Kevin C

Here is a recent similar question: http://benefitslink.com/boards/index.php?showtopic=45372

Are the partners excluded from the SH contribution? Or, are HCE's excluded from the SH? With 3% ownership and <$100,000 in comp for 2009, this partner is NHCE in 2010 and must be eligible for the SH for 2010 if able to defer. Otherwise, the plan is not SH. Was this partner HCE or NHCE for 2009? If NHCE, the document should say this partner gets the 2009 SH contribution.

If the late deposit of the safe harbor contribution is corrected using Rev. Proc. 2008-50, I think you do preserve the TH exemption and the safe harbor. The correction is treated as an annual addition for the year it would have been if it wasn't late (Section 6.02 4(b)). The correction fixes the qualification failure, which is the failure to follow the document and timely deposit the SH contribution (Section 3.01). And the main purpose of the correction is to restore the plan to where it would have been if no failure had occurred (Section 6.02 (1)). With all those pieces, I think they are saying that after proper correction under EPCRS, the IRS treats the plan as if the failure had not occurred.

So, at what point do you consider the distribution paid, where nothing that happens in the future has any bearing? When the check is mailed? When the check is received by the payee? or something else?

I had client a few years back that cashed in an annuity policy that was an investment in his PS plan to fund a participant loan. The insurance company issued him a 1099-R showing a taxable distribution of the entire proceeds. I contacted the insurance co on behalf of my client. The insurance co rep told me they filled out the 1099-R based on their records and that their legal department said they had no responsibility to amend the 1099-R and that they would not, under any circumstances, amend the 1099-R. Sound familiar? I wrote a letter for the client to sign pointing out that the 1099-R they prepared was not correct since it was a participant loan, not a distribution. I included copies of sections of the 1099-R instructions with the passages relating to correcting the forms highlighted. Back then, the instructions included a blurb about how you might be sued if you intentionally filed incorrect information on a 1099. The letter closed with a promise to pursue legal action if the 1099-R was not corrected. About a week later, we received a sheepish call from a manager at the insurance company who informed us a corrected 1099-R was on the way. I'm not saying they are required to investigate each distribution to make sure nothing went wrong. I'm just saying that I think they can not ignore it after they find out the participant somehow cashed the check. GMK, I don't understand how you think amending the 1099-R amounts to covering up a crime. I think issuing a 1099-R showing no taxable distribution when the payee knows the participant cashed the check is more likely get you in legal trouble. Belgarath, you are right, we'll have to agree to disagree on this one.

How is it a direct rollover if the payment didn't make it to an eligible retirement plan? The plan is responsible for making sure the 1099-R correctly reports how the distribution was paid. The plan tried to pay it as a direct rollover, but the participant managed to change it into a direct distribution. Now that the plan knows about it, they know the information on the 1099-R is not correct.

I'll take a seat on the fix the 1099 side of the table. Would that apply if the filing instructions say that you must file a corrected form? The general 1099 instructions, section H, page 6 says Has anyone actually had the IRS come back after the plan for 20% withholding that wasn't done? How would the IRS know from the corrected 1099-R that it wasn't a hardship distribution where 20% mandatory withholding would not apply?

The $44,000 in deferrals already includes the $11,000 catch-up. You will need $16,000 in PS, not $5,000.

Here is what I'm looking at: When you put them together, I read it as saying the outstanding loan balance becomes a deemed distribution when the loan, in form or in operation, no longer satisfies the repayment term requirement of 72(p)(2)(B). The cure period is only in Q&A 10 of the regs. With the specific references to 72(p)(2)© and no mention of 72(p)(2)(B), I don't see how the cure period could apply when you are exceeding the maximum 5 year repayment period.

The loan becomes a deemed distribution when either the actual or scheduled repayment schedule extends beyond 5 years. See 1.72(p)-1, Q&A 4. The five year requirement is in Section 72(p)2)(B). The cure period only applies if the loan payments are not satisfying Section 72(p)(2)©'s level amortization requirement. See 1.72(p)-1, Q&A 10. But, you said The payments are made when they were withheld from the paycheck. If the final payments were made before 3/30/2010, the participant did not exceed the five year period. If the recordkeeper insists on issuing a 1099-R for the loan even though the payments were made within the 5 year period, you might want to refer them to Section O (Penalties) starting on page 12 of the general 1099 instructions. Make sure you highlight the paragraph about willful violations.

