John Feldt ERPA CPC QPA

No. If it is a calendar year plan, they have now missed the deadline to hand out the SMM or SPD (a DOL requirement). If they did not tell the employees, then they have probably established some ill-will with their employees also. Recommend they get the SMM or SPD out to participants now. Whoever did the amendment should have been engaged to also provide the employer with an SMM or SPD to hand out to eligible employees.

Some would argue it's okay, others that it's not okay. The IRS has the authority to issue guidance on this (ever since the Treasury Department gave them that authority in November 2013). So, instead of having to go through a long arduous regulatory process, they can issue IRS announcements notices, revenue procedures, etc. on safe harbor plan mid-year amendments. Since that time, no official guidance has been issued by the IRS. Look at treasury regulations 1.401(k)-3 and see if you think that regulation is specifically prohibiting what the employer did with their amendment - is it in there? Also look at the 2012 ASPPA Annual Conference Q&A where the IRS national office gave some un-official responses to changes to safe harbor plans. In one Q&A, they said if a safe harbor plan is amended to expand eligibility, that's okay as long as the other participants are not affected. Not official guidance, of course, but perhaps that tells us their approach to their interpretation of 1.401(k)-3 (or maybe it does not).

Tom's point about passing the 40% 401(a)(26) test for minimum participation is correct. Perhaps before 1987(?) "Excess Only" plans existed?

If I understand correctly, income deferred into a 403b is exempt from both income and SE taxes. Am I correct? Yes. I assume he qualifies as a "minister of the Gospel" which means he is treated as self-employed for tax purposes. Because of that, he has no FICA/Medicare withholding. That means the election made to defer into the 403(b) plan is not subject to FICA/Medicare tax - the deferral directly reduces both his taxable income and reduces his SE tax that he pays. Thus, it will never be subject to FICA/Medicare until sometime when Congress changes the tax rules on this.

1.401(a)(4)-12 defines your options for testing under "Standard interest rate" and "Standard mortality table". Sometimes A) 8.5% with GAM71 Male gets you the results you want in a CB/DC combo, other times B) you're better off using 7.5% post IAM83 Female. If you are trying to get the largest offset value off of the cash balance plan accounts, then (B) above will give you larger PVABs for that offset. Using 7.5% for the pre-retirement testing assumption may even lower this further, but it could cause the rate groups to fail, so watch out for that. However, if your HCEs are a lot younger than your HCEs or your HCE benefit targets are not huge, you may be able to lower your minimum gateway from the 7.5% to 7% or 6% or even 5% by using the 8.5% GAM71 Male as your testing assumption. If you are designing a new cash balance plan, the choice of the interest rate and the actuarial equivalence definition will also have an impact.

A small 401(k) plan is written to provide a safe harbor match. If the employer provides no profit sharing and no forfeitures are allocated (or they are allocated as ACP-free match), the plan is top-heavy exempt. Suppose the plan is also written to partially exclude one sales person who is a Non-Highly Compensated Employee (not an owner and makes under $115,000). They are only excluded from the deferral and match portion of the plan. The plan easily passes coverage by covering the other 8 NHCEs. The employer wants the sales person to still get profit sharing in the years that they actually make a profit sharing contribution. However, in the years where no profit sharing is contributed, is the plan still top-heavy exempt (assume no forfeitures)?

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.

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.

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.

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?

Suppose the plan has only 5 participants. Each one has a balance over $2 million. Given that, it seems okay.

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.

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?

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.

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?

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.

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.

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.

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.

That's how I would interpret it, but of course, that's not what the employer is looking for : (

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)?

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..."

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.

Sorry, I mean it will show all the contributions made in 2014.

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?