Belgarath

Starting with the fact that 1.401(k)-5 is "reserved" so that there is not necessarily any clear guidance... Let us assume that both plans operate on a calendar year basis. Let's further assume that both businesses are corporations. Say Corporation A has a SH 401(k) plan. Corporation B has a non-safe harbor 401(k) plan. Corporation B buys Corporation A's assets, and all of A's employees come to work for B. B wants to assume the assets and liabilities of A's plan, and merge A's plan into its own plan while still preserving the safe harbor status of A's plan for the year. I'm not sure I see any way to do this. I think corporation A's plan could be TERMINATED, and thus preserve safe harbor status, but I don't see how it would work in a merger of the plans. Thoughts? If instead it were a stock sale, I don't see that it alters the outcome. Thoughts? (If B's plan were a safe harbor plan of the same type, then I think a good argument might be made that the plans could be merged while preserving safe harbor status, but that's another issue altogether.)

You might be. Generally not subject to FICA unless pursuant to IRC 3121(b)(7)(E) re agreements under Section 218 of SS Act, or IRC 3121(b)(7)(F) re employees who are not covered by a state or local retirement system. I'm sure some other folks here can give you a better answer - but I'd run your question by a competent tax advisor, plus asking your benefits/HR person if they are competent, because there could be substantial ramifications for your future SS benefits, as you've noted. I don't think most people ever ask this question.

Any chance it is exempt under the following? Not all wording copied over properly... Do Not File a Form 5500 for a Welfare Benefit Plan That Is Any of the Following: 1. A welfare benefit plan that covered fewer than 100 participants as of the beginning of the plan year and is unfunded, fully insured, or a combination of insu unfunded, as specified in 29 CFR 2520.104-20. 2. A welfare benefit plan maintained outside the United States primarily for persons substantially all of whom are nonresident aliens. 3. A governmental plan. 4. An unfunded or insured welfare benefit plan maintained for a select group of management or highly compensated employees, which meets the requirements of 29 CFR 2520.104-24. 5. An employee benefit plan maintained only to comply with workers’ compensation, unemployment compensation, or disability insurance laws. 6. A welfare benefit plan that participates in a group insurance arrangement that files a Form 5500 on behalf of the welfare benefit plan as specified in 29 CFR 2520.103-2. See 29 CFR 2520.104-43. 7. An apprenticeship or training plan meeting all of the conditions specified in 29 CFR 2520.104-22. 8. An unfunded dues financed welfare benefit plan exempted by 29 CFR 2520.104-26. 9. A church plan under ERISA section 3(33). 10. A welfare benefit plan maintained solely for (1) an individual or an individual and his or her spouse, who wholly own a trade or business, whether incorporated or unincorporated, or (2) partners or the partners and the partners’ spouses in a partnership. See 29 CFR 2510.3-3(b). §2520.104-21 Limited exemption for certain group insurance arrangements. (a) Scope. Under the authority of section 104(a)(3) of the Act, the administrator of any employee welfare benefit plan which covers fewer than 100 participants at the beginning of the plan year and which meets the requirements of paragraph (b) of this section is exempted from certain reporting and disclosure provisions of the Act. Specifically, the administrator of such plan is not required to file with the Secretary a terminal report or furnish upon written request of any participant or beneficiary a copy of any terminal report as required by section 104(b)(4) of the Act. (b) Application. This exemption applies only to welfare plans, each of which has fewer than 100 participants at the beginning of the plan year and which are part of a group insurance arrangement if such arrangement: (1) Provides benefits to the employees of two or more unaffiliated employers, but not in connection with a multiemployer plan as defined in section 3(37) of the Act and any regulations prescribed under the Act concerning section 3(37); (2) Fully insures one or more welfare plans of each participating employer through insurance contracts purchased solely by the employers or purchased partly by the employers and partly by their participating employees, with all benefit payments made by the insurance company: Provided, That— (i) Contributions by participating employees are forwarded by the employers within three months of receipt, (ii) Refunds, to which contributing participants are entitled, are returned to them within three months of receipt, and (iii) Contributing participants are informed upon entry into the plan of the provisions of the plan concerning the allocation of refunds; and (3) Uses a trust (or other entity such as a trade association) as the holder of the insurance contracts and uses a trust as the conduit for payment of premiums to the insurance company. (c) Limitations. This exemption does not exempt the administrator of an employee benefit plan from any other requirement of title I of the Act, including the provisions which require that plan administrators furnish copies of the summary plan description to participants and beneficiaries (section 104(b)(1)), file an annual report with the Secretary of Labor (section 104(a)(1)) and furnish certain documents to the Secretary of Labor upon request (section 104(a)(6)), and authorize the Secretary of Labor to collect information and data from employee benefit plans for research and analysis (section 513). (d) Examples. (1) A welfare plan has 25 participants at the beginning of the plan year. It is part of a group insurance arrangement of a trade association which provides benefits to employees of two or more unaffiliated employers, but not in connection with a multiemployer plan as defined in the Act. Plan benefits are fully insured pursuant to insurance contracts purchased with premium payments derived half from employee contributions (which the employer forwards within three months of receipt) and half from the general assets of each participating employer. Refunds to the plan are paid to participating employees within three months of receipt as provided in the plan and as described to each participant upon entering the plan. The trade association holds the insurance contracts. A trust acts as a conduit for payments, receiving premium payments from participating employers and paying the insurance company. The plan appoints the trade association as its plan administrator. The association, as plan administrator, provides summary plan descriptions to participants and beneficiaries, enlisting the help of participating employers in carrying out this distribution. The plan administrator also makes copies of certain plan documents available to the plan's principal office and such other places as necessary to give participants reasonable access to them. The plan administrator files with the Secretary an annual report covering activities of the plan, as required by the Act and such regulations as the Secretary may issue. The exemption provided by this section applies because the conditions of paragraph (b) have been satisfied. (2) Assume the same facts as paragraph (d)(1) of this section except that the premium payments for the insurance company are paid from the trust to an independent insurance brokerage firm acting as the agent of the insurance company. The trade association is the holder of the insurance contract. The plan appoints an officer of the participating employer as the plan administrator. The officer, as plan administrator, performs the same reporting and disclosure functions as the administrator in paragraph (d)(1) of this section, enlisting the help of the association in providing summary plan descriptions and necessary information. The exemption provided by this section applies. (3) The facts are the same as paragraph (d)(1) of this section except the welfare plan has 125 participants at the beginning of the plan year. The exemption provided by this section does not apply because the plan had 100 or more participants at the beginning of the plan year. See, however, §2520.104-43. (4) The facts are the same as paragraph (d)(2) of this section except the welfare plan has 125 participants. The exemption provided by this section does not apply because the plan had 100 or more participants at the beginning of the plan year. See, however, §2520.104-43. (e) Applicability date. For purposes of paragraph (b)(3) of this section, the arrangement may continue to use an entity (such as a trade association) as the conduit for the payment of insurance premiums to the insurance company for reporting years of the arrangement beginning before January 1, 2001. [43 FR 10149, Mar. 10, 1978, as amended at 65 FR 21084, Apr. 19, 2000; 67 FR 776, Jan. 7, 2002]

