30Rock

I have a question that I do not believe I have tackled before and need some help. A large client with a 401k plan has a subsidiary that is an adopting employer they acquired in 2009 it appears. We are being told that they do not have any payroll records for this location prior to 2013. They now have to process a distribution request for an employee with service from 2004 - 2014. They have 2013 - 2014 but missing payroll from 2004 - 2012. They need to determine the participant's vesting for years prior to 2013 and want us to come up with a clever assumption. My first thought is do they not have Human Resources rules to follow or conduct like going to the IRS for copies of prior W-2's? Is there not something they need to do legally? Other than that, all I could suggest is to use elapsed time for 2004 - 2012 and grant 9 years of vesting service and the participant will be 100% vested. And then do the same thing for all other affected participants. Any input of thoughts would be great especially if there is HR steps that I should tell them they need to do first. Thanks!

I agree thank you!

Well here is what I have. No QJSA or other death benefit other than the account balance. And the intent via administrative forms is that the spouse consent to the election of a non-spouse beneficiary. We can certainly require spousal consent to name a non-spouse beneficiary in our new church document but the issue is to use the DOMA definition of spouse does not comply with our pre-approved document unless the document vendor concedes that we can enter this information into a Describe line and it will not affect the pre-approved status of the plan. And the impact on the plan itself would be - 1. what if the participant does not complete a beneficiary form - the default says it is payable to children if any then estate. What if the same sex spouse sues? And 2. what if the participant intentionally names someone other than the same sex spouse as beneficiary and there will be no need for a waiver because his spouse is not recognized as a spouse. So participant dies and same sex spouse finds out he named someone else, can he sue? I just want to see all angles to see if the plan is at risk. Maybe a church plan cannot be sued on these grounds as long as the plan is clear? Church vs state vs federal law, does Church win?

Can a non ERISA steeple church 403b plan use a definition of spouse that does not reflect the Windsor amendment to DOMA? So can a church plan define Spouse to mean a person of the opposite sex to whom the participant is married, but then state that for RMD purposes, Spouse reflects the changes to DOMA as of June 26, 2013? The document to be used is a pre-approved plan that does not define Spouse in this manner, and we would have to write this definition into the plan, which could take it out of pre-approved status which I guess is the second issue. First issue is the legality of using this definition in a church plan. Thank you!

Looking for confirmation on this to make sure the ADP safe harbor is not violated subjecting plan to the ADP test - 401k plan has an enhanced safe harbor match of 100% up to 6% of compensation. Employer is considering adding a discretionary tiered match based on years of service, so that employees with 15 - 19 years will receive a 100% match up to 1% of pay, employees with 20+ years will receive a 100% match up to 2% of pay. The total match under both formulas for the employees in these higher tiers, for which there will be HCE's, would be 200% up to 1% and 300% up to the first 2%. I believe this creates a higher rate of match scenario and plan has to run ADP, ACP and BRF testing. Or, is it just a matter of running ACP and BRF on the discretionary tiered match? Thanks for your comments!

this is funny at least!

I agree but I remember Bob Kaplan last year at ASPPA annual stating there is no guidance on amending a QACA. I am concerned about the different levels of deferral % - new hires in 2019 at 6% tier but 2017 and 2018 new hires at lower tier without a reason liike hardship, 415 limit, rehires after a year can start over.. But I would like to make it work!

Ok so no compensation limit like 401(a)(17) which this year is $275,000 and no limit similar to 415(c) like 100% of compensation.

I do not think there is clear guidance for amending a QACA. Sponsor set up QACA in 2014 with initial rate at 3% and escalator of 1% after the end of the uniform period. Now sponsor wants to amend the plan 1/1/19 to set a 6% deferral rate to only the new hires on or after 1/1/19. I do not think this will result in a uniform QACA or it sets up 2 QACA designs in one plan. I think it blows the safeharbor. Any comments?

Is a 457f plan subject to any regulatory limits on compensation? For example a plan has a formula of 5% of annual compensation and executive earns $300,000 can we use the full compensation? thanks!

