John Feldt ERPA CPC QPA

That is correct, each day of the plan year. 1.414(r)-4(b) "A separate line of business satisfies the 50-employee requirement of § 1.414(r)-1(b)(2)(iv)(B) for a testing year only if on each day of the testing year there are at least 50 employees who provide services to the separate line of business for the testing year and do not provide services to any other separate line of business of the employer for the testing year within the meaning of § 1.414(r)-3(c)(5)."

Well, give it a shot and file under DFVC, then report back here to let us know what happened. My experience is that a form already filed can be filed again only as an amended return, not as a late filed return under DFVC. That was several years back, so perhaps it can be done nowadays. Or perhaps there are additional steps available to get you there that I am not aware of?

An employer accidently paid a former employee a paycheck when no wages were due and deferrals were also withheld from the paycheck and deposited into the plan. The can get the net paycheck back and they are able to offset the taxes withheld with their next tax filings, but they are not sure what to do about the "deferrals". Technically the real paycheck is zero and thus no deferrals should be possible. Can the plan distribute these "deferrals" back to the employer without triggering and excise tax? Or, should the amounts be held in the plan under a suspense account until the next contribution to the plan is made, and offset that contribution by the suspense account? Any other ideas for handling this?

If your wages are subject to FICA, then your deferral into the 457(b) plan should also be subject to FICA, thus not reducing your compensation for the 35-year average compensation used for determining your social security benefits.

Based on some comments I heard (quite some time ago) from some folks at SunGard (now FIS), the IRS had some court cases where Davis Bacon was offsetting the match. If I recall correctly, they said the prevailing wage contract officials were okay with that offset, but the IRS felt the anti-conditioning rule, IRC 401(k)(4), was being violated somehow. I think that was SunGard's explanation (best I remember) as to why their document did not allow the prevailing wage amounts to be used to offset the match.

So Mike, you're saying the plan can apply the 6-year vesting schedule to some of the employees when the amendment is adopted. However, anyone already held out too long (e.g. past a 1 year period of service with semi-annual entry dates), those employees have to be 100% vested when the plan is amended.

A profit sharing plan currently requires 2 years of service for eligibility for an employee to become a participant. Thus, the plan has 100% immediate vesting. The plan only covers non-highly compensated employees. The plan sponsor wants to lower the eligibility to 1 year of service and introduce a 6-year graded vesting schedule. All existing Participants will remain 100% vested. How will this be handled for existing employees? Some employees have been held out already over 1 year (some almost 2 years). However, they have not yet entered the plan and thus have no rights as a participant. Must they be 100% vested when the plan is amended to lower the eligibility, or can they be placed onto the 6-year schedule? How about those with under a year, would they be treated any differently?

Good question. Maybe Carol Calhoun will comment here on this. Without researching this, perhaps following the same procedure that applies to a qualified plan would satisfy the IRS/DOL.

Agree. Please note that the "otherwise deductible" is without regard to the 10% limitation.

That's what I thought at first and I am still inclined to agree, but when I took a close look at 2550.407d-5, the definition of the term “qualifying employer security” says: (a) In general. For purposes of this section and section 407(d)(5) of the Employee Retirement Income Security Act of 1974 (the Act), the term “qualifying employer security” means an employer security which is: (1) Stock; or (2) A marketable obligation, ... The rest of the section talks about the requirements for item (2), not for item (1).

To avoid the independent qualified public auditor opinion requirement for the Form 5500, does the fidelity bond need to cover 100% of an employer's non-publicly traded stock held within the plan, or can such stock be considered as a qualifying plan asset?

I assume you want to avoid both the ADP and ACP testing. To avoid ACP, you can match deferrals that do not exceed 6% of pay. For example, you can match 200% of deferrals, ignoring any deferrals that exceed 6% of pay. If you also provide a discretionary match, that match is limited to 4% of pay as a match and if other requirements are met, that match does not require ACP testing. If you aren't worried about ACP and you only need to pass ADP, your safe harbor formula could be something like 100% of deferrals up to 8% of pay. You avoid ADP, but you have to run ACP testing.

I think there may actually now be a case where the IRS did apply the rule. I think Derrin Watson may have mentioned something about this a few months ago?

