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Don't forget the one-to-one correction method under Appendix B of Rev. Rul. 2016-51 is also available (e.g., distribute/forfeit additional excess & earnings to HCEs AND make an equivalent QNEC to NHCEs). This method is usually less expensive than the QNEC correction under Appendix A, which requires an QNEC allocation to all NHCEs sufficient enough to bring the ADP/ACP percentage up to passing. And the one-to-one method provides more flexibility on who gets the contribution - you can avoid giving a QNEC to NHCEs who have since terminated, if the plan is current year tested.

Anyone who completes 1,000 hours in the plan year is entitled to share in the allocation for that plan year. What the client is proposing could potentially result in an employee who didn't complete 1000 hours in the prior year but did in the current year not getting a share of the contribution, which would be impermissible. You might want to take a look at IRC 411(b) and applicable Treas. Reg., as well as DOL reg. 29 CFR 2530.200b-1b.

I read the comment on coverage the same way as Tom. You might want to consider changing the testing method for one of the plans, so that going forward, you'd have the option to perform a full combined ADP/ACP test (or divide into component plans) and hopefully avoid refunds for your HCEs. In my experience with these types of situations, HCEs from Company A are never happy (or understanding) to hear their company's ADP/ACP test passed, but they are still owed a refund because of Company B's test results. Alternatively, you might consider amending Company B's plan, so that Company A HCE's aren't eligible, and that would also avoid them havingt to be counted on Company B's test.

Our position has been that they can be tested separately, if they pass the ratio percentage test for coverage. I'd have to research further on the specific regulations to see if there's a regulatory basis for this position (e.g., if they have to use the average benefits test to pass coverage, then they have to be tested together for other nondiscrimination testing) or if it's just our firm's preference. But like ERISAtoolkit says, "it's a process".

The broker should have E&O insurance (errors & omissions). Ask him how to go about filing a claim with his E&O insurance for the lost earnings, as well as your fees to cover any services you're performinig for this correction. Technically, the plan administrator (e.g., the lawyer) may have to make the formal claim, but it might be helpful for you to understand the process as well, so you can advise your client appropriately.

glad you got the answers and better facts from the client! Just want to add one clarification in case this comes up again. Resident vs. non-resident alien refers to a person's status under immigration law. Basically, if the person is a greencard holder, regardless of where they actually live, they are considered a resident alien and are subject to U.S. tax law (which applies to benefits). If they do not have a greencard, they are usually a non-resident alient. It's possible to have someone living and working in the U.S. and be a non-resident alien (think of foreign students working in the cafeteria at college). And vice versa, you can have a greencard holder working for a U.S. company in Taiwan and be considered a resident alien.

I agree with ERISAtoolkit on this point - there isn't an issue with how the test has been run. We diverge when it comes to including the QNEC on the test. I believe Rev. Rul. 2008-50 precludes you from doing that when the QNEC is made under SCP. See guidance provided in my previous post. I recommend first talking with the client to see if they are interesting in re-running the test with the 3 removed to improve the results. Depending on the fees you charge for this service and the affected HCEs' willingness to repay an overpayment, they might decide not to re-run the test. It probably should be their call, since Rev. Rul. indicates that you *may* run the test without the 3, but doesn't say you have to.

I believe the answer to your questions may be found in Rev. Rul. 2008-50, Appendix A, Section 5.05(5)(d): (d) Coordination with correction of other Qualification Failures. The method for correcting the failures described in this section .05(5) does not apply until after the correction of other qualification failures. Thus, for example, if in addition to the failure to implement an employee’s election, the plan also failed the ADP test or ACP test, the correction methods described in section .05(5)(a), (b) or © cannot be used until after correction of the ADP or ACP test failures. For purposes of this section .05(5), in order to determine whether the plan passed the ADP or ACP test the plan may rely on a test performed with respect to those eligible employees who were not impacted by the Plan Sponsor’s failure to implement employee elections and received allocations of employer matching contributions, in accordance with the terms of the plan and may disregard employees whose elections were not properly implemented. You can re-run the test excuding the 3 impacted by the employer's mistake. If the test still fails by a smaller or wider margin, then correct the refunds issued by either collecting the overpayments (with earnings) or distributing additional refunds (and paying the 10% excise tax for late refunds). Then calculate and deposit the QNEC's for the 3 affected, including missed matching based on their actual elections (not the missed deferral of 50% of elections), adjusting both for earnings. Also remember to have the employer document what caused the failure and what steps have been taken to ensure it does not recur. Many people forget this final step.

