AJ North

The client indicated that they gave us incorrect compensation figures, so the test was re-run. The test still failed, but the excesses that needed to be returned were less than the amounts returned from the initial test that was run several months ago. I would guess here that the wisdon of re-running a test after excesses have been distributed would fill a separate forum. Thanks.

We have a situation where an revised ADP test was run, failed and excesses returned. The employer requested that we re-run this test based on revised compensation. The new results still failed, but the excesses were less than the first test. So now we have HCEs which received overpayments of excesses. Where the amounts are less than $100, EPCRS indicates that the employer is not obligated to ask for those amounts back, nor even inform the HCE that they received any overpayment. If the employer does not make a full correction by requesting these overpayment amounts back from the HCE and making up the shortfall by making an unallocated contribution to the plan (operating under the less than $100 "rule"), I am understanding that the employer should file under VCP due to not making a full correction of the situation. Can anyone out their share their thoughts and wisdom on handling small overpayments? Thanks!

We have a situation where a participant is covered under a disability plan sponsored by the employer that has a rider that provides for contributions to be made on the participant's behalf to cover lost 401(k) and employer matching contributions, should the participant ever become disabled. Well, now we have a participant who has retired via disability and has taken a distribution of their entire account. The vendor of the disability policy is now sending the employer checks to "cover" lost 401(k) contributions. My understanding of these arrangements is that the contributions are deposited in to a trust for the participant to tap into once they reach age 65. I understand that there are vendors that provide these kinds of disability 401(k) plan continuations as an actual investment under the plan and I would guess that the plan would have to have language to cover this kind of arrangement The plan does not have any language that covers this and we are at a loss on how we can provide this plan sponsor with some assitance on how to handle these payments. They have tried to set up a tax-deferred trust at several area banks and no one would accomodate there requests. Any insight on how this situation can be handled and other info would be greatly appreciated.

Thank you all for your input. You have confirmed my thoughts. I will really need luck here, I am dealing with 18 family members, 6 non-family members and 6 different companies.

We have a rather complex controlled group situation. There are over a half dozen companies, two grandparents (primary owners), 11 children and 6 grand children, plus other unrealted individuals owning stock in these companies. This may be a dumb question, but with a group this big, would the five or fewer rule have an impact on a controlled group analysis? In many cases, there are more than 5 individuals that own stock. Thank you.

Thanks for responding Forms and confirming my feeling that the ACP test was not the only testing that needed to be done on this kind of forfeiture reallocation formula. Why do plan sponsors choose provisions that only complicate an already complicated issue?

Thank you for your response, ETK. I guess my thought here is that a comp to comp formula is a safe harbor allocation for a PS contribution, but that is not what I have here. To the extent that this allocation is a match, it does not directly relate to the amount of deferral and that is were I am leary. For example an HCE could defer a dollar and get a larger allocation of the forfeiture than a NHCE who defers the 402(g) limit because the match is based on comp not the deferral amount. I'm thinking that I have some sort of rate group(s) here and I am not sure that the ACP test is the only non-discrimination test that needs to be run.

I have a question concerning the allocation of plan forfeitures. The plan in question reallocates plan forfeitures back to participants: 1. The reallocation is only to participants who have made a 401(k) contribution for the plan year. Based on this, I would understand that the forfeiture reallocation would be considered a match due to receiving an allocation is conditioned on the participant making a 401(k) contribution. Therefore, the reallocated forfeitures should be tested in ACP. 2. The allocation formula of the forfeiture is based on the ratio of compensation the participant has in relation to the total compensation of the other eligible participants. I don’t think that I have come across a match allocated on a comp to comp basis before. I’m thinking that since it is not based on the deferral amount, I may have a coverage/ rate group-testing situation here. Am I reading too much in this situation, seeing problems where they might not exist? Any comments to clear up my thinking would be most welcome.

I believe that this kind of transfer is referred to as a "lateral" transfer in the ESOP world. We will have the client refer to any prospectus preparation to their legal counsel.

Thank you for the responses. The movement of assets from the 401(k) plan to the ESOP is not anticipated to be a rollover, but rather a transfer of assets between plans, similar to an elective transfer. The plan sponsor has already effected such a transfer several years ago and did so under the advice of an attorney. The attorney advised them that all they needed was a BODR to do this, which in my mind is a little shakey to say the least.

