Kevin C

Our VS document has similar language. The collectively bargained employee exclusion can be applied separately for deferrals, match and/or nonelective portions of the plan. If the plan currently excludes them from all sources, I would read the fail-safe type language in our document to say they are included in the portion(s) of the plan that the CBA says they are in. Of course, you should check with your document provider/ERISA attorney. If the plan doesn't already exclude collectively bargained employees, you are in uncharted territory and need an ERISA attorney.

If there is no 410(b)(6)(C) transaction, it falls under (4)(i) and treated as a mid-year suspension of the safe harbor contribution. That means he isn't safe harbor for the short final year and advanced notice is required. Terminating the plan at the end of the year is probably going to be a better option. He may even have some receivables that will come in between now and the end of the year.

The rule you are looking for is Is the client selling the practice or the assets of the practice? We need that piece of information before we can answer your questions.

2003 should have been a GUST document, but Universal Pensions, Inc. isn't listed with any prototype documents on the IRS' GUST list. They only show as sponsoring three volume submitter documents. https://www.irs.gov/retirement-plans/list-of-preapproved-plans Scroll down for the older lists. Do you have a copy of the opinion letter for the adoption agreement? If you do, there is a number on it that indicates which document provider prepared the document.

Tom, you will be missed. I hope you can still hang out here some. Thank you!!

Did you verify that the plan doesn't already exclude collectively bargained employees? I typically put that exclusion in a document even if the employer doesn't currently have union employees. The question deals with a mid-year amendment to a safe harbor plan. While union employees could have been excluded from the plan (or from the safe harbor), the safe harbor rules prohibit certain types of mid-year amendments. These rules are in 1.401(k)-3(e)(1) and additional exceptions are described in Notice 2016-16. Unfortunately, the notice says that mid-year amendments to narrow the group currently eligible for the SH contribution are prohibited (III.D.2). The regs have a provision that allows reducing or suspending the SH contribution mid-year (1.401(k)-3(g)), but under the situation described, I don't see how the plan could remain SH for the year. Based on prior discussions, if the plan provides a benefit to union employees that was not included in the CBA, there would be labor law issues.

Peter, I don't think what you describe would be considered to be acting solely in the interests of participants and beneficiaries (ERISA 404(a)(1)). I also think it would be very likely to have the claims procedure be considered to not be reasonable under 2560.503-1(b)(3). Also, what do you do with a participant or beneficiary who doesn't have a valid SSN? I haven't heard of any auto rollover company that will accept a rollover without a valid SSN.

A plan that benefits no highly compensated employees for the plan year automatically satisfies the 410(b) requirements with respect to employees. See 1.410(b)-2(b)(6).

What would they do with participants who do not have a bank account? Some of our clients have a significant percentage of people who do not have bank accounts. The companies that direct deposit paychecks help them get one of the prepaid credit cards for their paychecks. Our experience has been that those cards refuse to accept ACHs of plan distributions.

We've had a couple of clients have auditors go nuclear over things that were very minor and things that were actually correct, but the auditor thought they were wrong. They seemed to be on a feeding frenzy trying desperately to find something they could say was wrong. Guess which clients hired a different auditor the next year?

Actually, the cite Tom gave addresses both partners and sole proprietors.

Bad is relative. When I started in this business, I worked on a plan that had a history in a class by itself. Fortunately, all of this was well before I worked on this DB plan. Some of the highlights were 1) people who received benefits, but never worked for the plan sponsor, 2) the plan sponsor sold it's office building to the plan and was supposed to pay rent, but never did, 3) the owner of the plan sponsor bought a radio station and when it lost its broadcast license, he sold it to the plan at an inflated price. One of the ERISA Attorneys in the office told me he was at a meeting in DC and an IRS official was talking about a plan that did everything wrong. Halfway through the discussion, he realized they were talking about this plan. The consultant on this one used to say he was the only person associated with this plan for more than 10 years who hadn't been sent to jail. And, he wasn't kidding.

Like most plan related questions, the answer is "what does the plan say?" If the plan says the $500 minimum applies to recurring distributions, then allowing smaller recurring distributions would be an operational failure. If the document language isn't clear, then it needs to be interpreted by the person the document says has the authority to interpret the document. That is normally the ERISA Plan Administrator, which may be the employer.

I agree. I bet you will find that the formula for the safe harbor match includes a term for compensation that is defined in the document as being for the plan year. As for the document provider, I don't think they understood your question. Our VS document (ASC) lets you set the computation period for the SH match, but makes it clear that it can be deposited more frequently during the year at the discretion of the employer. Their answer sounds like they thought you were asking about deposit timing. At least, I hope the IRS didn't approve a document that allows employer discretion to change the SH match allocation formula at any point during the year.

Don't see it mentioned, so I'll ask. Do they have any children under age 21?

