AndrewZ

That was our first reaction, but it's being treated as a plan-to-plan transfer (like a plan merger or spinoff) -- not a rollover distribution.

Doghouse, may I ask what your reasoning is? What would prohibit it? (I can't find anything that explicitly allows it, but nor prohibiting it.) Thanks.

QDROphile, there's the duplicate annual administration fees, duplicate recordkeeping fees and possibly less leverage for lowest investment fees, and administrative burden of tracking when participants complete one year of service and then processing the transfers between the plans. It's also caused a problem because they have to report the participant as "terminated" with the recordkeeper in order to transfer to the other, resulting in a termination notification being sent by the recordkeeper. If the plans covered completely different groups of employees, or had different provisions such as vesting, separate plans would make more sense. But it seems pretty simple to accomplish what they want in a single plan. However, they don't want to make changes at this time, and want to know that we will administer it the way it's currently designed.

We have a potential client who has separate plans for the statutorily-excludable employees, and the non-excludable employees (who are eligible for SH Match). They automatically process involuntary transfers to the 2nd plan for all employees who shift eligibility. I originally couldn't imagine that the IRS intended transfers for anything besides spin-offs or mergers, but Reg. 1.411(d)-4 Q&A 3 provides an exception to preserving 411(d)(6) protected benefits in the case of voluntary transfers between plans in exactly such a situation. This seems to imply that the arrangement with the involuntary transfers is OK (assuming protected benefits are preserved)? The document has no special language authorizing this -- only generic language in the "Trustee" section, stating that the Administrator may direct the Trustee to transfer the Participant's account to another plan's trust, provided that the receiving trust permits. I can't seem to find anything that specifically authorizes such transfers -- or prohibits them. Does anyone have any experience or information on this? Of course, I think we would recommend instead that they have a single plan with a year-of-service requirement for SH matching contributions (aware that ADP/ACP testing and TH minimums applies to the excludable employees) - the current arrangement is overly complex and expensive. Thanks

Related to this, we have a potential client who has separate plans for the statutorily-excludable employees, and the non-excludable employees (who are eligible for SH Match). They automatically process involuntary transfers to the 2nd plan for all employees who shift eligibility. I originally couldn't imagine that the IRS intended transfers for anything besides spin-offs or mergers, but Reg. 1.411(d)-4 Q&A 3 (which is what the ERISA Outline book section Doghouse references covers) provides an exception to preserving 411(d)(6) protected benefits in the case of voluntary transfers between plans in exactly such a situation. This seems to imply that the arrangement with the involuntary transfers is OK (assuming protected benefits are preserved)? Of course, I think we would recommend instead that they have a single plan with a year-of-service requirement for SH matching contributions (aware that ADP/ACP testing and TH minimums applies to the excludable employees) - the current arrangement is overly complex and expensive.

Peter, I like the idea of saying "Administrator," but FTWilliam says it has to specify an individual by name or title. (I'm not sure then why they have "Trustee" as an option as there can be multiple trustees). But that's similar to my thinking of just naming an officer position. I even hate to specify "CFO" unless that person is always going to be a named trustee. Again, we can't really push a formal position of trustee or fiduciary on an individual who's just in charge of processing contribution deposits (even though the DoL obviously does consider them a fiduciary). Austin, our doc requires it even when the plan is self-trusteed. Interesting that Corbel interprets the regular named trustee as satisfying the requirement. Maybe we should just specify "trustee" for all? I can definitely understand DoL wanting to identify the party in-house responsible for contributions if regular trustee duties are assigned to an unrelated entity. Maybe they're only thinking in that scenario when communicating this requirement to the document providers?

FTWilliam has added an Adoption Agreement item requesting the identification of a "special trustee" responsible for determining and depositing contribution deposits. The DOL requested they add it so that it can "identify the fiduciary responsible for timely deposits." The Adoption Agreement options are: "CEO of Plan Sponsor," "Trustee," or "Other." Obviously, in most cases we don't necessarily know who at the company is actually making the contribution deposits, and whether that person is even who the DOL considers to be responsible. We obviously can't make a payroll clerk (or even an HR Manager) a fiduciary. What are other TPAs doing as a reasonable solution for this? For one-participant plans we're fine selecting "Trustee" since it's obviously the same person. For others, we're thinking of just stating the top officer (CEO/Managing Member/Managing Partner/Proprietor) since they're ultimately responsible for delegating the contribution deposit responsibility -- though that's probably not exactly what the DOL is looking for. Thanks.

