John Feldt ERPA CPC QPA

If they have a bunch of non-key HCEs in the plan, look at doing a retroactive 4% safe harbor nonelective to only the NHCEs for 2020 and if you had no other contributions, the plan becomes exempt from top-heavy.

May set it up with a 2/1/2020 to 1/31/2021 plan year, and the minimum funding deadline is 10/15/2021? Then deal with an off calendar plan.

It may be that I am recalling how the courts deal with voluntary waivers of benefits. The 401(k) irrevocable election rule differs. I recall Derrin stating that in his experience, few waivers of benefits comply with the DOL rules.

I believe it is a 100% irrevocable waiver from all employer benefit plans now and forever. Assuming they have not already become eligible for any such plans. That includes all employer health and welfare plans, plans set up in the future, etc. A monk or nun, for example, someone who has a lifetime vow of poverty, would be a good example of this.

Thanks Tom. Appreciate your comment above, and very much appreciate all your comments and support over the years here providing a good mix of levity and guidance. Hey Carol, can you change the title of this post to remove the 2021? If not, that's okay, I'll just start another fresh post when the actual CPI-U for September gets released. The CPI-U for August was published this morning at 273.567, giving us two of the three months needed to determine the 2022 limits. (July was 273.003). September will be published on October 13. The sum of the three CPI-U's from last year, July through September of 2020, was 779.299, for an average of about 259.766. So we're looking at about a 5.24% increase if the 2021 September CPI-U is unchanged from August at 273.567. If that holds, the limits posted above (August 22) should be the 2022 limits. The closest one to change next is the key employee compensation threshold, which should go up to $200,000 if the CPI-U for September is 273.897 or more. Again, all based on Tom's spreadsheet.

30% QNEC? Wow. I guess it could have been worse, if you had an owner deferring 90% of pay on very low pay. I think a VCP application to negotiate something reasonable would be worthwhile. Describe what caused the plan sponsor to believe the employees weren’t eligible and offer a reasonable QNEC solution for the Service to consider (prepare to negotiate). Also, make sure there wasn’t any other operational failure here. I’ve seen some “solo-k” documents that say the plan automatically freezes contributions (no further deferrals) if an employee would become eligible (other than the 100% owner and spouse).

99.99% would be my estimate. Thousands of participants ago, I know of one terminated employee who took a Joint and 50% Survivor Annuity form of payment of about $45 per month instead of a lump sum (over $5,000) because they could not obtain spousal consent.

Well, it was nice while it lasted anyway! Since it was terminated, not merged, the safe harbor match remains as a receivable contribution for that old plan. They don’t get out of that obligation by terminating. Perhaps they have ERISA counsel telling them otherwise, that they can contribute the old plan’s obligation into the new employer’s plan even though the plans did not merge. Optimistic thinking again, I suppose.

If you are still within the same plan year, doesn’t 401(b) simply allow an amendment to adopt the provisions now, but effective retroactively to an earlier date within the same plan year? Or are you arguing that an increase in the cashout limit would violate participants rights?

And the courts would also agree.

Pretty sure it’s the SIMPLE that is invalid here and the 401(k) plan is okay. Employees certainly would have a case for a claim, but contributions cannot be made to the SIMPLE if the employer is contributing to another plan. Could be fixed favorably with a VCP filing.

We also have seen these for 2018. In the letter, which are much different that the post above from Belgarath. These letters state "You don't need to reply to this letter". FYI.

If the plan has provisions to allow Voluntary after tax (nondeductible) contributions, they are not subject to the 6% deduction limit (they’re not deducted). They still count toward the 415 limit, of course.

I updated Tom's COLA spreadsheet with the actual July 2021 CPI-U, which is the first of the 3 CPI-U figures needed to determine the 2022 dollar limits. The July 2021 CPI-U was 273.003. Based on Tom's spreadsheet, assuming we have exactly 0% inflation in the CPI-U from August 1, 2021 through September 30, 2021, perhaps the 2022 limits might be: Deferral limit: $20,500 (2021 is $19,500) Compensation Limit: $305,000 (2021 is $290,000) DC Annual Addition Limit: $61,000 (2021 is $58,000) DB Benefit Limit: $245,000 (2021 is $230,000) Key Employee: $195,000 (2021 is $185,000) HCE: $135,000 (2021 is $130,000) Unchanged: Catchup Limit: $6,500

If no NHCEs deferred so you don’t have an average NHCE missed deferral to determine the QNEC, I have seen 3% proposed and allowed for the missed deferral. You could ask for that under VCP and see how it goes.

Sure, it could be a friendly IRS letter then, and if so, they should end it with "Have a nice day!" 🙂

https://www.irs.gov/retirement-plans/employee-plans-compliance-unit-epcu This link shows a few “compliance check” initiatives that the IRS states they have in place. Partial Plan Termination is listed 3rd from the bottom (in alphabetical order). A compliance check is when they send a letter to the employer and say something like “We’re not auditing you if you answer these questions in the right way to avoid an audit. But, if you fail to reply or answer, we will very likely audit. And, if you answer in a noncompliant way, we will ask you to prove that you fixed the problem, otherwise we will audit.”

The merger agreement probably addresses this such that the surviving plan can accept any contribution receivables for the plan that merged in.

Same here. They aren’t approving your document or amendment language when you submit under VCP. They’re saying the current adoption of the retroactive amendment is okay to execute - it won’t be considered as untimely if the plan gets audited. But they don’t review the language like they would if they were auditing. Submitting a Form 5310 or even a Form 5300 is more like an audit where you are asking the IRS to review the terms of the plan for tax qualification purposes. They can and will ask for older documents in that case.

Yes. They could go back further too, to the first day of the plan if they want. The statute of limitations determines how far back they can go to calculate a sanction, but does not limit how far they can go to find errors. Usually we see them ask for the prior two restated documents and all interim amendments.

The existing vesting schedule for the QACA safe harbor source continues to apply to the QACA safe harbor contributions made through July 31, even though no further QACA contributions are required for subsequent periods. That won't change unless another overriding event occurs, like a plan termination or a partial plan termination.

Yes, the 2-year cliff minimum vesting still applies to the QACA safe harbor contributions that are required until the date the safe harbor ends (30-day advance notice, and an executed amendment). If plan termination or partial plan termination occurs, then 100% vesting applies. Of course the employer can apply a discretionary amendment to simply apply 100% vesting for the QACA accounts if that's what they are looking for.

To reiterate: make sure the sum of the vested employer amount plus the employee amount, in total do not not exceed the 457(b) annual deferral limit for the year. The employer amount is deemed to automatically meet the 1st of the month rule.

I fired up Tom's COLA spreadsheet to see where we might be headed for 2022. Using the May 2021 CPI-U, which was 269.195, based on Tom's spreadsheet, and if we have exactly 0% inflation in the CPI-U from June 1, 2021 to September 30, 2021, Perhaps the 2022 limits might be: Deferral limit: $20,500 (2021 is $19,500) Compensation Limit: $300,000 (2021 is $290,000) DC Annual Addition Limit: $60,000 (2021 is $58,000) DB Benefit Limit: $240,000 (2021 is $230,000) Key Employee: $195,000 (2021 is $185,000) HCE: $135,000 (2021 is $130,000) Unchanged: Catchup Limit: $6,500

I thought it was 210 days after the end of the plan year. However, to satisfy nondiscrimination regarding benefits, rights, and features, and depending on what is being amended, you may need to notify employees earlier. In your example, if an HCE knows about the option and wants to use it, then you should notify all the affected participants to avoid any perceived discrimination.