shERPA

I imagine it would be the same as for any other participant who did not respond with properly completed election forms, they can be characterized as "missing", send the money to PBGC. https://www.pbgc.gov/sites/default/files/form-mp100-instructions.pdf#page=4 Who counts as missing In general, a distributee is considered missing if, when the plan closes out, the plan doesn’t know the individual’s location (e.g., if a notice from the plan is returned as undeliverable). For purposes of these instructions, we use the term “Unlocatable” to describe a distributee in this situation.P 1F 2 P An individual is also considered missing if: • The individual’s benefit was subject to a mandatory cash-out under the plan’s terms and the individual did not return the necessary paperwork providing instructions about how the payment should be made (e.g., by check or as a direct rollover to an IRA); or • The individual did not accept a lump sum payment, whether elected voluntarily or subject to mandatory cash-out (see “Unaccepted lump sum payments” below). We use the term “Unresponsive” to describe a distributee in either of the two situations noted immediately above. Note that a distributee may be both “Unlocatable” and “Unresponsive.” [emphasis added]

Participant needs to get a TIN. https://www.irs.gov/individuals/international-taxpayers/us-taxpayer-identification-number-requirement

No OE exclusion for TH purposes. Dual eligibility is a trap for TH 401(k) plans. Just say no.

Less than 5% partner? Not in top paid group? Or maybe an error was made in census data (not disclosing ownership, or not properly identifying HCEs) to whomever is doing the testing? Or are you a "non-equity" partner? Which isn't really a partner at all. If you are a partner then this request for payment should be governed by the partnership agreement, which should spell out how certain expenses such as the partners' share of employer contributions are allocated to partners.

Larry sort of hijacked the thread. Setting his unique process aside, back to the OP, if a client returns a Docusign-signed 5500 to the TPA, is this sufficient for the client to file with EBSA using the "normal" process where the TPA files and a pdf of the "signed" 5500 is attached. Note to Larry - we know about your objection to the term "TPA", so you don't need to bring that up here!

"this letter says correct or else." New way to interpret the "V" in VFCP. Maybe is should be rebranded the Mandatory Fiduciary Compliance Program.

This is just one example of the countless little imperfections that arise in 401(k) plans. Yes the regs say employers cannot pre-fund deferrals. Assuming this was simply a mistaken duplicate deposit that is an isolated incident, I wouldn't characterize it as pre-funding deferrals, but just a mistaken deposit. Use it to offset the next contribution going into the plan. Memo to the plan file to document what happened, the resolution and the changes made to avoid it happening again.

Quite right. Politically IRS is not going to assess tax on government plan benefits or contributions made pursuant to state law requirements. But I have no doubt IRS would throw a private sector plan into audit CAP for excluding such employees from coverage or somehow aggregating or offsetting benefits when there is no authority for such in the code and regs.

Yep, agreed Luke. And your comments about IRS not tolerating non-government workers in govt plans, as well as the 415 issues are exactly right. The IRS letter I mentioned in the OP made it clear that was the IRS position and it was up to the sponsors of those plans (the states) to correct the plans. Re transitional relief, yes the notice tees this up, but again only from the govt plan side. It is entirely silent on the private sector plan issues. And it would certainly not be without precedent for IRS any relief to be far more flexible for govt plans than private plans. Thanks, this was helpful.

Thanks Luke. Apparently this is a thing in the world of charter schools, who knew? I also found IRS Notice 2015-07, the gist of it is IRS says someday they are going to propose regs that will defined govt plans and under what circumstances may they cover charter school employees and grant transitional relief. Like you, I'd guess this is years away, it's already been 3 since the notice. Also, the notice addresses this only from the govt plan side, not the private sector. While it may be within IRS rule making ability to define govt plans and employees eligible for coverage, I'm not sure that the private sector side wouldn't require an IRC amendment. 410 exclusions are stated and pretty limited. Maybe they can define an employee as being a govt employee or a private sector employee, but not both. For now I think we're stuck, can't see any basis for putting in a plan that ignores the govt plan-covered employees for testing.

A private sector employer is looking to establish a qualified plan or plans. In gathering data, we've learned that most of the employees are covered by the state's retirement plan, even though they are employed by a private employer. This is a result of a state law and lobbying by public sector unions, so it is what it is, even if it doesn't make any sense. These employees are not unionized. IRS was asked about this 3 years ago WRT Social Security and opined that as private sector employees they are covered by SS and the IRS noted that they are not eligible for the state plan under the IRC, but that any correction for this would have to be handled by the state, as the private sector employer has no choice but to comply with state law. AFAIK the state is not pursuing any such correction and the situation still exists. So under Section 410, what do we do with all these employees who are covered by a government plan? They don't meet any of the 410(a) statutory exclusion. Since government plans are generally exempt from 410 (per 410(c)), it doesn't appear that we can permissively aggregate the government plan with a private sector plan for purposes of coverage and benefits testing. My only conclusion so far is that they would have to consider all of these employees in all testing for 401(a)(4), 401(a)(26) and 410(b), and perhaps cover some of all of them as necessary to pass the tests without regard to the government plan at all. Any other ideas on this?