So, employee defaults on a loan, and no 1099 issued for deemed distribution. Payer penalty for failure to issue 1099 (let's suppose it was defaulted in 2016) before August 1 (from memory) is I think $260.00. I can look that up. But here's my question - since participant didn't get 1099, taxes filed incorrectly, since participant didn't "know" it was a distribution. How do you typically see this handled? By that I mean, does the employer/plan administrator/TPA/guilty party pony up any expenses top reimburse the participant for refiling expenses, if any, and interest/penalties? Could be expensive if it happened years ago...

Yes. But, if you had a retroactive amendment that ended up somehow benefiting mostly HC's, then I don't know that it would necessarily be viewed favorably... Have only had a couple of these, but IRS has been reasonable. Good documentation will be necessary.

I'm not in sales, but I do mention, when asked, or doing presentations on plans in general where a match is provided, something along the lines of, "Your employer is doing a great thing for you here. Aside from any interest you may earn, your return on your deposit is (50%, 100%, whatever the match is - tailor it to your plan) - that's better than a license to steal! There is no other way to legally obtain that kind of return on your investment, with any degree of safety, and if you don't take advantage of it, you are probably missing out on the greatest investment opportunity of your lifetime." Dressed up, expanded, etc. - but that's the gist. I can say this since we don't sell any product - if we did, not sure how the new fiduciary regulations would impact such a statement (if at all).

Just an fyi - Sal suggested that they may be relying on the fact that an irrevocable election under 1.401(k)-1(a)(3)(v) is not a CODA. I had considered this, but apparently I misunderstood the term "election." To my way of thinking, since it is a condition of employment, there's no opportunity to elect NOT to participate, hence there's no election. This is why I love to solicit the opinions of others! I should hasten to add that Sal did not express an opinion as to whether such reliance was correct or not - he merely pointed out that this was probably what they were relying on. I want to be very careful not to put words in his mouth!

