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

Unfortunately, it's a C-corp, and the issue stretches back several years, but we will ask if they can find the signed paperwork regarding the participation freeze. Thank you all for your input.

That is not the case - dad still owns 100%.

A PSP covering only a 100% owner has been filing the 5500-EZ for years. It was recently revealed that his son was employed several years ago and met the plan's eligibility requirements but the owner kept filing the EZ. The son is still employed but he's not owed any allocations since there haven't been any contributions since he was 'hired'. What would be the recommended course of action - amend the returns to SFs? DFVC? Ignore and just have the owner file the correct form going forward?

Last summer a participant took a maximum loan equal to 50% of their VAB, to be set up for repayments via payroll deductions twice a month. No repayments have been made to date. The outstanding balance of the loan went over 50% of the VAB once the first repayment was missed due to accrued interest, though eventually it went down below 50% due to continued deferrals. It's a PT if a loan for an amount exceeding 50% is taken and a Form 5330 should be filed for the excess - is it also a PT if the loan's initial amount is OK but the 50% max is breached due to accrued interest from non-payment? If this is a PT, does a 5330 need to be filed even if the OB went below 50% before the end of the year? Hopefully not, since the excise tax in this case would be far less than $100. It seems that section 6.07(3)(d) of Rev. Proc. 2021-30 permits self-correction of loans whose IRS maximum cure period has expired (this occurred on this loan 12/31/21) if the participant pays a lump sum for the missed payments with interest to bring the loan current. So it appears the loan becoming a deemed distribution won't be an issue if the participant does this, even if it happens in the following year. I suspect that the employer neglected to set up the automatic payroll deductions for the repayments, and I remember hearing that the employer may be liable for some of the repayments? Does anyone have any info on this, or know where I can read about it? It's surprising to see that some of the major recordkeepers do not add interest for missed payments onto outstanding loan balances - I thought they were required to do so.

The top heavy requirements wouldn't apply if the plan is considered to be a safe harbor plan throughout this process, and I can't imagine that the amendment would cause any issue, especially since the participant is an NHCE.

A 401k plan has over 70% in each of its rate groups for its nonelective contributons when the ratio percentage test is performed - does that allow the plan to avoid the ABT when deferrals have been made? Having to consider the deferrals in the ABT would sink testing.

Frozen initial liability.

Excellent information. The agency sells home and auto insurance, but it's interesting to know that life agents are treated differently. Thank you all and enjoy the holidays!

Thank you for your responses but I'm afraid I still need some clarification. No doubt the employees fall into at least one of the four categories described in the link provided, but the page only refers to their treatment for certain employment tax purposes. What I'm trying to determine is whether the employees I've described are required to be covered by a qualified plan that is sponsored by the entity that issues W-2s to them and not whether they can be excluded by design - I should've been more specific. There's no document as the agency is thinking about starting a new plan, so my question is geared towards how federal laws apply.

An insurance agency says that its employees are statutory employees, but pays them W-2 income instead of 1099 income. Their W-2s consist entirely of commissions and they all work from home. They work as they wish - essentially as independent contractors - but are paid a W-2 income. Is the agency able to exclude them from their 401(k) plan? It seems that most statutory employees who get paid 1099 income may not be considered eligible employees, but I couldn't find information that discusses how eligibility is handled when their income is reported on a W-2. Has anyone come across a situation like this?