J. Bringhurst

I'm confused. I believe the OP indicated that the loan repayment amount was withheld from the employee's paycheck, just not remitted to the trust. I don't know that this is even a loan failure. I think this is a PT under 4975 for a failure to timely remit employee contributions to the plan's trust as soon as administratively practicable. I think you just remit to the plan with lost earnings and file Form 5330 with excise tax or submit under VFCP, no? If so, you'll need Form 5330 for 2018 and 2019 (with any applicable pyramiding) and the 2018 Form 5330 is late (assuming calendar year plan year) unless you can show reasonable cause.

Client's plan uses W-2 definition of compensation and permits separate deferral election on bonuses. Match is 100% of deferrals up to 3% of compensation and is payroll based; no year end true up. If someone elects 10% deferral from regular paycheck but 0% deferral from separate bonus check is any match calculated with respect to the bonus amount? Example: $10,000 salary check with 12% deferral and $1,000 bonus check with 0% deferral. Deferral is $1,200. Is match based on compensation of $10,000 ($300) or $11,000 ($330)? Is the answer different depending on whether bonus check is paid on same day as salary check or on a different day? Thanks in advance.

Does anyone know if there are special rollover rules for employee contributions that are distributed in a lump sum from a defined benefit plan (non-cash balance DB)? I know that they are considered after-tax contributions for tax purposes (are not tax deductible when contributed)...I believe they are compared to the total value of the benefit (in whatever form paid) and that ratio is applied to each payment, or lump sum amount...and that portion is not taxable until the participant has, in effect, received a full return of all employee contributions. Just not sure if this has any bearing on the rollover rules affecting these amounts.

Thanks...just trying to figure out worst case scenarios!

That's what I thought but wanted to double check. In this case, would there be a "gap" in terms of what the FDL covers since the plan was not submitted during it's regular on-cycle period? Not sure how much this matters, except that it might be something that must be disclosed in connection with an acquisition or other corporate transaction. Do you happen to know what course of action the IRS would take if it discovers qualification failures in addition to those that are the subject of the VCP? Would these then be subject to Audit CAP or some other negotiated fee?

Because the FDL submission that is required as part of the VCP request is "off cycle" for the situation described above, would the VCP late amender issues be included on Schedule 2 or Schedule 1?

Seems logical....Just didn't know what folks are actually doing. Thanks!

If loans to participants from a qualified plan were otherwise set up correctly per the terms of the plan's loan policy but failed to apply the plan's interest rate for loans (e.g., prime +2%) and, further, applied a rate that would be considered below market, is correction available under the Voluntary Fiduciary Correction Program (VFCP)? In taking a look at Section 7.2 of VFCP, which provides for correction of loans at below-market interest rates to parties-in-interest, the example is not exactly on point (i.e., it describes a 30-year mortgage loan secured by a Deed of Trust) and the correction involves the establishment of a corrective interest rate using an independent commercial lender (rather than just correcting at the plan's normal loan rate). So, before going down this route, I really want to make sure that VFCP is applicable. In addition, it also seems that there is no correction for this under EPCRS, which only provides a few situations (e.g., default) for which correction can be made under the streamlined procedures. I think we're definitely in ERISA-land, because the loan was not good when made (i.e., both the loan documenation and the loan itself reflect the below-market interest rate) rather than a simpler matter of the loan documentation being good and the repayment amounts simply being too small due to the incorrect rate. Thanks in advance.

Any IRA accepting a rollover from a qualified plan will normally charge a set-up fee. I'm really just trying to figure out if the set-up fee can be passed along to the former participant (i.e., charged against his new automatic rollover IRA) or if the set up fee must be paid by the sponsor of the plan from which the rollover originates.

In taking a spin through DOL 2550.404a-2( c), I don't see anything specifically permitting (or prohibiting) taking the intial set-up fee from the former participant account holder on whose behalf an automatic IRA has been established. Subsection ( c)(3)(iv) only states: "(iv) all fees and expenses attendant to an individual retirement plan, including investments of such plan (e.g., establishment charges, maintenance fees, investment expenses, termination costs and surrender charges) shall not exceed the fees and expenses charged by the individual retirement plan provided for comparable individual retirement plans established for reasons other than the receipt of a rollover distribution subject to the provisions of section 401(a)(31)(B) of the Code; and" I'm assuming that as long as the establishment charges do not exceed those of a comparable non-automatic rollovoer IRA, they can be passed along, in full, to the account holder. I did not see this stated specifically, but think it can be inferred. Anyone think differently?

