Spodie

In a plan that we have recently took over, we have discovered a participant (born in 1937) died in 2005 and was not paid out by the 5th year (2010) and still has an account balance. In addition there is no beneficiary on file. Any suggestions on how to correct this? Can someone point me in the right direction? Thank you!

It was recently discovered on a plan that we recently took over administration (not our error, so please don't judge), the Owner/Participant took out a loan in 2009 and has never made a payment. In addition, the loan was never reported as a "deemed distribution". Now that the maximum repayment period (5 years) has expired, per EPCRS, Section 6.07, the sponsor is not eligible for correction methods under Section 6.07 (3) Defaulted Loans and therefore the loan is to be considered a deemed distribution in the year of the failure and the employer is responsible for the withholding. What if the employer and the participant are one in the same? Does the employer still pay the withholding (the company assets vs the participant)? Would it be an option for apply under VCP and ask for relief anyway? In addition since the issue is to an owner/participant there is of course a prohibited transaction too. Can one apply for relief under the DOL's VFCP for the excise tax under 7975(a) if one cannot apply for relief under VCP? Any experience or advice on this issue would be greatly appreciated. Thank you!

This mess was not created by my firm. A is trying to establish a new plan with us and I'm saying no way! I agree that the successor plan rules could have been violated when they adopted B's plan if the termination date was after the change in ownership to create the control group. Thank you!

Short well maybe long story. Company A had a plan in which they terminated less than 12 months ago and became an adopting ER of Company B (option of merger was not address w/prior service provider). Company B was recently acquired by Company C (unrelated) (believe a stock sale, but not sure). Company A is no longer part of the control group and would now like to establish a new plan. I do not know for sure if Company B is terminating their plan, let's say they are for this example. Since Company A had terminated a plan less than 12 months ago, they cannot establish a new plan without violating the Successor Plan Rules. So, is their only option a Spin-off from Company B's plan to a new plan? In order not to violate the Successor Plan Rules. What if Company A received advice that they can establish a new plan and the IRS comes in after seeing their Form 5500 and says they did violate the Successor Plan Rules; what then? Is the only option Audit Cap to plead their case and correct however the IRS says in order to keep the qualified tax status of the plan? What if Company A decides to do a Spin-off from Company B's plan, but since time has passed on their decision making and some employees of Company A were already paid out by the current service provider as part of the plan term? Can a Spin-off still be done? Thank you!

Issue: A loan made to a “disqualified person” (owner/participant) that; 1) exceeds the maximum amount permitted under Code section 72(p), and 2) exceeds the maximum payment period under Code section 72(p). Because the loan was made to the owner (“disqualified person”) over the maximum amounts there is also a prohibited transaction. So, there are two issues. 1. Violation of 72(p) which results in a deemed distribution and can only be corrected under EPCRS/VCP where the maximum period for repayment of the loan has not expired. To permit the Plan Sponsor to report the loan as deemed distribution in the year of the correction instead of the year of the failure or to request relief of reporting the loan as a deemed distribution at all is only available upon request in the VCP application. 2. Fiduciary violation under ERISA where correction is permitted under the DOL’s VFC Program. In addition, the Applicant (Employer), can request relief of the excise tax under IRC section 4975(a). Upon receipt of a compliance letter from the EBSA, the EBSA will not impose the penalty under section 502(l) of ERISA on the amount repaid to the plan. I understand the correction method under EPCRS and the VCP application. My main questions are regarding the VFCP and coordination of these two correction programs. 1. Can you confirm that a Form 5330 would be required for each year of the loan failure. Example; loan originated 2014 and was corrected in 2016. Would there be a Form 5330 in 2014 for 15% excise tax and then an additional 100% since the PT was not corrected in taxable year and the same for 2015 and 2016? 2. When correcting loan failures in regards to the VFCP application are the correction methods set forth in EPCRS Section 6.07 appropriate? Are there any additional earnings calculations that are required? 3. Should the VCP application be done and a compliance statement be received from the IRS prior to submitting the application for VFCP? How does one coordinate these applications? 4. In order to request exemption for the excise tax under 4975(a), I understand that a notice to interested parties within 60 calendar days of the application must be provided; do I also prepare all Forms 5330s showing the amount for the exemption (but not submit them to the service w/payment)? 5. Is there anything that I am missing? For example; is there excise tax besides the one under 4975(a)? Thank you!

