ERISA11

It is not clear to me whether DFVCP becomes unavailable for all years once a DOL notice is received for any year. The FAQs provide that the DFVCP filing must be made "prior to the date on which the administrator is notified in writing by the Department of Labor (Department) of a failure to file a timely annual report under Title I of the Employee Retirement Security Act of 1974 (ERISA)." But does that mean notice of a failure for one year would preclude a DFVCP filing for another year for which notice of a failure to file has not been received? Has anyone had any experience with this issue?

Thank you for your thoughts on this.

Notwithstanding the general rule that you can't terminate a SIMPLE and replace it with a 401(k) plan mid-year, if the employer has become ineligible to maintain a SIMPLE and is beyond the grace period and they correct under VCP by stopping any further contributions in the middle of this year, can they start a 401(k) plan for the rest of this year? Or do they have to wait to start the 401(k) until next year? It seems that, given that they can't continue the SIMPLE for the rest of this year, they should be able to start the 401(k) plan, but EPCRS says that a SIMPLE plan that is corrected for an employer eligibility failure through VCP "is treated as subject to all the requirements and provisions of ... 408(p)," which could mean having another qualified plan is prohibited for the rest of the year. A TPA is suggesting that the employer would need to wait until the next year, so I was curious what others on this forum thought about this.

Thanks for your responses. It is appreciated.

This may be a dumb question, but does the grace period for SIMPLE employer eligibility apply if an eligible employer started a plan mid-year but then employed over 100 employees with compensation over $5,000 later that same year? For example, the employer had fewer than 100 employees with compensation exceeding $5,000 in 2014, started a SIMPLE in the middle of 2015 (eligible for 2015 based on prior year employee numbers), and by the end of 2015, had over 100 employees with compensation over $5,000. The employer would be ineligible to maintain a SIMPLE for 2016 in the absence of the grace period. Does the grace period not apply because the plan was maintained by an "eligible employer" for less than a 12 months (due to the mid-year start date)? The statute says, with regard to the grace period -- "An eligible employer who establishes and maintains a plan under this subsection for 1 or more years and who fails to be an eligible employer for any subsequent year shall be treated as an eligible employer for the 2 years following the last year the employer was an eligible employer." So in other words, my question is does the requirement to have maintained the plan as an eligible employer for 1 or more years mean that the employer must have maintained the plan as an eligible employer for at least 12 full months, or is it possible that this one-year requirement really refers to more of a "plan year" concept such that maintaining the plan as an eligible employer for a short plan year (as a result of establishing a plan mid-year) would qualify as maintaining it as an eligible employer for "1 year"? Has anyone ever run into this?

For the A-org test, if the purported FSO is an LLC that has elected to be taxed as a corporation and that is not a professional service corporation (or a professional service LLC), would it fail to be an FSO as a "corporation" that is not a professional service corporation since it is being treated as a corporation for tax purposes? Or would it have to actually be incorporated under state law (and not just treated as a corporation for tax purposes) to be considered a corporation for purposes of this rule?

Thank you both for your responses on this. I really appreciate it. Tom, it is my understanding from your post, that you agree that there is no time limit on when the repayments can be made after a deemed distribution, correct?

This may be a dumb question, but I can't find a definitive answer on this in primary sources. If a loan has been treated as a deemed distribution (because of missed payments) and the 1099-R issued, can the participant make repayments on the loan beyond the 5-year maximum repayment period? It seems to me that this would be fine because the consequence of violating the maximum repayment period requirement is a deemed distribution, which has already occurred. So, after the deemed distribution, repayments beyond the 5-year period have no consequence. Does that seem right? The only example given in the regulations involves repayments within the 5-year period, so it doesn't really address this question. Any thoughts are appreciated.

Thank you for responding. I appreciate the feedback.

I am trying to figure out whether the 4979 excise tax on excess contributions applies only for one year or whether it applies for each subsequent year until the ADP failure is corrected. I have looked at the statute and the regulations, but they don't make this clear. While there is lots of commentary out there about the 6% excise tax on IRA excess contributions applying every year until correction, I can't find anything suggesting that this would be the case for the 4979 excise tax. I'm beginning to think that means the 4979 excise tax applies only for one year. Does anyone have any thoughts on that or know where there may be more guidance on this? Thanks in advance!

Thank you everyone for the helpful responses. I appreciate them.

Would a plan that does not otherwise allow loans be able to accept loan rollovers in connection with an acquisition (assuming the accepting plan's rollover language does not prohibit a rollover in the form of a loan and assuming that all those with rolled over loans are non-highly compensated)? On the one hand, it seems that allowing a loan rollover is distinct from allowing the issuance of an original loan under the plan. But I am wondering if it runs afoul of the prohibited transaction exemption for loans, which requires that loans be made available to all participants on a reasonably equivalent basis. Is anyone aware of any authority or guidance on this issue or have any experience or thoughts on it?

