jlea

Here, each individuals who received one of the improper withdrawals are just rank and file EEs in a very large corporation that is a sub of a giant corporation. Definitely no facts to suggest anything improper about why or how these EEs got withdrawals. Apparently, the TPA's computer system couldn't code these types of transactions in such a way as to stop the underage withdrawal. Instead, the system had a pop-up box where the individual processing the application was supposed to stop the transaction depending upon the type of dollars being withdrawn and the age of the participant.

TPA processed in-service withdrawals not permitted under Plan document. Two in 2005 with small dollars; two in 2008 with small dollars, each of these in-service withdrawals of company match, which are not permitted until P reaches 59 1/2 under Plan doc (and participants too young). One prohibited in-service withdrawal in 2007 with larger dollars ($40K), which was withdrawal of rollover contributions that was prohibited before age 59 1/2 at the time (again, participant too young at the time); the Plan has since been amended to remove the age restriction on rollover contributions. Outside auditors want an analysis of whether this is a PT, as considering whether to note as PT. Anyone encountered before? How was it resolved?

So far I have not been able to locate any additional facts to support the assertion that the twenty-month period for asset distribution was as soon as administratively feasible. I agree that the most prudent action at this point is to amend the plan to bring it into current compliance. Here are my current questions: 1) What are the consequences of the Board voting to "re-terminate" the Plan, as it were? Seems then we'd have a new termination date. Aside from amending the Plan to current compliance and filing additional 5500s (which, thankfully, the employer's been doing), what are the consequences of having a new termination date (which seems a natural corollary to re-terminating the Plan)? 2) How would the (potentially) too-lengthy distribution period become an issue? Is it only on audit? And if it is challenged on audit, but the Plan was amended to bring it into current compliance, and 5500s were filed for the additional Plan Years, then what? What risk do we run? 3) The corporate parent wants to roll out a new 401(k) plan, effective 1/1/09. I do not know yet whether the employees within the terminated plan will be eligible to participate in the new Plan. If they (or at least 2% of them) are, however, then the employer would have had an alternative defined contribution plan, such that 401(k) money should not have been forced out of the terminating plan. Any problem with (a) rolling out the new plan but excluding this subsidiary's employees and then (b) amending the new 401(k) plan more than 12 months after terminating plan's final asset distribution to let this subsidiary participate in the new plan? Many thanks for your thoughts.

Okay - so bd voted to terminate plan effective 2/07 (all contrib ceased, service accrual ceased, accts fully vested, take all actions to effectuate). Began process of terminating. Lots of missing participants (high turnover of NHCEs, plan had auto enrollment feature) and plan's still going through steps required to try to locate. Here's where I was brought on board. So, as I see it, here's where we are: 1) gotta continue to take req'd steps to locate missing participants (and, yes, I've read past posts on that topic!) 2) under Rev Rul 89-87, plan may not be "term'd" since distrib of assets took longer than 12 months after term date. I'm investigating to see exactly why taken so long, to see if we have any argu re the process was still "as soon as admin feasible." 3) plan needs to be brought into compliance with req'd amendments to date. Prob untimely amender; need to consider EPCRS (file VCP submission and 5310 at same time). which brings me to 4) this plan, I believe, is a standardized prototype. I don't believe they filed for a D letter before. Any reason they should file for a termination letter? (except, perhaps, to address the issue of whether the distrib of assets was timely.) 5) what about the plan needing to be amended when Bd action has occurred to terminate? Should Bd take action to rescind the termination vote, recharacterize as cessation of contrib - which would be at least a partial term - but from analytical perspective, does that clean up its amending the plan now?

I'm covered up with EPCRS submissions among other things, and I received a quick email from a tax colleague. Can a closely held corporation (owned 51% by wife, 49% by husband) put in place a NQDC plan to benefit themselves? They are the sole directors and officers. They are both employees of the corporation. They are also the sole owners, directors and officers of other related corporations that employ between 100 and 200 employees. Is there an issue of not having an independent board voting to put into place a NQDC? Many thanks -

Happily, I was able to find someone at the sponsoring institution with whom I could talk function over labels. In so doing, we were able to identify the documents needed (they call the plan doc "Terms and Conditions," which is included in a packet that otherwise contains marketing information). I'm grateful to have this hurdle crossed before the VCP submission.

