t.haley

Employer A has a 401k plan. The plan's eligibility provisions exclude employees of Related Employers. Employer B purchases Employer A resulting in A and B in a controlled group. A's 401k plan is not immediately terminated (plan still has assets that have not been distributed). When performing coverage testing for A's 401k plan for the plan year after the transaction, the plan would like to exclude Employer B's employees from testing. Under the IRS general rule (all employees of all employers in a controlled group must be included in testing), B's employees should be included in the testing. A did not elect to include the 410(b)(6) transition period in 401k plan. A would like to use permissive disaggregation to put separate out employees (specifically B's employee) that are not 21 and do not have 1 year of service (the 401k plan's eligibility provisions are more lenient - age 18 and 3 months of service). Can A use permissive disaggregation as to B's employees if B's employees are not eligible to participate in the 401k plan in the first place? Doesn't permissive disaggregation assume that the pool of employees are eligible employees?

Spouse and daughter (from previous marriage) both claim they are entitled to distribution of deceased participant's 401k plan account. Plan administrator reviewed information from both parties and determined that the account be distributed to daughter. Spouse appealed denial of his claim and submitted additional and new information in support of his appeal. Attorney for daughter is asking whether she will be provided a copy of documents submitted by spouse in support of his appeal and whether she will have an opportunity to respond. I cannot find anything in the claims procedure requirements that address this. My thought is that if the plan administrator determines that the spouse's appeal is well taken and therefore the account should be distributed to him, that is tantamout to a denial of the daughter's claim, requiring the plan administrator to provide her a detailed explanation of the basis for the denial (which would include the information submitted by the spouse in his appeal) and triggering her own appeal right where she can submit her own argument/documents. Thoughts?

401k participant terminates employment due to disability in 2020 (entitling him to an immediate distribution under the terms of the plan) and dies 4 months later. No distribution made to participant following his termination and prior to his death. Primary beneficiary alive at this time however she dies 10 months later in 2021. No distribution to primary beneficiary before her death. Participant's benefit still in plan and under $1,000. Plan administrator is trying to determine the proper party to receive distribution of account and get the money out of the plan. Based on the timing, I would think the primary beneficiary was entitled to an immediate distribution upon the participant's death in 2020 and because she subsequently died, the distribution should go to her estate. We do not know if an estate was opened but we have contact information for her daughter (the sister of the participant). Could the plan administrator issue a check to the "Estate of [Mother]" and mail it to her daughter? Then her daughter can decide whether the open an estate? Or would it make more sense to just rollover the account to an IRA as provided in the plan's small cash-out provision?

Plan administrator of MEP became aware of issues with one participating employer (use of incorrect compensation, late deferrals, incorrect calculation of deferrals and possible contributions by ineligible employees). Until they could confirm participant balances were correct, plan administrator placed a hold on distributions for this participating employer only (not the MEP as a whole). The hold will be in place until the plan administrator completes its investigation and determines whether a corrective action (VCP) is necessary. Is a blackout notice required? Obviously the ability to receive distributions is affected, but it is not the result of an administrative change (i.e., change in investment provider or recordkeeper). The plan administrator does not want to distribute a participant account and later find out that the account was overstated. Thoughts?

Originally posted in 457b forum but so far no responses so I thought I would try it here: Participant in a non-governmental 457(b) plan incurred a severance from employment and elected to defer distribution of his account (as allowed under the plan document). The participant was subsequently rehired a few weeks later and continued his participation in the plan. When the deferred distribution date arrived (2 years later) the recordkeeper failed to segregate the participant's contributions (based on first period of employment and second period of employment) and distributed his entire account, including deferrals made after he was rehired. Participant is still employed. Was the participant entitled to receive the distribution of his account attributable to deferrals in his first period of employment (because he did have a severance from employment and elected a deferred distribution date)? If so, can we treat the distribution of the deferrals made during his subsequent re-employment as an "overpayment" and apply the correction method for overpayments in EPCRS to correct (knowing that 457(b) plans are not included in EPCRS)? Any thoughts?

