Kevin C

Calendar year plan and fiscal year?

WRERA section 201©(2) allows a retroactive amendment to be adopted by the last day of the plan year starting on or after 1/1/2011 as long as the plan is operated as if the amendment were in effect during the 2009 calendar year. I imagine it will be a while before we get model language since the IRS has so many other more pressing issues to deal with. http://benefitslink.com/boards/index.php?showtopic=41153 Don't forget that substantially equal installments over the life expectancy of the participant are not eligible for rollover. If they are voluntarily taking what would have been taken as an RMD, the calculation method makes it an installment. If they are otherwise eligible for a distribution and receive a partial or total distribution, then it would be eligible for rollover.

It feels like Monday. I read it twice and didn't see it that way. Until now, that is. With no PT, it appears you can, but are not required to, adjust for losses.

No, you do not reduce for losses. The PT rules require lost earnings even if there is a loss in the plan. You have to restore at least the fair market value of the use of the funds. Rev. Ruling 2006-38 includes a discussion of the "amount involved". It references Temporary Reg. 141.4975-13, which says that Reg 53.4941(e)-1 controls for terms appearing in both 4941(e) and 4975(f). "Correction" appears in both those sections, too.

Sorry, I was referring to a corrective amendment described in 1.401(a)(4)-11(g). Most of what I know about them is from the posts I've read here. I'm thinking it would be an -11(g) amendment, but I'm no expert on -11(g) amendments. If it does fall under -11(g), you would be able to change the SH provision to not give the SH to otherwise excludibles without running into a problem with the plan year rule of 1.401(k)-3(e). You can't amend to take the SH away from someone who would have received it under the current terms of the plan. But, these 3 were not eligible to receive it because they are not eligible to defer under the current terms of the plan. The suggestion of using the EGTRRA restatement to amend was to avoid having to submit for a determination letter at some point as part of the self correction process. It's not clear to me if an amendment to a pre-approved plan would suffice, or if you would have to restate. You could always restate again if that would be less hassle than filing for a determination letter.

If you want to self correct, you will have to follow the correction method in section 2.07 of Appendix B. With a prototype, you are limited in the choices for an amendment, so you probably would have to remove the year of service requirement for the deferral source to make the amendment work. I'm not clear whether it would be a significant or insignificant operational error. But, since it was only for 2008, that shouldn't make much difference. Have they adopted their EGTRRA restatement yet? If not, this might be a good time to do so. Section 6.05, first paragraph says that a determination letter is not required if the correction by amendment is done by adopting a pre-approved prototype or volume submitter document where the employer has reliance on the opinion letter. You said 3 deferred early. Were there any others that were offered the chance early, but declined? If you open up deferral eligibility retroactively, there would also need to be a correction for anyone who would have been eligible under the new rules, but was not offered the chance to defer. Do they have to get the safe harbor? Well, maybe. What does the current document say about who gets the SH contribution? You are not required to give the SH contribution to otherwise excludibles. You are not allowed to amend or change the safe harbor rules during the year. However, IF your corrective amendment would be considered an -11(g) amendment, it would be deemed to be effective and adopted as of the first day of the plan year. That should let you change the SH provisions so that otherwise excludibles don't get the SH. Hopefully, someone more familiar with -11(g) amendments will express an opinion about whether the corrective amendment would be considered an -11(g) amendment.

Yes. 1.401(k)-3(g)(1)(v) says you must continue the terms of the safe harbor through the effective date of the suspension. That includes the SH contribution 100% vesting. I think you would also have a 411(d)(6) issue if you tried to not 100% vest the SH match because the plan document currently says it is 100% vested.

This may help. http://benefitslink.com/boards/index.php?showtopic=41394

Technically, you have risked the qualified status of the plan. But, don't worry, you will have ample opportunity to fix it. What kind of plan document do you have? Prototype, Volume Submitter, Individually designed? Is 2008 the only year this happened? How many people were given the opportunity to defer early? How many total participants in the plan in 2008? How many active participants? The IRS correction programs are spelled out in Rev. Proc. 2008-50. If you are not used to reading things like this, it may be difficult to read. IRS guidance can give you a headache even if you are used to reading it. Hopefully, you will be under the self correction program, SCP. http://www.irs.gov/irb/2008-35_IRB/ar10.html

Can I get a copy, too?

There was something similar that came up late last year. But, it was for amounts less than $250. If you are an ASPPA member, look for ASAP No. 08-41 from 11/21/2008. If not, open the link and scroll down to item 12. The ASAP refers to this as a recent change, but does not give a date. http://www.dol.gov/ebsa/oemanual/cha48.html

I tried searching our web reference source, but didn't find anything. You can request a copy from the DOL. The following page also has a link to addresses and phone numbers of their regional offices. http://www.dol.gov/ebsa/foia/foia.html

The term is really "alternative defined contribution plan", but the answer is the same.

Amending an M&P plan in a way that causes it to be considered an individually designed plan does not necessarily mean you are not eligible for the current 6 year cycle for pre-approved plans. Are they considered a prior adopter? Did they timely sign a form 8905? Even if they didn't, look at Section 17 of Rev. Proc. 2005-66, especially 17.09 and example 8. You will also want to look at Section 19.