The DB plan's minimum funding requirements are only met by employer contributions to the DB plan. Forfeitures of any participants' DC account balances can be used within the DC plan according to the DC plan's written terms for such use, which may include allocating as a nonelective or as an offset to the employer's contribution to the DC plan, or for plan expenses. Thus, the forfeiture may very well end up as being counted toward helping satisfy the minimum gateway requirements if allocated or offset. One possible exception to all of this, which I have not researched and have never get involved with, is a the plan described under Internal Revenue Code Section 414(x). However, even there I doubt the forfeitures of the DC portion of the plan are counted like contributions toward minimum funding for the DB side. Plus it's very unlikely you truly are looking at a 414(x) plan.

No.

and only if the plan allows hardship distributions for the hardship of a participant's primary beneficiary

Does the partial plan termination rule for qualified plans, which requires 100% vesting, apply to a 403(b) plan when it is frozen?

I think you still need to be careful of IRC 410(a). For example, I don't think you can single out all employees with less than 6 years and give all of them $0.00 with everyone else getting some allocations. It's not a nondiscrimination issue, it's that you would look like your excluding employees longer than the maximum period of service allowed under 410(a)

Check with your document provider. But if you mark that only the ADP test safe harbor is satisfied, then it's certainly possible the document could require the ACP test for the match. For example, you can provide a ADP safe harbor with a safe harbor match formula of 100% of the first 3% of pay deferred plus 50% of the next 5% of pay deferred. That satisfies the ADP safe harbor. It does not, however, satisfy the ACP safe harbor so you would not mark the document that it satisfies both.

It's a Vol sub, which has IRS approval, so I guess you are covered. you must follow the plan's terms. I find it very curious that this surprise, which occurs after year-end (to find that comp discriminates), has no correction required, under the written terms of the plan, for any NHCEs deferring right at the limit of the full safe harbor match rate (based on discriminatory compensation), thus leaving their original allocations as "perfect" even after the 414(s) test fails and the plan's automatic compensation fix language gets applied. I would assume your document's 414(s) "automatic fix" language applies this automatic new definition of compensation only to the NHCEs? This could be awesome as a plan design for getting extra to mostly just the HCEs. Go ahead and write up wage exclusions that affect NHCEs the most, fail 414(s), which already allowed the HCEs to get higher safe harbor matches anyway, and then just apply an automatic "bait and switch provision" in the document's compensation definition for the NHCEs after it's too late to defer, affecting very few NHCE's SH match, if any! This is especially nice if the IRS has truly bought into this. Am I being serious, or am I just kidding around here, I'm not even sure yet.

If the plan was SH match, such as 100% of 4% of pay, any NHCEs deferring 4% of base pay would have no additional match if an amendment is done retro to now include bonuses just for purposes of match calculation. Even with the HCEs, any that deferred 4% of base pay would still have the higher matches. I don't see how the -11g amendment to simply include bonuses for the match calculation gets us to "Yeah, we're good, that'll do it." Depending on the facts and circumstances, I would want more assurance than that.

Yes. From the responses above, perhaps the industry standard is to file and their perception of the industry standard is askew.

You have to follow the terms of the plan. If the plan spells out what compensation must be used for determining the safe harbor allocation and that definition includes a specific modification to be done if 414(s) fails, then you have your answer. Otherwise, a retroactive amendment will be needed, but... Can someone help with my understanding of how 1.401(a)(4)-11(g) can apply here and how such an amendment to affect safe harbor allocations for the prior plan year actually complies with the safe harbor regulations? Do the safe harbor rules require there to be a minimum number of months remaining in the plan year when such an amendment is done that increases benefits? Is there an explicit exception for -11(g)? 1.401(a)(4)-11(g)(2) spells out the scope of this type of amendment, stating a corrective amendment may retroactively benefits for coverage (410(b)), nondiscrimination (1.401(a)(4)-1(b)(2)), or a discriminatory timing of amendments. Under a safe harbor plan, the safe harbor allocation amounts are not subject discrimination testing by the very definition of being safe harbor, so how does -11(g) apply? Certainly a VCP could be done. Has the IRS indicated that such a correction, with a retroactive amendment as described in the posts above, can be done without VCP?

Thanks Carol. 1969 ruling! So they can have a government 457(b) plan covering everyone (or anyone) and a non-ERISA 403(b) plan with employer contributions.

Okay, even though their "status", for purposes of maintaining the 403(b) plan only, is a that of a 501(c)(3) entity.