why not have the two merge with the 401(k) PS plan as the surviving plan? also, be sure the employer understands the types of plans he has. if the DC is a pension plan (money purchase, target benefit), things get a little more complicated.

Thanks! The other senior staff, legal counsel and I all agree - not something we would want to do, but not finding clear guidelines in this area and seeing the responses on the other question gave us pause. In the end, we are recommending against these amendments, and if the client is insistent, we will advise the clients of the risks and submit them separately for a determination letter.

LOTS of experience with MEP's. It's not a termination of the plan, just a withdrawal from participation in the plan. Make sure you understand the provisions of the MEP, especially with respect to vesting, spousal consent, distribution timing, etc., because those may need to be preserved for the tranfserring balances in the 401(k) plan, even long after the spin-off/merger occurs. For example, the MEP likely credits service with other participating employers towards eligiblity and vesting - if someone has a higher vesting percentage in the MEP due to service with other participating employers, that higher vesting percentage will need to be preserved in the receiving 401(k) plan but only for the transferring balance. Check the 411(d)(6) rules for items that must be preserved and then be sure to amend the receiving 401(k) plan prior to accepting assets from the MEP; otherwise, you risk a disqualifying event for your client.

Nope - we rely on the data our clients provide us with respect to employee demographics (age, service, gender, etc.)

When you have only 1 HCE, the two-step leveling process is moot. All excess will be allocated to one person, so there's really only one step: (What the HCE deferred - what the ADP limit was for HCE's) * HCE's compensation I agree with BG5150's calculation. If this is a sole-proprietor HCE, he might want to consider waiting until year-end to make deferrals. Let his accountant can have the fun of the circular calculation.

We handle a lot of MLOA's. Agree with sdix401k that the differential pay would be excluded, but keep in mind that under USERRA the employer must also have to credit the employee with any pay increases they would have received had they not been on leave. If the plan's definition of compensation includes variable items like bonuses and overtime, you may have to add in a 2-year average of those items to the employee's regular pay (including any merit, seniority, etc., increases that would have occured while s/he was on military leave). So while excluding the $3,000 differential might bring you to $27,000, if the employee would have received a pay increase during the 8 months s/he was out and/or the plan compensation includes overtime/bonuses, you'll likely end up with an imputed salary of more than $27,000. If the individual is on leave now in 2012 and will be coming back in 2013, then I agree that the total amount of deferral that could be made up would be $16,480 (plus catch-up, if applicable). If the leave occurred in 2011, then the maximum amount of make-up deferral would be $15,980 ($16,500 - $520). Keep in mind that the USERRA rules only apply if the service member was discharged for any reason other than dishonorable discharge and returned to work within the specified period of time. You can confirm the type of discharge and discharge date by requesting a copy of the service member's DD214 or Certificate of Release. For a military leave in excess of 180 days, the employee has 90 days from discharge date to return to work. Also keep in mind that the employee has up to 3 times the length of leave (not to exceed 5 years) to make-up contributions. In a case where the leave occurred during the last 8 months of 2011, the employee would have until the end of 2013 to make-up contributions. The make-up contributions (and match) should be posted in your recordkeeping software to the year for which they are make-up (e.g., 2011 contribution for a 2011 leave, even if the make-up is paid in 2012 or 2013). Make-up contributions for prior years are not counted in any prior year's nondiscrimination testing (i.e. you don't have to redo to the testing for the year of leave nor can you count the contributions in the current year's testing, unless the make-up is made in the same plan year as the leave.) Lastly, you cannot offset the make-up contributions by any benefits the employee received through the military. Here's a few great web sites with more info: http://www.military.com/benefits/military-...-questions.html http://www.irs.gov/retirement/article/0,,id=109878,00.html http://www.dol.gov/ebsa/faqs/faq_911_2.html