I have a calendar year plan with auto enrollment that missed auto enrolling certain new hires in 2016, 2017, 2018. The plan has 3 month eligibility for deferrals and match. The auto enrollment % is 5%. I have reviewed Rev. Proc 2015-28 and the IRS Fix It Guide and there are a couple of variations. I want to make sure all the facts are in order. For example the Fix Guide mentions fixing the failure promptly and also that in order for the reduced QNEC to apply, the employee cannot be terminated - if terminated then the 50% QNEC rule applies. Here are my views and corrections on these missed deferrals and match based on this guidance: 1. 2016 failures - they did not get corrected by 10/15/17 (9 1/2 months after the end of the plan year in which the failure occurred) so the QNEC is 25% of the 5% missed deferrals to date(?), plus earnings, and 100% of the full 5% match. The deferrals will get started by 3/9 the next payroll period, the notice will go out within the next week. The corrective contributions and earnings (through date of correction) will be calculated and posted as soon as possible. Did I miss anything? 2. 2017 failures - as illustrated in the IRS Fix It Guide Example 2, no QNEC is due for the missed contributions during 2017. And for 2018, no QNEC is due for missed deferrals, since we are in the first 3 months. However the missed match is due plus earnings. The deferrals will now be started at 5% by 3/9 the next payroll period, and they will get a notice within the next week. 3. 2018 failures - no QNEC is due since we are in the first 3 months, but any missed match is due. The notice will go out and deferrals will start on the 3/9 payroll. For any terminated employee, if a QNEC is due for missed deferrals is it 50%? What about for 2018 during the first 3 months, do we get a pass? Example 4 in the Fix It guide has illustration for a terminated employee - a 50% QNEC is due since none of the safe harbors apply. Sorry for the lengthy fact pattern, hopefully it reads quickly! Thank you for any help! rp-15-28.pdf 401k-plan-fix-it-guide-eli.pdf

Yes I saw that as well!

Good point

Thanks, hope so!

I found a cite where the IRS stated the cure period could apply to the last payment even at the end of the 5 year period - but it was from an IRS Q&A in 2003. Does the cure period apply to the last payment due on the loan? A question often arises as to whether the cure period can apply to the last loan payment, even if that payment is due at the end of the maximum repayment period (usually 5 years) permitted under IRC §72(p)(2). According to IRS in a Q&A session conducted with the American Bar Association on May 9, 2003, the IRS says that it does apply to the last loan payment, too. See Q&A-1. In its response, the IRS says that the plan “can use a cure period even at the end of the sixty-month period.”

I was wondering if you could help with this question. I cannot find any definitive regulation or other site. The 72(p) regulations do not discuss what happens if the cure period ends after the 5 year period. My question is: on what date should {redacted participant name} Loan #2 be DEEMED? The end of his 5 yr. period is 7/10/17. Should the loan be deemed on 7/10/17, or can the grace period (qtr. end following of 12/31/17) extend BEYOND the 5 year max period? And so question 2 is – if the end of the grace period can be used and the missed payment was not made, is it defaulted on 12/31/2017 or 1/1/18? Name Loan # Issue Date Payoff Date End of Grace Period Default Date? {redacted participant name} 2 6/12/2012 7/10/2017 12/31/2017 1/1/2018 Regulation 1.72(p)-1 Q&A 10 - (no reference to the 5 year period) Q-10: If a participant fails to make the installment payments required under the terms of a loan that satisfied the requirements of Q&A-3 of this section when made, when does a deemed distribution occur and what is the amount of the deemed distribution? A-10: (a) Timing of deemed distribution. Failure to make any installment payment when due in accordance with the terms of the loan violates section 72(p)(2)(C) and, accordingly, results in a deemed distribution at the time of such failure. However, the plan administrator may allow a cure period and section 72(p)(2)(C) will not be considered to have been violated if the installment payment is made not later than the end of the cure period, which period cannot continue beyond the last day of the calendar quarter following the calendar quarter in which the required installment payment was due.

Thanks Luke, I agree. They are stuck between a rock and a hard place right!

I found it in 1.401(a)(4)-11(c)

What happens when a collective bargaining agreement differs than the terms of the plan document? Possibly the CBA was amended to provide a different match and employer contribution and the plan document was not amended accordingly, which I think can happen often. Some pre-approved documents have a check box to defer to the CBA. However, if the plan does not have this provision, which takes precedence? The plan or the CBA?

There is not a partial termination, just granting 100% vesting to a group of employees. Thanks!

Sponsor would like to provide accelerated 100% vesting for a group of employees who are terminating in order to work for a new hospital. There are a mix of HCE's and NHCE's. How does the BRF test get performed - I understand that 2 tests are involved - 1. Ratio % test, and 2. Nondiscriminatory classification test. For the Ratio test, what numbers do I look at - for example # NHCE's who are benefitting under the 100% vesting divided by # NHCE's not benefitting who are not already 100% vested, and likewise for the HCE group? The plan has 3 year cliff vesting, so obviously many HCE and NHCE are already vested and staying with the employer. Thanks!

Most of our plans use the LRM definition which is based on the Committee determination, and not an outside party.

Do employee military leave make-up contributions have to be made on prospective W2 pay or can the employee write a check to the 401k account? For example it is 12/19 and employee wants to contribute $18,000 for 2016 and $18,000 for 2017. She has 2017 W2 income after returning from military. Does the $36,000 contribution have to be make from her remaining 2017 payroll or can she write a check? Thanks!

Thank you both!!!

If you have any thoughts from prior experience please share. I realize it is not legal advice, etc. Thanks!