Belgarath

So for plan contribution calculation purposes, how are you handling it? One calculation as W-2, then subtracting that from Schedule C like you would for an "employee" then doing the Schedule C earned income reduction calculation, etc., or some other method? Or are you adding the two amounts, and doing it all as one schedule C calculation (taking into account the SS already withheld from the W-2)? Other?

If read in a vacuum, yes. However, I think it is very clear that under IRC 402A, the decision to allow or not allow Roth in an "applicable" plan, which includes 403(b), is optional. I read the provision you are referring to as a universal availability issue, meaning that if Roth deferrals are permitted, everyone eligible to defer must be permitted to have them.

What about this one: Plan was part of an Affiliated Service Group. Participating Employer "B" withdraws - the assets are merely transferred - reregistered - from Plan A to Plan B. There is no sale, exchange, or purchase. It seems to me like this isn't reportable on Line 4j, under the definition of a "transaction" in 2520.103-6. Am I off base on this?

But in a match situation, since the advance notice provides an opportunity to increase deferrals on the non-excluded compensation, is this really a reduction in the safe harbor contribution? If it were a non-elective contribution, I'd totally understand that. And rethinking this and re-reading the notice, I think you are right. Apparently I was asleep at the switch.

IMHO, probably yes. You might be able to argue that you could use the 25% correction in .03(2), which provides that it may be used "....(or the conditions for the safe harbor correction method described in section 3.02 or 3.03(1) are not met by the Plan Sponsor)." So, you didn't meet those conditions. Now, as part of this 25% correction, a notice is required as well, again not later than 45 days after the date on which correct deferrals begin, so technically, you probably aren't allowed to use the 25% correction. But you might be able to assert that as long as you give a notice at the point you institute the 25% correction, this would suffice. It seems ridiculous that you can use the 25% correction if you have done nothing whatsoever, but that you can't use it just because you started up the deferrals and forgot a notice. This argument is a stretch, I know - and I don't know that I'd attempt to use it unless I was actually doing a VCP filing and arguing for the 25% correction. But it's all I can come up with.

In the absence of a direct transfer to the replacement plan, I'd say yes. But it isn't going to the employer. Hence my question.

I'm violating my "don't try to make sense out of it" policy here, because I'm just curious if anyone knows. Safe harbor plan with basic matching formula. Suppose they want to do a mid-year amendment to exclude some compensation. Assuming all proper notice, etc. is observed, this is possible. Yet, according to IRS Notice 2016-16, an amendment to the definition of compensation if it would INCREASE the match is generally impermissible, unless it is effective for the entire plan year. Curious as to the reasoning, if anyone knows. 4. A mid-year change (i) to modify (or add) a formula used to determine matching contributions (or the definition of compensation used to determine matching contributions) if the change increases the amount of matching contributions, or (ii) to permit discretionary matching contributions. However, this prohibition does not apply if, at least 3 months prior to the end of the plan year, the change is adopted and the updated safe harbor notice and election opportunity are provided, and if the change is made retroactively effective for the entire plan year (which may require a plan that provides for periodic matching contributions as described in §§ 1.401(k)-3©(4) and (5)(ii) and/or 1.401(m)-3(d)(4) to be amended to provide for matching contributions based on the entire plan year).2 2

I'm still trying to get a handle on one specific issue here. So, you have one-person DB plan. Plan is overfunded, participant at 415 limit and past NRA. Also sponsors 401(k) plan. Client proposes to terminate DB plan and transfer excess assets to 401(k) plan as replacement plan under IRC 4980. So far, so good. Question is: DB plan (pre-approved VS plan) currently provides for excess asserts to be reallocated to participants. Can the assets be transferred under current language, or must it be amended to the other available standard option, which is to be returned to the employer? There's no "election" to transfer to a replacement plan available under the document. It seems to me that either option available in the document is perhaps a little "off." The money isn't being returned to the employer, as it is being transferred to a replacement plan - although it COULD eventually revert, in part, to the employer from the replacement plan. On the other hand, the money isn't technically being reallocated to the participant under the DB plan (although it couldn't anyway, due to 415) but it will eventually wind up in the participants hands. I'm leaning toward "it doesn't matter" and the transfer just takes place either way, but I wondered what anyone might have for specific experience or thoughts? Thanks.