If the plan document says the plan is safe harbor, then it is safe harbor. If no SH notice was provided, then you have an operational failure because the terms of the plan were not followed. Here is a discussion of the correction: http://benefitslink.com/boards/index.php?s...c=42657&hl= If they did not deposit the SH contribution for 2008 and/or 2009, that is another operational failure, which can be corrected under EPCRS. If they want to stop the safe harbor contribution, they have to follow the rules for mid-year suspension of the SH contribution, including 30 days advanced notice to participants. The SH contribution is a required contribution, so it can not be retroactively removed. An EGTRRA restatement effective 1/1/2010 needs to include the SH contribution since it was in the plan at that point. Then you can amend effective in May 2010 to stop the SH contribution provided you follow the mid-year suspension rules.

If you are asking about changing the SH match calcuation mid-year to payroll by payroll with no true-up, I'd say definitely no. See the 2nd sentence of 1.401(k)-3(e)(1). If they are only wanting to change the deposit timing, the answer might be different.

I agree with Austin. The rules you need are in 1.414(v)-1. The catch-up limit applies to the participant's taxable year. He exceeded 402(g) in 2009 and has $4,000 in catch-ups for 2009. If the plan allows him to get a $23,000 PS contribution for the plan year ending 3/31/2010, that causes $5,500 of his 2010 deferrals to be 2010 catch-up as of 3/31/2010. Catch-ups don't count against 415, so the contributions counting towards 415 are: 4/1/2009-12/31/2009 $20,500 (deferrals) -$4,000 (catch-up 2009) = $16,500 1/1/2010 -3/31/2010 $23,000 (PS) + $15,000 (deferrals) - $5,500 (catch-up 2010) = $32,500 Total 415 annual additions for the plan year are $16,500 + $32,500 = $49,000. Total allocations, including catch-ups, for the plan year are $20,500 + $23,000 + $15,000 = $58,500.

No, one of the conditions for being able to stop the SH contribution mid-year is that you must use current year testing for that year. The cite is above.

If the SH contribution was stopped mid-year in 2009, they are required to use the current year method for 2009. See 1.401(k)-3(g)(iv). As previously mentioned, they would have to stay with current year testing for 5 years. When was the amendment stopping the SH adopted and when was it effective?

Here is a more direct cite:

I think he will have to get a distribution of the remainder of his account balance. I don't see hardship listed as one of the exceptions in the first highlighted sentence below. A prior distribution of his entire account balance is deemed to be a corrective distribution under the last sentence. That isn't exactly the case here, but I think it still fits. If you distribute the available funds towards correction, but don't have enough to cover the full correction amount, you have only made a partial correction. At that point, with his account balance gone and the excess not fully corrected, I think the last sentence would apply.

Unless they have a really strange document provision, I agree with your client. The forfeiture allocation counts towards the TH minimum.

1.401(m)-2(a)(5) has the rules for determining which NHCE matching contributions can be included in the ACP test.

If irrevocable stopped applying after termination and rehire, the provision wouldn't have much effect. I read irrevocable as forever. Upon rehire, he is employed by the employer again.

If the original irrevocable election complies with 1.401(k)-1(a)(3)(v), I don't see how this employee could enter the plan now. Your comment about the owner being older and numerous younger employees makes me wonder if this is a cross tested plan. I also wonder if the employees with employment contracts that require them to irrevocably elect to not participate happen to be older employees.

I see under 1.401(k)-3(f)(2) & (3) where a follow up notice is required if the plan is timely amended to provide the SHNEC. But, where do you see a requirement to provide a follow up notice if the plan is not going to be amended to provide the SHNEC? Of course, you could provide such a notice even if it isn't required.

It looks like 1.410(b)-6(d)(2)(i) requires you to count them as both union and non-union if they work for both A & B.

You could always amend the VS and submit for a letter. That should easily be a minor enough modification to have it still treated as a VS document.

The document provider's amendment for terminating plans probably has language that is not in the PPA amendment adopted by the document sponsor.