Kevin C

We have submitted modified VS documents with what I consider to be fairly significant changes using Form 5307 and still received determination letters. One example is a money purchase plan VS document with language added to provide a match based on 403(b) deferrals. The agent on that one told me she wasn't sure it would be considered a minor modification. When I reminded her the prior restatement of the plan received a determination letter using Form 5307, she dropped the issue.

Well, we finally got our response from the IRS. They cite code sections 403(b)(1)(D), 403(b)(12)(A), 410(b)(4)(A), sections of the safe harbor provisions in Notice 89-23 and the final 403(b) regulations effective 1/1/2009. Did I mention that the years under review are 2007 and 2008? Their conclusion is that since ONE individual who worked less than 20 hours per week was allowed to participate, the plan fails to satisfy the nondiscrimination requirements of 403(b)(12)(A)(ii), so the entire plan is disqualified. I guess I should be glad they gave us plenty of time to select an attorney.

That's a scary road to start down. I don't recall seeing anything that specifically disallows asking employees to reimburse for profit sharing or matching contributions, either. I actually had a client ask if he could do that. I told him no, you can't do that. waid10, assuming the deferral elections were made timely, I think you need to follow the correction method in the Rev. Proc., which you summarize in your post #4. The timing of the election is most likely to affect your second situation. Did the employee make the deferral election for $1,000 from her final 2009 paycheck in time to have it in effect for that paycheck? Does the plan have a written policy for the timing of implementation of a deferral election? If for example, she turned in the election change on 12/30, it could be that the change wouldn't be effective until the first payroll in January.

ASPPA's code of conduct has a control of work product section that prohibits backdating or assisting with backdating. K2, the bottom line is you have to make the decision for yourself. Which ever way you decide, you will have to live with the consequences.

Can you provide a cite? I don't see anything in the Rev. Proc. where the employee is responsible for funding the correction. All I see are methods for the plan sponsor to correct failures. Is the employee responsible for reimbursing the lost earnings deposited, too? I don't see any way an amount taken from the employee's paycheck in 2010 to reimburse the employer could be counted as deferrals for 2009. But, suppose the employee does reimburse the employer in 2010, what is the tax treatment for the reimbursement? It isn't salary deferrals, so wouldn't it be an after-tax payment? I also wonder if the reimbursement would violate any wage laws, but that issue is way outside my area.

The terms of the plan determine who gets employer contributions, including the SH non-elective. Give him another copy of the SPD and point out the section that describes the 3% SH contribution. I wonder if he thinks he will get the 3% in cash if he can get them to let him waive the plan contribution?

How about this? If you are referring to a SH match, there are provisions in the 401(k)/401(m) regs that affect when the amendment can be effective.

I read that as saying that if the IRS decides the sponsor knew it would cause a problem and it affects a substantial number of participants, it becomes egregious. That isn't a difficult standard to meet, so I hope the IRS uses it sparingly. Austin, I think you are being too restrictive in your view of "required" needed for the 415 exception for corrections. I think that once a discretionary contribution has been made, the allocation becomes required under the terms of the plan. If it was not allocated correctly, the correction falls under the 415 exception. Otherwise, there would be situations where you could not use the Rev. Proc.'s correction method for PS contributions in Appendix B, Section 2.02(2)(a)(iii)(B).

How about asking your manager if your firm's liability insurance covers falsifying documents so that the plan sponsor can violate the Internal Revenue Code? If one of these plan sponsors gets caught, who do you think they will blame? A financial argument may work better than an ethical one.

The 415 exception in Rev. Proc. 2008-50, section 6.02(4)(b) has to apply. Otherwise, you could have someone who does not receive the required safe harbor contribution, but you have no way to correct it. I think I would correct it as a significant failure under SCP and let the client know the IRS could decide that they should have used VCP. I have no idea what the IRS would do, but it would be in the client's favor that the correction will have already been done before the IRS gets there. Besides, the Rev. Proc. doesn't say they can't use SCP in this situation, it only says the IRS can decide that they are not eligible to use SCP.

We've never had a situation where 1099-R's used the sponsor's EIN, but apparently it happens. The 2009 Form 5500 instructions, page 51 (Schedule R) reference 1099-R's and Trusts using the EIN of the sponsor or Plan Administrator. It's in the Who Must File section and the instructions for Line 2. http://www.irs.gov/pub/irs-pdf/i5500.pdf It's on page 52 of the .pdf. Sorry, I couldn't get cut and paste to work.

I don't see anything in Rev. Proc. 2008-50 that would have the reason for the failure affect the 415 treatment of the the correction. The reason for the failure is a factor in determining whether it was an insignificant or significant failure under SCP. Also, if the service decided the failure was an egregious failure, it would not be eligible for correction under SCP (Section 4.11). From the description of "egregious failure" in 4.11, the IRS wouldn't have to try very hard to consider this failure as egregious. There is also a higher filing fee for VCP correction of egregious failures (section 12.06).

But, keep in mind that if you define groups by name, the plan must pass 410(b) using the ratio percentage test. One part of the average benefit test requires that the plan pass the nondiscriminatory classification test of 1.410(b)-4, which includes a reasonable classification requirement.

The FBI just announced the arrest of three additional suspects. An unnamed highly placed source indicated that Alpha, Beta and Gamma were an integral part of the calculus plot. Authorities are said to be working to prove that A. Theorem was involved in a derivative plot.

Rev. Proc. 2007-44, Section 14. Section 14.04 addresses an extended remedial amendment period for new individually designed plans.

The plan document should have a provision dealing with adoption of the plan by a successor entity. It will tell you what needs to be done. You will also need to report the change on the Form 5500.

If the document says the PS contribution is allocated at the end of each month, I don't see how this could be considered a mis-allocation. When it has been allocated under the terms of the plan, it's part of their accrued benefit. The employer can not use discretion to reduce accrued benefits. 1.411(d)-4, Q&A 4. This situation is a good example of why you shouldn't allocate a discretionary contribution during the year.

1.401(m)-2(a)(4)(iii)©

That sounds like a 10% profits interest to me. The same definition is used to determine HCE's.

Since the excess amount is $1,000, would it be an excess IRA contribution if she did not make any other IRA contributions for 2007?

DOL_deposit_reg.pdf If the agent decides to pick nits over the timing of the deferral and loan payment deposits, this may be helpful. If you search for "monthly", some of the items are interesting. There is also a kind of mailbox rule in footnote 6 if you were mailing deposit checks.

There are a couple of things in Rev. Proc 2008-50 that might help. Looking first at the ADP test, I think this says that if the deferral correction causes an ADP test failure after you include the missed deferral in the ADP test, then you have to do a correction for the failed ADP test. I think a reasonable interpretation is that the same would apply to the ACP test if you are correcting matching contributions.

There is a new determination letter Rev. Proc. out. It's 2010-6. Section 12.07 clarifies that terminating plans generally are not required to be restated. I don't see anything else in the Rev. Proc. that would force you to restate if the 5310 isn't filed before 4/30/2010. You would need to amend for law changes in effect through the termination date that haven't already been incorporated into interim amendments. http://www.irs.gov/irb/2010-01_IRB/ar11.html#d0e13571

That only works if January 22 is a paydate. We always use slightly less than 5 years for the max loan period.

BG & Belgarath, what if the loan date is December 23 instead of January 1 or 5?