John Feldt ERPA CPC QPA

Your document probably allows you to disaggregate, and it's likely a plan administrator choice. So if the under 21/1 group could help your results by including them in the cross-testing, you could bring them all in to the test and they all get the minimum gateway. If that does not produce better results, they can disaggregated, and as Tom indicated, they are part of their own test (likely on a contributions basis which requires no gateway).

Or, perhaps it could be better to ask that new 'spouse' to waive their rights in favor of the prior children. Could it be better for the business owner to find out now if fireworks will be the result, than to find out later on other perhaps much more important issues than just the money in the plan? Boy, this sure would be a fun/memorable topic to consult with sponsors each time you take over a plan or start up a new plan!

For example, if a plan has 5 participants and they just now realize that they did not fund the 2016 safe harbor, they are still within the 2 year period to correct a significant failure under SCP. Can they do that by making those SH contributions now, plus missed earnings? I would argue yes. Anyone disagree?

ACP and BRF

Nonelective is correct.

Other than the Church exception

Is that new? It states it was updated January 2018. I wonder which conditions they are saying can't be met. I have heard ERISA attorneys suggest that perhaps it would be sufficient to provide the notice and have it state that to make up for the missed deferrals, they save more outside the plan since they are no longer employees. The IRS website (unofficial guidance, I know) is indicating that type of notice is not an option?

Okay, I see in A-6, it states: "In the case of annuity distributions from a defined benefit plan, if any portion of the employee's benefit is not vested as of December 31 of a distribution calendar year, the portion that is not vested as of such date will be treated as not having accrued for purposes of determining the required minimum distribution for that distribution calendar year. When an additional portion of the employee's benefit becomes vested, such portion will be treated as an additional accrual." Thank you!

In 2016, 2 years before the plan was adopted.

A brand new DB plan is started 2-1-2018, plan year ends 1/31. It excludes years of service prior to 2-1-2018 for vesting purposes. Vesting is a 3-year elapsed-time cliff. One participant is also a 20% owner and they are 71 years old now. The owner becomes fully vested on 1/31/2021. The first RMD is the accrual on 12/31/2018, but it is not vested, so it gets added to the next year's RMD. The second RMD is the accrual on 12/31/2019 plus the prior unpaid (nonvested) RMD, but it is still not vested, so it gets added to the next years' RMD. The third RMD is the accrual on 12/31/2020 plus the prior amounts, but it is still not vested, so it gets added to the next year's RMD. By 12/31/2021, the participant must take the distribution of their RMDs. They terminate in 2021 and elect a lump sum payment. The RMD for a full lump payment can be calculated using the "Account Balance" method (like a DC plan). Can all of these RMD's be determined using the account balance method, or must the 3 prior year's RMDs be based on the DB annuity calculation method?

post probably meant "no owners"

CPA may be correct, maybe not. Perhaps a legal opinion from an ERISA counsel can settle things. You could show them Derrin Watson book, Who’s the Employer, as a starting point.

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!