ETA Consulting LLC

It should be effective anytime during the remedial amendment period. 1/1/2016 would be more appropriate; since it was before the PPA restatement deadline. Good Luck!

Could you provide an example? Are you saying that a person wishes to defer in excess of $18,000 during the year, but have their deferral curtailed at $18,000 in the month of December? I don't necessarily see that as a 'failure to implement' but a 'failure to follow'. Better yet, a 'failure to continue to follow' :-) I would imagine it would depend on how neatly your fact pattern fits into the (and it hate to use the word) tone that is laid out for describing the corrections. Good Luck!

I know that discretionary amendments must be signed by year end, but that (to me) was in addressing a question on amendments to eligibility or contribution levels after year end. For instance, if you have a formula that provides 5% per year but excludes widget builders. You can amend the plan during the year to bring them in, but that is no longer an option after the year has ended. Hence, the only method to bring them in would now fall under an 11-g corrective amendment (not discretionary but corrective). When it comes to retroactively amending a plan to conform to an operation, there has historically been a 'no way'. Recently, the EPCRS procedure opened this door for early entrants. But, I don't see how this fact pattern fits into the 'discretionary amendment' issue; which is what I presume you're saying. I'm always glad to have these types of discussions. It helps me in the cases where I have it figured wrong. Good Luck!

True. The key is that the entire exclusion (which basically says you will never be covered by this plan under an circumstance) is not based on the work being done, but by the work schedule. The position is that you're not excluding them outright, but making them meet a different standard. That's where the fail-safe comes in. Otherwise, your position would be that you have three janitors performing the same function. One works first shift, another works second shift, and the other works third shift. Your draft the plan to exclude 2nd and third shift employees. So, you are excluding two employees who perform the exact duties and earn the exact pay, but their only difference is their work schedule. I would see an issue with that. Hey, the IRS may not, but I wouldn't advise it. I have the issue that the group, itself, is defined by a work schedule as opposed to a business class (or job function). That's how I've always understood the IRS's position. It 'may' be time for me to revisit it, but that's my understanding. Good Luck

When you have a class that is, itself, defined by a customary work schedule, then that becomes your issue. This is class exclusion is directly and indirectly, meaning that if all your janitors are part-timer, then you cannot exclude the janitors. That would effectively exclude part-timers by attempting to disguise them as a legitimate business class. So, whatever you decide to do should be weighed against this standard. I wouldn't encourage a client to try excluding employees when the class is defined (primarily) by any work schedule. But, that's just a reflection of the levels of risk that I would be comfortable with. Good Luck!

I don't think it can be corrected like that under Self-Correction, but that may be the most appropriate correction under VCP. Without looking at EPCRS in detail, we know one admissible retroactive amendment under Self Correction is for early entrants, but I'm not sure off-hand that this applies to distributions. But, you can certainly correct that way and submit it under VCP. Logically, if you were to go out and retrieve the funds, all the individual would need to do is take another distribution now that the plan is amended to allow of it. Hence, being above 59 1/2 help (assuming that distributions were taken from a Deferral or Safe Harbor Source). Technically, you may have a little work. Good Luck!

Under the approaches given, I wonder if they would be the same under a deferral only plan with no provisions for other types of Employer Contributions. In the entire universe of plans, I would imagine this has happened in such a plan more than once. One could just as easily argue that the assets are ERISA protected and may not leave the plan, other than for the exclusive use of providing the benefits (as defined under the terms of the plan) to the participants and their beneficiaries. This would suggest that, whatever is done, the best approach would be to seek alternatives that leave those amounts in the plan. When it comes to attempting to defend an operational failure as a mistake of fact, one could discredit this as easily as any other method. At the end of the day, it all boils down to a list of alternatives and the risks of each; and the ability to defend the method used as reasonable. Good Luck!

Practitioners have been processing negative payroll contributions in order to correct over-deposited amounts during previous payroll cycles for the longest time now. I remember back in the early 2000s (or late 1990s) arguing why it was best to correct under the separate transaction and adjust for earnings as opposed to merely disguising the error through a negative payroll contribution. I, distinctly, remember being over-ruled on that argument (at my employer) for sake of operational efficiency. I find it interesting that the conversation, now, is about everything 'we cannot do'. Anytime I encounter a situation where every alternative is fraught with issues, then I suggest that a VCP submission will give you all the comfort you seek. The argument, then, is not about what can or cannot be done (because a Compliance Statement will settle this), but more about whether the level of comfort is worth the cost of the submission; especially when it involves a correction method already being discredited under a self-correction routine. Good Luck!

Typically, when a mistake happens, you're going to end of violating some other established protocols just to correct that mistake. This is why EPCRS continue to emphasize 'reasonable approaches'. We can easily find something wrong with any approach taken, but the key is to get the plan in a position as close to the position it would've been had the mistake not occurred. Obviously, the $5,000 has to be removed from the account. Merely using that $5,000 to offset the next set of deferrals would make everything (from the contribution perspective) balance. But you know have an issue with the earnings. A participant has gotten a $200 payday in increase earnings for extra funds being 'parking-lotted (I know that's not a word)' in his account. Those funds should be removed and (in my opinion) used to offset plan expenses or reduce future contributions. My only point into this post is to emphasize the validity of 'reasonable method' and the need to document anything you do as why you believe it's reasonable. Even on IRS audit, they may ask you to defend your reasoning (and may even shoot you down), but that's typically how these issues work. Good Luck!

Your math is correct (on the surface). The non-excludables change when testing. For instance, if a person in B doesn't receive a contribution because he terminated with less than 500 hours, he's still not a non-excludable for A's test, because he wouldn't have receive a contribution in H even if he had remain employed. Keep that rule in mind when testing under Section 410(b). Plus, you "MAY" have some transition rule relief, but that would require a little more details on the actual series of events. For the most part, I think you have it figured out. Good Luck!

