Belgarath

Aargh! IF that change/interpretation is taken by the IRS, it will shoot down about a gazillion plans (give or take a half a dozen.)

Thanks. That's what I thought.

Thanks, but remember, I'm not talking about a distribution. The question is regarding the right to an allocation.

Take a look at the IRS LRM language. This should help you out. Link: https://www.irs.gov/Retirement-Plans/Listing-of-Required-Modifications-LRMs

I don't recall anything official published by the IRS on this, although maybe there was and I've also forgotten. But I think the concern may be based upon 1.401-1(b)(2) which requires "recurring and substantial contributions."

Remember this? I'm getting some disagreement on something, and I wanted to make sure I'm not crazy. Money purchase plan had NRA of 59-1/2. Plan provided for an allocation upon termination of employment if you had reached NRA, regardless of hours. Plan was timely amended to change NRA to age 62. A participant has now reached age 59-1/2 this year (2016), and is terminating employment. I say that participant is not entitled to an allocation, because participant hasn't reached NRA. I don't see any anti-cutback issues, because participant had not attained previous NRA of 59-1/2 prior to the effective date of the required amendment. Agree/disagree?

I posted a slightly different version of this a couple of years ago, and I'm wondering if there are any new responses/thoughts that anyone cares to share? I'm just wondering if there is any "typical" procedure followed by either the funding companies or the Plan Administrators. Suppose you have a non-profit, who uses a salary-deferral only adoption agreement, and specifically elects to not have ERISA apply. But, the plan also allows loans, and has QDRO procedures. The DOL "safe harbor" is rather unforgiving, in terms of any employer discretion. So, the employer can't make QDRO determinations, or determine eligibility for distributions, loans, QDRO's, withdrawals, etc... What I'm wondering is this: it is all fine and wonderful for the employer to say, "I'm not going to make these determinations. That will be up to the vendor." In real life, how many vendors actually do this? Won't most vendors send a form to the employer, saying "you need to authorize this distribution/QDRO/whatever" and this action on the part of the Administrator, if taken, makes you lose the non-ERISA status. How do you see this handled in real life?

Just call him Wart. Because it rhymes with Art. Gosh, it must have been around 35 years ago when I read that book - forgotten all about it. Maybe I'll have to re-read it!

Ok, I see what you are saying. Point well taken, and I haven't considered it, but probably won't take the time at this point, since it is N/A in this situation anyway. But I'll keep it in mind! Thanks.

Maybe I'm misunderstanding your question, but I don't think so. "Rate" of match actually effectively goes down as deferral rate (over 3% threshold, below which there's no match at all) increases.

Yes, it is considered ERISA 403(b) and 5500's have been filed as required.

January 1, 2016 (I see now that Tom already answered this)

Interesting. I'm not even sure submission for a d-letter is necessarily required in this case - base document includes both MP and PS/401(k), so has required ACP language, and I think the MP formula can just be entered in the "other" option in the MP AA. But I'll have to look into it in greater depth. I'm just glad to know someone out there has at least seen the same thing! I'm sure there was a good reason for doing this way back when, but I'm having a hard time figuring it out...and it doesn't much matter at this point - have to play the hand you are dealt! Thanks Kevin.

Ran into a very odd (to me, anyway) situation yesterday. A non-profit corporation has an ERISA 403(b) plan, which is deferral only, immediate entry, with some excluded classes, but has the "fail-safe" language so that if anyone in these classes ever works 1,000 hours, they are in. The Money Purchase plan is unusual. 1 year/21 for eligibility, once eligible, no service or last day requirement to share. But, the employer contribution is a fixed 9%, but it is contributed ONLY to anyone deferring 3% or more to the 403(b) plan. It states that this contribution shall be considered a matching contribution for ACP testing purposes. Now, don't ask me why it was designed or set up this way in the dim and distant past - I have no idea. I think, in spite of the odd formula, that this satisfies the "definitely determinable" formula requirement of 1.401-1(b), but I haven't yet considered how this would work for coverage or nondiscrimination testing. Anyone have any thoughts they care to share, or have you handled/encountered one like this? Just had a chance to look at this in a little more depth for the first time. Turns out that (for now at least) coverage/nondiscrimination testing isn't even an issue, as there are no HC whatsoever! But based on the census/participation, looks like they would pass anyway. Strange case...

