AKconsult

Client has an employee for whom they did not withhold 401(k) from a bonus check at year-end. Client is going to fund the missed deferral, plus match, plus earnings, for the employee. However, how does this impact ADP/ACP testing? The missed deferral is going to be funded as a QNEC. IRS site generally states: "..the plan must evaluate whether, in the event that the employee had made the missed deferral, it would still pass the applicable ADP test. The ADP test should be corrected according to the plan's terms before implementing any corrective contribution on behalf of the employee. In addition the missed deferral amount should be reduced to ensure the employees elective deferrals (the sum of deferrals made and the missed deferrals) comply with all plan and legal limits." So I think this is saying that we must rerun the ADP test assuming the deferral is in it, and then determine the amount of the QNEC? I guess I don't understand why the IRS has the employer deposit it as a QNEC if it is going to go into test? Thanks!

Does anyone have an idea as to the earliest date that a participant can withdraw prevailing wage fringe benefits from a plan? I am thinking that the earliest date would be the 2 year rule (other than hardship). Does anyone believe they could be withdrawn earlier than that? Thanks!

yes, this formula will fail BRF. Only 14% of the nonHCEs are benefitting from the 3rd tier of the formula. You will need to calculate your safe harbor % to see what % needs to benefit from that 3rd tier, but 14% will definitely not be enough to pass. In order to correct for 2014 and 2015 you will need to prepare an 11(g) corrective amendment and bring in enough employees at the higher match rate to make the testing pass. Yes, I would do this as a QMAC, fully vested. This amendment must be made by 10/15/15 for the 2014 plan year (9 1/2 months after plan year-end). But ultimately the client needs to be informed that they cannot continue to use this type of formula. It is not permissible to continually fail, correct; fail, correct; etc.

it seems like this should be an easy question to answer, but I am having trouble finding anything. If employer failed ADP/ACP in 2012 and doesn't get it corrected until 2015, does the 5330 have to be filed for multiple years? I THINK the answer is that only 1 5330 is filed but because it is late, the IRS will probably assess penalties for late filing, but I can't find anything definitive on this. Unlike the 5330s for late deferrals, which must be filed for each year until the deposit is made.... correct? Thanks!!

Plan document states that profit sharing formula is cross -tested. However, in fact employer can't pass cross testing so employer is allocating contribution pro-rata compensation - not cross tested. Employer also allocates a safe harbor nonelective contribution. Typically, the gateway requirement would kick in. However, must I give the gateway in this case since the plan didn't actually use cross testing, even though the document shows cross-tested allocation? Thanks!

The document specifically states "Discretionary Match. The Employer will determine in its sole discretion how much, if any, it will make as a matching contribution. Such amount can be determined as a uniform % or as a flat $ amount for each participant." This seems pretty flexible. However, the VS document that we use does have an option instead of the above to choose to have the match allocated to "Different Employee Groups" which is described as "allocated separately to each designated employee group designated below" and that box was NOT checked. This probably more accurately describes what the client did. So what happened does not create any kind of testing issue, since it only impacts nonHCEs. And I think that it would definitely have been preferable to use the "Different Employee Groups" option in the document. I am just not sure if the option that was chosen precludes the client from giving different rates of match.

We have a client whose plan allows for a discretionary pay period match; and an additional discretionary match at year-end for participants who are still employed at the time of allocation. No formula mentioned in document, match can be uniform % of pay or a flat $ amount. We just discovered that the employer decided on 12/24/14 to give a special match to 4 nonHCEs because he wanted to give them a "bonus". The plan document does not allow for a profit sharing contribution - only deferrals and match. Other employees got a match as well (as a uniform %), but these 4 individuals just got random dollar amounts deposited into their match accounts. While this seems like it might not be permissible, I can't quite determine what rule has been violated? If we take the position that plan has allowed different rates of match, so it is subject to BRF testing, that is a nonissue because these 4 people are nonHCEs. And it helps the ACP test. So I can't see any testing problems with this. Is this a plan document issue? Thanks!

