John Feldt ERPA CPC QPA

To place the plan into a form that satisfies coverage, the regulation is saying that the plan should adopt an amendment under -11(g) to state something like this: Resolved, for purposes of satisfying IRC 410(b) for the plan year ending December 31, 2017 for Plan 2, the NHCEs of Employer 1 shall become Eligible Employees for purposes of elective deferrals under Plan 2 solely for 2017 and a QNEC will be allocated to each such affected Participant equal to the product of A) such Participant's Compensation and B) the actual deferral percentage for the plan year for the group of NHCE Participants who are Eligible Employees with Employer 2. And with that in place, the written plan requirement is satisfied for being able to use -11g for a coverage failure. This places us into the debate about the literal interpretation, see 1.401(a)(4)-1(a) "In making this determination intent is irrelevant. This section sets forth the exclusive rules ..." vs. the subjective interpretation under 1.401(a)(4)-1(c)(2) that you quoted above. Since this is a coverage issue rather than nondiscrimination, does that help us? In the Carol Gold memo, the issue was covering short-service low paid employees. Let's argue that this hinges on the subjective interpretation of -1(c)(2). Let's analyze the statement: "The provisions of §1.401(a)(4)-1 through §1.401(a)(4)-13 must be interpreted in a reasonable manner consistent with the purpose of preventing discrimination in favor of HCEs". As stated, all of the HCEs in plan 2 will get their deferrals refunded because the prior ADP is 0%. So, with or without a 0% QNEC, where is the discrimination? If a $1, $10, $100, or $1000 QNEC was provided, how does that change the "discriminatory" nature of the plan?

Yes, I am aware that the 50% (or less) QNEC does not apply. The reference to 'substance' by the regulation is in the header of 1.401(a)(4)-11(g)(4). This seems similar to the header to -11(g) which is "corrective amendments" but nowhere in the body of the requirements does the IRS say that a failure must have occurred in order to apply -11(g). I know I may be stretching things there, but the requirement of 1.401(a)(4)-11(g)(4), other than the BRF section, is this: A corrective amendment is not taken into account in determining whether a plan satisfies section 401(a)(4) or 410(b) to the extent the amendment affects nonvested employees whose employment with the employer terminated on or before the close of the preceding year, and who therefore would not have received any economic benefit from the amendment if it had been made in the prior year. The NHCEs in the Plan 1 are incented to defer due to the safe harbor match. The deferrals for the HCEs in Plan 2 will be refunded since the NHCE ADP was zero. In these circumstances, what actual substance is required by these rules, which are designed to prevent discrimination in favor of HCEs?

Controlled group: 2 employers with their own 401(k) plans. No Profit Sharing. 401(k) coverage for 2017 fails. Plan 1 is safe harbor match, covers only 1 HCE and a lot of NHCEs. Plan 2 is not safe harbor, has no match, no PS, but covers 5 HCE owners and 1 NHCE, prior-year tested. The plans fail ratio percent test (result is under 10%). The plans cannot be aggregated for coverage testing. Seem that plan 2 needs to open up coverage to some of the plan 1 NHCEs by providing QNECs to until enough NHCEs are above the safe harbor percent and then run ABT. That QNEC is based on the 2017 ADP for the NHCEs in plan 2. The problem is that the NHCE in plan 2 did not defer in 2017, so the NHCE ADP for 2017 for plan 2 is 0% and thus the QNEC is 0%. Therefore, is there a reasonable argument that no action is needed for plan 2 to pass coverage for 2017? Note: the NHCE ADP in 2016 was also zero.

Revenue Procedure 2016-51, Appendix A.05(a): Safe harbor correction methods for Employee Elective Deferral Failures in § 401(k) plans or 403(b) Plans. (a) Safe harbor correction method for Employee Elective Deferral Failures that do not exceed three months. Under this safe harbor correction method, an Employee Elective Deferral Failure (as defined in section .05(10) of this appendix ) can be corrected without a QNEC for missed elective deferrals if the following conditions are satisfied: (i) Correct deferrals begin no later than the earlier of the first payment of compensation made on or after the last day of the three-month period that begins when the failure first occurred for the affected eligible employee or, if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the end of the month after the month of notification;

Yes, that should be a standard part of the process. To be a QDRO, you have to be able to determine the amount. I agree with Larry. It's okay to reject the DRO if the data is not available to determine that amount.

Rev Proc 2016-51, section 4.04: A plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions is not treated as failing to have established practices and procedures to prevent the occurrence of a § 415(c) violation in the case of a plan under which excess annual additions under § 415(c) are regularly corrected by return of elective deferrals to the affected employee within 9½ months after the end of the plan’s limitation year.

TCJA changed Code Section 165(h) of the law that defined a casualty loss. That same section of the code is referenced in the safe harbor hardship rules. Under the new language, expenses for repair of damage due to a participant's principal residence would not be available for hardship unless included under a federally declared disaster area. Are folks modifying their safe harbor hardship procedures to restrict casualty hardship to comply with this?

I agree that imputing disparity in your example would have to be done at the 100% TWB level. But I had not yet heard anyone apply that same logic to the uniform allocation dollar safe harbor formula. Great, thanks for that!

Perhaps see IRC Section 7871: Essential governmental function. For purposes of this section, the term "essential governmental function" shall not include any function which is not customarily performed by State and local governments with general taxing powers."

