mming

Yes, I would imagine the participant would get an SH match. However, would the match be based on the amount that would have been deferred had deferrals occurred when they were supposed to, or would it be based on the the QNEC amount? If matches are made every payroll, for example, it would make sense to base the match on the QNEC amount to account for lost ROI, but if the employer normally contributes the whole match for the plan after the close of the year, then it may suffice to base it on what the participant's originally intended deferral would have been. Just thinking out loud and would be curious what the prevailing opinion (or regulation) would be.

Yup, I got it confused with the autoenrollment rules - thank you both.

A PSP that was set up many years ago is now being amended into a 401(k) plan. Once this occurs, does it have to include LTPT employees or is it excluded from this requirement by virtue of the fact that the plan has existed for a long time?

A plan sponsor wants to change their traditional 401k plan to a safe harbor plan but are concerned about their contribution obligations should they suffer a down year or two in the future, so they are leaning towards a matching SH design. I've heard that a safe harbor 'maybe' notice can only be used when the 3% SH nonelective contribution is being provided, whether the plan is a QACA or not. One of their advisors, however, is insisting that you can use a 'maybe' notice for a SH QACA that provides matching contributions only, but this didn't sound right. As I'm thinking it would be hard for participants to decide how much (or if) to defer if the employer can just rescind their offer for a match at any time during the year, I have to ask - am I correct to believe that the only type of SH plan (QACA or not) that can issue a 'maybe' notice is one that provides the 3% SHNEC? Thanks in advance for any assistance.

Belgarath I have the same experience as you - even when we were required to just send them out once every three years, we did it annually. It was done a little out of habit and a little out of realizing how if we were participating we would like to receive at least an annual update of our benefits. And it probably prevented quite a few participants from asking "Why haven't I gotten a statement in years? What? Once every 3 years? That doesn't sound right - show me where it says that."

Does the QRP still have a suspense account balance? If it does I believe you would have to reallocate it at least ratably over a total of 7 yrs, which would count towards the annual addition limit.

Two cannibals are eating a clown. One says to the other: "Does this taste funny to you?"

I would much rather prefer the doc define NRA as at least age 62, even if the current NRAs for the partners is at least 62 using the definition the doc has at this time.

Form was filed a few months late but no correspondence has been received yet from the IRS. Although it's my understanding that penalty relief can be applied for even after the IRS has sent a letter assessing penalties, there always exists the possibility that the DOL may instead send such correspondence, at which time the option to obtain penalty relief disappears. As such, it would appear that the best approach would be to file an amended return at this time (i.e., before the feds contact the client) via the IRS penalty relief program for EZ forms - agreed? Thanks in advance for all assistance.

That is happening to us. Usually they're for plans that were filed close to 7/31, but the penalty seems to be calculated as if the 10/15 deadline was missed. In other words the penalty is in the thousands, not tens of thousands. Since we received the same phone message, we fax a letter to the IRS (as permitted by the CP-283 notice) pointing out the inaccuracy and asking for an abatement of the penalties. Fortunately, the tax returns were sent via certified mail so there is proof of delivery. No response yet, as this all happened just in the last few weeks.

Another reason to have new elections is to prompt the participants to review their deferral amounts, as many tend to 'set it and forget it' for years. Hopefully any changes made will be increases.

Thanks Corey, and I now realize I forgot to also thank the previous responders - I appreciate all the assistance.

Not a high $ penalty but nonetheless unreasonable due to the circumstances. Some time ago a tiny plan was audited and found to not be in compliance because it did not have an IRS model amendment in place for sec. 132(f) fringe transportation benefits. It was a 3-life plan and held a total of $21k in assets, and the deadline for adopting the amendment had passed only a few months before. Also, sec. 132(f) had absolutely no bearing on either the employer or the plan's operation. The plan did not have any other issues. Going through Audit CAP, the IRS consequently assessed a $3k penalty for this oversight. After months of correspondence with the IRS where they were asked to consider a more reasonable penalty given the size of the plan and the lack of affect sec. 132(f) had on it, they reduced the penalty to $2,500 and made it sound like they were doing the sponsor a monumental favor. I'm not sure if such decisions are standardized at the IRS, or if they're made on a discretionary basis by whichever audit supervisor has the case, but hopefully they've gained a little more perspective in recent years. As for any leniency shown by the IRS, I've never seen an agent assess any penalties for insufficient bond coverage found during an audit, even though it's clearly indicated on the 5500 - sometimes the agent hasn't even mentioned it. The few times they did, they said "Just make sure a bond/enough coverage is obtained". Some plans had other issues (some severe) and some didn't. Yes, these weren't Audit Cap issues, but I thought I'd include something positive. However, I would guess there are sponsors who've been nailed for insufficient coverage.

As a follow up, the loan was for $20k and was taken for the purchase of a primary residence, so the term is 30 years. Regarding self-correction, it would appear the expiration of the maximum IRS cure period would be considered 'insignificant' for EPCRS purposes since the plan has never had a problem like this before, and the $20k is less than 1% of the plan's assets. Being that it's insignificant, does this mean that theoretically the participant (employer?) can leave this unattended for the whole term of the note without consequence? I'm guessing a 1099 would eventually have to be issued for the earlier of the participant's year of termination when an offset occurs, or the note's maturity date, for an amount that includes accrued interest to that point. Am I understanding all of this correctly? As an aside, prior to taking the loan, the participant took a maximum inservice distribution - it's very likely she never had the intention of paying back the loan and saw it as a way to get even more $ out of the plan, regardless of the possible tax consequences. I imagine a quick fix would be for the employer to just set up payroll deductions for the repayments missed to date (plus interest) and then follow the original amortization schedule. Thank you in advance for any assistance.

Topic has been used as a continuation of a previous discussion