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John Feldt ERPA CPC QPA

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Everything posted by John Feldt ERPA CPC QPA

  1. John Feldt ERPA CPC QPA
    Can be allowed as early as age 59.5. Can be allowed at any age upon disability. Can also be allowed at any age for a military deemed severance distribution. These are only optional, so check your plan's document to see what it actually allows.
  2. John Feldt ERPA CPC QPA
    sorry - wrong post - removed!
  3. John Feldt ERPA CPC QPA
    Scenario 1. If the only allocations are deferrals and safe harbor, then the plan is exempt from top heavy for that plan year. If any other amount is allocated in the plan, even if from a forfeiture, you must do a top heavy test to determine if that plan year is top heavy. If it is top heavy, they need to provide any top heavy minimums and apply the top heavy vesting schedule. If no HCEs receive any nonelective allocations, such as profit sharing, then you will not need to run a 401(a)(4) test for the nonelective allocations. You don't have to test for discrimination among NHCEs, you only do that for testing discrimination in favor of HCEs. So if the owner's sibling is a NHCE, they can get a large profit sharing allocation and all of the other NHCEs can receive zero profit sharing, but just be aware that the PS amount will show up on the 5500 and the SAR. Scenario 2 Some or all HCEs can be excluded from safe harbor. Some of those HCEs might not be key employees. Regardless, if the plan only allocates deferrals and safe harbor, the plan is exempt from top heavy for that plan year.
  4. John Feldt ERPA CPC QPA
    The quote from EPCRS mentions violations under 72(p)(2)(B) and (C ). But if the loan is merely outside the plan's written loan policy, has it actually violated 72(p)(2)(B) or (C )? (B ) says the term can't exceed 5 years unless the loan is for a home. (C ) requires substantially level amortization of such loan (with payments not less frequently than quarterly) over the term of the loan. Suppose the loan gets entirely paid off now. Did the plan have an actual error? The loan is just over two weeks old.
  5. John Feldt ERPA CPC QPA
    A plan's loan policy had a limit of 5 years for participant loans. The vendor issued a loan a couple weeks ago for a 15-year primary residence loan. The plan sponsor does not want to adopt a new loan policy that allows for primary residence loans. The loan is not in default, the end of the cure period hasn't passed. One payment just occurred. Has an actual error occurred that would necessitate VCP? Could this be self-corrected by re-amortizing the loan now to not go outside 5 years or by having the participant pay off the loan now and borrow from outside the plan?
  6. John Feldt ERPA CPC QPA
    Then give the notice in order to comply with the Revenue Procedure. If they are owed no extra dollars, you have now complied the last requirement needed to qualify for the zero dollar QNEC. Assuming no match was also missed.
  7. John Feldt ERPA CPC QPA
    Yes, that is the limit for 2016 for a 457(b) plan for employee and employer contributions combined, disregarding any catch-ups.
  8. John Feldt ERPA CPC QPA
    If they are not due any contribution because the QNEC is zero and they are not owed any match for deferrals that would have occurred, then the only piece left to satisfy the requirement of the Revenue Procedure is to give the notice saying you are correcting the deferrals. Give out the notice and if they have any future compensation due that can have deferrals withheld, apply the correct deferral election. edited to remove what was an ill-conceived attempt at describing how that notice could be worded.
  9. John Feldt ERPA CPC QPA
    An investment provider received a rollover check and allocated it to the wrong plan and thus to the wrong participant. The lucky individual had no plan balance otherwise. After the rollover was allocated to their plan account, they took out a loan. Some repayments have been made on that loan. 1. The person whose money was actually rolled in to the plan needs to be made whole, probably by the investment provider? I assuming the paperwork was in order but just not properly handled on their end. 2. The person who got the funds, via the loan, needs to pay back the loaned amount to the investment provider, not to their plan account? 3. The investment provider needs to empty out the account from the wrong person so it can be used for the correct person's account? Or is this an excess loan that is taxable and still needs to be repaid - but how can it be repaid as a "loan" when there was no balance to actually loan out anyway? Other ideas?
  10. John Feldt ERPA CPC QPA
    Okay, but DOL EFAST2 Q&A31 says: "Do you need a separate registration for the 'Employer/Plan Sponsor' and for the 'Plan Administrator' (two separate signature lines) if the employer/plan sponsor and the plan administrator are the same person? No, you only need to register one time for both purposes. The credentials that you get can be used for multiple years and on multiple filings. If the same person serves as both the plan sponsor and plan administrator, that person only needs to sign as the plan administrator on the 'Plan Administrator' line." Doesn't this imply that both signatures are needed if the two are different?
  11. John Feldt ERPA CPC QPA
    If the Plan Administrator and the Employer are not the same, must both e-sign the Form 5500/5500-SF? What if the TPA gets their own credentials to file on their behalf with written authorization (because the employer can't find "internet" on their computer), must the pdf attached to the e-signed 5500 have both a PA and ER signature if they are different entities/people?