So the part of the regulation which states "under an allocation formula" really means "under a written allocation formula in the plan", not just "under an allocation formula"? Thus, you are saying, in this example, if the employer resolves to provide an uniform allocation of $5,000 to each allocation group, and each group has one participant, that is not enough to satisfy the regulation for satisfying a safe harbor profit sharing allocation. Is that a correct understanding of your comment?

Agree with above comments. Just FYI, non-ERISA church DB plans are individually drafted plan documents, not available in a prototype or volume submitter format (unlike the recent 403(b) documents). Individually drafted plans only have to restate if they want to submit Form 5300 for a determination letter. Now that the five-year restatement program has ended, are you sure you have truly a failure? Did they adopt the necessary interim amendment language?

A non-profit 501(c)(3) entity (not a church) has a 403(b) plan. They tell us they have only allowed employee deferrals to the plan since 2005. In 2004 and before, the plan allowed for employer match. The plan does not allow hardships. It does not allow loans. 2004 was the last year they filed a form 5500. in 2006 they got a letter from the IRS regarding the 2005 Form 5500, and they must have told the IRS that they were exempt from filing because they now only allow deferrals. Is that possible that this could this be a non-ERISA plan, or should they have continued filing 5500's after 2004 because the plan had already become an ERISA plan due to the match?

Sorry, that was a typo. try 1.401(a)(4)-3(e)(2) overall. My frozen fingers!

Regardless of the 5500 handling, the actuary needs the fair market value. Especially if the sponsor wants to contribute the absolute maximum, as undervaluing this asset could set the maximum above the true 404 maximum allowed. Or, if the sponsor wants to contribute the bare minimum, overvaluing this asset could show a minimum that is not truly sufficient to cover the true minimum.

Under 1.401(a)(4)-3(e), the compensation to use for nondiscrimination testing is average compensation, but there is an exception to allow you to use annual compensation under 1.401(a)(4)-3(e)(2)(ii)(A). Most plans use annual compensation (easier). The determination of the minimum gateway requirement (finding the highest HCE allocation) is not based on average compensation, but is based on annual compensation. Thus, with lower compensation for the plan year, the minimum combined plan gateway will likely be the maximum 7.5% of compensation to be provided to the benefiting NHCEs. Also, you are correct that the minimum gateway is allocated using annual compensation for the testing year, not allocated using average compensation. Thus, using average compensation instead of a currently very low compensation will help the nondiscrimination test - the ebars for the test will have the highest x years of average compensation over the last y years. X must be at least 3 years. Review 1.401(a)(4)-3(e)(2) overall. With the average compensation in the denominator for each ebar, instead of the current very low compensation for the HCE, the HCEs ebar is kept as low as possible. Of course, you must have enough compensation history for all employees since this method has to be consistent with all employees in the test. You can't use annual for some and average compensation for others. edit:typo

My understanding is that under a MEP, each unrelated employer tests coverage, nondiscrimination, and top-heavy separately from the other employers in the overall plan. If the amount stayed with a prior unrelated employer within the plan, or was "moved" to be listed with the new employer, it is still an unrelated amount for the new employer. 1.416-1, T-32

Approvals were recently received for two that were submitted in August and September, one was nonamender, the other was a 'regular' submission (nonamender plus other issues). No questions asked! Seemed faster than usual for a reply, but we'll accept.

Starting in 2018, the tax reform (if it passes) doubles the $3,000 limit per year to $6,000 per year for a plan to benefit certain volunteers (e.g. volunteer firefighters, fire prevention, EMS, ambulance). I am looking for anyone who has written plan documents for a length of service award plan. Also, looking for anyone interested in writing an article for publication regarding this topic.

Two calendar year plans with unrelated employers, Company A and Company B with corresponding 401(k) plans, Plan A and Plan B. Plan A will be top-heavy for 2018. Plan B will not be top-heavy in 2018. Suppose Company A sells its stock to Company B on January 1, 2018. All participants in Plan A are merged into Plan B on January 1, 2018. Thus, Plan A no longer exists on its after January 1, 2018. Will Plan B have to re-determine its TH status for 2018 by including the 12/31/2017 data from Plan A? Do the Plan A participants get any top-heavy minimums for 2018? Or how is this handled?

Due to attribution (under age 21), he should be able to join a parent's business 401(k) plan as a participating employer. And, no, what is prudent for use of this person's earnings was not questioned ... Anyway, I also am not finding an age minimum.

A 15-year old has a specific fishing license in Alaska that allows him to make earned income from fishing. They receive a Form 1099 as a sole proprietor. CPA confirmed they are not an employee. Can a 15-year old obtain a business EIN and then set up a 401(k) plan based on their net earned income, or is there some minimum age needed to be able to do this?

Okay, so nothing to clarify then. np.

CuseFan?

Be sure that all eligible employees get the notice, even those with no balance.

Did the 403(b) plan adopt all "interim" amendments that the law required after executing its 2009 document (it does have a 2009 document, right)? Some providers did not offer such "interim" amendments, since there technically was no remedial amendment period yet, thus no "interim" period for 403(b) plans. If that was the approach, then you either restate before termination or adopt such language prior to termination. If the plan is up-to-date with all language requirements, then they are in good faith compliance and would not need to restate. But good faith compliance is not the same as having IRS written approval. Doing a restatement now would stop the IRS from scrutinizing the written plan document later - if the plan gets an IRS audit later, show them your IRS letter to prevent such scrutiny. Without a restatement, they could hunt the document for any language they don't like and argue that the plan was not in compliance.