I’m having trouble following how the entire $300,000 of forfeitures must be restored if you have a discontinuance of contributions. 1.401-6©(3) and 1.411(d)-2(d)(2) both say the effective date of the discontinuance is no later than the last day of the taxable year of the employer following the last taxable year during which the last substantial contribution was made. 1.401-6(a) refers to full vesting of benefits accrued as of “… the date of such … discontinuance…”. The determination that a discontinuance occurs can’t be made until well after 12/31/2006 because the circumstances that result in the determination of the discontinuance haven’t happened yet. So, I would think the effective date of the discontinuance would be 12/31/2006 assuming a calendar year fiscal year. GCM 39310 says that terminated participants who are paid their vested balances need not be further vested if the plan terminates before they incur a break-in-service. I would expect those who were forfeited on 12/31/2006 to have been terminated participants who were paid their entire vested balances before 12/31/2006. If so, then you should not have to restore the 2006 forfeitures. I can see how you would get to the 2007 and 2008 forfeitures being restored from the regs, but that doesn’t really make sense. As of 12/31/2007 (and even through the last date you could possibly complete the 2007 valuation), you don’t have circumstances that indicate a discontinuance has occurred. You followed the terms of the plan and forfeited the amounts that were supposed to be forfeited. Now, with a discontinuance determined to have occurred, it looks like the operation of the plan retroactively fails to be in accordance with its terms. But, we are talking about the IRC and regulations, so logic and common sense are irrelevant. The important thing is that this is an operational failure, so self correction may be an option. The employer won’t necessarily have to contribute the amount of forfeitures that need to be restored. Rev. Proc. 2008-50, Appendix B, Section 2.03(1)(b) says you can reallocate the forfeitures, adjusted for income, if someone is forfeited using an incorrect vested percentage. See Example 17. I think this should be considered an insignificant operational error, but even if it is considered significant, you should still be able to self correct. The first error should be for 2007, so the correction period runs through the end of 2009.

It won't be pleasant, but like John says, your only other option is plan disqualification. Whatever the consequences, it will be better than the alternative. We recently helped out an employer with a similar situation. It was a one person plan. He had been doing the administration himself and filing 5500-EZ's, but his plan had not been amended since 1980. He got audited, then hired us to help fix the mess. The penalty was $6,500. It could have been worse. The agent said the case reviewer worked with him to determine a range for the penalty. Then, he was asked for his recommendation for the penalty amount within the range. He recommended the low end of the range and that's what it ended up being.

Is the plan being terminated?

The website says by April 30. The IRS Spring Employee Plans Newsletter has some information on the test cycle. http://www.irs.gov/pub/irs-tege/spr09.pdf The first ERPA-Special Enrollment Examination (SEE) was conducted earlier this year. How did it go? The first examination period was a success! Over 500 examinations were completed nationwide. We also received about 450 responses from a survey applicants completed after the test. Their feedback is helping us to improve the ERPA examination process and address applicants’ concerns. So, based on the demographics identified in the survey, who exactly is a potential ERPA? The majority of applicants identified themselves as plan administrators or plan consultants with more than 20 years of experience. 71% of applicants stated their primary motivation for taking the ERPA-SEE was to represent clients before the IRS, while 16% took it to increase their pension knowledge. About half of the applicants indicated that they spent 40 hours or less studying for the examination. Any statistics obtained about the test? Overall, 41% of the applicants noted that the test was of average difficulty. Another 41% thought the test was a little more difficult. The examination consists of two parts. The average time to take each part was about two to two and one-half hours. What comments did you receive about the examination itself? We received feedback about the wording of some of the questions and on test study materials. We will be reviewing all of the comments received and making adjustments to improve the process for future ERPA applicants. We will continue this review after every testing period.

If I understand you correctly, you are saying the document gives the employer the discretion to decide, without a plan amendment, if the safe harbor provisions will apply for a given year. If so, I think you may have a problem with 1.411(d)-4, Q&A 4. You can certainly amend to eliminate the SH contribution for a year, if you adopt the amendment before the beginning of the year. But, I don't think you can leave it to employer discretion whether or not employees receive the SH contribution for a given year.

I don't think a loan is a problem because if it is defaulted, the deemed distribution is not treated as an actual distribution under section 401. The section 436 restrictions are referenced in section 401(a)(29).

QDRO, Wouldn't that depend on how the document defines Compensation? Our documents define Compensation as amounts acutally paid to the employee during the computation period. If the document said Compensation is compensation earned by the employee during the computation period, then I would agree with you.

What is the effective date of the amendment making the change? The effective date is required to be listed in the notice. If the effective date is 4/17/09, then the last payroll receiving the SH match is the one paid 4/15/09.

If you want to stay a prototype, only if you can do the amendment using the choices available in the adoption agreement. Prototypes usually have optional fail safe language for coverage. The fail safe language will say how many get added and in what order. From Rev. Proc. 2005-16, Section 19.03:

You're right. It would help if I read the whole sentence.

The 1/3 of the highest HCE rate part uses plan compensation which can be entry date compensation. The 5% of compensation part uses 415©(3) compensation, which is full year.