After reading through Rev. Proc. 2013-12, which now adds 403(b) plans to the mix, it seems to me that the ability to correct an operational failure through retroactive amendment is subject to the full submission fee under Section 12, while the correction of a failure to timely adopt the 403(b) plan document itself is subject to a 50% reduction (at leat for a limited period). I'm just wondering if I'm reading this correctly. We have a situation in which the plan document has always been in place (ERISA 403(b) plan), and was timely amended and restated to reflect the final 403(b) regulations. However, we failed to follow the terms of the plan with respect to the contribution sources available for loans. The only fix is to retroactively amend the plan to conform its terms to actual operation and, in our case, the fee would be $15,000. Since 403(b) plans are new to this whole correction thing, I'm wondering if I'm missing something or if I've read the Rev. Proc. correctly. Thanks in advance!

In our case, the nonamender filing would have been on Schedule 1 of Appendix F and cost only $375, plus the expense of completing the submission. It would have been much cheaper if the VCP submission had been done prior to the IRS discovering the late amender issue during the determination letter process. So, while $5,000 is not overly burdensome for some clients, they would have much rather paid $375+.

We went through this twice (two different clients with different participant counts) and were able to negotiate a $5,000 fee each time. This appears to be somewhat standard.

We file each time a new plan is adopted as the information contained in prior filing(s) is no longer entirely accurate. Better safe than sorry, expecially since this submission is not particularly time consuming.

We wrote in to the IRS as part of their recent phone forum on correcting 401(k) plan mistakes and asked the above question regarding the transferred asset rule for a merged plan involving multiple mergers. The following was the response from Avaneesh Bhagat: "It would be as if the component plan existed on a stand alone basis, and the correction was for the participants of that stand-alone plan. In this case you would have 4 individual plans, the fee for each would be determined separately."

But, you don't necessarily have to correct under VFCP...Filing of Form 5330 and payment of the 15% exchise tax is an alternate fix. Either way, the fix must be reported on Form 5500. (I assume this is a 401(k) plan rather than a 403(b) plan.)

Just curious as to how to interpret the Transferred Asset Rule under Section 12.07 of Rev. Proc. 2008-50 with respect to the transferred assets of multiple plans merged at the same time in connection with the same corporate transaction. Section 12.07 provides, in applicable part, that: If the submission involves a plan with Transferred Assets and no new incidents of the failure occurred after the end of the second plan year that begins after the corporate merger, acquisition, or other similar employer transaction, the Plan Sponsor may calculate the number of plan participants based on the Form 5500 information that would have been filed by the Plan Sponsor for the plan year that includes the employer transaction if the Transferred Assets were maintained as a separate plan. We have a situation in which four small plans were acquired in connection with a corporate acquisition and were then merged with and into the client's much larger plan at the same time. The four plans each had operational failures that we have submitted under VCP. The issue at hand is whether the fee should be based on (1) the aggregated participant count of each of the merged four plans or (2) the fee that would have otherwise applied separately to each of the merged plans prior to the merger. (1) Plan A - 19 participants Plan B - 181 participants Plan C - 123 participants Plan D - 25 participants Fee based on aggregate participant count - 348 participants = $5,000 fee (2) Plan A - 19 participants - $750 fee Plan B - 181 participants - $5,000 fee Plan C - 123 participants - $5,000 fee Plan D - 25 participants - $1,000 fee Fee based on each plan's participant cound - $11,750 If anyone has an answer and can provide any official guidance that is on point, that would be wonderful.

You can certainly make an anonymous call the Department of Labor. You should obtain the Plan information from your summary plan description so that you can let them know what plan to investigate....Plan Sponsor, Plan Sponsor EIN (employer identification number) and Plan Number. I'm assuming that this is an "ERISA" 403(b) plan.