A MOOving response which is UDDERLY ridiculous. You are MILKING this situation for all it is worth. Although your knowledge puts you in the CREAM of the crop, and your responses are legenDAIRY, there's no point in trying to BUTTER me up here. However, in spite of all the BULL, I appreciate you STEERing me in the right direction, and not succumbing to the HERD mentality. This could go on and on, but I lack the time to COW-tow any further.

Thank you. You've confirmed that (in this one instance) I'm not crazy!

Well, if you are completely convinced that the CPA is giving you accurate information, you could always adopt the policy of "Brave Sir Robin" - "When danger reared its ugly head, he bravely turned his tail and fled..." I'm just shocked that a CPA, (regardless of whether or not such disclosure violates any professional ethics) would actually tell this to anyone. Oh well, fortunately not my problem. Good luck with this client relationship.

But there may be something funky going on anyway. Just filed a 5500 this morning, and I always print the screen that shows status as "accepted" with the acknowledgement id, etc. - this morning, for the first time ever, this wouldn't print and I got some error message that the requested URL "was not found on this server." So I just cut and pasted it so I could print, but strange nonetheless. If it persists, I'll have to contact them. Then there was an "Apache/2.2.15 (Red Hat) Server at www,ftwilliam.com Port 443" below the error message. Since I'm not computer literate, I don't know if this means the problem is with FT William, or the DOL, or whatever. At least the 5500 status was "accepted" so that's good!

So, you have a SH nonelective 3%. Client wants to amend plan mid-year to exclude certain compensation categories. 1. Can this be done, with appropriate advance notice of 30-90 days? I've heard varying arguments on this. Some yes, some no. 2. If yes, I presume you would credit the 3% on this comp through the effective date of the amendment. Although for the non-SH contributions, such as PS, if they have a last day/1,000 hour requirement, could use the reduced comp for the whole year for that portion.

Yeah, I've seen TIAA references to TAMRA mandatory contributions in 403(b) plans. Problem is, many 403(b) plans are governmental anyway. And it may be that TIAA is just talking about the fact that your calculation of the elective deferral limit under 402(g) isn't reduced due to the mandatory contributions. Oh well, I'm not going to delve into this any further. Thanks for the responses.

We just use them for 5500 forms. Have not had any such issues.

Eve- I had understood (maybe incorrectly) that these TAMRA contributions applied to 403(b) plans. The plan is question is a Money Purchase plan. Can you confirm that you believe this applies to Money Purchase plans as well? John - I don't think that applies here - even though it may be a pre-ERISA MP plan, the employee does NOT have any option to receive in cash, so it wouldn't be considered a CODA regardless, right? (Turns out to be moot - plan started in 1985, s post-ERISA anyway.) Cuse - so you have a non-governmental tax exempt MP plan that requires 5% mandatory employee contributions, and they are pre-tax. Are you using a pre-approved document? And does anyone have a citation as to the authority for such contributions being pre-tax? I'm not finding such a cite - looking for love in all the wrong places, I guess... Thanks to all for the responses. This one is a head-scratcher for me.

We don't have a document available to look at, or I would have cheerfully done that! The document is not a pre-approved plan, and last D-letter was 2014. We aren't doing admin on this plan - we were just asked to compare the provisions, as available in an on-line SPD, for a college for whom we DO handle the administration, as sort of a very informal "benchmarking" that they are doing - we're just doing this as a favor.

Non-profit organization, non-governmental (a private college). They have a qualified plan (money purchase) where, as a condition of employment, the employee MUST contribute 5% of pay. Employer then matches anywhere from 5 to 10 % of pay, depending upon service, etc. So far, so good. The baffling part is that the SPD, and the plan audit notes on the 5500 form clearly indicate that these mandatory employee contributions are PRE-TAX. We’re under the impression, and the EOB seems to confirm, that such mandatory contributions are AFTER-TAX. Am I missing something? Are mandatory employee contributions (non-governmental plan) allowed to be pre-tax? Or is it perhaps poor drafting in SPD?

Fascinating. But for us, where we don't sell product, nor are we affiliated with anyone who does, we only have, sometimes, some minor Revenue Sharing that is paid to us by the platform (and we don't keep it anyway - we reduce our charges to the client by whatever we receive) and the Revenue Sharing is disclosed. So I don't think, hopefully, that the "deep dive" would apply to us.

