Belgarath

If anyone cares - discussed this (informally!) with an ERISA attorney, who agreed that this should be considered definitely determinable.

I think calling it a "fiduciary violation" is ridiculous. Seems like there are a lot of different opinions on the wisdom of loans from a 401(k) plan, regardless of roth or non-roth. Just spitballing - it does seem like since the big advantage of Roth (vs. the current tax reduction for pre-tax) is the accumulation of potentially tax-free earnings. I suppose one could argue that by taking the loan, you are potentially reducing the earnings in your Roth account, thereby negating some of that advantage. (of course, if the market tanks during the 5-year period you are repaying the loan, then you have actually increased your potential earnings substantially, if you have a longer timeline) But investment theory/results is out of my bailiwick. Buy stock in the Brooklyn Bridge!!

"your post does bring about a point worth following in practice - even if someone doesn't want to defer, have them fill out the form at 0% just so there is protection from someone coming back and saying 'no one told me'." Agreed. We ALWAYS recommend this, even though employers often don't do it... And in this case, no employee was ever notified of one darned thing re the 401(k) plan. They did, at least, file 5500 forms, albeit with incorrect participant counts (only showed one participant, rather than counting those that should have been eligible.) And since it was set up as a "solo" 401(k) plan, pretty good bet that no SPD, etc., was ever done regardless. I expect they will terminate it, and take their chances on an audit. If plan audited and disqualified, then loan would presumably be a deemed distribution, and client will pay back taxes and penalties, which will likely be less than any make-up amounts for employees that might otherwise be required to retain qualification. But that's up to their tax/legal counsel to figure out. I really have no idea what I'd submit for a "fix" if employer ultimately decided to attempt to fix this. But I'm betting employer will instead sweep it under the rug and hope for the best.

But what "free pass" is the HC getting? And I'm talking strictly in terms of "make-up" contributions? The HC has contributed nothing, has taken no deductions, etc. The establishment of a plan solely to take a loan is a separate issue, and I understand that. (I intentionally did not address that in the original post) The IRS could disqualify the plan for a nondiscrimination failure (eligible employees were not permitted to roll money into the plan and also take loans) or a coverage failure, but I can't see an argument for a required employer make-up contribution, since under coverage/nondiscrimination testing for employer contributions, you are going to pass automatically if there is no contribution for any HC. But as I think more about it, I can see your point that the pre-approved fixes are not the only corrections under 2013-12. Possible, for example, that in order to keep the plan qualified if submitting under EPCRS that you might have to propose a correction similar to, for example, what would have been required under a safe harbor plan.

It does seem to be the season for the oddball situations to creep in. Suppose you have an employer who sponsors a 401(k) plan. Doesn't do anything, doesn't contribute, but it is still a plan that is "maintained" by the employer. Now the employer establishes a SEP, using the IRS 5305 model SEP document, and contributes to it for, say, 2014. It just comes to light now, when the CPA starts looking at all the employer's "stuff." I read this as an employer eligibility failure. So it can be fixed under VCP, and it appears to me that the "fix" is to immediately cease contributions, while of course also making sure that all eligible employees received their contributions - if not, make appropriate corrective contributions with interest. Anyone ever seen/done this? Am I missing anything? Seems like a very reasonable solution/correction, without too much "pain" involved for the employer (which is why I want to make sure I'm not missing something!)

An odd one here. Employer established a 401(k) plan several years ago. At the time, it was a 1-person corporation. He rolled in some money that first year, specifically to be able to take a participant loan. Fast-forward to several years later. He now has employees who should have been eligible under the terms of the plan, BUT, he has made no deferrals or contributions of any sort, other than repaying his loan. When I look at Appendix A of RP 2013-12, the correction under .05 (2)(b) is to correct for the "missed deferral opportunity" based on 50% of the "missed deferral." Since the "missed deferral is based on the ADP, which in this case is Zero, then it would appear that there is no correction required! An odd result, but that's where I end up. Any other thoughts?

No, that's not correct. You can file the return prior to the deadline, yet still have until the deadline to actually make the contribution. But always be aware that the minimum funding deadline (if applicable) is independent of the tax extension deadline.

Yep, that's what I meant. Thanks.

Although done through payroll deduction, not part of 125 plan. These should be included in income, and 401(k) deferrals should be withheld from these amounts unless specifically excluded, right?

They ways clients can find to mess things up...someday I'm gonna write a book. Client establishes a 401(k) plan for 2015. Had a SEP for 2014, and swore they didn't make any contributions for 2015. Now we find that they did, in fact, contribute to the SEP for 2015 - made two contributions FOR 2015 in January and February of 2015. Don't know yet if this is a prototype SEP document that would allow contributions to another plan - if so, no problems. But that would be too easy. Let's assume it is a 5305-SEP, or a mutual fund company clone that has same language so that no other plan can be maintained. I'm stretching here - do you think it would be acceptable to amend their SEP document to a prototype allowing contributions to another plan? Personally, I don't think it is, at this point, since we are now in 2016. Possible that the fund company (Putnam) would agree to transfer this directly to the 401(k) plan without reporting as a distribution, but I doubt it, and I couldn't blame them if they won't. Ditto for transferring it back to the employer. But, MAYBE they would... Anybody ever submitted a VCP in this situation, requesting that the amounts remain in the SEP, and just make sure no 415 limits are violated between the two plans? With a SIMPLE-IRA, you can do this, and pay a 10% tax on the amounts retained in the SIMPLE, but I don't see this listed as an option for a SEP in the Appendix C "easy" fixes in Rev. Proc. 2013-12. What a pain. Any additional suggestions/observations appreciated! P.S. also possible that they could convince the fund company(ies) to reclassify as a 2014 contribution, but I don't know if they will do that either...