Participant in a non-governmental 457(b) plan incurred a severance from employment and elected to defer distribution of his account (as allowed under the plan document). the participant was subsequently rehired a few weeks later and continued his participation in the plan. When the deferred distribution date arrived (2 years later) the recordkeeper failed to segregate the participant's contributions and distributed his entire account, including deferrals made after he was rehired. Participant is still employed. Was the participant entitled to receive the distribution of his account attributable to deferrals in his first period of employment (because he did have a severance from employment and elected a deferred distribution date)? If so, can we treat the distribution of the deferrals made during his subsequent re-employment an "overpayment" and use the correction method for overpayments in EPCRS to correct (knowing that 457(b) plans are not included in EPCRS)? Any thoughts?

Employer started 401k plan in 2001 and signed an amendment freezing contributions to the plan in 2008. Since then all assets have been distributed except for 1 participant and the employer has continued to file Form 5500-SFs. Employer going through a merger and needs to terminate the plan. Employer cannot locate the original plan document or any amendments or restatements. The only document we have is the amendment freezing the plan. We know the plan must be updated prior to termination, but can we just adopt a Cycle 3 restatement and the requirement amendments since then or do we have to go back to 2008 forward and adopt required interim amendments? Doesn't the Cycle 3 restatement capture those requirement amendments? Trying to figure out the most cost-effective but compliant method to fix this.

Employer was a governmental entity exempt from ERISA until 7/1/23 when it's structure was changed to a non-governmental, non-profit entity. The employer has sponsored various welfare and retirement plans for years but we were not filing 5500s due to the governmental status of the employer. Now that the employer is subject to ERISA we are working on the 2023 Form 5500s (yes - we know they are late😊). For the 2023 Form 5500s, do we need to indicate a short plan year from 7/1/23 to 12/31/23? By checking the box for a short plan year are we saying the plans did not come into existence until 7/1/23 or that the plans were not subject to ERISA reporting requirements until 7/1/23? Any guidance is appreciated!

Bri-yes that would be the best solution however termination is part of business reorganization and 10/31 termination date is required. Bill Presson - one thought I have is along the same lines as yours - no deferrals required until paycheck is cut. Because payroll is being cut on 11/02 after plan is terminated, no deferrals are required to be withheld because at that point the plan is terminated and no contributions, including employee deferrals, can be made to the plans. Anyone see any issue with this reasoning? Any need to include language in the amendment specifying that no deferrals will be withheld from payroll after the termination date?

Employer is terminating 403b and profit sharing plan effective 10/31. Last payroll runs from 10/20 to 11/2. My understanding is that only compensation paid prior to plan termination can be used to calculate deferrals and employer matching. Payroll provider is telling me they cannot split the last payroll check between 10/20-10/31 and 11/1-11/2. Is this a situation where we have to find a solution or is there another way? I thought maybe we could put language in the termination amendment that the last payroll to be included will be the payroll period ending 10/19, but its my understanding that because employees have elected to have deferrals withheld we have to withhold those deferrals until the plan is terminated (10/31). Is there an exception to this rule (if I'm correct) for terminations? Any thoughts/guidance is appreciated!!

FYI - I emailed the EFAST support group and received a response stating they are "reviewing an issue in IFILE that may cause a Technical Difficulties or other message when adding an attachment, validating, signing or submitting" and that the "issue will be resolved as quickly as possible." They also referenced EFAST FAQ35a regarding attempts to file and resulting late filing.

Anyone else having issues with the EFAST system? I had a client that has been trying to sign this 5500 since late yesterday afternoon but continues to receive a message saying "ERISA Filing - Technical Difficulties - We're sorry but we are experiencing technical difficulties. Please try back later."

Governmental entity mistakenly filing Form 5500-SFs for years. Should we simply stop filing (and risk inquiry from DOL/IRS) or notify DOL/IRS that they will stop filing 5500s because they are not subject to ERISA?

Thanks - This is extremely helpful!

Client has FSA that allows rollover of unused FSA balance up to IRS maximum. Plan year is 7/1 - 6/30. For 2023 PY, employee had unused funds that rolled over 7/1/24; however, employee did not elect to make contributions for 2024 PY (and there are no employer contributions to the FSA). Can the employee use the rollover from 2023 PY for expenses incurred in 2024 PY? My initial reaction is the employee is not a participant in the FSA for the 2024 PY so they cannot submit for reimbursement of expenses in 2024 PY. Do we treat the employee similar to a terminated employee and allow a run-out period to spend down their rollover balance? Any thoughts (as citation to official guidance, etc.) are appreciated!

