BG5150

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.

If it's a payroll period match, what would they be truing up to? You get match every pay, or at least, it is calculated every pay.

Yeah, but you'll be out only $30 instead of $64.25. That's like a $34.25 refund.

Your answer was in question format, does that mean you are not sure? So in addition to the 10% excise tax which would run roughly $3500, they would have to pay a VCP filing fee, which I think from memory would run another $750. Correct? It did mean I wasn't sure.

VCP since the PYE '07 & '08 are more than 2 years out?

I would say if there is an outstanding, unpaid bill, then it would qualify.

A client has a person on "disability." The person gets paid via third party sick pay, but the company still pay certain welfare benefits for him. He's been out of work since March 2010. He turned 70 1/2 this year. Does he have to take an RMD for 2010 (non-owner)? He's performing no services, but he hasn't been "officially" terminated given the fact the company is still paying some welfare benefits.

I would say, that if the person wanted at elast 20% withheld from the RMD and the other distribution, only one request would be needed. However, the asset carrier might want two, becasue many times they process the RMD separately.

For the $200 withholding threshold, does that include all distributions in a year? Or just those eligible for rollover? For example, a participant's RMD for 2010 is $150. If that person took a $150 RMD in May, and later took a $150 in-service distribution (now eligible for rollover), am I over the $200 mark?

If someone's RMD is $500 and the person takes $750 from the plan paid in a lump sum, would there be one 1099-R done, or two? Assume the taxes are done correctly--participant election on RMD and 20% on amount over that.