  12. John Feldt ERPA CPC QPA
    Well that was easy. Yes, it applies. Okay, so I should have just looked it up first. Treasury Regulation Section 1.401(a)(26)-1(b)(5)(i) General rule. - Rules similar to the rules prescribed under section 410(b)(6)(C ) apply under section 401(a)(26).
  13. John Feldt ERPA CPC QPA
    If a business transaction occurs, a transition rule under IRC 410(b)(6)© applies for coverage purposes. Does this transition period also apply regarding 401(a)(26)? For example, employer A covers 2 of 5 nonexcludable employees in their DB plan before the business transaction occurs. They buy company B's stock. Company B has 5 employees that would meet the plan's eligibility/entry. Does 401(a)(26) require an immediate change to the plan to add more participants, or is it transitioned just like coverage?
  14. John Feldt ERPA CPC QPA
    Thanks Mike, that's exactly what I learned from Larry Deutsch. It's takeovers like this that force me to question if I understood him correctly!
  15. John Feldt ERPA CPC QPA
    We recently took over the work for a controlled group of employers that have a separate 401(k) plan for each employer. Deferral and match only, no profit sharing. All the plans pass the ratio percent test for coverage except for two plans - so the average benefits percentage is applied to test these last two plans for coverage. One of these two plans is a safe harbor 401(k) plan. The employer has no other safe harbor plan, thus it cannot be permissively aggregated with any other plan for coverage testing, correct? The final plan happens to be their only 401(k) plan that uses current year testing for ADP/ACP, so I don't think it can be aggregated with the other plans either. The question is regarding the terms 'testing group' and "taken into account" from the 410(b) regulations. In 1.410(b)-5(b), the average benefit percentage for a plan is the ratio of the NHCEs actual benefit percentage in plans in the testing group over the HCEs actual benefit percentage in plans in the testing group. In 1.410(b)-5©, the actual benefit percentage is the average of the employee benefit percentages in the group with all nonexcludables of the employer taken into account, even if not benefiting under any plan taken into account. In 1.410(b)-5(d)(3), the testing group is defined in 1.410(b)-7(e)(1) which states that the testing group is the plan being tested (obviously) plus all other plans of the employer that could be permissively aggregated with the plan being tested. So, when reviewing the prior firm’s coverage testing, they ran the average benefits test for the safe harbor plan by showing zeros for all the hundreds of nonexcludables (those are the employees in the controlled group covered by other plans but not covered by the safe harbor plan), then averaging the results. The averaging takes into account all of those zeros. However, for the current year tested plan, they ran the average benefits test by including allocations for all employees in all plans, including the allocations made in the safe harbor plan, then they averaged those results. So, for the average benefits test for coverage, the "testing group" is only the plan being tested. So does that mean the average for that test include all the zeros for the nonexcludables covered by other plans because they are to be "taken into account"? Or, are all the average benefits provided under the other plans also calculated for purposes of determining the average benefits. It seems like the prior firm did this both ways. Why would the safe harbor plan and the sole current year testing plan be done differently for these tests? Man, that's a long question. Sorry about that.
  16. John Feldt ERPA CPC QPA
    If the one person is the 100% owner (including spousal attribution), then you are correct that they are not subject to ERISA and thus the 7-business day ERISA deposit timing rule does not apply. However, check the terms of the plan document to see if it states a requirement regardless. The plan still must operate according to its terms. I have seen some that have built in the 15-business days after the end of the month as a "no later than" requirement.
  17. John Feldt ERPA CPC QPA
    IRS Notice 2016-16 lists as one of the 4 prohibited mid-year changes: 2. A mid-year change to reduce the number or otherwise narrow the group of employees eligible to receive safe harbor contributions. This prohibition does not apply to an otherwise permissible change under eligibility service crediting rules or entry date rules made with respect to employees who are not already eligible (as of the date the change is either made effective or is adopted) to receive safe harbor contributions under the plan. Would an amendment to exclude HCEs mid-year run afoul of the above prohibition?
  18. John Feldt ERPA CPC QPA
    For an IDP document, no restatement is required unless the plan sponsor wants to submit the document to the IRS to obtain a determination letter - to get the IRS to review the plan, they require the prior amendments to all be restated into the document that you are submitting. If your client adopted each of their required interim amendments along the way, they do not need to restate if they are not preparing a Form 5300 application.
  19. John Feldt ERPA CPC QPA
    Employer has 1 HCE (the owner) and 75 eligible NHCEs. Wants to adopt a 3% safe harbor 401(k) plan. Owner's compensation is normally paid as $120,000 base pay and $150,000 year-end bonus. The NHCEs receive tips amounting to about 50% of their compensation. If the plan excludes bonuses and tips for purposes of all allocations, would this still retain its safe harbor status? If so, it seems like the employer is getting away with a safe harbor contribution of only 1.5% of compensation. We understand that it might eventually become top heavy with all the turnover they have, but that could take several years.
