DMcGovern

Maybe I am reading this wrong, but the ASPPA Q&A seems to follow what I did for my plan: 1. Plan A, which had the failed ADP test notified the terminated participant that a portion of the full distribution that was rolled over to another QP was not eligible for rollover. (follows the first three answers) 2. Plan A also amended the original 1099R from the full amount as a rollover to two separate 1099Rs - one for the eligible rollover and one for the corrective distribution. (follows the fourth answer) 3. The participant then notified the QP that accepted the rollover and they distributed the amount to him, issuing a 1099R to report the distribution, but coded it as zero amount taxable. (this seems to be the part that is most argued, particularly in your earlier link?) I read the other email thread regarding the IRA account and how that needs to be handled. That one also seemed to be arguable either way, or yet another "gray" area in our world. Does seem like both situations could be subject to personal interpretation. Thanks for the info!

I don't have the full regulation, but here is what was sent to me: "1.401(k)-2(b)(2)(v) Distribution. Within 12 months after the close of the plan year in which the excess contribution arose, the plan must distribute to each HCE the excess contributions apportioned to such HCE under papgraph (b)(2)(iii) of this section and the allocable income. Except as otherwise provided in this paragraph (b)(2)(v) and paragraph (b)(4)(i) of this section, a distribution of excess contributions must be in addition to any other distributions made during the year and must be dsignated as a corrective distribution by the employer. In the event of a complete termination of the plan during the plan year in which an excess contribution arose, the corrective distribution must be made as soon as administratively feasible after the date of termination of the plan, but in no event later than 12 months after the date of termination. If the entire account balance of an HCE is distributed prior to when the plan makes an distribution of excess contributions in accordance with this paragraph (b)(2), the distribution is deemed to have been a corrective distribution of excess contribuitons (and income) to the extent that a corrective distribution would otherwise have been required." I could be wrong (often am), but I read this to include both active and terminating plans. Maybe I am missing part of this reg?

I had a similar situation come up recently. Regulations provide that if the entire balance of an HCE is distributed prior to when the plan makes a distribution of excess contributions, the distribution is deemed to have been a corrective distribution of excess contributions (and income) to the extent that a corrective distribution would otherwise have been required. See 1.401(k)-2(b)(2)(v). Your plan would issue Form 1099R showing the eligible rollover distribution amount, and a second Form 1099R showing the corrective distribution amount. The issue is that the IRA accepted funds that are not eligible for rollover, so it should distribute the amount that is recorded on the second 1099R. The IRA holder would also issue a 1099R showing the gross amount, with a taxable amount of zero.

I just received a response from Corbel (Robert Richter) to my question about the determination of "eligible employee". The microsoft language is in there to keep out people that are independent contractors. This language relates to the nonstandardized and volume submitter documents because it would be okay to exclude them (but is subject to 410(b) testing). You can't have exclusions in the standardized doc that would violate 410(b). (My interpretation:) Standardized document - would include anyone that performs services for the employer (regardless of their compensation) Nonstd & Vol Submitter - language excludes independent contractors (performs services but is not on the payroll) He further states that compensation does not matter. The issue is whether the person performed services for the employer. If so (even if no comp), the service counts. If no service, no time with the employer. It would become a matter of how many hours she worked each year. According to Robert, "Self-employed individuals are treated as employees for plan purposes so I'd say the prior service counts......If she's doing the same job, etc., then it means to me that all her service counts - but when she wasn't paid she couldn't get any benefits (due to 415 - not b/c she was in an excluded class)." In thinking about this response, it wouldn't matter what document you are on - the wife would have been included in 410(b) when she met the age and service requirements. She just would not be benefitting until she has compensation (unless she is specifically excluded in some way). Personal note: Seems like our census requests need to ask for anyone performing services, not just those with hours and comp! I wrote this kind of fast - hope it makes sense!

Ok, so the language I quoted before would apply in your case. (Eligible employees do not include outsourced workers and workers that are not common law employees. Common law employees must be on the payroll records.) BTW, this language is in the document due to the Microsoft case that was mentioned by someone else in this topic. So again, I don't think the wife is an eligible employee until she is on the payroll and must meet the eligibility requirements from the date she first earns wages from the Employer.

Austin, which Corbel document is the client on (Standardized, Non-Std, etc)? I will be happy to pose your question to Corbel to see what their answer is

I think that the spouse would become an eligible employee, effective as of the date he/she first is on the payroll. And would then have to satisfy the eligibility requirements from there.

Maybe. No information in above posts about NHCEs. If it is just him and (possibly) the spouse, why would they put in safe harbor option?

Have you checked your document's definition of "eligible employee"? I think that may help here - but may not be the answer you are looking for. Ours (Corbel) states, "an individual shall not be an Eligible Employee if such individual is not reported on the payroll records of the Employer as a common law employee. In particular, it is expressly intended that individuals not treated as common law employees by the Employer on its payroll records and out-sourced workers, are not Eligible Employees and are excluded from Plan participation......" It does reference their non-standardized document, so this language may not apply in all Corbel document cases. You may want to ask your document provider directly on this.

It is a confusing article by Sungard Relius and I think additional guidance is needed. My understanding of the article was that for income tax purposes, self-employed individuals are allowed to deduct the SEHI (paragraph 3). Paragraphs 4 & 5 are illustrating the conflicting (or gray areas) of how this change may or may not affect the calculations for retirement plan purposes. Paragraph 4 indicates that the committee that created this new rule in the SBJA felt that for retirement plan purposes, the deduction is not considered. Paragraph 5 looks to the Code and says (or interprets) it to include this new deduction. Their example in the article includes the deduction and appears to take the position that follows (their interpretation of) the Code. Of course, I could be totally wrong here!

