Eric Taylor

Thanks, Peter. Appreciate the helpful thoughts. The comment on the fee increase was intended more as a joke as I do think they are reasonable and market although they do include a slight increase from last year while layering in all the additional provisions. Seems if they limit their exposure they might find a way to keep the fee the same. Appreciate the thought about reaching out to other auditors too. I'll do that but I'd really love to hear from a broader range of folks too as to what they have seen / are seeing in this space if anyone has experience to share.

Apologies if this is not the best forum to post this particular question but I'm curious about possible trends with respect to dispute resolution and similar terms in engagement letters for plan audits. We recently were asked to review a proposed engagement letter for a 2020 plan audit for a large 401(k) plan sponsor and, in looking over it, noticed that since last year the audit firm had inserted broader indemnification provisions as well as mandatory mediation and binding arbitration clauses. In addition, and particularly disconcerting to my mind, they also have inserted provisions to attempt to contractually limit the statute of limitations to one year and included express express terms prohibiting suit against any employee or partner of the audit firm for any reason. I don't think anybody anticipates any issues with their audit firm and know you would not typically sue individual auditors personally if there was an issue but some of this seems way overbroad in the event some individual goes off track as part of the audit process, etc. Are these kinds of provisions market and/or a growing trend. I'd really like to tell the client that they should reject the proposed terms and request something along the lines of the letters they've signed for many years in the past. Or look for a new auditor. And less of an increase in the audit fee . . . . Thanks.

From prior experience, agree going against the TPA is likely to be a long and expensive road.

Thanks, Larry. I appreciate and understand your positions and do not think it fair to others to hijack this thread to debate here so I'll just say I stand by my prior comments, however unartfully crafted they may be, and continue to believe (hope) that the spirit of the laws and programs passed by Congress matter and can eventually come to bear on the interpretation of those laws when questions arise as continues to happen with these issues.

I probably shouldn't say anything but I keep seeing this or similar questions come up and it really bothers me given everything that is going on. While I agree the current rules would seem to permit this and also agree the likelihood of significant enforcement is pretty limited, I respectfully think it's a stretch to say that it is clearly within the spirit of the program. Afterall, the name of the program is Payroll Protection and the rules place a clear emphasis on protecting payroll rather than new and never previously received retirement benefits. Matching contributions tied to ongoing payroll during the covered period or prorated contributions toward existing plans I can better see but taking significant excess amounts (whose very existences seems to raise questions under the way i understand the program amounts to be calculated) and creating a new plan is, I think, a real stretch. Just because the rules might be read to permit it doesn't mean employers should do it nor does it mean professionals should advise employers to do this even if the risk of enforcement is low. I have friends who have lost their jobs and most if not all income during the last couple of months. I realize one employer not maxing out their PPP spend doesn't do anything to help others directly but in the bigger scheme of things I think it important to take a broader societal view and would not be surprised if regulators do not come at these questions from that perspective as well even if unlikely to really audit.

I know Mike describes the fund shares as a red herring but Pete (or Mike) can you elaborate on how the fund shares might factor in at the time of default and reporting of the default amount, etc.? If Pat took 100% of Pat's account balance as a loan, what fund balance would there be to have dropped down to 75% of original value as of the time of the loan? Does that suggest the plan keeps Pat's individual account invested in the funds held at the time the loan was made and the money loaned to Pat was made available from some source other than liquidating Pat's actual investments in the funds to make the loan?

I've looked for similar guidance in the past but unsuccessful. Has been awhile though so maybe there is something out there now. The more interesting (complicated) question we faced was the one noted where the former employee just took a taxable distribution and didn't roll over to another plan or IRA. There the amounts have been treated as taxable (including the match amounts that they won't get the benefit of upon return) but the erroneous deferrals have never been reported as taxable wages by the employer. Does the employer still report the return of those amounts on a W-2? Should they credit the former employee with taxes presumably paid on the match portion of the prior distribution if the employee returns the full amount?

Chuck, i'm inclined to agree with your analysis although not sure I can articulate all the reasons why. Seems like if they were to do that within the same year that might be easier in some fashion (similar to my client that insists on correcting via payroll adjustments and offsets) and in keeping with the concept that participants can adjust their deferral elections going forward to make up for the missed deferral opportunity. I particularly worry about doing that after the year is closed and how that would get added back in and adjusted within payroll. All these recent posts seem to me to point up the need for more guidance and possible flexibility from the IRS on correcting missed deferral opportunities, etc.

Curious for thoughts on this issue. Due to payroll issue for small group of participants, the employer failed to apply 401(k) elective deferrals for a pay period which included both regular pay checks plus annual bonus payments from 2017. As a result, participants failed to have 401(k) deferrals taken out of bonus payments (some of which are relatively significant portion of regular pay). Employer realized the mistake shortly after it happened and corrected to ensure that regular elective deferrals were being deducted by next pay period. Question, can the employer apply the 0% QNEC provisions under 2015-28 to the missed annual bonus deferrals as well as regular pay (assuming notice and other requirements are satisfied). Piece that I am worried about is requirement that correct / regular deferrals start back within set timeframe. In this case, the elective deferral issues have been corrected and regular deferrals from pay started back the next pay period. Seems that should be fine for using 0% QNEC for the missed regular pay amounts but does same thing apply to the one-time bonus payment as well. There are no other bonus payment deferrals to start back in same way regular pay deferrals start back. Although seems same general philosophy should apply here for the most part in that participants will have plenty of time to up their deferral elections from regular pay to make up for the missed deferral on the bonus amounts. It's just that they will have to increase regular deferrals by a much higher amount to make up for the missed deferral on the bonus checks.