No. It can be terminated and rolled (at the discretion of each participant), but cannot be merged. Good Luck!

The 'discretionary' formula is the only one that is limited (to 4% of Compensation). The reason for that is obvious, it's discretionary and will likely not get made if EVERYONE contributes. There isn't a limit to the 'amount' of fixed, only the amount of deferrals that may be matched. Good Luck!

I don't see a big issue with either approach. If a person is entitled to a contribution (e.g. matching contribution) under B's plan, and Bs plan was merged into As plan, then you're still making the contribution to Bs plan which is currently a merged part of As plan. I cannot fathom an issue; it's just a matter of mechanics in how you choose to do it. Good Luck!

Not necessarily out of luck, but "yes" with respect to trying to establish a safe harbor within the same year. This doesn't even delve into the fact that there isn't a severance of employment with the common law employer. So, ADP would have to rely in instruction from the common-law employer with respect to when a person terminates employment and meets a distributable event. Typically, if you're going to leave a MEP, a spin-off may be in order. I would bet that more often than not, there was a merger that brought the plan into the MEP in the first place. So, all you're doing to going back to the way things were before the client joined the MEP. Not saying that's always the case, but it is the case the majority of the times I've encountered this. Good Luck! PS: Now that I think about it, out of luck for a year pretty much sums it up. It would, effectively, be a plan termination (which is a distributable event), and that would require that there be no successor plan within the following year.

I would be interested in hearing how you could leave a MEP and not be a successor plan. In the MEP, ADP would appear to be the employer for tax withholding and reporting purposes but the client would be the common-law employer. So, there would appear to be dual employment where each employee is simultaneously employed by two distinct employers; and it's okay since the MEP is actually sponsored by both of those employers. I'm failing to understand how the client (one of the employers) can simply leave and start another plan without it being a successor plan (making it where those same employees were part of another 401(k) plan sponsored by the employer during the year). I'm just trying to piece this together, because I might be missing something. Good Luck!

None, whatsoever, other than deductibility. You can provide a match of $4 for every $1 deferred up to 6.25% of salary; and that would be okay. I hope my math is right, but you can see the point I'm making :-) Good Luck!

Typically, when computation periods change, there is an overlap. So, I agree with you that the "BEGINNING AFTER" clause does seem a bit odd. I cannot even begin to imagine what is being implied. By that time, the participant would've already work 15 days short of another year and could've easily worked 1000 hours during that time. I cannot imagine they'd lose that year. Good Luck!

When the rules changed to provide that all corrective amounts are now taxable during the year distributed, including those within the 2-1/2 months following the close of the year, the Treasury failed to trace the Regulations on recharacterizations. Anytime this happens, I typically refer to my plan's language to see now they handled it. I'm not suggesting that "Follow the plan and not the Regulations" because the rule is quite the opposite. But, what I generally do is to look for various ways something is being written in order to enhance my ability to interpret. "Case in point would be a discussion we had last year about the calculation of loan limits when several loans are taken during a year". But I digress. For the issue in question here, my BPD reads: Recharacterization must occur no later than 2½ months after the last day of the Plan Year in which such Excess Contributions arise and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for the Participant's taxable year in which the Participant would have received such amounts in cash had he/she not deferred such amounts into the Plan. Good Luck!

This was a point of contention about 10 to 15 years ago. Right now, a severance of employment would be deemed to exist under this circumstances unless the purchaser of sub 2 actually agrees to take over sponsorship of the sub 2 part of the plan. So, if the purchaser of sub 2 say "Hey, we're buying this division (or subsidiary), but we want nothing to do with the plan, and it will remain with the sponsor", then this will be considered a severance of employment for all sub 2 employees who are now employed with the purchaser. Good Luck!

Not going to happen. Unlike qualified plans, SEPs have no provisions to exclude 'related employers (e.g. members of a controlled group). In fact, the instructions to the SEP typically have language saying '.... be careful if you have a spouse who owns a business'. Good Luck!

This may not require a plan amendment, since gross pay is already eligible. Your change may simply be to provide a separate one-time election to each participant to be completed before bonuses are actually paid. That 'election form' would explain that it's a one time election for the upcoming bonus, and a failure to complete would result in the current deferral election being used. Point is, there doesn't appear to be a need to amend the plan, but merely facilitate a separate election. Good Luck!

I'm not sure how to answer this. The rules appear to be very clear. I haven't seen many, if any at all, cases where the client intentionally rejected the rule simply because it wasn't what they wanted to hear. That's not to say it doesn't happen, but I wouldn't go as far as believing it's commonplace. Good Luck!

I do not believe that is correct. I believe recharacterizations must occur within 2-1/2 months after the plan year end and would be taxable for the year they would've been included in income had they not been deferred. In your case, they would be taxable in 2016. Good Luck!

I wouldn't go as far as saying 'stay out of the 3(16) business)'. This fact pattern can tie back to the Microsoft case. Plans have been "Microsoft-Proofed" to do the following: Basically, you're excluding the employee because you 'labeled' them an Independent Contractor. Should a subsequent determination conclude they are (in fact) a common-law employee, then they are still excluded by class, but that class is not a safe harbor exclusion from the non-discrimination testing. So, if you rerun the test and continue to pass, the misclassification becomes a non-issue. This case is slightly different since it's not dealing specifically with plan participation, but the ability to take a distribution under plan terms. I don't think "Microsoft Proofing" helps there. But, you're only corrective action may be a distribution to someone who's not eligible for one. I don't think the notion of having to fund additional contributions will be as much of an issue. At the end of the day, continue to RTFD :-) Good Luck!

This is my thought on the issue :-) Good Luck!