We do them for everyone - really just to have everything out in the open, and also, frankly, as a competitive issue - we don't want someone else to come in and trash us because we are "hiding" anything. So the fiduciary rule has no effect on us from that perspective.

Just be careful that it is in fact an offset and not a "deemed distribution." A simple "deemed distribution" doesn't satisfy the RMD requirement. Sounds like you have an offset situation, so should be ok. Q-9. Which amounts distributed from an individual account are taken into account in determining whether section 401(a)(9) is satisfied and which amounts are not taken into account in determining whether section 401(a)(9) is satisfied? A-9. (a) General rule. Except as provided in paragraph (b), all amounts distributed from an individual account are distributions that are taken into account in determining whether section 401(a)(9) is satisfied, regardless of whether the amount is includible in income. Thus, for example, amounts that are excluded from income as recovery of investment in the contract under section 72 are taken into account for purposes of determining whether section 401(a)(9) is satisfied for a distribution calendar year. Similarly, amounts excluded from income as net unrealized appreciation on employer securities also are amounts distributed for purposes of determining if section 401(a)(9) is satisfied. (b) Exceptions. The following amounts are not taken into account in determining whether the required minimum amount has been distributed for a calendar year: (1) Elective deferrals (as defined in section 402(g)(3)) and employee contributions that, pursuant to rules prescribed by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter), are returned to the employee (together with the income allocable thereto) in order to comply with the section 415 limitations. (2) Corrective distributions of excess deferrals as described in § 1.402(g)-1(e)(3), together with the income allocable to these distributions. (3) Corrective distributions of excess contributions under a qualified cash or deferred arrangement under section 401(k)(8) and excess aggregate contributions under section 401(m)(6), together with the income allocable to these distributions. (4) Loans that are treated as deemed distributions pursuant to section 72(p). (5) Dividends described in section 404(k) that are paid on employer securities. (Amounts paid to the plan that, pursuant to section 404(k)(2)(A)(iii)(II), are included in the account balance and subsequently distributed from the account lose their character as dividends.) (6) The costs of life insurance coverage (P.S. 58 costs). (7) Similar items designated by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b) of this chapter. [T.D. 8987, 67 FR 18994, Apr. 17, 2002, as amended by T.D. 9130, 69 FR 33293, June 15, 2004; T.D. 9319, 72 FR 16894, Apr. 5, 2007]

It's a 5329, and you can file it attaching a statement and request a waiver. The IRS is generally pretty reasonable about this. If they don't grant the waiver, the client may be going after the CPA for reimbursement...

There's often a big difference between what you MUST do and what you perhaps SHOULD do. So it may be good business practice or employee relations or whatever you want to call it to notify employees sooner rather than later. But the exclusion you describe should be covered in the safe harbor notice, which is given in advance of 2018 anyway. If you think it is necessary to notify them prior to that, that's an employer/HR decision, and I have no opinion - each employer looks at it differently. Some want to notify them immediately - others want to wait as long as possible. The SMM deadline isn't until way into 2018, so the Safe Harbor notice will be the first required notification.

Yeah, in the future, I'd consider just amending to credit service with the prior employer instead. Back in the day when we submitted all plans for d-letters, we often had such plans - it was a common recruiting tool, and the IRS always approved it. Now, if we'd credited service with "X" to bring in an exec, then immediately amended to no longer do that, then hired some NHC from "X" - I think that would've been a different story, and goes to Tom's citation. Also, of course, just because the IRS didn't have a problem with it 15 or 20 years ago does not necessarily mean they feel the same way now...

Now there's a nice, technical answer. Thanks Peter! (and thanks BG)

A little discussion going on. Suppose you have an adult child - not a dependent - say 30 years old. Participant wants to take a hardship withdrawal to pay the tuition. I see no problem with this under the regulation, but I suppose it could hinge on how you interpret it, and in conjunction to the reference to Code Section 152. The regulation deems it an immediate and heavy financial need for "...the employee, or the employee's spouse, children, or dependents(as defined in section 152...) Now, I read the reference to 152 as applying only to the definition of "dependent" and not applying to spouse or children. And therefore, the term "qualifying child" in 152 is meaningless for this question - it matters for tax purposes if determining whether the child is a dependent, but not for determining whether the hardship withdrawal to pay the tuition for "children" is allowable under the 401(k) hardship distribution rules. I think if the IRS had wanted to limit it to dependent children, they would have so specified, but they didn't. Opinions?