t.haley

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?

This was our thought as well but we cannot find any authority to back it up. Our fear is that since we have been filing 5500s for many years for the 401(a) plan, if those suddenly stop with no final return filed, the DOL will come knocking. I would think that if that happened, we could simply explain why we stopped filing 5500s - because the plan became a governmental plan. But this could raise more questions from the DOL regarding the circumstances under which the plan's status changed and the plan in general, which we are trying to avoid.

Let's just say we don't want the plan to be red-flagged through the 5500 and then audited....My issue is that if we file a "final" 5500 but show assets still in the plan, won't that red-flag them? I think the best course of action would be to continue to file 5500s until there are no assets in the plan and then file the final 5500.

Client recently discovered they qualify for exemption from 5500 filing as a governmental plan. They currently sponsor an ERISA-exempt 403(b) plan (employee deferrals only) and 401(a) plan with only employer contributions for which they have been filing a 5500. Based on newly discovered governmental plan status they want to freeze the 401(a) plan and have participants rollover their accounts through in-service distributions to the 403(b) plan in 2022. If there are some participants that choose not to rollover their accounts and there are assets still in the plan for the 2022 plan year, what do we do for the 5500? 5500 instructions say a final return cannot be filed if assets remain in the plan but technically the plan is not subject to ERISA so no 5500 is required. Thoughts?

I submitted a VCP last October and have left several messages on the status inquiry line over the last few months with no response/call-back from the IRS. Has anyone else had this issue? Just wondering what the average turn-around for VCPs is given COVID, etc.

Originally posted this question in the correction of plan defects forum but got no responses. Thought I would post here to see if anyone has any ideas: Employee made deferral election upon beginning employment in September 2020. Recently discovered that no deferrals were made from September through December, 2020. When new plan year began and employee completed annual enrollment forms, proper deferrals began January 2021. Since we just discovered the missed deferrals, we cannot meet the 45-day notice requirement under the safe harbor correction method. Should we go ahead and make the 25% QNEC plus earnings and give the employee notice and move on or must we correct under the regular method for missed deferrals? Thoughts?

Employee made deferral election upon beginning employment in September 2020. Recently discovered that no deferrals were made from September through December, 2020. When new plan year began and employee completed annual enrollment forms, proper deferrals began January 2021. Since we just discovered the missed deferrals, we cannot meet the 45-day notice requirement under the safe harbor correction method. Should we go ahead and make the 25% QNEC plus earnings and give the employee notice and move on or must we correct under the regular method for missed deferrals? Thoughts?

Thank you for your replies. Client is aksing whether these distributions are handled just like any other distribution - i.e., if prior to 59 1/2 subject to early withdrawal penalty, special tax notice, etc.?

401k plan currently allows for in-service distribution of rollover accounts only (i.e., plan states that distribution of "Rollover Account" maybe made at any time but no other in-service distributions are allowed other than hardship distributions). Plan sponsor did not intend to allow in-service distributions of any amounts, including rollovers, and wants to eliminate this going forward. Any anti-cut back issues?

Thanks Lou. That is my thought as well. The client was trying to save some money and do the 5500s themselves and did not realize that mailing was no longer an option. Not a bad idea given that they were simple returns but they missed one important detail.....now they will pay more in penalties than what it would have cost for me to do it for them.

Just discovered that client mailed their 5500s for 2018 instead of using EFAST. Does anyone know what happens to 5500s that get mailed? I assume they are treated as not having been filed and we need to do a delinquent filing and pay the penalty?

That's our thought too. At this point, the interest rates have changed again to the participant's favor and if he were to request a lump sum distribution he would receive more than the original estimate and the check that was ultimately sent. We are trying to avoid the argument from the plan administrator that the participant has already received his distribution (even though he did not cash the check - and cannot cash the check now because it is stale).

Thank you for all the responses. Just to clarify a few things - the plan requires the use of the interest rates issued by IRS each November for lump sum distributions made in the following calendar year. Participant timely completed paperwork for distribution in early November 2018 for a distribution in March 2019. The estimate given to him (and which he accepted) was based on the November 2017 rates. When the distribution was made in March 2019, the plan recalculated using the November 2018 rates which had changed from the November 2017 rates used to calculate the benefits, resulting in a lower lump sum distribution. He immediately contacted the plan administrator to question the lower amount and we are still "discussing" the issue with them.

Client completed paperwork to received lump sum distribution based on benefit estimate. Long story short - by the time the paperwork was processed and check was issued, IRS issued new interest rates used to calculate lump sum. Plan sponsor applied new interest rates, resulting in lower distribution than shown on benefit estimate. When client received distribution check for lower amount, he began claims process to dispute benefit calculation (the appeal process is currently on-going). He never cashed the distribution check, which is now stale. Due to the passage of time, the applicable interest rates have again changed, but now in my client's favor. If his benefit was calculated today he would receive more than the original estimate. My question is this - what effect, if any, does the fact that he went through the process to request a distribution and received a check (but did not deposit it) have on his right to start over with the distribution process and request a new distribution based on the new interest rates?

The FAQs issued on April 11th by the DOL state that health plans will be required to cover COVID-19 testing with no cost-sharing, etc. during the current declared public health emergency relating to COVID-19. A footnote states that this declared public health emergency is scheduled to end on April 25, 2020 unless extended. I have been unable to locate any information about an extension. Am I correct that, absent an extension, health plans may stop covering COVID-19 testing with no cost-sharing on April 26th?

Plain language of SECURE Act prohibits loans from a 401k plan using credit or debit cards, effective for loans made on or after 12/20/19. Despite this, plan sponsor issued loans to multiple participants after this date using credit card method (but has since ceased doing this). Any other remedy other than issuing 1099-MISC to these participants who got loans via credit card after 12/20/19?

Single participant with no spouse or dependents dies with large balance in HRA account. Employer is subject to Davis Bacon Act so funds cannot revert back. Employer contributions to HRA are held in trust. HRA plan document does not provide for payment of dependent medical expenses after the death of the participant. What do we do with the funds in the participant's HRA account after his death?

Anyone with experience with use of level funded health plan and Davis-Bacon? Client has MEWA with a level funded health plan and would like to offer to employers subject to Davis-Bacon. Would contribution of employer premium to MEWA sponsor be considered an "irrevocable contribution to an unrelated third party" under Reg. Sec. 5.26? Since a level funded plan is a partially unfunded plan, we are trying to verify whether the contribution of the premium to the sponsor makes the plan a bona fide fringe plan, despite the fact that the plan is technically partially unfunded.

There is a trust in place to fund the retiree HRA when it gets participants, but no contributions have been made - so we don't qualify for the exemption for a unfunded welfare plan. My inclination is the file the 5500-SF showing no assets, no contributions, no participants. I completed a 5500-SF on EFAST and the system "validated" it. Any harm in filing the 5500-SF this way?