John Feldt ERPA CPC QPA

The new Rev Proc (2016-51) is technically not in effect until 1-1-2017. Section 16 EFFECTIVE DATE states "This revenue procedure is effective January 1, 2017." The old Rev Proc was 2013-12 plus 2015-27 plus 2015-28. The annual safe harbor notice deadline is found in Treasury Regulation 1.401(k)-3(d)(3)(i) The timing requirement of this paragraph (d)(3) is satisfied if the notice is provided within a reasonable period before the beginning of the plan year (or, in the year an employee becomes eligible, within a reasonable period before the employee becomes eligible). The determination of whether a notice satisfies the timing requirement of this paragraph (d)(3) is based on all of the relevant facts and circumstances. That's the rule. If you want certainty regarding the term "reasonable", the IRS states they won't question your timing at all if you meet the timing described in Treasury Regulation 1.401(k)-3(d)(3)(ii), which states The timing requirement of this paragraph (d)(3) is deemed to be satisfied if at least 30 days (and no more than 90 days) before the beginning of each plan year, the notice is given to each eligible employee for the plan year.

And just to be clear, the loan repayments continue to the plan, they don't make repayments to the IRA.

Yes. If you have a governmental 457(b), there is an exception for police/fire, 1.457-4©(3)(v)(B)

Suppose the first paychecks in 2017 are to be paid on January 15, 2017. Will the IRS say that employer, by giving the safe harbor notice today, violated the "reasonable period" requirement for providing the notice? Did the participants not have enough time to make an informed salary deferral election for that January 15, 2017 paycheck? Those would be at least a couple of questions that the employer should be willing to consider.

If it is a DB plan, to satisfy the RMD, the annuity payment must start. That's why the actuary said life annuity x 12. But, if the plan allows a lump distribution and the full lump sum will be paid, you can use the account balance method that you normally only see with DC plans.

How about the B-Org rules then?

Your assumption and conclusions seem okay, unless there are other facts and circumstances that would change things.

Yes, as long as you don't violate the predecessor plan requirements. Sometimes you won't know that you violated this rule until one of the plan terminates, so there are some provider prefer not to set up the plans this way.

Yes, it has been done. They used to be submitted together, but that was a mess for the IRS to handle. I think they are submitted separately now. Section 10.05 of EPCRS: The IRS may process a determination letter application, including 5310, while separately processing a VCP submission. The D letter will essentially be held until the VCP submission is closed. You have to make sure you communicate clearly to the IRS in D letter application that the plan is also submitted under VCP, and also mention in the VCP application that the plan submitted a Form 5310 application.

How close were they to 0.50%? I've seen a couple of cases where the IRS did not pursue benefits at 0.45% or so.

The EOB has this: Suppose an eligible employee later becomes ineligible due to a job classification? Where the plan excludes employees in a specified job classification it is possible for an employee to become eligible for the plan, and thus eligible for top heavy minimums, but later become ineligible due to the job classification (e.g., a salaried employee later becomes an hourly-paid employee under a plan that excludes hourly-paid employees). Should the plan continue to provide this employee the top heavy minimum, assuming he/she is a non-key employee, even though he/she is no longer eligible to participate in the plan? As noted in 3. above, Treas. Reg. §1.416-1, M-10, states that only non-key employees who are participants and who are employed at the end of the year accrue the top heavy minimum in a defined contribution plan. That Q&A goes on to say: ”A non-key employee may not fail to receive a defined contribution minimum because either (1) the employee is excluded from participation (or accrues no benefit) merely because the employee's compensation is less than a stated amount, or (2) the employee is excluded from participation (or accrues no benefit) merely because of a failure to make mandatory employee contributions or, in the case of a cash or deferred arrangement, elective contributions.” It comes down to how you define a participant once the person has qualified for the plan. It is clear that if you have always been in an excluded classification, then you are not entitled to participate (assuming of course the plan is able to pass coverage without covering such employees). Our interpretation is that, if an employee later becomes part of an ineligible classification (other than the two circumstances in the quoted part of the regulation above) he/she is not entitled to the top heavy minimum for the plan year, so long as he/she is excluded from the plan for the entire plan year. See also Rev. Rul. 96-48, Holding (Issue 2). Note that if, in the plan year that the employee becomes part of the ineligible class, the employee is eligible for at least a part of that plan year, the top heavy minimum will apply to such employee based on his/her compensation for the entire plan year. At the IRS Q&A Session at the 2014 ASPPA Annual Conference held in National Harbor, MD, the IRS agreed with this interpretation.