Mr. Bagwell - yes, 8/15.

I don't agree, but maybe I'm missing something. As an aside, my apologies for not reading this carefully enough - I was assuming calendar year, so yes, there's a break, but it still has no effect) I threw in the break year reference originally because if (and now clearly there is) there is a break year, they could use the 1-year holdout rule, but this is almost never used in a 401(k) plan, as it could ultimately require retroactive entry. Assuming you aren't using the one-year hold-out rule, to disregard the prior service under the rule of parity, the number of breaks required is the GREATER of (5) or the aggregate number of pre-break years. Since there is only 1 pre-break year, 5 is the applicable number, so with only one break year, the service isn't disregarded under the rule of parity. (and technically, the rule of parity only applies to someone who was a PARTICIPANT anyway) Am I missing something? Mr. Bagwell and I were obviously replying at the same time...

With the caveat that I haven't seen the document: I agree with your Boss as to the 8/15 entry date. I'm assuming there has been no 1 year break in service (i.e. employee worked 500 hours in 2015 prior to termination). For solid backup, I'd look at the terms of your document. This is typically very clear. P.S. FWIW, here's the applicable provision from a normal Relius (now FIS) document: If any Eligible Employee had satisfied the Plan's eligibility requirements but, due to a severance of employment, did not become a Participant, then such Eligible Employee shall become a Participant as of the later of (1) the entry date on which he or she would have entered the Plan had there been no severance of employment, or (2) the date of his or her re-employment. Notwithstanding the preceding, if the rehired Eligible Employee's prior service is disregarded pursuant to Section 3.5(d) below, then the rehired Eligible Employee shall be treated as a new hire.

Hi Bird - just to take this a little deeper - suppose a client establishes a PS plan - every intention of contributing, but things happen - cash flow crunch, whatever - so no contributions are made for the first two or three years. The plan excludes vesting service prior to the effective date of the plan. Would you still assert that there is no plan for the prior years because it wasn't funded? Do you think the IRS would allow this interpretation? I understand that 81-114 was meant to allow valid trust treatment for the purposes of deductibility of contributions made in subsequent year, but I don't see how they can invalidate a plan where no contributions are required, on the basis of the "no corpus" argument. I'd appreciate any further thoughts you may have on the issue. I do understand the IRS can do anything it wants, and then you have to fight the decision...

One might consider that a plan, established for a given year but no contributions are made, still requires filing of a 5500 form. Granted that 5500 forms are ERISA and IRS qualification is a different issue...

Nope. And most pre-approved plans will have appropriate language or elections to preserve prior Money Purchase characteristics when required. (This was also true prior to the new IRS determination letter rules).

I'm thinking about how to avoid top heavy status for the first year a contribution is made, and I think the following works in this one odd situation. Thoughts? Suppose in 2016, you have an employer who wants to establish and start contributing to a plan for 2017. Why can't the employer establish the plan as a PS only for 2016, effective 1/1/2016, with 401(k) deferrals/other contributions to be effective for 2017, and then just contribute zero for 2016? So, the rules for the "first year" apply to 2016, but in reality they are immaterial, as no contribution is made or allocated or accrued. When doing 2017 testing, the determination date is 12/31/2016, and the account balances are all a big fat zero, so the plan isn't top heavy for 2017. No top heavy contributions required until 2018. Any holes in this thought process?

It is wrong in so many ways that it is hard to even know where to start. ERISA and the Code do not address whether it is un-American or not. On the IRS side, a plan, in order to be "qualified" must satisfy certain requirements in both form and operation. A plan that violates its provisions, such as required top heavy contributions, is subject to disqualification. I'll guarantee that your plan document does not provide for the return of contributions by Key Employees on the off chance that they discover too late that the plan is top heavy, or that they didn't understand or were unaware of the implications of top heavy status. On the ERISA side, you have various anti-alienation provisions. When people are entitled to a benefit (as with non-key employees who are entitled to a top heavy benefit under the terms of the plan) you can't take that away from them. There is no regulation that provides an override to the top heavy requirements such as you would like. So you are stuck with what the Code and Regulations say that you must do, which in this case, would be to contribute any required top heavy contribution. I really recommend that you seek legal counsel first if you are planning to advise your client to treat this as "administrative error" - and review the terms of your E&O policy. You are really getting into some dangerous territory. All this is just my opinion - others may not feel the same. Good luck.