Well, as an example - IRS penalties for failure to timely file 5500 forms. Penalties may be imposed upon either the Plan Administrator or the Employer. See Treasury Regulation 301.6652-3(a)(3). And of course the DOL imposes penalties for late filing on the Plan Administrator. But I don't know if you are talking about an ERISA 403(b) or not. (3) Annual return of funded plan of deferred compensation. Under section 6652(f) the amount described in this subparagraph is imposed in each case in which there is a failure to file the annual return described in section 6058(a) on behalf of a plan described in § 301.6058-1(a) at the time and in the manner prescribed therefor (determined with regard to any extension of time for filing). The employer maintaining the plan is liable for the amount imposed with respect to a failure to so file the annual return in each case in which the employer must file the return under § 301.6058-1(a). The plan administrator (within the meaning of section 414(g)) is liable for the amount imposed in each case in which the plan administrator must file the return under § 301.6058-1(a). In the case of an individual retirement account or annuity described in section 408, the individual described in § 301.6058-1(d)(2) who must file the annual return under § 301.6058-1(d) is liable for the amount imposed with respect to a failure to so file the annual return. The amount imposed is $10 for each day during which the failure to file the annual return on behalf of a plan for a year continues. However, the total amount imposed with respect to a failure to file on behalf of a plan for any year shall not exceed $5,000.

Thanks Kevin - unfortunately, ours (Sungard VS in AA format) doesn't have quite such a clearly flexible piece of language. To paraphrase a bit, ours says that for purposes of the ADP test, the period for determining 414(s) compensation must be either the Plan Year or the calendar year ending with or within the Plan Year. It then goes on to say, "An Employer may further limit the period taken into account to that part of the determination period in which an Employee was a Participant in the component of the Plan being tested." The plan in question does exclude "pre-participation" compensation in the component of the Plan for which the definition applies, so it seems quite reasonable to test for ADP from July 1 only, but I do have a query in to Sungard to see if they concur.

I think I'm suffering from some sort of brain cramp. Probably normal Monday morning... New plan for 2015, non-safe harbor, current year testing. Deferrals were not permitted until, say, July 1. When running the ADP test, is it run using full year compensation, or compensation only from July 1? There's technically no short year. While it seems "reasonable" to only consider comp from July 1, I'm not finding regulatory support jumping out at me - but then, I'm probably missing something. Thanks! Hmm - under 1.401(k)-6, the 414(s) compensation may be limited to the period the employee is eligible, provided it is applied uniformly, etc...- but I would think that this would require the plan to exclude "pre-participation compensation" in order to use only comp. from July 1. Thoughts?

"Solo-k" is really just a marketing term - it is not a separate type of plan under the IRC. So a "solo-k" is whatever the document requires/allows, as determined by the vendor/entity that writes the document and administers the plan. If the plan permits and the vendor allows it, you could have any number of people in the "solo-k."

Thanks. Fortunately, I just reviewed the actual salary reduction agreements, which it turned out were NOT the IRS model, and the funding company's form specifies per "paycheck" rather than the IRS wording of per "pay period" so there's no ambiguity there!

More than 5%. P.S. as to the second part of your question, you are correct - HC for 2015, based on 2014 comp.

P.S. - this is a SIMPLE-IRA. You wouldn't think there is room for any interpretation here, but... The model salary reduction election provides for a flat dollar amount or a percentage to be withheld "...from my pay for each pay period..." Suppose you have someone who has elected a flat dollar amount - say $50.00. Once a year, they are paid a bonus, which is paid in a separate paycheck. Clearly the bonus must be considered when determining total compensation for purposes of calculating the 3% matching contribution and limit. But is (A) withholding $50.00 required, or (B) is it not required since the bonus was paid during a "pay period" when $50.00 was already withheld from "regular" pay? I'm inclined to think this could reasonably be argued either way. It matters in this situation because the employer botched the SIMPLE for years for a whole bunch of employees, and needs to file a VCP correction. So I can submit using interpretation (B) to see if the IRS approves, and fall back to (A) if they don't, but I don't want to bother with attempting (B) if I know it is a losing proposition. So, I just wondered if anyone has encountered this before, and if so, with what interpretation/results? Thanks.

"So, basically, if the plan fails ACP and it's not corrected in one year, ALL NHCE's eligible will have to get something? Often, this will lead to having to open up several to dozens to maybe hundreds of accounts with tiny balances. That seems a somewhat Draconian punishment." BG - I don't disagree, I just think that's what the correction in the Appendix requires. You can always actually submit through VCP to see if you can get the IRS to agree to giving only to people who deferred, but I don't like your chances, and the time and expense seem hardly worth it, even with the new reduced fees. However, I've heard anecdotally that the IRS has been pretty reasonable to work with on some of these VCP situations, so you never know...

Hi Gary - thanks for the response, but these former employees have been "located." Their addresses are known. If you feel comfortable with a non-responsive employee not being considered "located" that's fine, but the plan sponsor wants to get these contributions made and be done with it. As it so happens, subsequent to the original posting, the vendor decided they could modify some procedure or other and agreed to establish the accounts. But for future reference, thank you for your response.

BG - my reading and understanding is that you must give to all eligible NHC - you can't give it just to those who deferred.

Take a look at Revenue Procedure 2015-28. This gives you a roadmap.