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justanotheradmin thanks I know where I was confusing the issue (I am not a TPA)

justanotheradmin I am familiar with the cite from EPCRS. I understand that if the plan also failed the tests, the plan needs to correct the ADP/ACP first and it may disregard the employees who were improperly excluded when running the tests. My question is after the ADP/ACP is corrected and we correct the excluded employees by making the corrective contributions, do we need to rerun the ADP/ACP? The IRS says that "Before correcting for the exclusion, however, the plan must evaluate whether, in the event that the employee had made the missed deferral, it would still pass the applicable ADP test. The ADP test should be corrected according to the plan’s terms before implementing any corrective contribution on behalf of the employee. In addition, the missed deferral amount should be reduced, if necessary, to ensure that the employee’s elective deferrals (the sum of deferrals actually made and the missed deferrals, for which a corrective contribution may be required) comply with all other applicable plan and legal limits."

Mike - it was 2009 - long standing error on misclassifying employees.

Any input is appreciated for the scenario below: Eligible employees were improperly excluded from plan participation in 2009. Plan was not SH but no ADP/ACP tests were run. We correct in 2020: first we run the ADP/ACP tests for 2009 if the tests fail, we correct the ADP/ACP we determine the correct contribution amounts based on EPCRS QUESTION: do we need to re-run the ADP/ACP tests before making the corrective QNECs Thanks

Need suggestions on how to distribute refund from a terminated self-insured group health plan (premiums were paid pre-tax by employees only, no employer contributions). Sponsor terminated the plan in 2015 and recently received substantial refund. The new plan is an insured plan. Sponsor is a temp agency with high turnover. In 2015, participants in the self-insured plan were 200-$300 but every month they had 40-50 participant turnover. Based on the number of participants the refund would be around $300/participant. Should they try to locate former participants based on a cost analysis? Participants in the new insured plan includes management employees who were not eligible to participate in the self-insured group health plan. Thanks

The answer depends if the employee is on STD/LTD that is not paid entirely on an after-tax basis by the employee and also on whether you use the look-back method to determine eligibility for your group health coverage. If you use the look-back method and the employee is on a stability period, you keep the coverage on until the end of the stability period (as long as the individual is still an employee). At the end of the stability period, you look back at the measuring period and determine if the employee had enough hours to be eligible again for coverage. Be careful of the special rules regarding FMLA leave, STD/LTD when measuring hours during the measuring period.

How do you correct a merger of a 403(b) plan with a 401(a) plan? Client mistakenly merged a 403(b) plan with a 401(a) plan last year. This year, the client moved the 401(a) plan assets out of the 403(b) plan and merged the 401(a) assets with another 401(a) plan. Do you need to file a correction with the IRS for the 403(b) plan? Thanks for any suggestions.

No, there were no resolutions. My question is really about the 403(b) plan. Do we need to do anything other than move the assets to the 401(a) plan? Any type of correction?

Employer merged a 401a plan into a 403b plan at the end of October. During March next year, employer removed the 401a assets from the 403b plan and merged the 401a assets into another 401a plan (this was part of an acquisition). There were no plan amendments/resolutions drafted. The TPA who helped them thought that they were working with two 403b plans. If the 401a plan merged into the 401a plan last year, as intended, we would have had a late amendment that could be corrected under VCP by adopting a retroactive amendment to memorialize the merger. Because the assets are merged during the current year, there is no late amendment issue for the 401a merger. There is an error but not sure how to correct. Any suggestions?

Facts: In 2010, forfeitures from Plan A were used to offset employer contributions to Plan B. In 2011, Plan Sponsor realized this was not allowed and repaid the funds back to Plan A but in the process some funds from Plan C were used to repay the funds from Plan A to Plan B. In 2015, the funds were returned to Plan C. I think there are two prohibited transactions: (1) forfeitures from Plan A to Plan B used as employer contributions and (2) funds from Plan C used to repay the forfeiture from Plan A to Plan B. Both transactions are considerate continuous transactions and need to file Forms 5330. Is this correct?

Thank you for the input. The plan by its terms was "frozen," so even if the employer contribution was discretionary, participants should have been vested when the plan was amended.

Participants will continue to accrue service for vesting purposes. Under 411(d)(3) a complete discontinuance of contributions results in 100% vesting.

No new participants allowed and no contributions made after December 31.

Do you need to vest everybody if you freeze a profit sharing plan? Thanks

Thank you.

