Kevin C

Before you get too far down the road of looking at corrections, I would find out if Company B was properly removed from the plan. A safe harbor plan is not allowed to have a mid-year amendment that narrows the group eligible for the safe harbor contribution. See Notice 2016-16, III D 2. An improper mid-year amendment causes the plan to fail to satisfy 1.401(k)-1(b), which is a qualification requirement. See 1.401(k)-3(e)(1), second sentence. If they did it mid-year, Company A has a qualification problem with their plan and their correction should take care of your issues. If Company B was properly removed from the plan (amended by 1/1/19 and effective 1/1/19), then Company B's new plan would be a successor plan and not eligible for a short initial plan year. As you note, making Company B's new plan retroactively effective to 1/1/19 means that participants were (retroactively) improperly excluded, which needs to be corrected. I'm not convinced that you can have a spin-off retroactive to 1/1/19.

I agree you are looking in the wrong place. The reg you cited deals with the frequency of deferral elections. You need to look at 1.401(k)-3(e)(2). The initial plan year for a new safe harbor plan (assuming they are not a successor plan and not a newly established employer) must be at least 3 months long. In addressing the similar situation of adding a CODA to a PS plan, it specifically says the CODA must be in effect for at least 3 months. If you look at the definition of "plan" in 1.401(k)-6 and follow it through, I think that a 3 month plan year also means the CODA must be in effect for 3 months. What you are describing is a CODA in effect for one month. So, it would not be safe harbor. In that situation, we would get the plan up and going by 10/1/19, or it would not be safe harbor until 1/1/2020.

When was the plan amended to remove Company B as a participating employer?

This prior discussion should be helpful. https://benefitslink.com/boards/index.php?/topic/63511-crediting-service-when-hiring-from-temp-agency/&tab=comments#comment-288527

If the spouse is the sole beneficiary and the joint table produces a larger life expectancy, the RMD is determined using the joint table. So, it is required. See 1.401(a)(9)-5 Q&A 4(b) & Q&A 6. That said, I also agree with "who cares" for the prior year distributions, as long as the participant paid the taxes.

If the old plan had been merged instead of amounts rolled over, protected features of the balances (distribution timing, etc) and distribution restrictions (no deferrals or SH for in-service prior to 59.5) would have stayed with the merged amounts. If everyone rolled over to the new plan, the $ are there. The only thing needed to put the current plan where it would have been if the improper distributions had not been made is to reattach those features to the amounts rolled in. I think that would be your correction.

Start with 1.401(k)-3(b)(1) for the 3% non-elective SH or 1.401(k)-3(c)(1) for a SH match. You'll also need the definition of Eligible NHCE, Eligible Employee and Plan in 1.401(k)-6. The definition of Plan will lead you to other cites before you get to the definition being used.

Yes, it does. That's why it's common to terminate the acquired company's plan prior to the purchase. It is easier to transfer the assets than to terminate. But, it's usually easier and less expensive to terminate instead of doing the due diligence research needed to determine if the other plan was operated properly. Transferring the assets also means that 411(d)(6) protected plan features for those transferred assets must remain available after the assets are merged into Company A's plan. As mentioned above, the determination of the "employer" is made at the time of the plan termination when determining if the plan termination is a distributable event. 1.401(k)-1(d)(4)(i)

Yes, a DC plan can be amended to eliminate partial withdrawals as long as an otherwise identical lump sum is available. 1.411(d)-4 Q&A 2 (e). You should be able to self correct under Rev. Proc. 2019-19 4.05(2), but it would be easier to do it right and do the amendment before paying the distribution.

While I agree that using the <20 hour per week exclusion is a train wreck waiting to happen, I think using anniversary years for the later determinations makes it even worse. When you switch to plan years, at least all of the later determinations can be made at the same time. With anniversary years, the determination is potentially made at a different time for each employee. I think that makes errors more likely. And, if you mess up with one person, you can't use the exclusion. As you note, without timely and accurate data, it will be impossible to comply with the rules for the exclusion. I've mentioned before that I had an IRS agent, who was the training agent for 403(b) audits in our region at the time, tell me that he had never seen a plan that used the <20 hour per week exclusion do it correctly.