Darn - I think I deleted this before posting, so I'll try again. Let me state at the outset that I know nothing about RSSP's before today, and after a little internet research, I know a bit but still not much! Employer makes matching contributions, and deposited the match "late" for one employee. On this side of the line, a late deposit to a 401(k) could easily be self-corrected with an earnings adjustment. I don't know if an earnings adjustment is required, or even permitted, for an RSSP. Anyone know, or know of a source to find out? Thanks!

First, and this is semantics, but you're talking about a potential management function affiliated services group. No such thing as a management function controlled group. I say this only because when you are looking for formal guidance, which is somewhat sparse on this subject, it (the terminology) matters. Second, impossible to tell from the facts given. And this type of situation is very much driven by facts and circumstances. Have you already ruled out ANY type of attribution - not just family, but options, etc.? What is the precise relationship between the companies, and what functions are being performed, and by whom? You really should take this to an ERISA attorney.

Haven't seen any of the all-day programs - have seen a couple of very detailed 2 -hour programs where they are doing an in-depth presentation on one small subject. Didn't know they did one day (or longer?) courses, but then, I've never looked. Good to know they have them. I no longer have illusions about anything. Well, maybe that our cat really loves me, but he probably just wants food.

I think you are stuck with VCP. But going from memory (dangerous at best) I seem to recall that Rev. Proc. 2015-27 reduced the VCP fee to a very reasonable amount - I think for a single person it would only be perhaps $300, although of course there would be your fee to handle the filing as well.

I know EBIA does some webinars and such, but I think they are generally pretty detailed, and not "crash course" type webinars. I also would recommend caution. Cafeteria plans are not necessarily as simple as many would like to have you believe, and a crash course probably will give you just enough to be dangerous. Kind of like taking a crash course in 401(k)'s and then being told, "OK, now administer 401(k) plans." Not saying you can't do it, but go into it with open eyes. If your intention is to administer just one plan, and not really getting into the cafeteria plan administration business, you may be asking for trouble. Good luck!

Why wouldn't it just be 4A (Health)? But frankly, I see no reason why your solution isn't just fine. I've seen no evidence that anyone really cares about this on Welfare plans, although I know the IRS has been checking the codes on retirement plans.

Nope, they are way past the allowable timeframe for an 11(g) amendment. This was brought to us a couple of months ago, and they have issues going back to 2009 (no 5500's or required plan audits ever done, no ACP testing, etc...) Coverage passes fine at 70% for all years EXCEPT 2013.

Yeah, I wondered about the SOL angle, but honestly, I don't know much about how that really works in real life. I was thinking (just guessing, really) that the IRS would be far more likely to "disqualify" the entire plan if you go with the "sweep it under the rug and do it in 2016 and hope they let it go" approach. Hopefully there is someone out there who has actually dealt with such a situation and can give you some educated opinions. Good luck!

IMHO... 1. Yes, on a W-2. 2. I agree, yes, subject to wage withholding rules. But it appears that perhaps there is an optional flat rate withholding under 31.3402(g)-1(a), which eventually gets you to, I think, (a)(7) in this situation. But this is getting far into the weeds, and is quite old, and I'm not sure how it applies or if it applies to something like this that happened years ago. 3. Honestly don't have an opinion as to whether it places the entire plan at risk. Since the participant owes back taxes, interest, and penalties, it seems unreasonable that the plan would be deemed ineligible, but I have no experience with this situation! I'll be interested to see what people think. I don't think that just doing it in 2016 as if nothing ever went wrong previously is a legitimate option, but I guess I'd leave that to tax/legal counsel.