I'm with a TPA firm. I know at least one of our clients had to submit the restated plan document we prepared providing for prevailing wage contributions to the agencies awarding the contract. Our other prevailing wage clients are new and haven't previously done plan contributions, so may not be familiar with the process with the agencies. I'm trying to get a feel for what they should expect. Is it typical that each agency reviews the plan document before a contractor is allowed to pay fringe benefits as pensions contributions? If so, would something like excluding HCEs (e.g. children of owners) present a problem? Related to this issue -- if an agency hasn't reviewed the document or isn't aware that HCEs are excluded under its terms, and then an HCE doesn't receive a prevailing wage contribution under the terms of the plan, is it possible an agency might take issue with that (if they don't understand that it's common due to nondiscrimination issues, or they simply require uniformity)? Thanks.

Correct, it wouldn't be an amendment allowed either under the regs or EPCRS' self-correction program.

Thanks, ESOP guy. I was hoping for something simpler than VCP/EPCRS, but no such luck!

Lou, Thanks. I was thinking in the logic that plans can allow 415 excess amounts to be held in suspense and reallocated in the next year - but I guess those are still earmarked to participants based on the year contributed. I'm not sure it's a mistake of fact either. I also thought about a retroactive "corrective" amendment, and recommending that we submit under EPCRS. Since no profit sharing provisions are in the current document, I don't know if it was a pro-rata or cross-tested allocation previously (I'll try to get a prior document to see if cross-tested, or just allocate pro-rata). It does have a last-day requirement for forfeitures (even though it states forfeitures are used to reduce SH match), which is probably a carry-over from the old document's profit sharing provisions. Furthermore, there are 2013 profit sharing forfeitures to reallocated in 2014 which we currently can't do, so we could further argue that the amendment was necessary to fix that.

A client's prior TPA amended out profit sharing provisions from a safe harbor matching 401(k) plan, as she thought allowing for profit sharing would create a top heavy minimum requirement (even if there were no allocations of profit sharing or forfeitures). The plan doesn't allow for any additional matching contributions. The client had deposited $30K throughout 2014 toward profit sharing (in addition to the SH match). The plan document provides that contributions may be returned to the employer within 1 year due to "mistake of fact," but some of the deposits are now over one year ago. Does anyone have any suggestions for a reasonable way of dealing with this? What about the following? Place the contributions into a suspense account and take a 2014 corporate deduction, then amend the plan for 2015 to allow (understanding the potential issue with mid-year amendments for safe harbor plans) and allocate them in 2015 (including them in 2015 415 limits) Return contributions made in the last year as a "mistake of fact," an return the prior ones as prohibited transactions (paying excise tax)? Thanks.

I have a case where a 100% owner of a corporation is a director of a 501(a) nonprofit he founded in an unrelated field. There are 2 other directors of the nonprofit. Let's say he controls the other directors, so he has at least 80% control over the nonprofit (including the appointment/removal of directors). Is this a controlled group, or does the corporation (as an entity) need to be directly controlling the nonprofit (e.g. the owner's personal decisions over the nonprofits would have to be in his capacity as a representative of corporation - not as a separate individual)? I.e., the "parent-subsidiary" rules apply, not the "brother-sister" rules. From Reg section 1.414 ( c )-5: "For this purpose, common control exists between an exempt organization and another organization if at least 80% of the directors or trustees of one organization are either representatives of, or directly or indirectly controlled by, the other organization [does "organization" include the individuals with a controlling interest in that organization, e.g. a 100% owner?]. A trustee or director is treated as a representative of another exempt organization if he or she is also a trustee, director, agent, or employee of the other exempt organization." Thanks.

This is an unusual case where a company with part-time employees had a 401k plan with no minimum service requirement for eligibility, then "forgot" about it and set up a SEP IRA (the employees didn't meet the 3 years with service requirement) and contributed to that instead for themselves. Since the owners are eligible for both plans, and the 401(k) plan had non-Key employees eligible, they are entitled to Top Heavy minimums in the 401(k) for years in which they are still active at year-end, triggered by the SEP IRA contributions. We're working on identifying the corrections needed - so far it's a non-amender/non-filer, with unfunded top-heavy minimum contributions. If it turns out that they were using a 5305-SEP agreement (which doesn't allow for concurrent qualified plans), I believe we have to reverse the ineligible SEP contributions, which should remove the Top Heavy contribution requirements.

Thanks, Lou, and Happy Holidays.