I also think Announcement 95-33 might help, but it is pre-EGTRRA, the IRS said “Remember that a plan may compute the minimum benefit based on a non-key employee’s years of participation in the plan, rather than years of service with the employer”.

DB/DC combination. Eligible Employee (HCE, but not key) enters both plans 1-1-2016. They accrue benefits for 2016. Now, both plans are amended to exclude this HCE (but not key) by classification effective 1-1-2017. Not eligible for deferrals, match, PS or anything, and not eligible for DB. The plans are not frozen. Owners and NHCEs and other HCEs are still eligible and accruing in both plans. A colleague is arguing that continuing additional top-heavy minimums must be accrued even after 2016 by this HCE even though they are fully excluded, assuming they meet the top heavy accrual requirement (1000 hours for DB or last day for DC). Based on grey book 2001-35. The written plan language appears to require the participant be an eligible employee to earn a TH minimum accrual. Essentially meaning they must earn a top-heavy year of participation to accrue additional top heavy minimum accruals. If they are now excluded by class, they can't earn any more years of top-heavy participation. My colleague states that this HCE became a "participant" on 1-1-2016 and that fact requires the plan to provide top-heavy minimums to comply with the law/guidance, since they are still a "participant" with accounts and/or benefit accruals from the 2016 plan year. The document might not have a formula for them for any more normal accruals, but the plan would not meet the law’s requirements if the top-heavy minimum was not provided, causing a qualification issue. Your thoughts on this?

For now, just your new entrants need the notice. But annually, I think it is technically required for all those stay auto-enrolled (deferrals are being withheld but they've never made an election to have deferrals withheld). Of course, all new entrants who also will be auto-enrolled if they make no election will certainly need to be notified prior to entry. So, even though your plan is starting with 1-1-2017 with new entrants only, given time, you will have both new entrants and prior auto-enrollees that should get the notice. If tracking that is troublesome, you could provide the notice to everyone, assuming the notice language won't confuse anyone.

So the speaker did not say "it depends on the language of the amendment and the language of the existing document?"

And the caution is to check your plan document (the basic document especially if applicable) to see that it does not somehow override what you are trying to do when you write up the amendment to begin excluding those that had previously entered.

Does the document define how the prevailing wage is to be counted? For example, as a QNEC (to help with the ADP test) or as an other "profit sharing" nonelective? If yes, then this will help you determine how it gets treated for in-service. But keep reading. Are any non-prevailing wage contribution types offset by the prevailing wage contributions? If so, then the amount that is used toward the offset must be treated as the contribution type it is offsetting. For example, if the prevailing wage contributions are used to offset the 3% safe harbor nonelective, then the portion used to offset that SH requirement must be treated as a SH contribution for purposes of determining the restrictions for in-service distributions.

The question sounds like something the CPA or other compensation/tax advisor should answer. If the idea is to avoid FICA, you'll find quite a few cases where the IRS won in court over unreasonably low compensation when large corporate dividends were paid to owners. Consider whether or not the compensation paid, coupled with the actual work being performed and the company dividend being paid - all in concert - will the IRS see this as reasonable, or as some type of tax avoidance?

