ETA Consulting LLC

There is, typically, some degree of flexibility in correcting operational defects. I think it is perfectly reasonable to look at making each participant whole with respect to the entire 3 year period of failure. Good Luck!

"Like". I think this is actually driven by the Regulations and not reduced to language in the documents.

You would have to be subject to ERISA in order to be subject to the ERISA 404(a)(5) regs. Good Luck!

This incident isn't specific to operating any type of firm. Arguably, it could've easily been a barbershop or gas station. This would limit your approach to areas pertaining to employment laws within the state in which the TPA is operating. I would imagine each state has their own laws pertaining to the rights of the employer (or any conditions of employment). I would familiarize myself with those laws and base my action on those. That's the process. It would be easy to get emotional, but that appears to be what has escalated the issue to this point. No pun intended on 'emotional'; just a reflection of how little the incident has to do with the 'art and skill' of administering retirement plans. Good Luck!

Unfortunately, this happens often. It's like a 'built in' process failure. The fact that the payments were actually negotiated may warrant an analysis into how they were negotiated (i.e. if directly deposited, did the beneficiary have use of the decedents account). Well, assuming that it was the participant's estate and ended up with the payments. But, I totally agree with your approach. Here is where documentation is important. Reducing a future payment to the survivor should be done "only" after you substantiated that the survivor actually received the benefit of the overpayment. Even then, such approach 'may' be questionable, but you would've at least documented the reservation of arbitrarily diminishing the rights of the survivor to cover the ill-gotten gains to the other party. Nothing you do would be perfect, but it appears as if your approach considers most (if not all) of the relevant principles. Good Luck!

Each vehicle is a separate legal entity; so you don't need a citation for that. If the IRA has $100K in assets and the Investment Advisor received $3,000 in advisory fees, then that is a 3% fee; which could be considered excessive. This would be the basis for your argument when you apply this fact pattern to Section 4975 of the Internal Revenue Code. This would be my approach. Good Luck!

They can do that now under restructuring. When they become unrelated, then they "must" test employees of each employer separately. Good Luck!

"Like" "Like"

I don't think so. Technically, it's not an error; this should be verified against document terms regard to contribution timing for 'employer contributions'. Even the deferrals may be corrected by allowing those missed employees an opportunity to make extra deferrals (provided there is enough time remaining in the year). Good Luck!

This has been the subject of debate among a few Attorneys in the industry. Some argue that in the event the employer decides not to fund, the existence of a forfeiture balance still gets treated as an employer contribution whose funding was reduced to zero through the use of the forfeiture account. The argument states that to otherwise would be a failure to operate the plan pursuant to a definite predetermined formula. This is based on the ascertion that the employer may not exercise discretion in the "operation" of the plan; only the "administration" of the plan. So, if the employer were to delay the use of the forfeiture balance to a future year would be an aribitrary and capricious act of discretion to allow forfeiture to accumulate over several years until they see benefit to allocate. Generally, the forfeiture use, whatever the provision, should be made absent of employer discretion. Obviously, others would argue that the use of forfeitures coincides with the employer's discretion on when to make a contribution. Without that discretion, then nothing is being contributed to reduce; so the forfeiture remain unallocated until there is. These are just a couple of arguments that have taken place over the past decade. Good Luck!

410(b) is "one" of the tests that must be passed in order for the plan to be non-discriminatory under 401(a)(4). You must either pass the coverage ratio test or (the non-discriminatory classification test and the average benefits test). These are 410(b) issues. Now, when passing the coverage ratio test, may test on "contributions or benefits" per 401(a)(4), but you must still pass that test. That the fail-safe (if it applies) does is brings other employees into the allocation formula by eliminating the accrual requirements for them. This, now, makes them 'benefit' under the formula and precludes you from having to perform more advanced testing. Without such fail safe, you'd need some provisions to bring other employees in (otherwise any attempt to allocate a contribution to them would be made outside the written terms of the plan). This is where the 11-g amendment comes into play, because there isn't plan language allowing entry of additional employees to pass the tests. Good Luck!

I have some general thoughts. I don't think every event where you fail to follow the terms of the plan results in a Prohibited Transaction. For instance, I can see a clear distinction of an event where (for instance) a distribution was given to a business as a gift (prohibited transaction) and an event where a participant received a distribution of his own account balance prior to the time a distribution was allowed under the written terms of the plan. A failure to follow the plans terms is a violation, I just don't believe it's a prohibited transaction. In any event, when the $8K was returned, the resulting taxable distribution was $2K where 100% of it was withheld and sent to the IRS. Depending on the timing, you could've netted that $2K with the next wire to the IRS and reflected no withholding for that individual participant when you balance the Form 945 at year end. Otherwise, you'd have to report the $2K as a taxable distribution. There is some flexibility on correcting under VCP. I just think the initial treatment as a prohibited transaction wasn't the best approach. I'd try to undo this, to the extent no actions were taken, and just treat it as a failure to follow the written terms of the plan (correct in a different manner). Good Luck!

I'm pushing the "Like" button!

It would be "immediate" without any rule stating otherwise. It boils down to 'what is the rule when nothing is written'. In other words, what is the default position. Barring some language to the contrary, the plan will become a multiple employer plan immediately upon the two employers becoming unrelated provided both employers continue to participate in the plan. I would wonder if you could retroactively spinnoff the employer into a separate plan as of the first day of the plan year of them becoming unrelated. If so, would the rule then be that as long as they passed coverage from the 1st day of the plan year of the split, they would be allowed to spin off and get tested separately for the entire year (each employer with their own plan)? Otherwise, we're left with approaching it exactly the way MoJo is suggesting. Just treat them as two separate companies as of the date of the transaction. While my questions are related to going back to the first day of the year, I just don't see anything that would create a 'delayed' effect of the multiple employer plan status. Before attempting to read the rules, would this be consistent with what we are trying to ascertain?

