Lou S.

For small plans (under 100 lives) the DOL has a safe harbor of 7 business days after the pay date. Anything longer than that you are into facts and circumstances to justify why it takes that long.

Each plan that issues a refund for excess deferrals between 1/1/20xx+1 and 4/15/20xx+1 would issue a 1099-R in January of 20xx+2 for year 20xx+1 with code P indicating that the refund was taxable in year 20xx. No correction to the W-2 is required.

What does the Plan Document say?

Leaving out the timing of deposits was it an "Excess Deferral" or an "Excess Annual Addition"? You'll find they have different meanings and 1099-R implications. An excess deferral means you exceed the elective deferral limit under 402(g) limit of $19,000 plus catch-up of $6,000 if applicable for 2019. An excess annual addition means you exceed the 100% of pay limit or the $56,000 415(c) limit catch-up of $6,000 if applicable for 2019. In the former case you would include the excess when you file your 2019 tax return and your 2020, 1099-R should have code P indicating taxable income in 2019. In the later case you are correcting under EPCRS and you would have deducted the contribution in 2019 and then picked it back up as income in 2020 with distribution code 7. Your pension adimin should be able to tell you want happened. If you're doing it on your own, good luck.

https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions This is from the IRS FAQ on rollovers from qualified plans to IRAs. I'm pretty sure a rollover from Plan to IRA counts as rollover #1 (assuming it wasn't direct trustee to trustee) but if you find guidance to the contrary I'm happy to be corrected. Though it does go on to say So your understanding might be correct and I could be off.

If you cross test on a contribution basis it will pass easily with HCE 15%, HCE 25% and NHCE 25%. But as others have said you need a document that allows for varing rates of contribution and you currently don't have one.

If the plan is top heavy and you bring them in, they absolutely need a T-H minimum contribution assuming they are employed on the last day of the plan year in which they become a participant. As for other employer contributions I agree with Zeller, what does the document say and what does the amendment say?

Make sure they are trust to trust transfers so as not to violate the one rollover per year rule. That is it should go directly from Plan A -> IRA -> Plan B without the individual taking a cash distribution then writing a check.

We send a letter along with the refund expaining the tax implications, but yes that's the way the 1099-Rs work.

If you have an excess deferral in 2020 and issue the corrective refund after December 31, 2020 but prior to April 15, 2021 you would issue a 2021 Form 1099-R in January of 2022 with code P, indicating that the it is taxable income in 2020.

If the husband and wife are W-2 employees then the 401(k) contributions need to be run through payroll and be reflected on the W-2s. If they are self-employed partners they would deduct their own 401(k) contribution on the 1040.

As to the separate testing for participants with less than a year of service, that sounds like a software testing issue. Our system has a check box to either test all together or test statutory exclusions separately. Maybe try rewording your question to your software provider. If you are doing general testing with ABT then I'm pretty sure you can't exclude the terminated with less than 500 from the 410(b) test.

Look into the rules for Multiple Employer Plans and consider having Company B be an adopting employer of Company A's Plan.

Apply the vesting to the correction. 60% of the correction plus allocable income is refunded as excess aggregate contribution and 40% of the correction plus allocable income is forfeited to the Plan.

That's what I was going for, Zeller just spelled it out much better than I did.

Your Plan documents should spell out and coordinate who gets what top-heavy minimum and where. If a person is in the DB plan but the 5% contribution in the DC plan is being used to satisfy TH min, you want to make sure he's eligible to get the 5% TH minimum in the DC plan if he accrues a benefit in the DB plan. Which may or may not also trigger a gateway contribution as well.

The loan itself cannot be rolled to an IRA as IRAs are not allowed to issue or hold loans. The outstanding balance of loan can be rolled to an IRA if it is a qualified plan loan offset (QPLO). If it is a QPLO the participant has until the due date of their tax return with for the year of the QPLO occurred to roll the funds to an IRA. They would however have to come up with the funds.

The match as stated appears to fall with the the rules that would not violate the deemed not-top-heavy status for 2020. That is if the 3% NEC and match as stated are the only allocations (no PS or forf realloc) you don't have to worry about TH for 2020.

That's a good question. I'm not sure even the IRS knows the answer. I guess you could be correcting a failure to provide benefit when due. That is the participant had a valid election to receive a distribution under the plan that was not processed due to clerical error and is no longer available due to CARES Act expiration at 12/31/20. I would think this is something that could be fixed by VCP but I'm not sure it fits into an easy check box example in the rev proc.

Forfeit and offset future match. That's what I'd do.

If you have fail safe it's probably spelled out in detail and without discretion in your master text. I'm pretty sure ours reads something like 1 add back active NHCE with the most hours until you pass or run out of them then go to 2. 2 add back NHCEs who terminated closest to the end of the year, if more than one on the same day add all that terminated on that date even if more than needed. So in our document you'd add back employee A who terminated 9/28. But your document may be drafted differently. And I'll add my voice to the chorus of 11g amendments if you want maximum flexibility to pick and choose who gets added back in to pass testing.

Qualified Participant Loan Offset (QPLO)? That was effective 1/1/2018 so not that new but not that old either; is that what you are thinking? Qualified loan offset is when you offset a loan due to termination of employment or plan termination. In those cases the participant has until the extended due date of their tax return (10/15 following the year of offset) to rollover the balance to IRA or qualified plan instead of the usual 60 days. You add the Code "M" to the 1099-R to indicate QPLO. Other than CARES I can't really think of any other recent loan changes or guidance.

It sounds like your ex was awarded 1/2 of your payments in the divorce under the DRO that the administrator then determined to be a QDRO and started making separate interest payments. I offer no opinion as to whether or not this was correct, just trying to get a handle on what actually happened. Have you discussed this with your divorce attorney and whomever drafted the DRO? As the two above mention the Plan Administrator is following a court order that was issue to the Plan, if the DRO meets the requirements of a QDRO they have no option but to implement what the order states.

I don't work on government plans either but this certainly sounds problematic. I'd be tempted to turn the question on its head and ask the people who want this done what regulation or guidance can they point to to suggest that what they want to do is allowable? And if they don't have than suggest they consult with ERISA counsel about requesting a ruling from the IRS that what they want to do is allowable.

FWIW - 2019 5500-SF one man was accepted by EFAST with acknowledgment file in case anyone else runs into this situation. Thanks Bird.