I ran across a similar issue posted here where the allocation percentage was 0% for the first 3 years. My situations are a bit different in that eligibility for the allocation is service-based (in one case part-time vs. full-time; in the other 30 years of service to get allocation). I feel it's different enough to warrant a new topic posting. In the first case, the employer would like to amend their plan to require full-time employment as a condition for receiving a matching contribution. Part-timers would still be eligible for the 401(k) plan and could make deferrals but would not receive a match, even if they worked over 1,000 hours. Full-time employees would be able to defer and get employer match, regardless of hours worked. The employer's thinking is that all employees are eligible for the 401(k) plan upon meeting the 1-year eligiblity requirement, so they satisfy the 410(a) minimum eligibility standards, and since the allocation formula doesn't require a certain number of hours worked, the rule about not requiring more than 1,000 hours for an allocation doesn't apply. In the second case, the employer has a defined benefit plan and a defined contribution plan. The DB plan will stop accruals at 30 years of service (this is permitted by the IRS). The 401(k) plan is currently a deferral only plan, no employer contribution. The employer would like to amend the 401(k) plan to provide a profit sharing and match for employees who have completed 30 years of service and no longer have accruals in the defined benefit plan. Again, the employer's thinking is that since all employees are eligible to contribute to the 401(k) plan after 1 year of service, they have satisfied the minimum eligibility standards under 410(a), and since the 30-year requirement to receive an employer allocation is not tied to hours worked during the plan year, they're ok. Assuming that coverage and nondiscrimination testing would be satisfied in both cases, my concern is with the IRS' definition of "plan" as it applies to IRC 410(a), and I'm unable to really find clear guidance whether "plan" refers to the plan as a whole or to each component plan that would normally be used for nondiscrimination testing. If it is the plan as a whole, then I might be inclined to agree with the employer's position that the minimum eligiblity standards are met, as icky as the prospect of a 30-year employment requirement to receive a matching contribution would be. I'm also concerned about indirect service-based allocation requirements that exceed 1,000 hours, but am not able to find any clear cut guidance either way to provide to the employer. I have sought counsel, who was as befuddled as I about these inquiries. I'm interested in what others in the community think about this. Especially in the first case, I find it difficult to imagine that the IRS would be satisfied with only allowing part-timers to defer and not ever being eligible to receive an employer allocation, even when they work over 1,000 hours and are there on the last day of the plan year (remember, neither of my plans has a 1,000 hour requirement or last day rule to share in employer allocation).

i've seen many companies that give out the deferral election forms with the rest of the benefits orientation packet at hire, so that employees can fill the 401(k) elections out with the rest of their benefits elections. including a checklist of what was distributed and covered in benefits orientation (which the employee signs at the end of the orientation) also prevents any self-corrections of missed eligibility, because the employer has documentation that the option to contribute was provided to the employee. Usually these are companies that don't have the issue with under age 20. I see nothing wrong with passing out deferral election forms 90 days in advance (it's still the employee's option when/if to return the form). giving a form to someone who's 18 and not reminding them of their eligiblity closer to age 20 gives me a case of the "icks", but if the impetus is truly to increase participation, then this employer is likely reminding the employees as they near their 20th birthday (maybe even including another form in their birthday card?).

agree with mbozek & bird. and given the inforamtion sharing going on in government these days, especially between DOL and IRS, a new 1099-R in 2012 with a final 5500 in 2010 might throw up some red flags.

My experience has been that recently (last few years) there seems to be more TPAs entering the DB market who might not have as much DB experience. For example, we've seen an uptick in former DC-only TPAs specializing in DB takeover & terminations with the intent of enticing participants to rollover the DB plan into the 401(k) that the TPA is already administering. Good business for them, I guess. Maybe what you've been noticing with the distribution fees is from this sector of TPA's?

