PLAN MAN

Please help set me straight. I totally confused myself with a QACA that excludes bonuses and car allowances for all contributions, including elective deferrals and the QACA basic matching contributions. I know that compensation eligible for the deferrals must be safe harbor compensation defined in section 414(s) and 1.414(s)-1. I'm confused if the plan may use this definition of compensation and pass the 414(s) nondiscrimination test each year to determine this definition of compensation satisfies section 414(s) (under 1.414(s)-1(d)(1) or if the plan by design cannot exclude these types of compensation and can only modify the compensation under the rules in section 1.414(s)-1©. Please confirm if the plan design to exclude these types of compensation is permitted under a QACA and performing the 414(s) test is the acceptable method to determine the definition of compensation is nondiscriminatory.

Here is the response on this issue from Janice M. Wegesin at form 5500 help.com: "The auditor is wrong. (I love saying that! :-)) While I understand the auditors have this stupid practice on the statement of changes page of reducing the participant contribution number by the value of the corrective distribution (which includes earnings so you and I know that's crazy, plus the money did go in the plan) - the Form 5500 requires that corrective distributions be reported on the line you mention. Because the auditor insists on his presentation style, then he has to create a Note in the financial statements that is Reconciliation to Form 5500 - and reconcile the contribution and distribution numbers to the Schedule H. That's what's missing here. Can you tell this is one of those items that makes me crazy?!! Thanks, Janice"

The auditor is insisting we report the corrective distributions (for the 2014 plan year, corrected on 3/1/2015) on the Schedule H in the same manner they are treating these distributions in their financial statement. Specifically, the auditor wants us to - 1. Report these corrective distributions as a payable at 12/31/14 for excess contributions paid in the following year. We are to list them on line 1j(b), Other liabilities. 2. Reduce the Participant contributions reported on line 2a(1)(B) by the amount of these corrective distributions because their best practice is to reduce employee contributions because these were not eligible contributions. The audior says these contributions are required to be remitted back to participants and therefore were not actual contributions in 2014. 3. Not report the corrective distributions on line 2f, on either the 2014 or 2015 Schedule H, because the participant contributions are being reduced by this amount. The auditor will add a footnote to the financial statement describing this activity. I know the Generally Accepted Accounting Principles (GAAP) the auditor uses for the financial statement wants the corrective distributions handled this way, but I never heard of the Schedule H being completed in this manner. Has anyone come across this situation this year? If you have, how did you handle it with the auditor and the client?

What happens to the matching contributions if the 402(g) excess is requested after 4/15 of the following year? My understanding is if the excess amount involves two or more unrelated plans, then the distribution cannot occur until the participant has a distributable event. The plan document states that related matching contributions shall be treated as a forfeiture. If the 402(g) excess is not distributed does the participant keep the matching contributions in their account? If the plan knows about the participant's 402(g) excess, but does not make a distribution, must the plan still forfeit the related match at the time the 402(g) excess is identified? Or is the related match forfeited at the time of the distribution? Any ideas on the best practice for this plan administration issue? Thanks.

Just came across this today- if I am understanding QDROphile's comments correctly, a well drafted plan would designate the appropriate deferrals as catch-up even though the deferrals in that plan did not exceed the 402(g) limit. So that leads to the question: QDROphile, do you know of a "well drafted" prototype plan document? Can you suggest any specific language that may be added to the adoption agreement for a plan to allow it to operate in this manner? Thank you.

Dave, Please accept my heartfelt sympathies for you and your family and my great appreciation for all you do.

Were the students considered employees when they were in the "work-study" program? How were they treated for payroll taxes, etc. in the "work-study" program? How are you treating them upon hire for other employee benefits (medical, dental, etc.)?

If the participant is rehired, then it seems he has not retired.

Yes, I have a response. Proceed carefully because returning an excess employer contribution to the employer is generally not allowed. If the contribution was made after the end of the plan year, it should be applied as a contribution for the plan year in which the contribution was made to the plan. Check the plan document, if it is a prototype plan, the language usually requires the IRS to determine the contribution is not deductible before any funds can be returned to the employer. The contribution stays in the plan and is applied to future years' contributions. The employer must have a legal basis for requesting a return of contribution. You are correct on the other point, because the employer contributed more than they can deduct for the particular year, that must be reported to the IRS and a penalty paid.

Very good point, Kevin C. If you look further down in the article, I think the IRS makes a recovery from the statement you quoted. Under "Avoid the Mistake" the third bullet point says - For those plans that use forfeitures to reduce plan expenses or employer contributions, there should be plan language and administrative procedures to ensure that current year forfeitures will be used up promptly in the year in which they occurred or in appropriate situations no later than the immediately succeeding plan year.

The IRS just published an article on the timing and use of forfeitures in the new issue of Retirement News for Employers (Spring 2010). This supports what I have been saying all along....a plan cannot accumulate forfeitures in a suspense account for very long, the forfeitures must be used for the year generated or, if making frequent employer contributions, as soon as possible after the forfeitures have been determined. Does anyone disagree with the IRS' position? IRS forfeiture account

If we are voting, I'd say no. 12/28/2009 is not the same as 1/1/2010. More importantly, how as the plan sponsor been operating? When limits increased, when did they apply the increase?