Belgarath, Sorry, I don't have particular experience with plans correcting informally along those lines but agree with you that it may work ok as a practical matter as long as participants approve of this. Seems that is sort of along the lines of the new 2015-28 philosophy of 0% QNECs if the issue is corrected quickly enough--i.e., participants can basically make up the lost opportunity by deferring more from later amounts. I'd worry about doing it much after the fact though as well as doing it without some full notice and approval, etc. Seems you probably start getting into potential wage and hour issues and complicated payroll overrides, etc. with some of that.

Thanks very much. They do plan to make manual adjustments to the match here. I guess the thing I have a real blind spot about is how the payroll fix works mechanically. I can see it working easily in many cases -- for example, where somebody just drops down a percentage point or two -- but how do you adjust for those electing to go down to zero so there are no ongoing 401(k) deferrals or others that have elected to drop significant percentages so that it may take multiple payroll periods. Or what if somebody terminated? It seems to me they are probably destined to have to make some returns or forfeitures in some cases and so I'm not sure they wouldn't be better off to just do that consistently across the board. Also, from Sal, it looks like the preferred EPCRS fix for this is to do refunds / make distributions of the Excess Amount with that fix generally supportable under SCP. Here, the amounts are not huge and correction will be very quick but I still worry some about doing this under SCP unless others have had this sort of approach routinely approved in VCP / passed on in audit.

Due to payroll issue, plan sponsor failed to implement changes made to existing 401(k) plan participants' elective deferrals for two payroll periods. So there is a mix of participants who elected to increase deferral percentage and failed to defer enough as well as participants who decreased their deferral percentage and now have contributed more than they intended. Plan Sponsor is clear on fix for those who failed to have their deferral amounts increased and will give notice and correct those accounts via EPCRS guidelines. What is less clear are the possible alternatives for participants who didn't have decreases implemented and so deferred too much to the plan. Plan sponsor does not want to forfeit amounts from participants' accounts and/or make additional payments to participants through payroll to get them the additional pay they missed. Instead, company wants to correct this (at least in all cases possible) through payroll system adjustments. For example, somebody that was deferring 10% and elected to decrease deferral to 5% (and thus had two payrolls with an extra 5% deferred) will have "negative 401(k) deferrals" for the next couple of payrolls. If I understand the proposed correction process correctly, that seems to mean they will basically offset or adjust participants' future 401(k) deferrals to reduce the contributions by the excess amounts contributed. So while next two payrolls should have a 5% 401(k) deferral, they will instead show a negative 5% 401(k) deferral and participants will basically not have any salary deferred and contributed to the 401(k) Plan. After 2 pay periods, the total deferral amounts will be correct and equal to what participant would have deferred if the election change had been timely processed. Is it generally possible to correct this sort of mistake in this or a similar manner by essentially adjusting within the payroll system? If not squarely covered under SCP, do others have experience with these sorts of corrections getting approved under VCP? Not sure exactly what you do with individuals who have dropped deferral rate down to 0% or have since terminated employment? Guess you could just arrange for forfeitures in those cases if that is only way to fix. Guess you could also forfeit excess earnings but still make main deferral adjustments via payroll? Thanks for any thoughts or experience.

Thanks for this. May I ask a follow-up question with respect to amending general Fidelity plan documents to cover the basic service tied to Y (putting aside the more complex Z question)? In the general Fidelity volume submitter documents, the Adoption Agreement / Plan Document generally note that service with a "Related Employer" must generally be counted for purposes of service under the Plan. So, in that situation, if you have a stock deal and Y becomes a subsidiary of the Buyer and also becomes a Participating Employer in the Plan, does the Plan have to also be amended to expressly provide credit for prior service with Y? It seems like with Y becoming a member of the controlled group and remaining its own legal entity that prior service with Y is already required to be counted. I contrast this to an asset deal where Buyer is just acquiring assets from Y and the employees of Y are terminated and come over to Buyer as part of the deal. In that case, seems the Buyer's Plan should be amended to expressly recognize pre-deal service with Y since Y is not a related employer / participating employer, etc. I see some plans that seem to include express prior service provisions for Y even when Y arguably is a Related Employer which I suppose should not hurt anything but just not sure it has to be done. (In current case, it would be helpful if it did not have to be expressly noted as the company failed to amend the plan on this point previously.)

This is hopefully a simple question but I'm not having luck with quick assistance from Fidelity. Question is what all needs to be done to add a Participating Employer to a 401(k) Plan on a Fidelity Volume Submitter (Adoption Agreement No. 1 to the extent that may matter)? I know we will need to amend Section 1.02(b) of the Adoption Agreement to provide for a Participating Employer (they haven't had one before) and also complete the Participating Employer Addendum to list the company (which is a recently acquired member of the controlled group). The general form of the Participating Employer Addendum provided, however, does not appear to include a place for the Participating Employer to sign. We plan to have a Board Resolution by Participating Employer authorizing participation in the plan but do they need to sign the adoption agreement or addendum anywhere? Also, it appears that Participating Employers are generally treated as Employers with respect to credit for vesting purposes? Is there any need to expressly provide for prior service credit for the Participating Employer or is that assumed by virtue of their participation? (I assume the later but wanted to confirm.) Thanks

Peter, Thanks very much. I suspect you are correct. I've been an ERISA lawyer for over 20 years and have never had occasion to consider the process. FWIW, the original version of the statute (which appears to have imposed only a 5-year ban) expressly references the role of the US Parole Commission and an administrative hearing, etc. along the lines of the regulations you linked. The current version of the statute, however, seems to suggest that the hearing would be before a federal judge (e.g., the sentencing judge if the offense was a federal offense or a district court judge for the district in which the offense occurred if a state or local matter). While that references the US Parole Commission sentencing guidelines, it seems like the hearing is now expected to be in federal court. I'm thinking the regulations are just outdated but there does not appear to be much guidance around the overall process. Thanks again.