401_4_ever

Yes if he's an HCE, no if he's not.

If they didn't do the distribution within 1 year of the plan year end, they owe a 1 to 1 QNEC, which means for every dollar that comes out of the plan, they owe a qnec of the same amount to the plan. Next time they should sign off on test results and make the distribution on time, and they would have avoided the situation (and the 10% penalty).

I agree it's an appropriate correction. The problem from the recordkeeping standpoint is that the 1099R does not have a code to match this distribution. I've heard that if you start the 6 month clock later you can only do it via a VCP. I believe a better method would be to move all the money to a forfeiture/suspense account (including earnings). The Employer then would make the participant whole outside the plan & update w-2's accordingly. Of course this only works if the error is fixed in the same tax year it occurred because of the w-2 issue.

I agree with Jpod. I would just add, that if you don't know what your plan document says your document drafter will tell you whether it requires only the safe harbor reasons, or whether any reason is OK. The 2nd choice is known as the "facts & circumstances basis."

I've never tried anything other than the straight QNEC or 1 to 1 QNEC, but I doubt anything else would work. What did you have in mind? I would doubt that straight distributions would work. For your second question, I guess it would depend on what you had in mind to correct. The main two options wouldn't need changed document language. If you do something goofy, you could include in the submission a request to retro-amend the document & request a determination letter alongside it.

It may be deductible under another section of the tax code, and not just 404 as well....

(1) Roth Contributions are matched. (2) MJB under that reasoning, why can't employees sue the sponsor for the amount of taxes they'd have to pay at retirement without their consent? I would imagine all these issues would be handled in the disclosure notice prior to being auto-enrolled. Fender, the other thing I would add, is that in my experience, most employer's aren't against safe harbor contributions due to the amount of money they'd have to pay. They are against it because of the 100% vesting. (My experience at least). I've gotten a lot of excitement and favorable feedback about the ability to put a 2 year vesting schedule on the contribution, and will now take advantage of it.

I agree more with Kim than Austin. The problem I've experienced is the Plan wants TPA service at Recordkeeper fees.

Does the plan allow other in-service distributions that this could be re-characterized as?

Subject to the ACP test, which is 401(m).

It's a pain, but the plan could probably allow after-tax money to come in for the buy-back, if the Participant didn't rollover when he took a distribution. You would have to track basis in an after-tax source. The only other thing I would add is that the final 401(k) regs seem to require buy-back of Employer Contributions AND Elective Deferrals. There is a write up in the ERISA Outline Books about it. The short version is that the old ("proposed") final 401k regs excluded deferrals from the definition of a "vested balance", while the final 401(k) regs does not exclude it. The buyback regs provision requires repayment of that vested balance,and since deferrals are now included in the definition of vested balances they need to be repaid as well.

I don't have the Rev Proc in front of me, but I believe it's $750 for a non-amenders program regardless of the number of participants.

I generally say no, the plan still has some sort of obligation to collect on the debt, using reasonable efforts. If a participant comes back and wants to pay it off, they can set up an after-tax (not Roth, actual after-tax) source to let them pay it off. Additionally we warn the PA they should be wary before allowing the same participant from taking another loan.

My only response to that is the same one; the PA has to look at it on a case by case basis. It is of course possible a loan default would relieve a financial distress. Is it typical? Probably not. But there are situations where it would.

"Large multi state corp and their payroll services do not allow employees to cancel payroll withholding." I know of a Fortune 100 company that is publicly traded that consistently allows loan defaults if the Participant can show they are financially unable to continue making payments. I'm sure they aren't the only one.

Simply because you allow a participant to default a loan due to financial hardship does not actually mean it will happen "time and time again." The PA still has to approve it on a uniform & nondiscriminatory process. ERISA Regulation Section 2550.408b-1(a)(3) says you have to look at facts on a case by case and leaves open a facts and circumstnaces test to see whether the loan program is a sham program. There is no requirement to simply not default a loan. "And yes, by allowing it to happen you have turned your program into a sham program because it's only a matter of time before it happens again and again." -- You know that applies everytime? There's no possible PA who would only allow it on demonstrated financial hardship? "Then sooner or later you'll have a participant take a loan with no intention of making a single payment." In that instance, the PA can simply not agree to default it.

I agree with Bird, loans default it's part of life. I don't see a problem with defaulting on a uniform & nondiscriminatory basis if the PA believes he can't pay it off.

I strongly agree with Austin. While in principle, prior year testing is better,people don't use it's only advantage. Even then it is not always such a great advantage because if you have one HCE who isn't maxing out, it's difficult to accurately predict how high the the others can go. Plus if you have catch-up eligible HCE's it makes it tougher. Additionally if you have a discretionary match and an employer doesn't make it for one year, your HCE's will not be happy with the ACP rates the following year.

Safe Harbor Plans are only deemed top-heavy compliant if there are no other ER contributions other than Safe Harbor contributions. Since the New Comp formula is not Safe Harbor you'd have to do normal top-heavy testing & if top-heavy the 3% minimum.

Yes, an amendment is required. It must be made during the plan year in question. Plans can always amend from prior year to current year. In order to amend from current year to prior year, the plan has to be current year at least five years, or if lesser than five, the number of years the plan has been in existence. I'm just curious, what background do you have that you decided to open a TPA?

I agree with what Janet said. It's a facts & circumstances issue. Additionally there is an IRS notice out there that says no contributions for 3 out of 5 years will cause a "presumption" of a plan termination because of the substantial & recurring issue.

The "revolution" on lost interest for participant contributions has been created by the DOL. The IRS handles the 5330's so this is probably an unintended consequence of the DOL's actions. I also would expect a de minimis to come out soon.

Depends on the plan document. Sometimes bonuses are completely excluded, sometimes they are treated as regular salary, and sometimes participants get a seperate election for bonuses.

Simply because you pass coverage does not mean you have satisfied 401(a)(4). See Treasury Regulation 1.401(a)(4)-4©(1) which requires that "Based on all of the relevant facts and circumstances, the group of employees to whom a benefit, right, or feature is effectively available must not substantially favor HCEs." In my example, what if the Employer has 2 HCE's, no blondes. They have 10 nHCE's, with 2 blondes. That will pass coverage. However, they still need a facts & circumstances test to show it does not substantially favor HCEs. In Example 1, directly below what I just quoted above, they go through an example of passing coverage testing, but still failing this facts and cirucmstances test.

It would need to satisfy rights & features nondiscrimination under Treas Reg 1.401(a)(4)-4(e)(3). For example, how about if I excluded only blondes from receiving a match.