Entry would be 1/1/2020. From Notice 2018-95, Section 2.02(1): The employee in your example was excluded under the first year exclusion condition because the employee was expected to work less than 1,000 hours in the first 12 months. The next step is the preceding year exclusion condition. With your plan document and a 2/15/19 date of hire, the first exclusion year is the first plan year ending after 2/14/20, or the 2020 plan year. The employee can only be excluded for the 2020 year if he/she worked less than 1,000 hours in the prior 12 months. In your case, it was more than 1,000 hours in the prior 12 months, so he/she must be eligible for the 2020 (and later) plan year(s). That means entry on 1/1/2020. If the plan switches to plan years for the determination, except for someone hired on January 1, the first preceding year exclusion determination will always be before the end of the employee's first 12 months of employment. The exclusion year is a plan year, so later entry will always be on the first day of the plan year. Now, if the plan applied the <20 hour per week exclusion using 12 month periods based on the date of hire, entry would be 2/15/2020.

A spouse or former spouse under age 59.5 who is receiving a distribution under a QDRO should be careful before deciding to roll it to an IRA or a qualified plan. A QDRO distribution is not subject to the 10% early withdrawal penalty [IRC 72(t)(C)]. Once it has been rolled to an account in the alternate payee's name, that exception is gone. A distribution under a QDRO to the spouse or former spouse is treated the same as a distribution to the employee when determining if it is an eligible rollover distribution [1.402(c)-2 Q&A 3 and Q&A 12].

Are you sure? 1.411(d)-2(a)(1) lists three circumstances that trigger 100% vesting, plan termination, partial termination and for a plan not subject to 412, complete discontinuance of contributions. For the OP, is a participant loan involved? Otherwise, what advantage does the owner have in keeping the plan going after all business operations have ceased?

I don't see how a fee resulting from the plan sponsor depositing a rubber check could possibly be considered a reasonable expense of administering the plan. ERISA 404(a)(1)(A)(ii). The plan sponsor needs to reimburse the plan.

Forgot to mention, 1.403(b)-5(b)(4)(iii)(B)(2) gives two options for the time period used after the initial year determination. You can use either plan years or anniversary years. The option used in the plan document will affect when the person enters. Our 403(b) document (ASC) uses plan years. For (B) of your example, if reasonably expected to work < 1,000 hours in the first 12 months, hired 2/15/19 and then changes to full time 7/1/2019, that would be more than 1,000 hours in plan year 2019, so in a plan that uses the plan year, he/she would enter 1/1/2020. If the plan uses years based on the anniversary of employment, entry would be 2/15/2020.

While I haven't seen the situation you mention directly addressed, I think the first year exclusion rule needs to have the reasonable expectation of how many hours the employee will work in the first 12 months be determined at hire. Otherwise, a revised expectation during the first 12 months of employment would result in a universal availability failure because someone was improperly excluded for part of their first year. Notice 2019-59 does have a situation where an employee was reasonably expected to work 1,000 hours when hired, but the employer probably would have realized fairly quickly that the initial expectation was not going to be accurate. Notice 2018-59, Section 3.03, Example 1 has an employee reasonably expected to work at least 1,000 hours in the first year, but actually works 500. It says the initial expectation makes the employee eligible to defer for the initial (and all later) years. I think that makes it clear that a reasonable expectation of at least 1,000 hours for the first 12 months determined at the date of hire doesn't change at a later date. I agree that the best approach is to not use the <20 hour per week exclusion. Fortunately, all of our current 403(b) plans are non-electing Church plans that are not subject to universal availability for deferrals.

