Kimberly S

As TPA, we provide the amortization schedule and other paperwork, but it is clearly the employer who must make arrangements for payroll deduction of the loan payments. If sufficient loan payments are missed to cause the loan to go into default, as a bundled service provider, we are able to notify the trustee of this problem and what steps they need to take to correct it. When I worked for an unbundled service provider, we rarely knew if a loan had been taken until months after the fact. There is no way we could have provided the level of oversight that George is suggesting.

Thanks for that tip. I had not yet found all of the source material in John's earlier post.

The instructions I was looking at are for our in-house software. I'm trying to verify the accuracy of that statement. However, the 401(k) Answer Book also says, "If a contribution is made as a result of a good-faith mistake of fact, it may be returned to the employer within one year of when the contribution was made." There is no further comment about what to do after that time.

Surprise -- this is not a question about what situations qualify as a mistake of fact. The instructions for correcting a mistake of fact deposit indicate that a refund must be processed within 12 months of the original deposit. I haven't been able to find any indication of what the correction is after 12 months. Would a correction after that time require a VCP filing?

For what it's worth, our attorney has now weighed in saying that in this situation you are not permitted to use otherwise excludables as suggested by some earlier posts. He believes that the only way to avoid the 401(b) issue is to apply the stricter eligibility to everyone and essential remove those folks from the plan going forward. With advice from him and Sungard presenters that agrees, it appears that will be our new position.

Employer hires an individual who produces a Social Security card. Individual works long enough to meet 401(k) plan entry requirements, but declines to make salary deferrals. Employer learns, when uniformed officials appear at their door to deport him, that the individual is an illegal alien. Do we include him as a zero in the ADP/ACP test? He was still employed on the last day of the plan year. Is he due a top heavy minimum contribution?

Thanks!

We always allow anyone who was in the plan to stay in the plan, and apply the amended provisions only to people hired after the amendment. If I'm reading your comments right, it sounds like we should be OK. the other advice we received suggested that if the plan started with 3 months of service and later wanted to amend for 1 Year of Service, anyone who has never met the 1 Year of Service would trigger the need to test based on 3 months of service each year until they have met the 1 Year of Service. Since that might include an HCE, we were concerned with this interpretation.

That's what we always thought, but now we're being told that we have to test using the most liberal of the 2 requirements as the eligibility for everyone until such time as everyone has met the stricter requirements even if they entered years earlier. That sounds like a nightmare!

We're hearing rumors that an eligibility amendment, like the dual eligibility provision, can create coverage testing issues. Since we design our plans with the intentnion of having 100% coverage because we do not have the software or staff to do 410(b) testing, we're trying to figure out if allowing such an amendment will be a problem.

Assume you are using a standardized prototype - can you ever amend the eligibility to be more strict than it was at the outset without encountering 410(b) issues? The question has come up regarding the definition of dual eligibility. Having a document with two eligibility provisions written in, ie waiver at January 1 and one year for all others, seems to be a clear "dual" provision. Do the same rules apply to amendments?

Ironically, my employer believes that the trustee is the only one who can authorize most of those things. The good news is that in the vast majority of cases for our clients the trustee and business owner are the same individual.

Thanks for that perspective Tom. I understand your concern about the D letter. To a small employer who barely understands why they have to pay an annual fee for plan administration at all, the cost of paying someone to prepare the D letter submission can be overwhelming. It shouldn't be, but often is. We guarantee nothing, because there are no guarantees under audit. I'm working with an IRS auditor now who is questioning the form of a document covered by a D letter, but that's another story. We tell the client what EPCRS says, recommend that they consult their own attorney (which most of them don't because it costs money) and leave the final decision to the trustees.

Does the plan have a fidelity bond?

I'm questioning it because I've read articles indicating that it is no longer be available under Rev. Proc 2008-50. And since it wasn't in earlier EPCRS procedures either, I'm confused about how continuing to omit any mention of it would eliminate it.

Up until the new Rev Proc, most of our clients were correcting by forfeiting the inelgible deferrals and making the participant whole outside the plan to avoid having to file for a D letter. It doesn't look like that is any option any more, so we're trying to figure out what to do.

Thanks Larry. I found 4.05, but had missed App. B 2.07(3).

I've been reviewing Rev Proc 2008-50 to see if the correction for employees permitted to defer before meeting the plan's eligibility requirements and entry has been changed. I don't see that situation mentioned at all. If I've missed it, I'd love a reference to where it's hiding. If it truly isn't there, does that mean that we continue to use the direction from 2006-27? Section 2.01 says that 2008-50 supersedes 2006-27, which leads me to believe that if it is gone, it no longer applies. That begs the question: How do you fix this now?

The excess was not eligible for rollover. Along with the attempt to recover the payment the participant must be notified of that fact.

I am not an actuary, and these days only work on DC plans. But I thought a predecessor plan could be ongoing, meaning neither a partial termination nor a complete termination termination would be required to necessitate vesting credit going back to the start of the earlier plan.

The potential harm is that the IRS says once the employer puts money in the plan, it can't revert to the employer.

Of course, when you ask the question, the agent may decline to sell you the coverage.

Small employer -- the owner is the only HCE.

Client has a safe harbor 401(k) plan. TPA misses that detail, prepares an ADP/ACP and instructs client to take refunds due to a failed test. Client processes the refunds as instructed. TPA later discovers its error and instructs client to deposit the refunds back to the plan. Client has spent the cash and refuses. How do you fix this mess?

The auditor used the results of a test prepared by the prior TPA that included only 8 months of data, not the full year.