Payroll was not basing the deferral election percentage on Gross Pay, but rather the Net Pay for the Roth contribution. Taxes were calculated correctly using Gross. Result is the Roth contribution is less than what was elected on the deferral election. Goal for the participant was to have the same contribution amount for pre-tax and Roth. Example: Gross Pay $1,000 Roth Election 4% ($40) Taxable Income $1,000 Fed w/holding (15%) $ 150 Net pay $850 - This was used to determine the Roth Deferral of $34 (short by $6) I'm confident that the result is a "missed deferral opportunity" and can be corrected with EPCRS. Where I'm hazy is what the corrective QNEC contribution should be? It is a 09/30 plan year so the plan year is almost over so there is definitely less than 9 months left in the plan year, so that option is out. So, the only other option is the corrective QNEC. Rev. Proc. 2013-12 states that the corrective QNEC for after-tax contributions is 40% of the missed deferral, 100% of any missed match and of course plus earnings. The relaxed corrections with 2015-28 do not seem to apply to after-tax contributions. Can anyone tell me otherwise and point me in the direction of any guidance that has been issued by the IRS of the appropriate corrective QNEC for after-tax contributions? Thank you!

Thank you all for your response. Really good information to implement in the future for sure. Will discuss these possibilities with the client.

Facts: 401(k) non-safe harbor plan with allocation conditions of 1,000 hours and last day w/waiver of those conditions for Death, Disability and Retirement. Plan Year is 10/01. Question: Can I remove the waiver of the service and last day requirement for Retirement mid-year? I'm thinking no, because even if an employee hasn't retired yet and does in the future; he/she would have already earned the benefit. I'm I over thinking this? Thank you, Spodie

A Participant of a 401(k) plan has just brought the Plan Administrator's attention now after 8 years (completed an election form in 2008) that his/her deferral election has not been implemented. My question is; is there a statute of limitations since it has been 8 years. He's obviously seen his paycheck stub and has seen no deferrals being taken out. Not to mention the filing of his taxes and W-2 form for 8 years. The investments are semi-bundled with John Hancock so he would even has access to his account daily. I'm thinking there is not a statute since the IRS says to "correct the plan as if the error never occured", but really? This is nuts! If there isn't a statute of limitations, then at this point the only correction since this is going back to 2008 would be to use EPCRS "missed deferral opportunity" and file a VCP. Even though this is just one participant, it probably wouldn't fall under SCP. Around 53 participants, assets greater than $2 million and it's a safe harbor plan with Enhanced Match to boot. Thank you!

FACTS: ESOP plan effective 01/01/2012, Cycle D (submission period ending 01/31/2015). This plan is not a "true" ESOP. It has no loans and no shares contributed. The Employer made a cash contribution in 2012 with the intention of buying stock, but never ended up doing so. The only accounts in the plan are cash accounts (profit sharing). The Employer was talked into this plan by their prior TPA and has since terminated their services and has hired us to takeover and terminate this ESOP. In addition, the client has a 401k plan that is effective 11/01/1984 that we are also taking over and this plan will be continuing. The Employer wishes to terminate the ESOP effective 08/01/2014. Concern: I'm concerned that the ESOP document is not updated according to the current cumulative list (2013) since the plan is effective 01/01/2012 (adopted in December 2012). In addition, I do not believe the plan was submitted for Determination Letter off-cycle (new plan exemption). So no DL has ever been issued. My concern is what if the plan were to be audited? Question: Rather than restating to another ESOP document for Cycle D, can we restate the plan to a "profit sharing" plan on a pre-approved PPA Document effective 01/01/2014 and then terminate the plan effective 08/14/2014? Or should I not worry about restating the plan and just do a board resolution to terminate it and be done with it? Any suggestions or thoughts are appreciated. We do not provide document services for ESOP so I am way out of comfort zone here. Thank you!

Thank you for your response. I'll pass this along to our Partners. We had only agreed to do the administration for this plan as a tester to see if it would be something we may be interested in pursuing.