When an employer adopts a Section 125 plan (which permits them to use employees' pre-tax dollars to pay for medical insurance premiums (for example)), the employer has the ability to state what types of events will permit a participating employee to make midyear election changes. Many employers choose to make full use of the permissible midyear election changes as established by the IRS in its regulations. If your employer went this route, a participating employee could choose to make a midyear election change when there is a significant cost or coverage change. If, as you indicated, the coverage has significantly worsened and the cost significantly increased, that would permit a midyear election change to drop that coverage. If, however, your employer did not choose to make full use of the permissible midyear election changes, it's a different situation. I would ask your HR rep for a copy of the plan document or a written explanation of what midyear election changes are permitted.

I guess I can see what you mean about it being a document failure (what a completely appropriate label). But when I review the terms of Rev Proc 06-27, I can't even imagine how the IRS would respond. I mean, this isn't we forgot to do good faith EGTRRA amendments - it's we have an adoption agreement and an SPD but we've never had a copy of the plan document and apparently neither does the Custodian/TPA who sold us the product and administers our plan. I remain hopeful that, if we go up the chain high enough at the custodian/tpa, we will find someone who can give us a copy of the plan document. All this for a Simple IRA that will terminate at year's end. Any thoughts or responses? Thank you in advance!

Hmm, good question. Plan work can often be like peeling an onion, no? Always another layer . . .

One of my clients experienced an operational failure in their Simple IRA plan and we've been working through the issue, with an eye to submitting a VCP request. The Simple is a prototype arrangement and they were never given a copy of the Plan document. They have their Adoption Agreement, their SPD, and notices that they diligently distributed per the 408(p) rules. The custodian says they don't have a copy of the Plan document. Obviously, we'll pound the doors on this issue with them - but, worst case, let's say we can't put hands on it. How much of a snag is that likely to be? Anyone had experience with not being able to produce requested documents?

Sorry - no - when I said pension plan, I meant a money purchase pension plan that is subject to the QJSA rules. So, of course, the transferred assets remain subject to the QJSA rules. In any event, I found that the RMD amendment pulled in updated life expectancy rules. And, based upon my research, it appears that the only provisions that tend to appear in DC plans that hold QJSA-subject assets are bare bones provisions regarding the continued application of QJSA/QPSA rules. Makes me happy - the fewer provisions I have to worry about being appropriately included and amended, the better.

Pension plan money transferred into profit sharing plan, continues to be subject to QJSA/QPSA rules. Does the plan need to be amended with respect to the mortality tables (i.e., RR 2001-62 re 94 GAR table; PPA 06 refinements)?

I, too, agree that the safe harbor is just that and that deposits thereafter are subject to the general rule, rather than automatically considered late. My recollection is that one of the speakers at the March ALI-ABA conference likewise viewed the proposed regs in that manner. My thanks, too, regarding the suggested client practice. I'm working with a client who's correcting a temporary cessation of elective deferrals under EPCRS and we were just talking about when the corrective contribution is considered made - the date the check is mailed or the date the deposit hits.

Okay, guys, Friday quiz time: Assume parent-child controlled group wherein parent and child each maintain an individually designed plan. Parent's EIN puts it in Cycle C (though I am told they filed end of January 2008); child's EIN puts it in Cycle E. As far as I am aware, neither entity made any elections under Section 10.06 of Rev. Proc. 2007-44. I don't know when the CG status first came into effect. To further complicate matters, child used to maintain its plan on a VS document, but is in the process of restating it as an individually designed plan. In the process of trying to determine when the child needs to file: a) Section 10 is entitled "exceptions" to the general rule re: EIN-based filing and 10.06 begins "in lieu of" Section 9 (among others) which sets forth the general EIN-based rules re: filing. So do the rules of Section 10 trump the general rules? (i.e., if there's a CG, must it file either on Cycle A or on the cycle of its parent's EIN? Can CG members ever file under their own EIN?) b) As far as I can tell, the parent's EIN is on Cycle C but they've already filed. So does the child need to file under EPCRS as a late filer? c) If there's a world in which a child subsidiary could file on its own cycle, in this instance, as a prior adopter of a VS doc, must it file in the 2 yr window for VS docs? Or can it wait and file by the Cycle E deadline of an individually designed plan? Yet another example of why I dislike Rev. Proc. 2007-44 . . .

Thank you for your swift replies! And, after I posted regarding my horrible parade of horribles, I spoke with an IRS agent that I've been talking to about a couple VCP submissions. You correctly predicted his response, which was that it could be self-corrected. Hurray! And, documenting is one of my favorite things in life. The more interesting question now will be how the independent contractor/former erroneously included individual feels about the situation . . . Again, many thanks for weighing in!