Many thanks for the response. Very helpful.

Who is considered an "interested person" for purposes of the VFCP notice under PTE 2002-51 (as amended in 2006)? Has anyone taken the position that (or asked the DOL whether) it is limited to only those participants and beneficiaries affected by the failure, or must the notice be given to all participants/beneficiaries in the plan (like the determination letter NIP)? I could not find any guidance on this, so just wondering about other practitioner's thoughts/experiences.

Plan A is merging in to Plan B. Plan A allows for the direct rollover of loan notes to qualified plans that agree to accept them. Plan B does not. Would this right to directly roll over a loan note be a 411(d)(6) protected benefit? The regulations provide that a plan may be amended to eliminate or change a provision for loans, but does that exception extend to this type of provision that might also be characterized as an in-kind distribution provision? Has anyone dealt with this before? Any thoughts would be appreciated.

Although this thread is no longer active, I thought I would post a note because one of the comments above suggested that 401(k) plans are not subject to the 1933 Act at all. This was seemingly what the SEC was saying in Release 33-6281. However, the SEC clarified its position in its no-action letter to Diasonics, Inc. dated Nov. 29, 1982, and indicated that salary reduction 401(k) plans are subject to the 1933 Act.

No, the Adoption Agreement doesn't make that option available. It's too bad it doesn't provide more flexibility.

Thanks very much for the reply. Unfortunately, the immediate repayment obligation in this case appears in the base plan document itself rather than in a separate loan policy.

In the context of an asset purchase: If the seller's prototype plan requires repayment of plan loans immediately upon a termination of employment, can loans be rolled over to the buyer's plan without amending the "immediate loan repayment" requirement (assuming both the seller and buyer plans otherwise permit in-kind rollovers)? It seems that this is done fairly regularly in the context of acquisitions, but I can't find anything indicating if the seller's plan has to be amended to eliminate the immediate loan repayment requirement in order for it to work. It would be preferable not to have to amend since it would take the plan out of prototype status. However, without an amendment, how do you get around the immediate repayment obligation? Any thoughts would be much appreciated.

How does a tax-exempt organization comply with the requirement under Notice 2010-6 to attach a 409A Document Correction Statement to its "federal income tax return"? Does anyone know if the IRS has indicated in any informal discussions whether tax-exempt organizations must attach the statement to the Form 990 (which is an information return, not a federal income tax return)? Or are tax-exempt organizations exempt from this requirement because they do not file a federal income tax return? Thanks.

Thank you. This is very helpful.

The profit sharing plan was adopted after the end of the plan year in which it said it became effective but before the end of the employer's taxable year. The employer had the plan drafted, just didn't sign until after the end of the year. I believe there also were no board resolutions adopting the plan prior to the end of the year. I noticed in your last post that perhaps the signature is not essential as long as the document terms are written by the end of the plan year. But it seems like some official company action towards adopting the plan (i.e., board resolutions) would be necessary by whatever the applicable deadline is, right?

Thanks, Sieve. I am still wondering, though, if the taxable year of the employer ends later than the plan year, does the plan have to be adopted by the end of the plan year or does it just have to be done before the end of the taxable year of the employer. (Although adoption by the end of the plan year would obviously be the safest course, I am looking at the issue in hindsight.) Treas. Reg. 1.401-1(a)(2) doesn't indicate a deadline for the written document. Do you know of any IRS guidance (formal or informal) interpreting that regulation that would clarify whether the deadline is the plan year or the taxable year of the employer? If not, must we conclude that the deadline is the end of the plan year based on the cited Revenue Rulings (which, in connection with analyzing the deductibility of contributions under section 404(a), appear to require that the trust be established by the end of the trust's taxable year, i.e., the plan year), or is it reasonable to rely on 1.401(b)-1 and take the position that the deadline is the end of the employer's taxable year? Despite the Revenue Rulings, it seems that going with the deadline in 1.401(b)-1 would be consistent with the current terms of section 404(a) of the Code. However, the effect of the language in 1.401(b)-1 is not entirely clear because it is phrased in the negative, rather than the positive. It just seems like the drafters of the regulations must have been basing that language on a deadline that exists somewhere else. I realize there may not be a clear answer to this question, but, if you have any additional thoughts, I would love to hear them. Thanks again.

Could you tell me what legal authority provides that the PSP (without a CODA) must be established by year-end? And is the deadline the end of the plan year or the end of the taxable year of the employer? I have only found authority under Treas. Reg. sec. 1.401(b)-1(a), which provides that section 401(b) does not permit a plan to be made retroactively effective, for qualification purposes, for a taxable year prior to the taxable year of the employer in which the plan was adopted by such employer. I've seen several commentaries (and prototype documents) that indicate that the plan must be adopted by end of the plan year, but so far I haven't been able to find any legal authority for that deadline. Any guidance you (or anyone else) could give would be very much appreciated.