12AX7

401 (k) Safe Harbor Match Plan. Employer fails to defer on the the last payroll of the year which only has bonus wages. Plan has no compensation exlcusions. Would therefore this section of self-correction under EPCRS be permissable for a Safe Harbor Match? (F) Special Rule for Brief Exclusion from Elective Deferrals and After-Tax Employee Contributions. An Plan Sponsor is not required to make a corrective contribution with respect to elective deferrals (including designated Roth contributions) or after-tax employee contributions, as provided in sections 2.02(1)(a)(ii)(B) and ©, but is required to make a corrective contribution with respect to any matching contributions, as provided in section 2.02(1)(a)(ii)(D), for an employee for a plan year if the employee has been provided the opportunity to make elective deferrals or after-tax employee contributions under the plan for a period of at least the last 9 months in that plan year and during that period the employee had the opportunity to make elective deferrals or after-tax employee contributions in an amount not less than the maximum amount that would have been permitted if no failure had occurred. (See Examples 6 and 7.) There seems to be no distinction between Traditional and Safe Harbor plans in the referenced section. Am I also reading the correction properly that it would make no difference when the failure to withhold deferrals took place provided that the participant had an opportunity to defer no less than the maximum amount in the last 9 months of the year. Would the participant have to be notified of the failure to use the special rule? That's the way I'm reading this section, if I'm not reading too narrowly into the descripton. Thanks.

ETK and Lou S: you are confirming what I believe is that the deemed loan cannot be reversed through the streamlined process. It seems that once the 1099-R is properly prepared, there is no recourse no matter what the circumstances under the streamlined process. I should have made that clear in the beginning.

The participant simply failed to make loan payments. I was looking at Page 165 of Rev. Proc. 2008-50 (yes, I know the new one is out, but have not yet fully reviewed it). I was looking at specifically Section C1. Sorry if I didn't mention that earlier.

Am I reading the Rev. Proc. correctly that if a loan has been deemed by a platform recordkeeper and a 1099-R is issued, the failure to repay the loan cannot be corrected through VCP? The Rev. Proc. seems to address requesting relief from reporting, but as I strictly read the text it does not imply that the procedure would reverse a loan that has already been reported as taxable on a 1099-R. Thanks.

The last sentence in A-20 is very key to the determination of the exception. You're welcome.

The Age 55 72(t) exception confuses a lot of people. There are even people in this "business" that do not even know that it exists! I give a lot of credit to those that know to ask.

The simple answer is that Company B adopts Company A's plan as the successor Plan Sponsor. Take a look at the Plan Document to determine if the prococess is prescribed somewhere in the language of the document. Some pre-approved plans incorporate elections for a successor sponsor. If you're not sure, talk to the document provider, they should be able to guide you further.

Notice 87-13: Q-20: What additional tax on early distributions from qualified retirement plans applies under section 72(t) (as added by TRA'86)? A-20: Section 72(t) (as added by TRA'86) applies an additional tax equal to 10 percent of the portion of any "early distribution" from a qualified retirement plan (as defined in section 4974© of the Code) that is includible in the taxpayer's gross income. A distribution (including deemed distributions under section 72(p)) is treated as an "early distribution" unless it is described in section 72(t)(2)(A) (taking into account sections 72(t)(3) & (4)). A distribution to an employee from a qualified plan will be treated as within section 72(t)(2)(A)(v) if (i) it is made after the employee has separated from service for the employer maintaining the plan and (ii) such separation from service occurred during or after the calendar year in which the employee attained age 55.

Is there anything that would prevent Company B from sponsoring Company A's plan as a successor sponsor even if there was no connection through through an acquisition? There may be practical considerations for not wanting to take these steps, but one advantage is not having the burden of setup costs associated with a new plan.

Tom, you seem to be putting some weight on the first few weeks rule provision in making this determination. Let me know if I'm wrong on this assumption. I think the 401 (a)(9) regs predate the 415 regs in this situation, so are the few weeks rule an unintended consequence of determining when someone is retired? I haven't thought about the differences between retirement from employment and retirement for plan purposes, if there is a difference, but that doesn't seem to be so apparent in the regs.

Tom, for this particular plan, the "few weeks" rule does not apply. The compensation paid in 2013 is for a commission (not an excluded definition of comp). What if the commission was still pending until 2014? It seems difficult to argue that the employee would not be retired (for plan purposes) until that year and the RBD would be 4/1/2015. What Everett posted is helpful, and although I can read a few things into the IRS response.

Employee, age 75 (not a 5% onwer) retires on 12/31/12. Compensation is paid in 2013 for services rendered in 2012. Would the RBD be 4/1/2013 and the compensation paid after 12/31/12 would have no effect on the RBD? Does this sound correct? Thanks.

I'm not sure if my question was directly answered. BG's and TP's cites do not address directly the comp issue of a SH plan term on a day other than the last day of the plan year. RC46 says it does, but I'm looking for a direct cite. I can surmise from the proposed regs that termination during the plan year does amend to reduce or suspend the SH and therefore the (a)(17) comp limit is prorated based on the plan termination date. This seems reasonable and is not necessarily a conservative approach if you believe that this might prevent "frontloading" by higher paid participants.