Disagree with Tom, Agree with Bird Language from one of our plan documents: In the event a participant elects to receive payment by distribution of a nontransferable annuity payment, then payment will automatically be made in the form of a qualified joint and survivor annuity unless the participant elects not to receive payment in such annuity form and the participant's spouse, if applicable, consents to such election.

That would be at the employee's election, not the employer's decision. If the plan says employees can elect to defer a portion of their compensation, and the plan includes bonuses in the definition of compensation, then the employer should take salary deferrals from the bonuses.

I think you should check the plan document to see if there is any provision for allowing this. Bonuses are considered compensation and if the plan does not specifically address this, I think you must include bonuses in the regular deferral elections.

Generally, all service with the employer must be counted, even service earned before the 401(k) plan was set up, unless the 401(k) plan document has a provision to disregard certain service under the break in service rules. Don't forget about crediting service for vesting, too.

I see three separate issues. 1. To run a successful record keeping business and produce accurate valuations and reports, it is necessary to have complete copies of the most current plan documents and to receive any updates and amendments to those documents. It is a benefit, but not a requirement to have signed copies of the documents. 2. If the TPA produces the plan documents for the client then I think it would be prudent to make sure the client timely executes the documents and provides a signed copy of each. 3. The ultimate responsibility for keeping copies of all plan documents is the plan sponsor's. If the IRS or DOL audits the plan, they will ask the plan sponsor for the documents. If the TPA's service agreement provides for the TPA to keep original copies of all the documents, then the TPA is responsible, otherwise, the plan sponsor is always responsible.

Generally, an employee does not have to be employed for the full 12 months to receive credit for a year of service. The employee does not even have to be employed on the last day of the period to receive credit for a year of service. The 12 months describes the time period over which the employee must be credited with 1,000 or more hours of service. Under this situation the employee satisfied the service requirement because they were credited with 1,000 hours in their initial eligibility computation period. However, the employee did not enter the plan, because they were not employed on their entry date of 1/1/2010. Upon the employee's rehire you must look to see if the plan disregards any eligibility service under the break-in-service rules. How may hours did the employee receive credit for in the 2009 plan year? If the employee did not have a break-in-service then they would enter the plan upon their rehire date.

Growing up in the Midwest it was Jack Buck and the Cardinals all the way. Jack not only made you feel like you were at the game, he explained the game and educated us all. One of the best - That's a Winner!

A resolution by the retirement plan committee (not a plan amendment): "Until a Participant or beneficiary receives an additional contribution to his or her account under the Plan, no income or gains of less than $25 shall be allocated to a Participant's or beneficiary's account after he or she has received a lump-sum distribution from the Plan. If such income or gains are allocated to a Participants's or beneficiary's account, such amounts, as directed by the Committee, shall be treated as forfeitures of Matching Contributions."

What will the IRS see on the W-2? Is the amount rounded down, so no excess is reported?

I found this from 2003: Q1. §72(p) – Taxation of Plan Loans Employer maintains a defined contribution plan that provides loans to its participants. The plan provides for a sixty-day cure period for missed installment payments. An employee takes out a five-year plan loan, and fails to make his last installment payment. Would permitting the employee to cure the missed payment after the five-year term but within the cure period for the loan violate the requirement of §72(p)(2)(B)? Proposed response: No. Curing a missed payment after the term of the plan loan but within the cure period provided by the plan and within the limitations prescribed by Treas. Reg. 1.72(p)-1, Q&A-10 would not violate the requirement of §72(p)(2)(B) of the Code. Payments made within the cure period are deemed to relate back and considered made on the day the installment payment was due. IRS response: The IRS agrees with the proposed answer. The plan can use a cure period even at the end of the sixty-month period. AMERICAN BAR ASSOCIATION SECTION OF TAXATION MAY MEETING 2003 ___________________________ COMMITTEE ON EMPLOYEE BENEFITS JOINT COMMITTEE ON EMPLOYEE BENEFITS INTERNAL REVENUE SERVICE QUESTIONS AND ANSWERS May 9, 2003

Here is the link to the EBSA's fact sheet DOL

It is a gray area that may become clear only when the DOL or IRS comes to audit. They are going to be looking at the actions taken to determine who is a fiduciary. Saying you're not a fiduciary doesn't keep you from being one. The ultimate responsibility falls on the plan administrator/plan sponsor. If the service agreement does not make clear what responsibilities and liabilities the service provider has, then the plan administrator may think the provider is responsible for more than they are.

"Following the terms of the plan is not a fiduciary function. A fiduciary is one HAS DISCRETION over plan assets" - you're missing a big part, it is not just about assets. From the DOL's 'Meeting Your Fiduciary Responsibilities' publication: A plan must have at least one fiduciary (a person or entity) named in the written plan, or through a process described in the plan, as having control over the plan’s operation. A fiduciary is someone who uses discretion in administering and managing a plan. What you seem to be saying is the individual participant makes the determination that they have an event that qualifies for a hardship and the plan administrator just follows the steps to make the distribution. Somewhere there should be procedures established by the plan administrator as to what qualifies for a hardship, what information is necessary to document the hardship and what is the approval process. I agree, the HR person just following the procedures is not a fiduciary, but if they have to make a determination that the event qualifies as a hardship (someone other than the participant must make this determination) then they may be considered a fiduciary.