Lou S.

It is certainly possible to work less than 12 months and earn 2 years of vesting service under a 1000 rule but they would have to span 2 plan years. Consider the case where a plan use the 1000 hour rule in a vesting computation period = PY = CY and employee is full time hired 7/03/15 and terminates 6/28/16. It is entirely possible (even probable) that they are credited with 1000 in 2015 and 1000 in 2016 but were only employed for 360 days and would have 0 years of service under elapsed time. Of course some one earlier covered the quirks of elapsed time vesting so I won't rehash.

Once a 5% owner for RMD, always a 5% owner for RMD.

Read the plan document. Many have "fail safe" language that will "top up" a required gate way contribution to pass the required test, even if it results in differing allocation rates for employees in the same group.

If the document allows for immediate distribution on termination it would seem a regular distribution for separation of service. The loan offset would be added to the cash portion to determine the 20% federal withholding. If the plan does not allow immediate distribution as RBG notes but allows hardship to terminated employees then you would process the hardship as normal and the loan would presumably go into default under the terms setup in the participant loan program unless he keeps loan payments current (an unlikely scenario given the above facts).

Your analysis seems correct. I thought the IRS had a pronouncement that you no longer needed to go though VCP to correct the excess annual addition you could simply self correct by refund, similar to ADP or 402(g) excess.

To amplify Bird's prior response which I think it is totally on point. The participant loan issue is much more analogous to having too much tied up in an illiquid asset which does not relieve you from the RMD requirement.

Good question I'm not sure I know the answer. I'd be tempted to treat the RMD as a phantom "loan payment" that directly reduced the principal. But I'm honestly not sure there is any authority for that approach even if it makes logical sense.

Could you issue a 1099-R for a partial loan offset and reduce the outstanding balance of the loan by the portion that is considered an RMD? Alternatively you could probably just wait until the participant makes a few loan payments this year and they will more than likely have enough cash in the account to cover the RMD.

send the record keeper a copy of the instructions to Form 1099-R highlighting the section entitled "Failing the ADP Test or ACP Test after a total distribution" It is on Page 7. https://www.irs.gov/pub/irs-pdf/i1099r.pdf

Maybe they can make a claim in Bankruptcy Court against the Plan Administrator (who is probably the bankrupt sponsor) to get the penalties paid. Given their stance on Orphan Plan filings I think they would prefer a final return with no Independent Audit to no Final Return at all which appears to be the alternative in this case. But sure they can push back. I'd refer them to the bankrupt sponsor should they push hard.

Is it possible - yes but probably requires some sort of plan amendment. Are they breaking rules - maybe (probably) Are there impacts - yes if corrections are required for breaking rules. May require amendment to bring in other short service NHCE which may require contributions.

Are there any participants beside the husband and wife owners?

Just thinking outside the box why can they make a 5% of pay contribution now for all the eligible employees, pay them out at 100% vested as terminated employees then terminate the plan at year end and give the owner whatever cross tested contribution passed testing. Assuming the document allows.

I think it's a cutback of an already promised benefit. You want to eliminate for next year fine, this year I think you already have a 411 prohibited cutback at participants have already "accrued" a right to the true up in the plan document.

I agree with Bird. Is there some reason they are giving for the 415 excess. Is the Limitation Year compensation somehow defined differently in the Plan document than the compensation for allocation purposes?

Legally, no you can not "terminate the plan as though it never existed"

There is no de minimus rule. If the balance is under $1,000 you can send them the whole account in cash (less withholding) but need to inform them of the portion that is RMD and not eligible for rollover. If the balance is under $5000, you need to send them their RMD before cashing out the remaining to IRA (which will now have it's own RMD next year).

I agree with Belgarath. 5% may or may not pass 401(a)(4) testing but I'll assume you've done the math on it and it likely works. Don't forget probably no vesting schedule on the extra 2% as you most certainly have a partial plan termination. Lastly you'll want to confirm your plan document allows for the contributions to the terminated participants under one or more of the plan's provisions. If you have a last day requirement for example you don't have a basis to allocate the 2% just yet as it isn't yet required to pass gateway even if you plan on making a larger contribution later on that might require it.

If the document allows for it and you pass all related testing, they yes you can.

I'd take it one step further since he only contributed $20,000 he still has $4,000 that can be recharatcerized as catch-up for 2016 if the PS allocation is "large". He can receive an allocation of $39,000 and not exceed his 415(c) limit for 2016.

What is the Plan's 415 definition of compensation? Is this pay for services rendered, or post-separation severance package?

What does your Participant Loan Policy say? I think legally the participant can direct the company to stop deducting the payments from his/her check. At that point the question then becomes how flexible the employer wants to be on accepting payments (as long as they are in compliance with 72(p)) and when the loan is in default resulting in taxable income to the participant.

It is quite possible the Plan is drafted that way to avoid processing multiple distributions since you may very well be entitled to a 2017 contribution. Though I believe features like the one you are describing were more common in the past, they are still allowable and used by some plans now. It fact the plan can be drafted to delay payment until you reach retirement age.

You could be correct. I just don't see our new Labor Secretary putting this one high on the priority list in allocating department resources to work on it nor do I see this Administration seeing a need to "finish it" any time soon. I think this is likely to to come well after any Tax Reform plans this congress is going to be working on and well after any ACA replacement plan that gets worked on as well. And for what it is worth like you I too am in favor of the rule but I'm not going to hold my breath expecting it to be done anytime in the near future.

Perhaps you missed Trumps eliminate 2 regulations for every new 1 memo. I'd be shocked if the Fiduciary rule gets any traction in the next 4 years.