If they did keep the two vesting schedules (which would have to be in the merger amendment like David points out), then the vesting schedules would be subject to Benefits, Rights and Features testing under Treas. Reg. 1.401(a)(4)-1(b)(3). Eight (8) pages of regulations to define how this testing is performed - a perfect waste of an afternoon. If it wasn't in the merger amendment, then most of the Company B employees became 100% vested when the plans merged, and going back now would cause a teensy problems with anti-cutback rules.

Client fails to put an employee in the 401(k) plan in 2011 (misunderstanding of eligiblity). There was 1 full-time NHCE in the plan and deferring for many years. In 2011, however, this 1 NHCE didn't defer, so the ADP for the NHCE group is 0.00% for that year. If I'm reading EPCRS correctly, I use the ADP results for each year, so for the 2011 plan year, the corrective contribution would be $0.00. Sound right?

will the software let you use symbols like "_" or "."? Just something to complete the last name blank without putting in an actual last name?

Thanks for the clarification, and I agree whole-heartedly with your points! In past experience with overpayments on rollover situations, we have had some success getting an overpayment returned from a new trustee/custodian (depending on qualified plan or IRA) by sending a letter to the new trustee/custodian (with a copy to the participant) indicating the problem and that the excess payment was not a qualified rollover. Qualified plans generally don't want to keep non-qualified assets in their plan, and IRA's seem willing to work with their clients to get these types of issues resolved. If the money can't be recovered from the new plan/IRA, be sure the 1099-R correctly reflects the overpayment as not eligible for rollover. (This usually makes for an unhappy participant who may then pay a 10% early withdrawal penalty and taxes and gets their tax return red flagged due to mismatches between the Forms 1099-R and 5498, but at that point it becomes their problem with the IRS.)

Are you saying that the employee received a distribution from the plan that was $500 above what he should have received? If so, I believe ERPCRS requires that the plan sponsor attempt to recover the overpayment. State law may impact what could be withheld and the hoops the employer must jump through before withholding pay. Also want to add that if it was a distribution and it was direct-deposited somewhere, you might be able to recover it directly if your direct deposit form contains language about debiting accounts in the event of an error. My past employer had that language on the form, so any time someone signed up for a direct deposit, they were agreeing to have overpayments directly debited as well - sure made things easy in the rare event an overpayment was made. If the situation is such that the total account balance is correct and there's just an imbalance between sources, then I agree with ERISAtoolkit - a resourcing of the money should fix the problem.

This is the key - stock purchase, not an asset purchase. In a stock purchase, the OWNERSHIP changes, but the employer does not. Based on the facts you list, Company B and C are now a controlled group, and the employees have transferred employment from one company to another within the same controlled group. This does not generate a distributable event for the employees. See GCM 39824 for more details. An exception may be made if Company B is a subsidiary of Company A and (1) Company B no longer maintains its plan after the sale of the subsidiary (presumably Company retains responsibility for maintenance of the plan); (2) no assets/liabilities transfer from Company B's plan to Company C's plan; and (3) Company B is not treated as the same employer under IRS 414(b), © or (m). See Notice 2002-4 for more details. Had this been an asset purchase, then whether severance from employment had occurred would depend greatly on the terms of the purchase agreement and whether Company C assumed responsibility for Company B's plan.

Agree with the others on the primary direction & control question. This is important to verify. If they don't meet the primary direction & control requirement, then giving them a contribution in your client's plan could violate the exclusive benefit rules. Also, if they receive a 3% contribution in your client's safe harbor plan, shouldn't they also have the option to make deferrals to that plan? You might look further into the PEO rules. Based on the facts presented, it sounds like the leasing org might really be a PEO. If that's the case, the terms of their multiple employer plan may affect your client's options. Check out Rev. Proc. 2002-21 & 2003-86 and cross your fingers they have a multiple employer plan if they are indeed a PEO. If it's truly a leasing situation, has your client considered the leased employee safe harbor - 10% money purchase plan with immediate participation/vesting - which eliminates the much of mess for your client since the 4 employees wouldn't have to be counted on the practice's nondiscrimination testing.