Thanks Tom. We have tried average ben pct test using comp less deferrals and still failing. We also pulled in 3 years of compensation and tried the 3-year average comp testing, still failing. Document does not contain fail safe language. Obviously, we are now past the 10/15 amendment deadline. We are considering a couple of options. 1. give a match to the employees in the plan that didn't get matched, using same formula as other plan. That document allows for a discretionary match, so I am assuming it would be OK to make a match and fund before year-end for 2013, they just take the deduction a year later. I don't see any reason this would require an amendment, do you? this will make the ratio percentage test pass, on an aggregated basis. We then just have to go back and retest ADP/ACP on an aggregated basis, and do additional refunds. 2. give a profit sharing allocation to the people in the plan who didn't get a match. That document has language already to allow for a discretionary profit sharing, so I am assuming that as long as we follow the allocation requirements, no amendment necessary, we just declare the profit sharing and fund before 12/31. Obviously, problem with this is it creates a lot of small balances for people who don't otherwise have an account, so may not be palatable to client. Do you see a reason either of these approaches would have required a 10/15 amendment? Thanks!!

We are testing 2 plans in a control group. One plan has a match. The other plan is deferrals only, no match. Pretty large population - about 1200 people total (after using otherwise excludable rule). The Ratio Percentage test fails any way we test it. ADP/ACP for the plan with the match both pass. ADP for plan without the match fails and refunds have already been issued. Had the ADP/ACP testing been done on a permissive aggregation basis, the whole testing would have failed and even more refunds would have been necessary. BRF testing passes. The Average Benefits Percentage test fails. Now I am somewhat stumped...How do I determine how to correct for the test failure? Is the answer to give a match to the employees of the plan without a match? to give a higher match to the nonHCEs in the plan with a match? Thanks. any thoughts are appreciated:)

I have a client who just found out the plan failed ADP for 2011. We have calculated refund to HCE and will use self-correction to deposit a QNEC to the NHCEs of around $700 + interest. It looks like the 10% penalty on the 5330 is only calculated on the excess, not the earnings - correct? Also, since the correction is being made in 2013, do we have to file 5330s for multiple years? I am thinking it is only 1 filing, for 2011, and the IRS will assess penalties/interest due to the fact that the filing and penalty payment are late. Or do we have to file a 5330 for 2011, 2012, 2013... like you do when you have late deferrals that go more than 1 plan year? Thanks!

We have a new client that currently has an owner only plan with a large vendor. He is the only participant. He uses the vendor's document. He is getting ready to hire an employee, so he retained us as his TPA. My initial thought is that I would restate the current plan onto our prototype. However, the vendor is taking the position that he has a brand new plan, and they are setting up a new account. I told the client that he should move money from the existing account into the new account and we will continue on with the same plan. But now I am second guessing myself. Can a plan transition from being a nonERISA owner only plan to an ERISA plan and be the same plan?

Rerunning 2011 ADP for a plan due to issues with ownership changes we weren't aware of. Long story, but ERISA attorney has advised we are to split plan into 4 separate ADP tests. 1 of the ADP tests is failing, other 3 are passing. However, I performed the testing by disaggregating the otherwise excludable nonHCEs. Obviously, corrections are being made more than 12 months after plan year-end. EPCRS states that plan may not be disaggregated into component plans for determining the correction for failure. ERISA Outline Book indicates the prohibition against restructuring is because the IRS doesn't want employer to reduce the amount of corrective distributions to HCEs and thus the amount of the one-to-one contribution for nonHCEs. QUESTION: Is the EPCRS saying that it is OK to disaggregate to run the tests, but if the test fails then I have to add back the disaggregated nonHCEs before I determine the refunds for the test that is failing (which is what I have always thought was the case...)? Or am I to understand that I can't disaggregate at all when I run the tests in the first place? Thanks!!

Be aware that we have run into situations where the vendor has made the plan sponsor confirm that they have given a 30-day notice to employees before changing funds, adding a provision (like loans, which will have a participant fee), etc. So they have effectively forced the plan sponsor to wait for 30-days before they can implement any changes, because the alternative is that if the sponsor wants to go ahead and make the change prior to 30-days, they have to lie to the vendor by telling them they gave a 30-day notice, when in fact they did not.

We were recently hired to replace client's TPA. The client was audited by DOL in 2012 and found to have late deferrals for 2010, 2011 and 2012 which totaled about $80,000. Interest was calculated and deposited to plan in 2013 with DOL approval. Interest due was around $850. DOL gave client letter that case was closed and they would take no further action. When TPA prepared 2012 5500, they showed the late deferrals on Schedule H. No late deferrals were shown on 2010 or 2011 Forms 5500. The former TPA also filed an extension for the 2012 Form 5330. So, it is now due on 1/31/14. Client has asked us to prepare the Form 5330. Questions: Should we just prepare a 2012 Form 5330? Since the interest didn't get paid until 2013, I think that a 2013 Form 5330 is due as well, since the error isn't considered to be fully corrected until 2013. What about 2010 and 2011? Client doesn't really want to go back and file 5330 for those years and I guess the IRS won't be looking for it, since the 5500s for those years don't show any late deferrals.