The regulation jpod is referring to is:

Even if you ignore the safe harbor rules, it would be a 411(d)(6) violation. The conditions required to receive a contribution for the plan year become a protected benefit after they have been satisfied for that plan year. See 1.411(d)-4 Q&A 1 (d)(8). There can't be any allocation conditions on the safe harbor contribution, so its allocation conditions have already been satisfied for the plan year starting 1/1/2019. It can be effective 1/1/2020 with a timely amendment. If they want it bad enough to change the plan year, that can work. But, be careful of the short plan year rules in 1.401(k)-3(e)(3).

It's not like having a retroactive safe harbor plan. Correcting the improper exclusion is the last step. Top Heavy and ADP/ACP have to be corrected first. Rev. Proc. 2018-52 Appendix A .05(2)(g). With all of the NHCEs improperly excluded, it seems very likely the plan is top heavy. That's 3%. Then, ADP/ACP needs to be corrected. Regardless of what the Rev. Proc. says, I don't think the IRS is going to let you claim ADP/ACP pass because you improperly excluded all the NHCEs. That means either a salary proportional QNEC/QMAC under Appendix A .03 or one-to-one correction under Appendix B 2.01 (refunds and a QNEC/QMAC of the same amount). Then, you get to correct the improper exclusion as we have discussed. In other words, each failure is corrected separately. With a 20% HCE deferral rate, that's going to total significantly more than 4.5% of pay and the HCE may still have a refund.

I agree with Tom. Does anyone really think the IRS would let you improperly exclude all of the NHCEs and then claim a $0 QNEC corrects the improper exclusion, ADP/ACP and 410(b)? I would expect the IRS to make you use a correction like the one described in 1.401(a)(4)-11(g)(3)(vii) to correct the 410(b) failure, so no 50% for the QNEC and the correction must have substance. I would also look to the correction improper exclusion from a safe harbor 401(k) to determine the amount of missed deferrals.

What does the plan and the SPD say about the maximum amount for a hardship distribution? It should have something describing this: If the financial need that qualifies for a hardship has already been paid using the participant's savings, I'm not seeing how anything additional is required to satisfy the original need. If the lack of cash creates another financial need that satisfies the hardship provisions, the participant should qualify for a hardship distribution based on the new financial need. If the new need doesn't qualify and the plan document's hardship provisions aren't or can't be amended to make it qualify, then they have to follow the terms of the plan and deny the request. It was mentioned that there will be additional medical bills as treatment continues. Hopefully, the participant can get something in advance from the doctor showing the amount needed that can be used to substantiate a hardship distribution.

Belgarath, What are the eligibility requirements for the other employees? 1.403(b)-5(a)(1) says that employer contributions in a 403(b) are subject to 410(b) in the same manner as a qualified plan under 401(a). 1.410(b)-6(b)(2) addresses what happens if there are multiple age/service requirements. They are only excludable if they fail to satisfy all of the different age/service requirements in the plan. I would consider the <20 hour per week exclusion as an age/service requirement. For example, if the >20 hour per week people are immediately eligible for the employer contribution, I read this as saying the <20 hour people are not excluded from the 410(b) test. If they are not excludable employees, I would expect most, if not all of the <20 hour per week people to be in the otherwise excludable group that can be tested separately.

Our pre-approved 403(b) document allows multiple employer plans. As for your 5500 question, the instructions say to file an amended return to correct errors in the original filing. Would I file an amended return if the only change was, for example, to increase the participant count from 40 to 45? Probably not. If the change was material, then I would definitely amend.

Does the other non-profit have other employees? The universal availability requirement for 403(b) deferrals applies separately to each entity that adopts the plan. 1.403(b)-5(b)(3). If the plan is retroactively amended to allow one person from the other non-profit to defer, all of the other employees of the other non-profit will have to be brought in retroactively, too, unless they meet one of the allowed exclusions. So, the retroactive amendment would be creating retroactive missed deferrals for any other employees. That can get expensive to correct. It will probably be a much less expensive correction to distribute the ineligible deferrals.

BG, You'll get more specific answers if you provide more details. Stock purchase or asset purchase? Is Company B kept as a separate entity? Or, does everyone become an employee of Company A? The details can also affect what needs to be done to get the desired result.

There is no guidance (formal or informal) on mergers or spinoffs of safe harbor plans. There was a section reserved in the final regs for it, but the IRS has never done anything with it. The best you can do is to use a reasonable good faith interpretation of the existing code and regs. A new plan would be a successor plan and not eligible for a short initial plan year under 1.401(k)-3(e)(2). Having a final short year for the PEO plan would very likely not be SH under 1.401(k)-3(e)(4). To avoid problems and stay safe harbor, you need to not have two short plan years. Since this is happening mid-year, the only way I know of to do that is to restate the spun-off plan instead of starting a new plan and have the restated plan document mirror the SH provisions used under the PEO plan. The result for participants is exactly the same as it would have been if they stayed in the SH PEO plan. You should be able to change the plan year to end 9/30/19 in the restated plan if you follow the rules in 1.401(k)-3)(e)(3). Others may have different ideas, but that's what I would do.