Really - no one wants to weigh in? Aw, shucks, folks. What I've come across out there in the way of professional discussion of these issues is: (a) the parade of horribles is, well, horrible: plan disqualification, loss of deductions, immediate taxation to employees, etc.; and (b) you should be able to correct under EPCRS but EPCRS does not address this failure. So it sounds like you have to go in or you risk everything - but if you go in, how ugly will it be? Anyone addressed this type of situation? (just call me the teacher in Ferris Bueller's Day Off: "Anyone? Anyone? The Magna Carta.")

Let's assume that a particular medical transcriptionist is properly classified as an independent contractor, but has been permitted to participate in an employer's money purchase pension plan, in violation of the plan's terms. This has gone on for a couple of years; she has partially vested in her account. There is a violation of the exclusive benefit rule and, under PLR 9546018, seems that her account balance is forfeited and the money remains in the plan to be used however forfeitures are handled under the plan. What type of reporting does this require? Anyone handled this type of situation? Any other thoughts on alternatives? Additional issues?

I just spoke with the EBSA Philly regional office and the agent with whom I spoke agreed that since EE deferrals were stopped and no EE dollars were involved, the VFC program is not triggered and there is no DOL correction needed. I also got a little clarification on the functioning of the on-line calculator, which is what I plan to use to calculate earnings for the correction paid into the Simple IRAs.

Stopped elective deferrals - so I've spoken to an IRS agent and the employer will correct by paying in (with ER dollars) the elective deferrals that should have been taken out plus related match and earnings. Rev. Proc. 2006-27 states that Simple IRAs can be corrected in a manner consistent with a correction offered for a 401(k) plan. I believe, in this instance, it's appropriate to analogize to a 401(k) plan where elective deferrals were stopped, such that plan participants have been prevented from making their desired contributions to the plan (and, by extension, failed to receive the match to which they were entitled). (Note that under IRC 408(p), an employer cannot terminate a Simple IRA except at the end of a calendar year.) My next question is whether there has been a failure that requires correction under the DOL's VFC program. Because the elective deferrals were stopped (not withheld but not contributed), I believe a VFC filing is not necessary. When I examine the listings of eligible transactions to be corrected under the VFC program, I do not believe this situation constitutes any of them. Moreover, the employer is making the employees whole. I can't imagine the employer should do more than they already are.

Never mind - I think I've found my answer: underpayment rate defined in IRC 6621(a)(2) - though at 7% for the first quarter of 08, it seems pretty steep.

Client A has maintained a Simple IRA for several years; it attempted to terminate the Simple IRA mid-year and, in so doing, stopped elective deferrals for three and a half months. Having been counselled that it cannot terminate the Simple IRA mid-year, it is resuming plan operations for the remainder of 08 and will correct under VCP. I've spoken with an IRS agent regarding the proposed correction and received positive feedback. The question arises, though, regarding what interest rate we should use for purposes of calculating earnings. Section 6.10(4)(B) of Rev. Proc. 2006-27 (which is not directly relevant (i.e., different type of error) but instructive nonetheless) states that, given the assets are held in IRAs, "there is no earnings rate under the . . . Simple IRA Plan as a whole. If it is not feasible to make a reasonable estimate of what the actual investment results would have been, a reasonable interest rate may be used." It is not feasible for us to determine what the actual investment results would have been. In fact, the IRA custodian is still "researching" whether it will be able to accept the earnings (which, of course, they must take for the Plan to complete its correction). What interest rate do you believe would be most reasonable?

I've finished the latest round of amendments in a complex plan and as we're finishing up the conversation, it's mentioned that the plan covers some collectively bargained employees. (I hadn't known from the Plan doc itself as they're just not excluded.) It's my understanding that these employees are a small number compared with the non-CBA employees. My brain hurts and my billable budget with them is running low. What issues should I be thinking about? Any thoughts?

I couldn't agree more. I shudder at the thought of the time required to have those documents put onto our system, the reviewing, the editing, all just to get the document as it existed a few years ago . . .

I like your analysis - and, indeed, I do not expect we'll hear anything back regarding the DFVC filing. I just don't want to get whacked by an agent who believes we tried to play hide the ball . . .

After requiring disclosure regarding whether a plan or trust is "currently under examination," Form 5300 also requires disclosure regarding "any issue related to this plan or trust currently pending" before the DOL. It goes on to say that a filing under EPCRS doesn't trigger a positive answer. My client has recently filed under DFVC for late filings of Forms 5500. Does the DFVC filing require a positive answer and related disclosure? I'm surmising yes, since the Form specifically excepts EPCRS filings but says nothing about DFVC. Given that this client will be filing Form 5300 in conjunction with an EPCRS filing (because it adopted the mandatory rollover notice late), I'd rather not be giving any more indications of foot faults than required. (And, yes, I began working with this client after these errors occurred!)