I have an article from BenefitsLink that reviews a "new" DOL position on what are settlor fees vs administration fees. I think the article is from 2001. In the article, it specifically states that CAP, DOL and IRS sanctions or penalties, DOL delinquent filer program fees are considered settlor fees (among others). Also, a 2010 article from McKay Hochman also states that settlor expenses includes "fees associated with correcting a plan error; and fees for filing Form 5500 late." It seems like using plan assets to pay for such expenses would be benefiting the employer, and violating the exclusive benefit rule?

I have had a couple terminated plans in 2010 to do on an EZ as well. I finally just used the 2009 form (which is allowed), and put the 2010 dates in Part I.

The plan has to treat the deferrals as Roth deferrals - that is what the Participant elected and is recorded on his form. The employer just did not treat them properly and has a payroll issue. Basically, the participant would most likely pay additional taxes due when filing their personal tax return. The W-2 supplied by the employer should show the deferrals as Roth after-tax deferrals, not pre-tax deferrals. If it does not, they need to issue a corrected W-2.

In your experience, has this been successful? Oooh, I sense a challenge! Just remember in 8.635 years when the Service changes the forms to Courier that it will have been my doing! Don't forget to write your letter in Courier 10 point so they can scan it and have it get lost in the shuffle for a while! I also read that the Courier 10 font "should be used" when preparing the application form. I am getting ready to send in one this month. I used to send everything in a nice, organized binder so they wouldn't lose anything (and even had a call from one reviewing agent that thanked me). Maybe I'll start using lots of rubber bands instead! Thanks for starting this, Andy!

This may be out-of-date, but I have this in my notes from years ago: IRS Q and A from 2000 APSA Annual Conference 52. Can a 401(k) plan be amended to forfeit residual balances of under $20 for participants who have been paid out because of separation from service; subsequent to these distributions dividends posted resulting in diminimis balances. IRS: No. Effectively, the fees charged for residual distributions would wipe out the balance. But it is still a bother!

Would think logically that the 8955-SSA would fall under the 5500 umbrella (they didn't explicitly say 5500, 5500-SF, 5500-EZ) as a schedule, but logic doesn't necessarily carry through. I think the new 8955-SSA is a separate IRS form in the future, not one that goes to the EBSA, so I'm not sure it would fall under your umbrella

I don't know what the prior discussions said, but 1.415-6 has the following: "ii) If, in a particular limitation year, an employer contributes an amount to a participant's account because of an erroneous forfeiture in a prior limitation year, or because of an erroneous failure to allocate amounts in a prior limitation year, the contribution will not be considered an annual addition with respect to the participant for that particular limitation year, but will be considered an annual addition for the limitation year to which it relates." That would mean that the amounts are not annual additions for the year contributed, but I don't know if there is any related sections in the code for your question in #2. Seems like #3 would be treated as a missed deferral opportunity (and corresponding match, if applicable), with the corrections outlined in the EPCRS

Also what about the Form 8955-SSA due to come out just around the corner? J I just saw that ASPPA has written comments to the IRS about Form 8955-SSA requesting that it also be exempt from PTIN requirements since it does not contain information relating to a tax liability.

What about 5558, 5330 and 945? Is Form 1096 included as a part of the 1099 series (doesn't seem like it would be)

So, if I understand the notice, anyone preparing a 5500 would still need to obtain a PTIN and pay the fees; it is just that they have recognized that the compliance testing would not apply. And they may come up with some sort of testing or required classes in the future. Correct?

I would start by checking the plan document. Some docs provide a method for self correcting this problem. If it does, then you would have to follow that method.

For just the last statement, wouldn't this be limited to up to 9 1/2 months after PYE? Not really effective in the above case, right?

Generally, in that revenue procedure it provides for an earnings rate based on the investment results that would have applied as if the failure did not occur. The correction section that I quoted previously mentions that it would be the plan's rate of return. It seems as though you would obtain an average rate of return for the plan for the year in which the excess distribution occurred and apply that rate to the principal amount for the period of the failure. Seems like the period of the failure would start with the date of the distribution and end when they correct it by depositing the funds in the separate account. It does seem reasonable to use the rate of return for that participant for the year, but since the revenue procedure specifically states the rate for the plan, not sure if that would fly. Any one else deal with this?

The overpayment is $373. Also, since this was previously a distribution due to an ACP failure, it wasn't eligible for rollover anyways. I don't know why the EPCRS states that you have to notify the participant that it's not eligible for rollover (when it wasn't in the first place), but that is the language in the Rev Proc. Section 6.06(3) of the revenue ruling provides how to treat the overpayment. For a DC plan such as yours, the employer must take reasonable attempts to recover the overpayment (plus applicable interest) from the participant. Any amount returned that is less than the amount calculated due back (or if unrecoverable), the employer "or another person" must contribute the difference to the plan. "The Overpayment, adjusted for earnings at the plan's earnings rate to the date of the repayment, is to be placed in an unallocated account, as described in section 6.02(2) [unallocated account established for the purpose of holding Excess Allocations to be used to reduce employer contributions in the current year and succeeding year(s)], (or if the amount would have been allocated to other eligible employees who were in the plan for the year of the failure if the failure had not occurred, then that amount is reallocated to the other eligible employees in accordance with the plan's allocation formula). In addition, the employer must notify the employee that the Overpayment was not eligible for favorable tax treatment....." Hope this helps!