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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
    Great responses. How about just telling the employer this: The missed earnings due to late deferral deposits are generally a prohibited transaction under Internal Revenue Code Section 4975. A 15% excise tax normally applies on these missed earnings and it is collected by the IRS by using Form 5330. However, 403(b) plans are exempt from Code Section 4975. Thus, 403(b) plans are not listed in the instructions for Schedule C of Form 5330 for Section 4975 excise taxes. Thus, no excise tax payments are due to the IRS and we do not recommend that a Form 5330 be filed. However, the DOL has an option under ERISA 502(i) to possibly assess a 5% civil penalty on the missed earnings. The DOL has no provision in place to voluntarily file and pay this 5% excise tax. If they decide to assess the 5% penalty, they will contact you to at least make sure the deposit was made and perhaps demand the 5% penalty be paid. Optional text: [Due to the small amount involved, it is unlikely that you will ever hear from the DOL regarding the $X of missed earnings.] Additional optional text: [Have a nice day!] edit: Of course this assumes the employer has correctly calculated and deposited the missed earnings, otherwise that would need to be addressed as well.
  2. John Feldt ERPA CPC QPA
    Right, the disqualified person files a 5330, of course. Yes, it is for late deferral deposits for a 403(b) plan covered by ERISA. Suppose it's $1,000,000 of deferrals over a long period of time, and the missed earnings are $2,500. That has been deposited. If the DOL does the 5% assessment on the $2,500, that's $125. edited to make a correction/clarification: if the period exceeds a year, the 5% is charged again on any uncorrected amounts, so the actual 5% assessment might be closer to $375.
  3. John Feldt ERPA CPC QPA
    Thanks, I agree. This is congruent with the EOB which states: Section 403(b) plans. Section 403(b) plans are not included in the definition of a plan under IRC §4975(e)(1). Thus, a prohibited transaction involving a section 403(b) plan would not be subject to these excise tax provisions, even if the plan is covered by Title I of ERISA. Accordingly, when a prohibited transaction occurs with respect to a section 403(b) plan (e.g., plan sponsor is late on depositing participant contributions), the disqualified person should not file Form 5330. emphasis in bold is also in the EOB. Looking for anyone (other than TAG) that disagrees and say a 5330 is needed, and if so, under what basis.
  4. John Feldt ERPA CPC QPA
    This has been discussed on these boards, but some conflicting opinions from elsewhere have made this. IRC §4975 does not apply to an ERISA 403(b) plan, but ERISA 3(2) includes 403(b) plans. That, in turn, makes an ERISA 403(b) plan subject to the prohibited transaction rules, but not under 4975, under ERISA 406. Does this cause an ERISA 403(b) plan to be subject to an excise tax that requires Form 5330, thus completing the section of the form under 4975 and paying the 15% excise tax?
  5. John Feldt ERPA CPC QPA
    Suppose the plan has only 5 participants. Each one has a balance over $2 million. Given that, it seems okay.
  6. John Feldt ERPA CPC QPA
    If the mistake is made and the 401(k) is established, it's the contributions to the SIMPLE for that year that become invalid. The IRS website has something about corrections for when that happens.
  7. John Feldt ERPA CPC QPA
    Plan has automatic enrollment (3% of pay). Payroll date: 7/2/1015 (includes wages for service provided through June 27) Payroll provider's cutoff for paycheck changes: June 28. Four new employees might enter on July 1. One of these 4 quits June 30 and gets a paycheck on July 2 and another on July 17. No deferrals withheld from either. No problem. The other 3 did not return any deferral elections. They get paychecks on July 2. No deferrals withheld. Automatic deferrals withheld on July 17. Problem? Document says "An Eligible Employee shall be deemed to have made an elective deferral election upon satisfaction of the eligibility requirements..."" ... provided however that in a reasonable time before the deemed election takes place the Eligible Employee shall receive a notice that explains the ... right to elect to ... alter the amount, ... including the procedure for ... the timing for implementing such election.""The Eligible Employee must have reasonable opportunity to file an election to receive cash in lieu ... before such deemed election...""The Company shall contribute to the Plan with respect to each pay period an amount equal to the Elective Deferrals . . . for such pay period"The Plan Administrator intends to implement this uniformly and consistently. Do they have a valid legal basis for not withholding on July 2 for these other 3 employees?
  8. John Feldt ERPA CPC QPA
    Not a church. Yes, ERISA 3(2). The intent is to be a program maintained by the Employer that provides retirement income to employees, and/or to defer income for such employees for periods up to (or past) the termination of employment.
  9. John Feldt ERPA CPC QPA
    An advisor has a prospect with about 300 EEs, and this employer wants a NQDC plan to cover only about 20 non-highly compensated employees who are managers. This is to have a long vesting schedule as an incentive to retain them. No HCEs and no executives would be in this plan. I don't see how this could be considered a top hat plan. What am I missing?
  10. John Feldt ERPA CPC QPA
    Exactly, it's always been: don't let your plans run around out there without any clothes on (the IRS D letter). Now we'll have to keep our eyes closed when we see those plans. Edited to say I was replying to ETA.
  11. John Feldt ERPA CPC QPA
    rcline46, individually drafted plans that do not seek an IRS Determination letter are not required to restate the document, that has never been required. Only if they seek an IRS determination letter are they required to restate the plan to conform with the applicable cumulative list.