Employer sponsors a SIMPLE IRA that allows employees to participate if they had $5000 during the preceding year and are expected to earn $5000 during the current year. Employer wants to amend the plan to provide that any employees hired on or after 01/01/2015 will be eligible to participate in the plan if they had $5000 during any 2 preceding years and the same expectation of $5000 during the current year. The amendment will be effective 01/01/2015 so there is no mid-year amendment issue. The empoyer thinks they will hire a bunch of new employees and want to have them wait longer before becoming eligible. Is there a problem with this amedment? Thank you for any input.

For the DB plan the transfer would be only for small balances.

Client is terminating a DB and 403(b) plan and need a default IRA provider that would accept balances from both plans for participants who do not respond. Can anybody recommend some providers? Thank you.

Does anybody have any practical experience with the $5,000 penalty? We have an employer who would like to pay the penalty but we cannot find any information on where do you pay it. Or you just wait for Medicare to discover the violation and ask for money? Thanks for any advice.

If discovered during an audit, penalties are Audit CAP (negotiate the amount). If discovered by the IRS on an unrelated VCP submission, they might let you add the additional failures to your VCP or go to Audit CAP because you did not disclose the failures before they found them.

Schedule 2.

Do we need to submit an FDL application at the same time with the VCP application in the following scenario: Plan sponsor of a DB individually designed plan failed to submit the plan for an FDL during its on-cycle year (Cycle E ending 01/31/2011 based on its EIN) Plan was not amended for PPA, HEART and final 401(a)(9), 415 regulations Plan Sponsor will submit the plan for correction under VCP this year (off-cycle) We know that if the VCP application is submitted on-cycle an FDL is required at the same time. Just not sure if an FDL is required if the VCP application is submitted off-cycle. Thanks for any input.

Sieve, Based on EPCRS the ADP does not need to be rerun. But there is this guidance on the IRS website (http://www.irs.gov/retirement/article/0,,id=175716,00.html) from which I pasted below the relevant part: "As in the case of an erroneous exclusion of an employee from the plan, the remedy requires the employer to make a corrective contribution of 50% of the missed deferral (adjusted for earnings) on behalf of the affected employee. The employee is fully vested in those contributions, which are subject to the same withdrawal restrictions that apply to elective deferrals. However, unlike in the case of mistaken exclusions where the missed deferral amount is estimated based on the ADP for the employee category (e.g., NHCE), in both illustrative examples, the employees’ election deferral amount is known. Thus, the missed deferral and the corresponding corrective contribution (50% of the missed deferral) are based on the participant’s actual election instead of the ADP (i.e., 5% or 3%, respectively) of the NHCEs. Before correcting for the exclusion, however, the plan must evaluate whether, in the event that the employee had made the missed deferral, it would still pass the applicable ADP test. The ADP test should be corrected according to the plan’s terms before implementing any corrective contribution on behalf of the employee. In addition, the missed deferral amount should be reduced, if necessary, to ensure that the employee’s elective deferrals (the sum of deferrals actually made and the missed deferrals, for which a corrective contribution may be required) comply with all other applicable plan and legal limits." So in this case you rerun the ADP, it fails, correct the ADP by "returning"excess contributions." Is the missed deferral going to be reduced in this case because of the corrective distribution? just as in the case of a 402(g) limit problem? Let's say the missed deferral is $1,000, run the ADP test and find out that only $800 was allowed. Is the missed deferral opportunity $500 or $400? Thanks for your insight.

Need to clarify: the plan compensation included bonuses but when the deferrals were made they forgot to include bonus (the plan is not a safe-harbor plan). There was no separate election as to bonus. So to calculate the missed deferral mutiply the bonus by the elected deferral percentage. Then, I think that EPCRS says, add the missed deferral with the other deferrals made and if the sum exceeds the 402(g) limit or a plan limit reduce the missed deferral accordingly. In this case the 402(g) limit is not exceeded but when they run the ADP again, the ADP fails. So they correct the ADP by returning the excess contributions. Now, to calculate the missed deferral opportunity do you multiply 50% by the missed deferral or by the missed deferral reduced by the excess contribution distributed.

Elections to defer from bonuses were not implemented for almost 10 years. The employer is doing a VCP correction. After they calculate the missed deferral and re-run the ADP test, the ADP fails. The plan allows correction of the ADP by returning the excess to all HCE. My question is: what is the missed deferral opportunity? Is it 50% of the missed deferral or 50% of the missed deferral reduced by the excess contribution? EPCRS deals with situations where the 402(g) limit or other plan limit is exceeded. In those situations the missed deferral opportunity is 50% of the reduced missed deferral. Thanks for any clarifications.