BG5150

I deal with several big asset carriers who hold my clients' plans' money. On some of their withdrawal forms for excess refunds (ADP, ACP, etc), there is only a Plan Administrator signature line. There is no Participant authorization needed. For some reason I'm not comfortable with that. I know that it's up to the PA to get the money removed from the plan timely. However, the taxation withholding on the distributions are voluntary. On the forms there are the normal choices for default tax, no tax or other tax that the PA can choose. Do you find it odd that the PA should be making those decisions? Or that the carriers would accept taxation decisions based on the PA's, rather than the particpant's, say-so? I know as we get closer to the deadlines, not having to get the participant's consent is a luxury, but something just doesn't sit right with me when distributions are processed with, perhaps, arbitrary tax withholding decisions. (This is all assuming that the PA doesn't have explicit instructions in writing from the participant already. I mean, c'mon, who has that?) What are your thoughts?

You can exclude pre-participation compensation when testing. (from 2008 ERISA Outline Book

The full allocation of $3,000 get made. The population that gets it is up to the Plan Administrator, and can be any of the four given in Appendix B. It seems like in your case, one of the latter two would be best.

But will reasonably-sized portions of an article be okay when given proper credit? Like, maybe a paragraph or two.

I think one of the scenarios of the 1-to-1 is to just give it to the NHCEs still employed at the time of correction. (Appendix B of EPCRS)

Did you call Relius support?

And make sure you keep copies of all correspondence with the company, just in case you get thrown into a lawsuit, so you can show you were not complicit in not doing the distribution.

That, and probably the plan's QDRO procedures which probably stipulate that during a review of the DRO, there can't be any distributions or loans.

I think, yes it can. And if the count is less than 80, a small plan filing MUST be made.

Whereas the amounts might not be significant, I think there is a significant error in that the mistake was made across 100 or so participants over multiple payrolls, if not the whole year.

I would think that it's up to the Employer to make the 50% (of missed deferrals) QNEC and full match (if one was made) and then go after the payroll company to recoup the costs. Just a thought.

Any restricted investments involved?

Or lower the HCE contribution some. Maximizing owners' contributions isn't sacrosanct. Or a combination of the two.

Can always take it away prospectively, I think. Anything rolled in after amendment date must stay until a distributable event, for instance.

Just do a refund!

Why are HCE's getting a QNEC? I thought it was to help pass the ACP test.

And I think it must be executed BEFORE the person becomes eligible for any portion of the plan. Followup question: since the waiver applies to ALL plans of the employer, what happens if a person is already eligible for one of the "other" ER plans. Then the ER adopts a PS plan. Can the person sign a waiver before becoming eligible for the newest plan waive out of the "other" plan retroactively?

For the IRS, yes. For the DoL, which is ostensibly on the participants' side, no. (But don't cry for the IRS. They'll get their money sooner or later...)

I'm guessing the safe harbor is a match.

I have a couple questions regarding Union EE's in a 401(k) PSP. I have a controlled group wherein some of the companies have union employees. And for some companies, the union ee's are eligible to participate, and in some they are not. 1) How do I do the coverage test? Test "regular" and union separately? And if I test the unions by themselves, what does that population look like? Because union ee's can be excluded statutorily, will I have a 100% rate because I can exclude some of them right off? Here's an example: 5 Regular 6 Union A (eligible) 4 Union B (not eligible) Does my coverage test have 15 people (regular + all union)? 11 (regular + elig union)? 5 in one test (regular) and 11 in another test (all union)? Or 5 in one test and 6 in the other (excluding the 4 non-eligible union from test completely)? 2) And I'm assuming my ADP testing will be done the same way? (Though I know I have to at least separate the regulars from the unions).

I think you must still do the distributions and then do a 1-to-1 QNEC of the gross distributions per EPCRS. There are several populations you can use for the QNEC.

As I understand it, if someone has a missed opportunity to make a deferral, the Employer should make a QNEC of 50% of the missed deferral. Also, the full match should be made. What does that mean? Match formula is 50% of deferrals. If the missed deferral is $1,000, the ER will make a QNEC of $500. How much is the match? $500, which is 50% of the missed $1,000? Or just $250?

I'd forfeit it. Or, more properly, remove the contributions (with a negative contribution or canceling the original transaction) plus earnings and put it into a suspense account. Otherwise, when you run your reports, you will show the bad amounts as matching contributions, and a forfeiture amount that wasn't really a forfeiture. It'll really be a mess if you do it cross plan years.

The refund of gross failure amount + / - earnings will be taxable to the participant in the year of distribution; in this case, 2011. Generally, there is no gap period earnings, but the document may be written to still allow for it.

That is a peril of having a payroll basis match, and poor planning on the behalf of anyone who decided to front-load their deferrals. I've seen it written in a plan document that the match basis is discretionary, that the ER can decide year-to-year which method would be chosen, but I always thought that had to be decided before the year started. I could be incorrect.