This quote was originally from Bob Schramm talking about life insurance in a plan, I heard him say it maybe 20 years ago. I'd rather deal with real estate myself. If it is a true investment, fine. If the objective is to acquire a second home thru the plan, fuggeddabout it, as the PT rules and/or distribution and taxation options will eventually trip up the client. Re Larry's UBTI comment, doesn't the IRC 514 exception to acquisition indebtedness for real property often apply?

Just permissively aggregating 3 plans instead of 2, right?

What Mike said. The contracts have to be valued at fair market value, not CSV.

Interesting Luke, thanks. I'd kind of forgotten about those proposed regs, I'll go have a look. WRT business purpose, I imagine it would help if independent manufacturers reps were customary in the industry.

Company A is owned 50/50 by John and Jim, who are unrelated to each other. It is a manufacturing firm and John and Jim are also the primary salesmen for the company, they also generate sales thru a couple of independent manufacturers reps who are paid strictly on commission. Company A employs about 50 people. Suppose John and Jim decide to set up a separate company B to be another manufacturers rep. Company B will be owned 100% by John, so it is not a CG with company B. The only two employees of Company B are John and Jim. Company A pays Company B, which then pays John and Jim and generous commission for the sales they generate. Company A and B are both incorporated. John and Jim manage company A and continue to draw a salary from A for their employment there. A, as a manufacturer, is clearly not a service organization. Company B is in sales, not typically considered a service org and clearly not a professional corp. So no A-Org ASG is possible. No B-Org ASG without a service org. Principal business of B is sales, not management of A, so no management services ASG. John and Jim set up a cash balance plan in company B that covers the two of them. Seems too easy, but absent some required aggregation of A and B, it seems to work. What am I missing?

Yes, it can be corrected. She's only entitled to what is provided for in the plan based on the plan definition of compensation.

Right, eligibility is not protected. Accrued benefits are protected.

They can't apply vesting to new money to already vested participants. 1.411(a)-8(a): The nonforfeitable percentage (determined as of such date) of such employee's right to his employer-derived accrued benefit is not less than his percentage computed under the plan without regard to such amendment. The percentage is protected, not the amount. if they want to restart vesting they need to set up a new plan, exclude service prior to the effective date and they must not terminate the current plan, or it will become a predecessor plan and then the service exclusion in the new plan would not be permissible

Yes, Mike boils it down to the essence.

Well, in -2 the regs say the plan must pass either design-based SH or general test. Under the SH language it talks about how the "plan" must allocate, with no explicit mention of the document or "form". But it goes on to say that certain plan provisions will not violate the SH if they meet the requirements of -2(b)(4). One of these is "multiple formulas". Do you agree that a plan that provides for an employer determined allocation separately for each participant has multiple formulas? If so then the plan would have to meet these requirements. Typically a plan would not so provide. This is over and above the specific reference to form on the integrated allocation, to apply to any design based SH, such as a points allocation.

Yes, from the legal dictionary at thefreedictionary.com: [emphasis added]

IAWMP and austin. A plan can satisfy a safe harbor that would not actually pass the general test, but these SH allocations (or DB benefit formulas) need to be stated in the plan to use the design-based SH. If you don't have a design-based SH allocation in the plan, you have to pass the general test. Duplicating the results of a designed-based SH is not equivalent to passing the general test.

Had a similar situation back in the late 90s. Non-owner employees were owed about $100K. Plan had less than this, company was insolvent. We helped plan attorney with PBGC reportable event filling and tried to engage PBGC in what they wanted us to do. I think we also filed a distress termination filing but don't remember the details. PBGC dragged their feet for a couple of years, plan assets continued to be depleted for attorney fees, administration fees, etc. We lost track of the owner/trustee, he moved, had some health issues, again I don't recall all the details. We resigned. Over the next three years we got a couple of inquiries from PBGC asking us about owners' assets. We replied that he was no longer a client and that request should be directed to the trustee and/or his attorney. I don't think PBGC ever did anything and I don't think the participants ever got any money.

Oh, brings back memories. Loved the smell of wet mimeograph ink back in grade school. :)