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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
    Yes, that is the limit for 2016 for a 457(b) plan for employee and employer contributions combined, disregarding any catch-ups.
  2. 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.
  3. 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?
  4. 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?
  5. 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?
  6. 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).
  7. 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?
  8. 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!
  9. 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.
  10. 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.
  11. 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?
  12. 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.
  13. 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.
  14. John Feldt ERPA CPC QPA
    Okay, I see your point, just not certain how the IRS would view that.
  15. 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.
  16. 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?
  17. 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
  18. 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?
  19. 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.
  20. John Feldt ERPA CPC QPA
    I know this has been discussed a few times, but anyway: Suppose a profit sharing only plan, not top heavy, has the profit sharing allocations with each participant in their own rate class. Assume 6 NHCEs and 1 HCE - all eligible for the plan. Also assume the plan has a last day requirement in order to receive an allocation. 2 NHCEs quit - both worked over 1000 hours. The document does not show an election to apply any "automatic fix" provisions for a ratio percent coverage test failure. Running an average benefits percentage test for coverage essentially requires a classification that is reasonable and is established under objective business criteria. Would this plan be allowed to run the average benefits percentage test for coverage purposes? Or, must the plan resort to a 1.401(a)(4)-11(g) amendment to make the plan pass the ratio percent test for coverage? Would the answer be any different if the plan had no allocation condition (no last day requirement)?
  21. John Feldt ERPA CPC QPA
    For the folks that begin to use these services, please use some caution. I used this service from PBI some years back when I was with a former employer. A large company had being doing their own plan administration internally and they outsourced the work to us, a specialized service provider. They had been using PBI which provided periodic reports on potential deaths of plan participants. Just be aware, these are only potential deaths, not necessarily actual. Database entry errors do occur, especially at social security. We found that it was not uncommon for person that called social security to report the death was the person that got coded in their system as deceased. So be careful when writing your initial and follow-up correspondence. Probably don't start with a letter of condolences only to have the "deceased" actually call you back a bit upset about rumors of their demise.
  22. John Feldt ERPA CPC QPA
    https://www.asppa.org/News/Article/ArticleID/5805/Good-News-for-412-d-2-Amendments As you all know, it looks like the IRS sided with law over regs in the issue of plan qualification (a late FYI), but funding and deduction still remain as issues. From the article: In December, the IRS issued an internal memorandum instructing EP Determination and Examinations employees that an amendment made in the first 2½ months of a year that increases benefits for service in the prior year does not adversely affect a plan’s qualification. The memo advises that this type of amendment is not a “discretionary amendment” that must be adopted before the end of the prior year, provided the amendment was not “operationally effective” until after the end of that prior year. This, of course, describes a typical “412(d)(2) amendment.” We are very pleased that this aspect of our 412(d)(2) concerns has been favorably resolved.Funding and deduction concerns regarding 412(d)(2) still have not been addressed, and probably will not be resolved in the near future.
  23. John Feldt ERPA CPC QPA
    Are there special rules that might apply to a collectively bargained plan for allocation condition purposes? In this takeover plan, the collective bargaining agreement was found to have required that the match be allocated on a monthly basis and that the participant work 120 hours in a month to get the match for that month. This would exceed the annual 1,000 hour DOL rule that typically applies.
  24. John Feldt ERPA CPC QPA
    New safe harbor plan was executed timely to begin deferrals and safe harbor on October 1, 2015, plan is a December 31 year-end. They failed to offer deferrals until sometime in November. Under Revenue Procedure 2015-28, if the problem is found and deferrals start in the 3 month period, no QNEC is needed for the missed deferrals assuming the proper notice is provided? Seems like that's the case since an Employee Elective Deferral Failure includes a failure to afford an employee the opportunity to make an election. Agree?
  25. John Feldt ERPA CPC QPA
    You can ignore the first 6% of eligible compensation contributed into the DC plan for purposes of the combined plan deduction limit, essentially allowing you to put in 31% overall. Assuming the eligible compensation is truly $2,300,000, and if they put in and deduct $420,000 for the DB plan (assuming that is not more than the DB maximum deductible), this leaves $293,000 for employer contributions into the DC plan. Lastly, if this $293,000 in the DC plan does not exceed 25% of eligible compensation in the DC plan, you are okay,
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