  20. John Feldt ERPA CPC QPA
    Okay, I see your point, just not certain how the IRS would view that.
  21. John Feldt ERPA CPC QPA
    Was "the plan document" signed before or after the plan's administrator sent the notice? Before. Does anything in "the plan document" treat the notice as incorporated by reference or otherwise made a part of the terms of the plan? No. Consider that what you think of as "the" plan might not be the only one of possibly several "documents and instruments governing the plan[.]" ERISA section 404(a)(1)(D). Not overly concerned about how the DOL views it, more concerned about the IRS - keeping the plan's tax-qualified status. Presumably, the SPD does not list a 3% default deferral election either. (Just thinking about what might affect participant deferral decisions.) SPD shows 3% What does Revenue Procedure 2007-44 actually allow, amendment-wise? Section 15, example 2: Example 2: ...On July 1, 2010, Employer M starts to operate the plan in a manner which is inconsistent with the written plan document but an amendment to reflect the plan change when made retroactively effective would not violate § 411(d)(6). This change is unrelated to a change in qualification requirement or published guidance. To conform the plan document with the plan’s operation, Employer M adopts an amendment by December 31, 2010 that reflects the change in operation and such amendment is adopted in good faith with the intent of maintaining the qualified status of Plan X.... The amendment would be retroactively effective as of July 1, 2010 and Employer M must correct its operation to the extent necessary to reflect the corrective amendment.
  22. John Feldt ERPA CPC QPA
    A draft document was prepared for review/discussion last fall. This draft document contained a 3% default deferral. Upon final discussion, the client chose to use a 4% default deferral for automatic enrollment starting January 1, 2016. The materials provided to the participants from the investment provider all explained how a 4% deferral would begin if no contrary election was made. However, the plan document that was executed still had a 3% default deferral instead of 4%. It is a calendar year plan. The issue was just now noticed. The question is: Does this necessitate a VCP application to properly fix, or is possible to adopt the 4% in an amendment now, retroactively effective January 1, 2016, as long as it is adopted before the last day of this plan year?
  23. John Feldt ERPA CPC QPA
    I will credit these two old IRS responses as having been found by TAGDATA: From the 2000 Annual ASPPA Conference: 22. Company A has 11 nonexcludable employees; one HCE and 10 NHCEs. Four of ten NHCEs leave employment during year after working more than 500 hours. Plan requires end of year employment for allocation. Coverage ratio is therefore 60%, which meets the non-discriminatory safe harbor at 1.410(b)-4(c )(2). Plan also passes the average benefits percentage test of 1.410(b)-5 (e.g. on a cross-tested basis). Plan still must cover reasonable class per 1.410(b)-4(b) to pass the average benefits test of 410(b)(2). Question: is “those employed on the last day of the plan year” a “ reasonable classification” for purposes of 1.410(b)-4(b)? IRS: Yes. From the 2001 Annual ASPPA Conference: 46. The average benefits test for coverage testing consists of the nondiscriminatory classification test and the average benefits percentage test. To satisfy one part of the nondiscriminatory classification test, it is necessary to determine if the classifications are reasonable based on objective business criteria. Do participants employed at the end of the plan year constitute a “reasonable classification” under Treasury regulation 1.410(b)-4(b)? IRS: No. Our opinion is that it is not a reasonable classification. edit: typo
  24. John Feldt ERPA CPC QPA
    Now, suppose the plan is pro-rata or integrated, has a last day requirement, 2 of 6 NHCEs quit, and the document does not have an automatic failsafe. Can the plan run an average benefits percentage test - meaning, does the fact that they terminated put them automatically into a reasonable business classification in that case? If not, then why have a failsafe option in the plan? If it does, then why wouldn't that also apply in a plan that allocates to each person in its own rate group?
  25. John Feldt ERPA CPC QPA
    BG150. Yes, I agree. Perhaps a small plan would do it just to remove from testing consideration anyone who quits with under 500 hours (maybe they just apply only a 500 hour requirement though). As you know, you can exclude those terminees from the test count entirely if the sole reason they didn't get an allocation was because they failed to complete a condition, but you can't leave them out if the only reason is because the employer chose not to allocate any to them. Belgarath. Bizarre, yes. So last fall at the ASPPA annual conference, there's an IRS speaker (Kieffer?) saying that you still have the facts and circumstances as an option to look at even if the plan puts each person in their own class. Saying if the employer has a reasonable business criteria for not providing the allocation, then the plan could still run an average benefits test and not be stuck with the ratio percent test. I immediately cleaned out my ears after hearing that.
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