I see what you mean, the instructions say, yes, in all caps: DO NOT USE THIS FORM IF ANY PARTICIPANT IS DECEASED OR THE FAILURE INVOLVES A BENEFICIARY OR IF BENEFITS WERE NOT PAID OUT TIMELY AT NORMAL RETIREMENT AGE. IF YOU CANNOT USE THIS FORM, ATTACH A WRITTEN NARRATIVE TO FORM 14568 AND PROVIDE THE NECESSARY INFORMATION REQUESTED BY THAT FORM) Based on that statement, perhaps you could still use the form 14568 with an attached a narrative and submit it with the $500. Try marking 8a of Form 8951 and enter $500 in the blank. If they come back and explain that you must pay more, withdrawing the application should still be an option.

"Can you show that all employees who wanted to stop deferrals after you eliminated the match had an opportunity to do so?" I think the IRS would ask if they were given the opportunity to increase their deferrals to make up for the newly absent employer safe harbor contributions. I find it somewhat interesting how they tend to think the opposite of what many of us would generally think.

That's pretty much what I thought too, until I heard the IRS speak about this during the DC Q&A at the ASPPA Annual conference in 2015. I think Don Kiefer (sp?) mentioned that even if you have each person in their own class that you still look at the facts and circumstances to see if the actual excluded (zero allocation) group is a reasonable business classification. Then I fell out of my chair. Of course that's just a verbal IRS unofficial opinion.

Depends. If the plan also has automatic enrollment, then you only have the match to make up. Otherwise, take a look at Section 3.03 of Revenue Procedure 2015-28. There it depend on whether or not you provided a notice within 45 days after the deferral problem was fixed (but they still owe the full match regardless). 3.03 (1) Safe harbor correction method for Employee Elective Deferral Failures that do not exceed three months. This safe harbor correction method creates a rolling correction period for Employee Elective Deferral Failures that do not exceed three months. Under this safe harbor, no QNEC for the missed elective deferrals is required provided that the following conditions are satisfied: (a) correct deferrals begin no later than the earlier of (i) the first payment of compensation made on or after the three-month period that begins when the failure first occurred for the affected eligible employee or (ii) if the Plan Sponsor was notified of the failure by the affected eligible employee, the first payment of compensation made on or after the last day of the month after the month of notification; (b) notice of the failure that satisfies specified requirements in new section .05(9)© of Appendix A of Rev. Proc. 2013-12 is given to the affected eligible employee not later than 45 days after the date on which correct deferrals begin; and © corrective contributions to make up for any missed matching contributions are made in accordance with timing requirements under SCP for significant operational failures (described in section 9.02 of Rev. Proc. 2013-12) and are adjusted for Earnings. See section 9.04 of Rev. Proc. 2013-12. (2) Safe harbor correction method for Employee Elective Deferral Failures that extend beyond three months but do not extend beyond the SCP correction period for significant failures. This revenue procedure creates a safe harbor correction method for Employee Elective Deferral Failures if the period of failure exceeds three months (or the conditions for the safe harbor correction method described in section 3.02 or 3.03(1) are not met by the Plan Sponsor). This safe harbor correction would permit the Plan Sponsor to make a corrective contribution equal to 25% of the missed deferrals (25% QNEC) in lieu of the higher QNEC required in sections .05(2)(b) and .05(5)(a) of Appendix A and section .02(1)(B) of Appendix B to Rev. Proc. 2013-12. In order to use this safe harbor correction, the Plan Sponsor must satisfy the following conditions:

Is this then the crux for your conclusion: Taxpayers may rely on these provisions (that is, the provisions that the proposed regulations would permit a taxpayer to apply before the proposed applicability date for these regulations) in order to satisfy the nondiscrimination requirements of section 401(a)(4) for plan years beginning on or after January 1, 2014 So, would you argue that a match could count toward the gateway in a DB/DC combo design could for the 2014 and 2015 plan years even though the regs weren't provided until 2016?

My reading is that the DB/DC combo testing using the average NHCE match toward gateway cannot yet be applied.

And keep in mind that the SPD and notices would need to be written in a manner that the participant can understand, so writing this in the plan document in a complex manner to get to the exact fixed match would require you to override that language within the notices and the SPD.