In order to keep things in perspective, you already have two plans of two different companies. When the companies become related, you have two plans for one company. You are still allowed to test each plan separately as each plan must qualify on it's own merits. However, they are 'permitted' to aggregate for those purposes. I would like to know, in clear terms, when does the ADP test performed only on employees who are eligible to defer under that particular plan not allowed. When "MUST" you aggregate that employee population with employees in another plan of the employer. If it is not when the population in the plan fails 410(b), then when is it?

I understand, but coverage is often a lead in to those tests. Even if we were to cross-test the plan under 401(a)(4), it is done by ensuring each rate group passes 410(b) on a cross-tested basis. Many non-discrimination tests begin with a population that passes coverage under 410(b). Making the transition rule apply to coverage would then allow each plan to be tested for (and pass) the non-discrimination requirements without regard to the other company. The only exception, then, would be a non-discrimination test that doesn't reference a population that satisfies 410(b). Good Luck!

410(b) is a non-discrimination test. So is ADP and ACP. When testing for ADP and ACP, there is a requirement that the population being tested satisfies Section 410(b). A plan that would otherwise fail 410(b) had it not been for the transition rule would not fail ADP/ACP due to testing a group that now fails 410(b). Just so we remain on the same page, what non-discrimination tests are you referring to?

I agree with this, but have a different argument; it's just semantics. I would say are expenses "reasonable" to the extent they are prepaid beyond a certain level. It would not be reasonable for "me" to have a portion of my benefit used to pay expenses over the next five years when I am going to retire and take a distribution in the current year. I do agree that it easy to argue that it wouldn't be 'prudent' for me to do that Good Luck!

"Like" Many documents are written to provide pecking order (i.e. 'first used to pay expenses but then...'). It's always good for read the document as too many times this simple concept doesn't reasonate. In theory, the language should account for other uses in the event the amount of forfeiture far exceed the level of fees being charged. The question becomes at what point does the plan contain assets that aren't being used for the benefit of participants and beneficiaries. A well drafted plan should have sufficient language to ensure forfeiture don't accumulate and go unused over time in order to avoid this potential. Good Luck!

Well, look at it like this. Everything happens on the date of transaction unless there is written relief to "deem" the transaction as not effective. We know that if two unrelated employers enter controlled group status for the first time, there is a transition rule under IRC Section 410(b)(6) that allows the companies to be treated as if they aren't related through the end of the year following the year of 'merger' (provided no amendments having certain impacts on coverage). Without this rule, they would be treated as related, with respect to non-discrimination, on the date they became related. When two related companies become unrelated, if you cannot find a rule that 'delays' the effect of being unrelated, then you would treat them as a multiple employer plan immediately (or spin an employer off into their own plan). This is just the rule as I see it. I imagine your question is that two employers on a prototype document became un-related during the year and failed to separate them into separate prototypes; so how long do you have before losing reliance on the prototype's opinion letter? I'm just guessing this may be your situation. In this instance, I don't know, but would imagine you would have an 'as soon as administratively feasible' buffer to actually prepare the amendments. This become very subjective. Good Luck!

The plan may actually pass non-discrimination under 410(b) using testing methods more advanced and the coverage ratio test. The fail safe provision would preclude the use of more advanced testing and begin to bring additional employees in pursuant to a predetermined order. I think rcline46's point is more consistent with industry practice that you'd have the flexibility to perform additional tests and then draft an 11-g amendment to correct; which could potentially result in thousands of dollars in savings. Good question. It's always good to know various angles. Good Luck!

I wouldn't take it to that level. The fail safe would apply only after an allocation is made and the test has failed. It, then, brings individuals into the fold in order to prevent cross-testing or other advanced testing while remaining on a straight coverage ratio test. I cannot see where an elimination of this provision during the year would constitute changing the conditions to receive an allocation after those conditions have been met. I think that is a stretch since, by definition, the fail-safe cannot be applied until the end of the year after all others (who accrued a right under the plan's accrual requirements) have received an allocation; and then that allocation has failed. Until that happens, you'd accrue a right to nothing. I see the argument (to the contrary), but just find it too much of a stretch. Good Luck!

That gets tricky. Generally, items that are purely document related (e.g. We failed to create a written plan in 2009 when the Regs required us to do so) is not available under VCP. We're told by other practitioners that attempts to submit this type of error under VCP were returned by the IRS (who refused to review). Arguably, this would pertain to the equivalent of a failure to qualify in "Form" in a qualified plan. You could look at a retroactive amendment as an operational defect (failure to qualify in 'Operation') during your submission. "I think" this is where the IRS draws their line on what they will review and what they will return. I am also a fan of 'trial and error'; so I'd do it until some other practitioner blesses us with insight on their experiences with the IRS. Good Luck!

Remember, it "IS" a QNEC. This means it "may" be included in the ADP test, but doesn't have to. So, you would weigh the benefits of including it against the extra effort in re-running the tests and adjusting the corretive distributions that were already distributed. As it stands now, there isn't an issue. As a rule, the ADP tests should only include amounts deferred. It is optional to include QNECs. I wouldn't make any additional changes. Good Luck!

You can do anything you want with the proper advanced notification. I think more details on what you're trying to accomplish (and perhaps the thought processes behind it) would be more helpful in addressing your issue. Auto increase without auto enroll is like internet access with no computer; think about it Good Luck!