Is it correct that the only CE credits I can count toward my ERPA requirement are those that are provided by one of the providers listed on the IRS website? If I am a member of a local educational organization that sponsors monthly educational programs, but that organization is not on the list, I can't count those hours?

Tom, when we run the average benefits test with all people and all deferrals, we do pass coverage. Would you agree that at this point we can say that coverage is passed, and ADP is passed - given that the only way to pass ADP is to run 2 separate ADP tests? Can you still run 2 separate ADP tests even though we combined the plans for average benefits testing?

We have 2 related companies, both have deferral only plans. The HCEs are all in 1 plan. The plan features are identical in each plan. Both plans pass ADP independently, but if we combine the plans and run 1 ADP test, it fails. If we disaggregate for coverage, one plan is below 70% coverage. Of course, if we combine the plans for coverage, it passes, but then we would need to combine for ADP testing, and ADP would fail. Any comments?

I have been speaking with a prospective client who rolled money from his previous employer's retirement plan into a new plan and then invested it in a distributorship he now owns (against the advice of his CPA). He has no employees. Now he realizes it is costing him too much to maintain the plan. I don't have a lot of details from him yet, but he is asking us to help him terminate the plan. Any ideas on the types of questions I should ask him? I am not really sure how he is going to "unwind" this now, assuming the plan assets are still invested in the business...

May a participant who is currently on military leave request a loan from the plan? The document states that a loan can be given to a "party-in-interest", which would include an employee, but I am not sure if someone on leave is still considered an employee for this purpose. Thanks!

When restating a M&P plan that has break-in-service rules elected in it, for example for vesting - must I carry those over onto the new document? My concern is that I know that the recordkeeper relies on our TPA firm to provide vesting information and there is no way for us to be able to have the recordkeeper correctly administer a participant account where the pre-break vesting % is different than the post-break vesting. Can I just eliminate the BIS rules to make the recordkeeping for rehired employees easier?

If an employer wants to start a new safe harbor plan in April, can they make it effective retroactive back to 1/1? The 401k Regs read that “ a plan will fail to satisfy <safe harbor> unless plan provisions that satisfy the rules of this section are adopted before the first day of the plan year”. 1.401(k)-3(e)(1) This would seem to require that the plan itself cannot have an effective date earlier than the date it is signed. We have taken the position before that we will make the plan effective back to 1/1 and then just put a 4/1 delayed effective date in place for the 401(k) and safe harbor provisions but I wonder if that is correct? That seems to violate the above rule. What are others doing? Thanks!

According to the ERISA Outline book, an employee may NOT waive an accrued benefit, even if he is an HCE. This is because of the anti-cutback rules of 411(d)(6)(B). He may waive a future benefit, depending on the plan document.

There are 2 requirements: 1. A match will satisfy safe harbor only if the match is not made with respect to employee contributions that exceed 6%. 2. If the match formula is written to be "discretionary" then it will satisfy safe harbor as long the actual amount contributed does not exceed 4% of compensation. 125% of 6% is equal to 7.5% so this formula could NOT be used for a safe harbor match plan that is "discretionary". However, if the plan document specifically states that the safe harbor match will be 125% of the first 6%, then that is fine because the formula is no longer discretionary and the requirement from item 1 is satisfied.

I have a plan that is mostly invested with Schwab. Schwab Trust Co. is trustee. However, there are a few physicians who have chosen instead to invest in outside brokerage accounts with other firms. Of course, Schwab does not trustee those accounts. Is it possible for each of the docs to be named as trustee just over their own accounts? None of the docs wants to be the trustee over the other docs who are using outside brokerage accounts. Any other suggestions?

Normally, for a short plan year the HCEs are determined by their compensation for the 12 month period prior to the short plan year. However, I’ve heard that in a partnership, the partner’s pay is deemed to all occur on the last day of the FY. In that case, how would we determine HCEs based on compensation in a situation where the plan was amended to create a short plan year from 10/1/12 - 12/31/12?