Your details are not clear, but consider the following: 1. You can't amend mid-year to make someone who is eligible to receive the safe harbor contribution become ineligible for it. You can amend the eligibility requirements going forward provided they only apply to people who are not yet eligible. Notice 2016-16 III D 2 2. A retroactive amendment that makes someone ineligible for a contribution they have earned the right to for that plan year violates 411(d)(6). 1.411(d)-4 Q&A 1(d)(8) 3. 200 hours per month for 6 months would require at least 1,200 hours for entry. That averages a little over 46 hours per week. It can't be the plan's only eligibility requirement because you can't require more than a year of service for the 401(k) portion of the plan.

Under the regs, the options for your rehire example would be to either start over at 3% again, or start deferrals on rehire at the 7% rate that would have applied if the participant had stayed. The initial period starts on the first day the employee makes deferrals under the automatic contribution arrangement [1.401(k)-3(j)(2)(ii)(A)]. The default option in our VS document says that an affirmative election to defer (including an election to not defer) ends when the participant terminates employment. If someone rehires and does not make a new affirmative election, the automatic enrollment provisions apply on rehire and they would start at the beginning rate. The optional provision is to have an affirmative election remain in effect on rehire and the person is not subject to automatic enrollment. If the document allows the Plan Administrator to decide how automatic enrollment works on rehire, I would want it put in a written policy that they follow.

What does the plan say? Our VS document has provisions that address what happens to affirmative and automatic elections when a participant terminates and when one rehires. It can be handled in different ways, but the document should say what happens. If not, the ERISA Plan Administrator needs to interpret the plan document.

Does the plan document allow terminated participants to roll into the plan? Our current VS document has an option to allow terminated employees to roll in. We don't use that provision, but it is an option. Prior versions of our documents only allowed employees to roll amounts in. Now, if she rehires ...

Is it a Church plan? Church sponsored 403(b)s are not subject to the universal availability requirement for salary deferrals. See 1.403(b)-5(d)

If the participant doesn't repay an improper distribution of his/her entire vested benefit, the participant's vested balance is now zero. The employer has to make a reasonable effort to get the employee to repay the distribution. If the participant does repay it, it goes back into his/her vested balance. If not, treat it as a distribution, revise procedures, document the self correction and move on. If the overpayment exceeds the participant's vested balance, then the employer would be on the hook to make a deposit if the participant doesn't repay the overpayment. What happens to the employer's payment depends on the situation. The easiest example is a terminated participant with a $10,000 balance with $8,000 vested, but receives a distribution of $10,000 and refuses to repay the overpayment. The employer (or someone else) would need to deposit $2,000 plus lost earnings, which would be used to replace the forfeitures that were supposed to result from the distribution. One of the goals of EPCRS is to put the plan back in the position it would have been in if the failure had not occurred.

When the overpayment actually belonged to the participant who received it, the requirement for a repayment by the employer or other person was removed from the correction method a couple of EPCRS revisions ago. The OP assumption is that the correct amount was paid, but it was paid 10 months early, so the sentence I've highlighted applies. I agree with Lando, why not self correct?

Surprisingly, Notice 2016-16 doesn't mention amending mid-year to expand the group eligible for safe harbor contributions. It does allow a mid-year amendment to narrow the group eligible for the SH, provided it only applies to those not currently eligible for the SH (III D 2). If you can narrow the group mid-year, you should also be able to expand it. The only informal guidance I'm aware of on a mid-year amendment to expand the group eligible for the SH was Q 37 at the 2012 ASPPA Annual Conference. The question asked about amending a salaried only SH plan mid-year to included hourly employees. The IRS response was that it was ok as long as those currently eligible were not affected.

Rev. Proc. 2019-19 6.08 says that EPCRS correction methods are generally not available if the failure can be corrected under the Code and related regulations. So, correction during the cure period can not be done under EPCRS. 1.72(p)-1 Q&A 20 allows a loan to be refinanced. If it is done during the cure period allowed by Q&A 10 and the re-formed loan complies with 72(p), default would be avoided. Q&A 10 refers to the missed installment being made during the cure period. Refinancing the loan changes the amount of the installment that is due and makes the payments current at the point of the refinancing. Our loan program specifically allows refinancing. I don't remember seeing any other loan programs that prohibited it, but I don't think I would have been looking for that.