You are saying that the comp limit is prorated because of the termination of the plan is considered an "amendment during the year" or because I might have a short plan year caused by the termination...or both!

I'm not aware of guidance that requires a new election when a bonus is paid to the participant. It's sort of the same logic where you would get a new deferral election when a participant gets a raise or works double overtime during a pay period. The concern seems to stem from a large flucuation in payroll, but I don't see that making a difference. Having said all this, I do share some of the same concerns especially when a deferral on a bonus may jeopardize matching contributions after that particular payroll date because the deferral limit may been have reached earlier because of the deferral acceleration (payroll basis match). So, I usually recommend to the client to have participants make a new election prior to the payroll date that includes the bonus. edit: for typo

A SHMAC Plan is terminated on 6/30/2012 for business reasons. In fact, the employees were also terminated on the same day! When I read through the IRS guidance it says "In addition, a plan that is amended during the plan year to reduce or suspend safe harbor contributions...must prorate the otherwise applicable compensation limit..." Is the termination of the plan considered an amendment during the plan year to suspend contributions? I'm trying to determine if I need to reduce a participant's compensation for allocation of the SHMAC. Thanks.

Mike, there is absolutely no DB plan. But I'm a little confused on the difference between these two statements: "If coverage is to be met on a benefits basis, I know there is no required gateway." This sounds like nonsense to me. "benefits basis" = "cross-testing" Maybe I just got up on the wrong side of the bed. and this one: Sorry to be so disagreeable, but you are wrong. Cross-testing the ABT does not subject you to gateway. If I recall correctly, there is a Blue Book Q&A directly on point, as well as an ASPPA Q&A directly on point. This is something that comes up every once in a while and needs to be quashed. I think you you are nailing down as to what I cannot understand what was done by the other firm in this statement: However, I've never seen a plan broken into component plans for testing that didn't end up using cross-testing on one of the components. I cannot see how they are otherwise making this allocation with a good spread between HCEs and NHCEs and not cross-testing. That was my original question since the other firm was so adamant that what they are doing is correct by not providing the gateway. I thought I was missing something, but apparently not.

It seems to me that it's being met on a benefits basis, but would that would make a difference compared to the test being met on an allocation basis? If coverage is to be met on a benefits basis, I know there is no required gateway. What I cannot get a lock on is that it still seems you have allocation group(s) that must meet (a)(4). I think I'm answering my own question that if you need to cross-test, then the entire plan must meet gateway. However, the other firm that did the allocation (a good law firm to my knowledge) insists that no gateway needs to be allocated and will not reveal how (a)(4) was met. I'm thinking that perhaps the plan was restructured into component groups and the allocation within each component group otherwise meets 410(b) and (a)(4) without cross-testing. The question - can you avoid cross-testing based on the document language that I posted below? The other firm is saying "Yes". The allocations are not comp-to-comp or permitted disparity.

The allocation doesn't appear to use smoothly increasing bands to meet the test, but your last question gets back to my main point. It seems the other firm is not using cross-testing to pass (a)(4). If anything, they are using the ABPT, but I want to make sure that this doesn't fly in the face of the Plan Document.

This is the language in Plan Document regarding the allocation of nonelective contributions: Nonelective Contributions.A discretionary amount to each Participant, which amount, if any, shall be a Nonelective Contribution. The Employer shall provide the Administrator with written notification of the amount of the contribution to be allocated to each Participant. Gateway Contribution.In addition to any Nonelective Contribution described above, the Employer may make an additional Nonelective Contribution ("Gateway Contribution") in an amount necessary to satisfy the minimum allocation gateway requirement described in Section4.4(b)(8). Is there a requirement that I must Cross-test and provide gateway allocations, if the plan otherwise meets 410(b) and 401(a)(4)? For example, assume I have many HCEs in a plan and I only want to benefit a few with a nonelective contribution and the plan otherwise meets the ABPT on a benefits basis, can this be done without having to meet gateway or other requirements? I know of another firm that is doing it this way and not providing a gateway minimum. A few HCEs are getting a 13.2% allocation, while others NHCEs are getting as low as 1%. Thanks.

My deferral election also has my daily lunch order, until I revoke it.

I get in trouble if I think too much ! I have a number of LLC plans that were audited by the IRS. They looked at the original deferral election and were good with it. Never thought I would need to refresh the election each year if they chose to defer the max.

If you think about it, why would a deferral election for the Owner be any different that for an Employee? Plans do not require a fresh election for each plan year.

It sounds like it's the same employer, but just an ownership change. If Smith and Jones started a company with a new EIN, then you might have to consider successor employer issues, but that doesn't seem to be the present situation.

Several plans that I'm in the process of taking over have this indicated in the electronic signature line of the 5500. Would this typically mean that the User ID and the name of the Filing Signer are not matching up? To the best of my knowledge the client has not received notice from the DOL/IRS. Does the filing need to be amended? I would think the that if the filing was done before the deadline passed, it's not considered late. Thanks.