Our firm has agreed to do administration for our first SARSEP (administration only for 2012). Upon review of the adoption agreement, we discovered the employer contribution has not been allocated according to the plan provision since inception (1994). The document states Pro-Rata, but the contribution has been allocated as Integrated. In reviewing the latest EPCRS, I find a correction for this issue on a SARSEP to be a bit confusing. Since the plan has been operated using an Integrated formula since 1994, they are not interested in following the correction for an Excess Allocation, but would rather amend the plan retroactively and ask for the Service’s blessing. According to 6.11 (1) Correction for SEPs generally is expected to be similar to the correction required for a Qualified Plan with similar failure. According to 6.11(2) if 6.11(1) is not feasible for a SEP or determined by the Service…..Excess Amounts for cases in which there has been no violation of a statutory limitation with respect to a SEP, the Service may provide for different correction. Special fee my apply. Can this failure be corrected by plan amendment under VCP? And if so, which Schedule; 1 or 3 or both? Schedule 1 appears to allow for correction by plan amendment, but only if the corrective amendment was adopted before the expiration of the plan’s extended remedial amendment period for that amendment. Do SARSEP’s even have a RAP? Schedule 3, specifically for SEPs provides for Excess Amounts Contributed & Retention of Excess Amounts, but does not appear to offer correction by plan amendment. Also with regards to the filing fee. Fee for Qualified Plan is $750 (20 or fewer), and for a SARSEP it is $250. Would we send in the $250 and wait and see if the Service would impose the $750? Any enlightenment is greatly appreciated. I’m out of my element here. Thank you

Why not? I'm thinking that once a plan has failed to timely amend, then it is an open game where amending to a prototype document that obtained an opinion letter by the time the document was due to be restated would suffice. Even if it didn't, the EGTRRA restatements could be retroatively adopted back to January 1, 2002. You're really not amending any of the plan's language, you're just restating to a document containing all the required provisions. So, I'm with you on this one. Good Luck! Thank you!

Facts - Sponsor adopted an Individually Designed Profit Sharing Plan (prior document provider did not have a pre-approved plan) 10/01/2001. They received an LOD on 04/08/2003. The last digit of the EIN is 8, so the plan is in Cycle C. The Sponsor did not restate the plan for Cycle C which ended 01/31/2009. The Sponsor only timely adopted the EGTRRA Good Faith Amendment and did not timely adopt all other interim amendments. The submission period for Cycle C2 begins on 02/01/2013 and ends on 01/31/2014. I understand that the Sponsor should file as a nonamender under VCP, Appendix F, Schedule 2 and inlcude all interim amendments. My questions are: 1. Can I restate the plan onto a pre-approved document effective 10/01/2008 even though the Sponsor did not sign an 8905 prior to 01/31/2009? (My preferred choice!) OR 2. Is the Sponsor required to restate to an Individually Designed Plan 10/01/2006 (5-yr), include all interim amendments to current and use the most current cumulative list (2011) for preparing the document? Or restate the document twice; once effective 10/01/2006 with the 2007 list and then effective 10/01/2011 with the 2011 list? Thank you!

Inquiring minds have asked me; is it possible to provide a resolution from year to year electing to be a Safe Harbor (match contribution) plan vs. amending the plan each year? We recommend to our clients based on demographics and costs on a year to year basis whether being a Safe Harbor Plan is beneficial. For example; a plan may be a safe harbor for 2010, but not for 2011 and then again for 2012. My opinion is the Plan would still specify it is a Safe Harbor and doing otherwise would create an operational defect. Please let me know your opinion. Thank you!

What type of document are you using for Governmental plans where Employees make the salary reduction contributions through a 457 Plan and the Employer makes contributions through a 401(a) plan; Profit Sharing, Match or both? Are you filing for LOD under Cycle E if using an IDP document? If using a Volume Submitter are you relying on the Opinion Letter or filing for LOD by 04/30/2010? Thank you!

Oh my this is turning into a more complex question. For example; If on the date of the amendment you had an account balance of $20,000, this would be what you had accrued with an NRA of 62. When you turn 62, assuming you are still working for the same Employer, you could take out $20,000. Anything you accrue after the date of the amendment wouldn’t be available until age 65. What my example doesn’t do is take into consideration gains and losses on that $20,000 account balance from the date of the amendment to the date you turn age 62. Also, would you freeze the account on the date of the amendment and start a new account for all eligible employees with an account balance and post all contributions that occur after the date of the amendment? Thank you so much for the responses!

To expand a little further; can we make the change (age 62 to 65) with the EGTRRA Restatement prospectively (01/01/2010). Annd then mark the section regarding protective benefits as follows: Normal Retirement Age was changed from 62 to 65 effective January 1, 2010. This applies to employees hired after January 1, 2010.

Would changing the Normal Retirement Age on a 401(k) Plan from age 62 to 65 be considered a Protected Benefit under IRC 411(d)(6)? The plan does not have Early Retirement. Thank you!