it does, they have an operational failure because of the late deposit. Rev. Proc. 2008-50 corrections have a section 415 exception that will treat the correction as a 2008 annual addition. Assuming they are not under examination, they should be able to use SCP to correct.

From the article: I think the author should have checked with the group that issues the opinion letters for prototype and VS documents before publishing the article. Our prototype and VS documents allow the option of having forfeitures either be used in the year they occur or used in the plan year following the plan year in which they occur. The plan document indicates which option was selected. At least part of the IRS doesn't agree with the author's position that forfeitures must be used in the plan year they occur. But, I agree that the plan document must specify when and how the forfeitures will be used.

If you are talking about the ASPPA annual conference, I was there for 2009, 2008, 2007, ... I guess it all depends on whether you see the glass as half full or half empty. The IRS refused to say yes, but they also refused to say no. Until they issue further guidance, all we have to go by is the guidance they have already given. I think the final 401(k)/401(m) regulations are pretty clear about what kind of provisions can not be amended mid-year. Since you seem to interpret this section of the regs as preventing any amendments at all to a SH plan mid-year, I'm curious. Were any of your SH plans restated for EGTRRA mid-year?

Announcement 2007-59 says that changing a safe harbor 401(k) plan mid-year to add either Roth deferrals or hardshp withdrawals will not cause a plan to lose safe harbor status. It does not say those are the only changes that can be made. I'm aware that the IRS won't be issuing additional guidance. But, the issue is already addressed in the final 401(k)/401(m) regulations. Since neither Roth nor hardship provisions are included in 1.401(k)-3 or 1.401(m)-3, they are not "provisions that satisfy the rules of this section", 1.401(k)-3. This topic has been argued extensively in other threads.

Laura, What kind of documents do those small plans use? If they use a NS prototype or VS document and have reliance on the opinion letter, the letter will reference when the plan can rely on the opinion letter with respect to 401(a)(4). Our VS document's opinion letter says "Employers that elect a safe harbor allocation formula and a safe harbor compensation definition can also rely on an advisory letter with respect to the nondiscriminatory amounts requirement under Code section 401(a)(4)." If they use a standardized prototype, the document requires the use of 401(a)(4) safe harbor allocations. Our standardized prototype allows pairing a PS contribution using 500 hours or last day with a 3% SH. If a NS prototype or VS document uses a 414(s) safe harbor compensation definition and an allocation formula allowed in a standardized prototype, I read the opinion letter as saying the plan is 401(a)(4) safe harbor.

So, a failure to follow the terms of a plan document that is both signed and effective means the plan doesn't exist? I don't buy it.

I think you can add the age 59.5 in-service distribution provision mid-year. My reasoning is the same as in this prior thread. http://benefitslink.com/boards/index.php?showtopic=44491

Participant consent to a distribution is tied to the cashout level. Spousal consent to a distribution is part of the QJSA rules. If the plan is subject to the QJSA rules, it probably says no spousal consent is needed unless the vested balance is > $5,000. If the plan is not subject to the QJSA rules, it probably says no spousal consent is needed for any distribution. As previously noted, you'll have to see what the document says.