I have a 401(k) plan sponsor that wants to permit participants to make a voluntary transfer of a portion of their account in the 401(k) plan to the ESOP. They have already done this once several years ago. What are the rules regarding such a transfer? The fiduciary issues are making my head spin.

I have a SH plan that allocates a 3% QNEC and a fixed matching contribution of 100% of the first 6% deferred. The plan year is calendar. The plan wants to eliminate the fixed match, but will continue to contribute the 3% SH QNEC. My question is will the plan still be SH with regard to the ADP test due to the fact the 3% SH QNEC will continue to be contributed. Or will the plan be subject to both the ADP/ACP test because the the plan was amended mid-year?

Thank you for responding, this is just as I thought. 1. Which test should be performed first; ACP or BRFs? 2. To expand the original question: let's say that you need to combine 2 401(k) plans of related employers to pass coverage. Would also have to do BRF an testing on all aspects of the plan provisions including NRA, ERA and distribution options where they may be different? Or could you limit the BRF to just contribution formulas and/or the right to make a contribution. Thank you again.

Hello Forum We’ve been going back and forth about this one. ACP is the “exclusive” discrimination test according to the EOB. It is acknowledged that if a match does not pass ACP you can’t use 401(a)(4) general non-discrimination in lieu of ACP. Question: if a plan wanted to allocate an employer match to 6 separate groups of employees using a different formula for each group (none have union ees) would they need to perform rate group testing (and pass) for each matching formula or would the ACP be the only test that needs to be passed to prove and fix discrimination. One would guess here that if the HCE are being allocated a more generous match, the test would fail proportionally thereby “curing any discrimination”. Thank you for responding

Thank you DMcGovern for your response and I generally agree. However, I did find some info to the contrary in The EOB/Tripoldi. That info can be found at Chapter 3B - Accruing Benefits, Part 2, Section VIII, Part D Funding deadline/excise tax. If you get a chance to take a look, please let me know what you think.

I have a money purchase plan that did not make the minimum contributions for the past two years. The plan sponsor knows that they need to make up the lost contributions plus interest. My question concerns filing a 5330 and the associated excise tax. I have come across some information indicating that money purchase plans are exempt from the excise tax. Does anyone else have this understanding?

My understanding is that any participant who was catch up eligible was permitted to do a catch up if they hit the 15% limit. Thanks to all for responding.

Situation: Plan document permits participants to defer up to the maximum permitted by law to the plan, no percent or dollar limits (other than statuatory) hardcoded in plan document. Problem: Plan Sponsor has limited all participants (HCEs and NHCEs) to only defer up to 15% of compensation. Timeframe: Plan Sponsor has operated the plan this way; "always". Question: Do I have as big a corrective contribution situation as I think I have or is there another way to view this situation? Thanks

Thank you for your response.

have an existing 401(k) plan with an automatic enrollment feature with no escalator; the plan also provides a safe harbor matching contribution. The plan is now looking change to add a QACA feature for the next plan year and use the 2-year cliff vesting option for the QACA safe harbor match. My question is can the plan sponsor apply the 2-year cliff vesting to existing participants who were receiving a 100% immediate safe harbor matching contribution or would that be a cut back? If it were a cut back, would the plan sponsor have to go through the vesting election process? I would guess no one would elect to be covered under a 2-year cliff if they are currently entitled to a 100% immediate safe harbor match.

Thanks to all who responded.

I have an existing 401(k) plan with a calendar plan year that wants to add a SH provision mid-year. I believe that this is may be possible if the plan sponsor adopts a "wait and see" SH QNEC provision and provides the appropriate notices. Also the plan must use current year method and execute the appropriate plan amendments. Is my understanding correct or not correct?

A plan with an existing 401(k) safe harbor wishes to add a loan provision mid plan year. Does adding the loan provision have an impact on the withdrawal section of the required 401(k) safe harbor notice? If the safe harbor contributions are subject to being "withdrawn" as part of a loan, my guess here is yes. The plan would need to wait until the beginning of the next plan year to add a loan provision. Does this make sense? Or does adding a loan provision not affect the safe harbor notice? your thoughts are appreciated.

You might want to consider amending the plan and limiting the options available to the participant depending on their employment status. Active participants could be given an option to transfer to the k plan. Terminated participants could be limited to a distribution, this way if the former participant cashed out their k plan account, you wouldn't be bothered with having to reopen it to receive a transfer.