Curious to see if you think this would qualify. Suppose you have a Union Plan, where the percentage contribution to the Money Purchase Plan varies according to the collective bargaining agreement terms every time it is renegotiated. If you have a formula that says something to the effect of, " The Employer contribution percentage for each Plan Year will be the percentage required under the terms of the Collective Bargaining Agreement applicable to that Plan Year." - or something similar. It seems to me that this satisfies 1.401-1(b), but maybe I've been exposed to airplane glue or something...

This may sound ridiculous, and I've done no research on this, so it is just floating a thought - can you file an amended form for the 2014 plan year as a small plan, and therefore continue to file as a small plan in future years until the magic 121?

Thanks Mike! P.S. - just reading Revenue Procedure 2015-32, which governs the delinquent 5500-EZ filer program, and Section 7 .03 (d) lists the web address for forms after 1989, and for applicable schedules after 1994. Thankfully, Mike provided the method for finding the instructions. For schedules between 1990 and 1994, it appears that you must call the tax form line at 800-829-3676 - actually, if you are so inclined, you can supposedly get forms and schedules for any plan year at this number.

I found the forms themselves on the IRS website going back to 1990, but I couldn't find the instructions for all those older forms. Anyone know where I can find them?

Seems like I should have known that, but if I did, I forgot. Thanks!

Yeah, I'm not sure about it either! Certain provisions of ERISA don't apply, and some do, for example SEP-IRA's are exempt from parts 2 and 3 of Title I of ERISA, etc. - so I'm not sure offhand which ERISA rights might apply and which don't.

First, not knowing the situation, I'd say that you should tread carefully. Did your employer notify you of this? Is it privileged, confidential information? Second, I'm not necessarily sure you have any "rights" as such. If the employer wishes to retain the qualified status of the plan, then "make-up" contributions plus lost earnings would be required for all eligible employees. But, the employer may choose to simply have the IRS disqualify the plan, if it is audited, and pay taxes, interest, penalties for all the deductions that will be disallowed. Hard to even guess without knowing how much money is at stake, employer's general attitude towards employees, etc., etc. Some other folks here may have different opinions or more specific input. I don't know anything about potential state laws, express or implied employment contracts, or perhaps any of a host of other issues that an attorney might raise. Good luck!

Time to bump it up to a supervisor.

"Other than potential discrimination in operation for the timing of deposits, does anyone see a problem funding before year end and immediately converting to Roth?" I can't get to the Roth conversion, because the deposit scheme you propose fails miserably, IMHO. Plan has an allocation method. Contributions must be allocated according to that method. Making a contribution just for the owner on January 1m whether or not he converts to Roth, just isn't acceptable. As the AFLAC commercial guy says when asked if the duck kicking the golf ball into the hole is legal, "That's a big fat NOOO." Others may, of course, disagree.

Haven't ever seen this one. Suppose a non-profit has a formula of 10% of pay. In a given year, they contribute 15%. There's no penalty for a nondeductible contribution because there is no deduction anyway. The question is, can/must it be ALLOCATED even though it violates the formula? My inclination is no - it is an operational violation of the plan, so it needs to be carried over to the next year, for which they can amend the plan to increase the contribution if so desired. Any other thoughts?

Who is your 5500 software vendor? Perhaps this is a problem related to their specific software? I haven't heard of this being an issue before. Have you checked with them?

Someone may have posted this one here before - not my invention, certainly. There is a day coming up in May when all the skunks come out of hibernation and have a big party to celebrate the end of winter. It's called: . . . . . . .Wait for it . . . . . . . . . . . .Stinko De Mayo

Classroom blunders: History calls people Romans because they never stayed in one place for very long. At Roman banquets, the guests wore garlics in their hair. Julius Caesar extinguished himself on the battlefields of Gaul. The Ides of March murdered him because they thought he was going to be made king. Nero was a cruel tyranny who would torture his poor subjects by playing the fiddle to them.

Suppose a non-profit employer has a 401(k) or 403(b), and in addition, has a 457(b) plan. The 401(k) and 403(b) plans define compensation to include deferrals to 457(b) plans. Suppose for a given year, the employer contributes $18,000 to the 457(b) plan as a nonelective contribution - the employee does NOT make a deferral election? Although the general treatment of 457 employer contributions is a deferral for purposes of the elective deferral limit, it seems less clear to me how this should be treated for compensation purposes in other plans. 1.415©-2(b)(1) includes the clause ..."(or to the extent amounts would have been received and includible in gross income BUT FOR an election under....457(b)." (emphasis is mine) 415©(3)(D)(ii) says any amount which is contributed or deferred by the employer "at the election of the employee"... So it seems to me that employer nonelective contributions should NOT be added back in as compensation for purposes of other plans, as the employee has made no "election" for those amounts to be contributed? Thoughts? I can also argue it the other way - if it suited my purposes...

They are each app. 2-1/2 inches wide. Thin paper, small print. Nearly 5,000 pages total. But they are well-made - I've never had any problems with the binding, stuff falling apart, etc. Just saw your last post - I know the website was wrong when I ordere3d mine, because I had this set before, and there was no way they could shoehorn it into 2,000+ pages. Each volume is 2,000+ pages. I called them to confirm it before I ordered.