403b plan sponsor wants to allow temporary part-time employees to make elective deferrals, but not "regular" part-time employees. Assuming both subsets meet the definition of part-time under the IRS universal availability rules, would excluding "regular" part-time but not temporary part-time run afoul of the universal availability rules?

401k plan making a corrective distribution in 2024 based on error in past plan years. Default beneficiary provisions are different in current plan document than the plan document in place at the time of the error. Default beneficiaries (where no beneficiary designation is made) in previous document: spouse, children, parents estate. Current plan document: spouse, estate. Which provision controls?

Plan sponsor failed to timely remit deferrals following multiple payrolls. We are proceeding with a VFCP filing with the DOL. Question is whether there is also an "operational failure" under EPCRS. Plan document only requires deferrals to be deposited into the plan "as soon as administratively feasible." I have not found any basis to consider this an operational failure since the plan document does not require the deferrals to be deposited by a certain date. We are trying to avoid an EPCRS VCP filing (we are outside the self-correction window for significant operational failures). Any thoughts (or real world experience) would be appreciated!

Looking for guidance on how an employer applies the rate of pay affordability safe harbor to an employee that is paid both a salary (for work performed in one position) and an hourly wage (for work performed in second position). My first thought is to just use the W-2 safe harbor, but the client wants to explore the other possibility. I found language in the final regs allowing the employer to apply different safe harbors to different categories of employees but nothing about applying a safe harbor to an employee with two categories of pay. Any ideas?

Thank you for your replies. The wrap plan does not include a 125 cafeteria plan; only medical, dental, vision, life, STD, LTD, FSA, DCAP and EAP. Each of these benefits have already transitioned to a calendar year and they are just catching up the wrap to this. I have read that there is really no guidance on point as to changing the plan year of a wrap mid-year and the conservative approach is to make such change prospective. Based on your replies, it looks like they could have a short plan year from 12/1/21 - 12/31/21 and start the new plan year 1/1/22.

Wrap plan with 12/1 - 11/30 plan year. Employer wants to change to a calendar year. Can the effective date of the amendment be 12/1/21 (resulting in a short plan year of 12/1/21-12/31/21 and new plan year of 1/1/22 - 12/31/22) or do we have to use a 12/1/22 effective date? I have seen references in articles that an amendment to change the plan year cannot be effective until the first day of the next plan year, but they do not provide any citations. I guess technically if we use a 12/1/21 effective date the amendment will be retroactive since it will be adopted after the end of the new short plan year... Any help/citations either way would be appreciated!

401k plan excludes post-severance compensation from definition of compensation for purposes of deferrals and matching contributions. Employer improperly withheld deferrals and made matching contributions on last paycheck received after participants terminated. What is the correction? Does it depend on whether the participant has received a distribution of their plan account? I initially assumed the correction would be to return the improper deferrals to the participant (and issue a 1099?) and forfeit the matching contribution. That works if the participant has not yet received their distribution. If they have already received their distribution, then they have received those improper deferrals - is the correction then to issue a 1099 for the matching contribution only (assuming they have already received a 1099 for the distribution of their plan account)?

Employee elected health coverage during open enrollment, coverage effective 9-1-21. Employer just discovered premiums were not being withheld from employee's paycheck. Can the employer begin deducting the cost of the elected coverage now plus an amount to make up the missed deductions? Since it was the employer's fault, they want to know whether they can just "eat" the amount of the past-due premiums and begin deducting premiums going forward? Do they need to issue a corrected W-2 for 2021?

So, are you saying that it is the participant's responsibility to adjust their personal tax return to show that they put their distribution back into the plan? Is there any responsibility on the employer to deposit money in the participant's account to make up for the tax withheld?

Plan custodian distributed participant's account upon his termination of employment and withheld required FIT, issued him a 1099. Participant was a union employee and filed grievance to be re-hired, which he won. Now he has been rehired and wants to put his money back in the plan, including the FIT withheld. The only guidance I can find says that the employer has to "repay" the FIT withheld into the participant's account and then apply for a refund from the IRS. Thoughts?