  12. John Feldt ERPA CPC QPA
    The DC plan limit is still 25% of eligible payroll for the employees covered by the DC plan. Deferrals do not count in that, of course. Voluntary after-tax contributions also do not count against that limit either.
  13. John Feldt ERPA CPC QPA
    From above: The QDRO says the "benefit goes to her beneficiary unless that's prohibited by the Plan" and "the Plan document is silent". This tells me the plan has no language that "prohibits the benefit from going to the AP's beneficiary" and that the terms of the QDRO apply, unless you know of something else, another rule, policy, or procedure that the plan has adopted to prohibit that.
  14. John Feldt ERPA CPC QPA
    That's how I would interpret it, but of course, that's not what the employer is looking for : (
  15. John Feldt ERPA CPC QPA
    Under Revenue Procedure 2013-12, in Appendix B, Section 2.01(1)(b)(iv)(B)(1), it states "the contribution ... is allocated to the account balances of ..." Later in that same paragraph, three more times it states "to the account balance(s)" Under this One-to-One correction method, could a plan sponsor allocate the QNEC only to eligible NHCEs that have account balances (meaning the Eligible NHCEs with a zero account are excluded)?
  16. John Feldt ERPA CPC QPA
    I that reference is Treasury Regulation 1.401-1(b)(1)(ii) "... The plan must provide a definite predetermined formula for allocating the contributions made to the plan..."
  17. John Feldt ERPA CPC QPA
    That has happened. From a prior employer I know of a case where the plan self-corrected the late deposits using the DOL calculator rates, but with no VFCP filing. When the DOL audited, they would not allow that rate, saying you only get to use that if you file VFCP. They required new calculations to use the actual rates or the highest rate. The plan had to put in something like an extra $125 of missed earnings. Yet I also know of several other instances where the DOL agent (different ones) accepted the use of the DOL rates even though no VFCP filing was done.
  18. John Feldt ERPA CPC QPA
    Sorry, I mean it will show all the contributions made in 2014.
  19. John Feldt ERPA CPC QPA
    Employer starts two new plans in 2014, DB and PS. They mistakenly think the DB plan is subject to PBGC coverage. Oops, they find their plan is not PBGC covered and 404(a)(7) applies. Eligible Payroll: $1,000,000 Total contributions, both plans combined: $400,000 PS contribution made during 2014: $100,000 DB contributions: $300,000 made during 2014: $280,000 (covers the MRC) made during 2015 for 2014: $20,000 Amount deducted on the 2014 business tax return: $400,000 (already filed). Recommendations? Can the employer make an election under 4972(c )(7) to avoid the 10% excise tax? Or is the excise tax avoided regardless of this election? Must the 2014 business tax returns be amended? Or does the deducted contribution carry forward into 2015 to count against the 2015 deduction limit? Schedule SB will show all contributions made during 2015. If the employer does not amend the business tax return for 2014, should the Schedule SB also include the $20,000 contribution made in 2015 but deducted on the 2014 tax return?
  20. John Feldt ERPA CPC QPA
    Thanks Belgarath and GMK - aware of the disqualification option, but they're not looking for that taxable solution just yet. Certainly a discussion of this will be included. I am curious what the IRS might be willing to negotiate for making this pass so it does not have a taxable solution. Certainly giving the QNEC to enough NHCEs to pass, picking those that are still around today who were there when the error occurred, etc. But just how willing would the IRS be to negotiate regarding the size of the QNEC?
  21. John Feldt ERPA CPC QPA
    Thanks, I will take a look and then see if Sal has anything on that.
  22. John Feldt ERPA CPC QPA
    Potential prospect is a controlled group, 2 employers each with a plan, plans started a couple years ago. ER 1 plan: safe harbor match, 60 eligibles total, 10 are HCEs, no profit sharing. ER 2 plan: non-safe harbor match. 450 NHCEs, no HCEs, no PS. Matching formula is the same structure as the match formula in plan 1. Can't aggregate a SH plan with a non-SH plan. Coverage for plan 1 is 10% Suggestions for passing coverage?
  23. John Feldt ERPA CPC QPA
    You might want to look at a PPD document. In the pre-approved basic document in the discretionary match section, it pretty much gives the employer the discretion to to pick and choose which employees get a match and how much to each. At least that's how it reads to me.
  24. John Feldt ERPA CPC QPA
    Depends on the document. Some documents require a January 1, 2002 retroactive effective date for the EGTRRA restatement with special effective dates for each change that occurred after that. Others simply require a current effective date and the document internally has hard-wired each of the required retroactive effective dates for the various provisions.
  25. John Feldt ERPA CPC QPA
    The plan's written document allows in-service at NRA for ALL accounts, and NRA is 55? If so, does that plan have an IRS D letter, an advisory letter, or an opinion letter? I would think the plan, assuming it's a tax-qualified plan, would also have language stating something like, "regardless of anything you might have seen written in this here plan elsewhere, there ain't no way any participant is gettin' an in-service distribution before age 59.5 from them elective deferrals, safe harbor, QNECS, or QMACs, unless the distribution is for hardship or disability, or if its a qualified reservist distribution of elective deferrals." Probably not worded exactly like that, but you get the idea.
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