For a client, we are trying to confirm the post-PPA timing rules for employer contributions under a money purchase pension plan since IRC 412©(10)(B) has been eliminated. We looked up the chapter on defined benefit funding rules in "RIA's Complete Analysis of the Pension Protection Act of 2006" and found some interesting observations. Basically, the "minimum funding standard account" under IRC 412(b) was eliminated under the PPA. Because the minimum funding standard account was eliminated, it appears as if the timing rules that applied to the minimum funding standard account were also eliminated. Accordingly, the only timing rules that remain with regard to employer contributions under money purchase pension plans are those under IRC 404 (i.e., not later than the time prescribed by law for filing the return for such taxable year) [iRC 404(a)(6)]. We weren't able to find any other commentary or discussions on this out there, so I was hoping someone else out there had some insight or could confirm. Thanks in advance!

The DOL has issued an advisory opinion [DOL Advisory Opinion 2002-02A (May 17, 2002)] on the late remittance of loan repayments. They are considered to be the same as the late remittance of deferrals. Although the DOL regulations include the 15th day rule, this is by no means a safe harbor. The "as of the earliest date on which such contributions can reasonably be segregated from the employer’s general assets" rule actually governs here. [29 C.F.R. § 2510.3-102(a)] If the employer typically remits in 2 or 3 days, then that is the standard anything too much beyong that point may be considered untimely. The employer can correct under the Voluntary Fiduciary Correction Program or submit Form 5330 with the applicable excise tax. In either case, the late repayments PLUS missed earnings must be credited to the Plan/participant account.

If a defaulted loan that is a deemed distribution is repaid by the participant, how is the deemed distribution reported on the 1099-R if the outstanding amount is fully repaid by the end of the year in which the deemed distribution must be reported?

Is anyone aware of formal guidance on an employer's ability to suspend non-elective (and non-discretionary) employer contributions mid year? Client has a July 1 plan year profit sharing plan (no deferrals; no matching contributions) that provides that the employer will make contributions based on a percentage of compensation for the plan year if the employee has been credited with at least 1,000 HOS during the plan year and is an active participant on the last day of the plan year. Even though the contribution is plan year basis and is based on plan year compensation, I think that we can suspend currently since no participant has reached the last day of the year allocation requirement. If the plan did not have this last day of the year requirement, however, I think we'd be out of luck. Some that I've consulting seem to think there may be a Rev. Proc. on this issue (maybe with regard to money purchase pension plans), but I cannot seem to locate.

A recent Mercer GRIST article dated 12/14/07 slogs through this issue. The article is titled "Should hybrid plans use PPA lump sum rates for interest credits, annuity conversions?" and it analyzes the answer depending on how the plan defines the interest rate.

To what extent are qualified plans (DB and DC) being amended for the final 415 regulations? Some have suggested that Cycle B plans must be amended by 12/31/07 (i.e., as also suggested by the 2006 Cumulative List) but that C, D and E plans have until the tax filing deadline for mandatory amendments (or until the end of the plan year in which a discretionary amendment is effective). We filed some Cycle B plans early in the year (before the final regulations were issued), so it seems as if a disconnect would occur if later filed plans must be amended by 12/31/07.

Per section 1.401(a)(17)-1(b)(3)(iii)(A) of the Treasury regulations, "if compensation for a period less than 12 months is used for a plan year, then the otherwise applicable annual compensation limit is reduced in the same proportion as the reduction in the 12-month period." However, section 1.401(a)(17)-1(b)(3)(iii)(B) goes on to indicate that "a plan is not treated as using compensation for less than 12 months for a plan year merely because the plan formula provides that the allocation or accrual for each employee is based on compensation for the portion of the plan year during which the employee is a participant in the plan." We do not have a short plan year, since the plan has been frozen rather than terminated, so I guess that the question here is what is meant by the term "participant." Technically, still a participant until benefits are distributed, the individual is not a participant for accrual purposes, so I'm in a bit of a quandary on this one. Does anyone have any thoughts on whether the 401(a)(17) limit is pro rated with regard to compensation that is disregarded after the effective date of a DB plan freeze?