t.haley

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?

Client instituted retiree HRA effective 1-1-17. The plan has no participants and no contributions/assets in the plan. Is a Form 5500 required? Do I simply file a Form 5500-SF with zeros for participants, assets, liabilities, etc.?

Individual not eligible to participate in the plan allowed to participate for a number of years. Failure discovered after individual's death. Beneficiary paperwork for plan shows wife as 100% beneficiary. Not sure what if there is a will or if wife is named as beneficiary. Since the individual was not eligible to participate in the plan, we are thinking that the beneficiary provisions of the will (if there is one) or state law should control who gets the corrective distribution. Thoughts?

DB plan failed to adopt a good faith PPA amendment or a 436 amendment. Also, the plan adopted its PPA restatement late and did not submit the plan for a PPA determination letter. The plan received a favorable EGTRRA letter after entering a Closing Agreement with IRS regarding other late amendments (which were ultimately adopted under the Closing Agreement). I am having trouble finding any guidance on how to submit these failures for coorection through VCP. I know I can correct the nonamender failure as to the 436 amendment. However, given that the plan has been restated for PPA, do I need to correct the good faith PPA-non-amender failure - or would that failure be considered "corrected" by the (late) PPA restatement? Should I just submit the 436 non-amender and the late PPA restatement as non-amender failures and leave it at that? Also, since the IRS has stopped accepting determination letter application (except in limited circumstances not present in my case), is there a "failure" for submitted the PPA determination letter request late? Any thoughts on this would be appreciated!

We are looking at the testing issue now. Just trying to nail down all the possible failures and how to correct them. If we have to go to VCP for the testing failures I would think the IRS may notice the issue with the plan document; if we can address that head on it would be better.

Client operated DC plan since 1983 as single employer plan with multiple adopting employers within the controlled group. Discovered in 2016 that adopting employers were not, in fact, in a controlled group, resulting in the plan really being a multiple employer plan. Client restated plan in 2016 (VS document) indicating that it was a multiple employer plan. Throughout the life of the plan, all adopting employers signed participation agreements. Question - is this a failure that we need to correct through VCP? Is this a document failure going back to the original effective date? What parts of the plan should be amended to reflect "multiple employer" status. Any thoughts?

401k plan failed to include bonuses in compensation for all contribution purposes (employee deferral and employer matching) for a number of years (employer only has payroll records back to 2006 but suspects that they have never included bonuses since the beginning of the plan in 1978 despite plan language). Failure was discovered late last year and plan amended prospectively to exclude bonuses. Employer wants to know if they can retroactively amend the plan to exclude bonuses from compensation for HCEs only (so no corrective contribution) but make a corrective contribution for NHCEs only to include bonuses in compensation for deferral and matching purposes. Anyone have experience with submission of a correction like this in VCP? My thinking is that the IRS would probably approve it since you are benefiting the NHCEs. Thoughts?

Thank you all for your responses. They were very helpful!