I think this is pretty obvious since you have to aggregate 401(k) plans and SEP IRAs for top heavy purposes, but I'd like confirmation -- if an employer has a 401(k) plan with all employees eligible (no service requirement), and a SEP IRA with no non-owner employees eligible (under the 3 of 5 prior years option), and makes a contribution to the SEP IRA, wouldn't that trigger a top heavy minimum contribution in the 401(k) plan? This is assuming the SEP IRA agreement allows it to co-exist with a qualified plan. Thanks.

I sent ours "return receipt" on 7/30 and the receipt came back with a stamp dated 8/12, even though online tracking says it departed the Salt Lake City sort facility on 8/1 (but no delivery info). Apparently, the IRS is allowed to date and return the receipts at its leisure. Fortunately, online tracking shows it was was in the mail on 7/30.

Exactly the same thing just happened to us - a client with 2 plans filed on 8/9 was issued late filing penalty notices dated 9/16. The return receipt from the IRS for the 5558s was stamped 8/12, so I'm assuming they are doing that to 5500s processed prior to them processing the 5558s. I would have thought they would have figured out by now to hold the penalty notices until 5558s were all processed (if they still insist on paper filings), after the same debacle in prior years.

Thanks, everyone. My question WAS specifically about whether allocations had to be made to excludable employees under the 2006 regs. The reference to disaggregated groups being separate plans specifically for ADP testing seems key. Interesting that it's not allowed under EPCRS!

The 2006 regulations regarding "disproportionate contributions" (applicable to "targeted" or "bottom-up" or fixed-dollar QNECs) can be separately applied to excludable and non-excludable employees (considered separate "plans" under the regs), can't they? It seems they could be, but I haven't been able to find any direct reference to it. I understand that the plan document would have to allow for this. Otherwise, fixed percentage allocations would also be subject to the restrictions, and allocations would be made to NHCEs not included in the failing test.

For the brother-sister controlled group test, a "common owner" includes a trust. But beneficiaries' interests in the trust (if 5% or more) have to be attributed and treated as the individuals' ownership. Does this mean you would remove all of the attributed ownership from the trust's direct ownership to avoid double-counting? I think this would really only have an impact if an individual had ownership in one company by virtue of attribution from a trust, and also direct ownership in another company, creating common ownership for him/her in both (even though the trust itself isn't a common owner). This could have the strange result of both the trust (as its own entity) and individuals who are owners by attribution from the trust being in the "5 common owner" determination. Then you would have to remove duplicate ownership from the total and identical ownership counts. Similarly, if a corporation is an owner of one or more of the companies being tested, the individuals who own 5% or more of that corporation would then be treated as direct owners of the companies it owns. Does this seem correct? Thanks.

http://benefitslink.com/boards/index.php?showtopic=48130#

A participant's spouse received life insurance death benefits from his policy held within the plan. I understand that the difference between the proceeds and the cash surrender value are non-taxable, since PS-58 costs have been paid. The cash surrender value is not being rolled over. My questions are: 1) What is reported on the 1099-R issued by the plan? Just the cash surrender value in the total distribution and taxable distribution amounts (which makes sense since the plan didn't receive and distribute the total death benefit)? Or are the total proceeds reportable as the total distribution, and the cash surrender value reported as the taxable amount? 2) Will the insurance company attempt to report anything on a 1099-R directly, and we should make sure they don't? We're having a difficult time obtaining the cash surrender value at the time of payment from them, which makes me wonder if they don't understand that the plan has to issue the 1099-R. Thanks

Tom, by "entry date," do you mean the 10/1 effective date of the safe harbor provisions (which is effectively the entry date for 401(k)/SH)? And do you mean the rate of match would be gummed up because participants may terminate prior to 10/1 and so would effectively receive 0% match, or may effectively receive a lower rate due to not being able to defer 16%? The 3% prior-year ADP probably isn't our best solution, as we're usually dealing with small top-heavy plans where the owners make over the comp limit and want the full $15.5K.

Thanks, but if the Safe Harbor provisions are not allowed to be effective prior to 10/1 under IRS regs, how could the SH match be calculated based on compensation prior to 10/1? And wouldn't the IRS consider the full SH match not effectively available to NHCEs if they can't afford to contribute 16% of salary to receive the full match? I realize that, during an audit, the IRS may not identify this issue or be too concerned, (unless perhaps the NHCEs clearly aren't benefiting), but I'm looking for some justification to allow making the SH formula effective prior to the SH provisions.