Belgarath

Oddball question - a 403(b) plan proposes to use the 20-hour exclusion. It is a 501©(3) plan subject to ERISA, and the plan has the appropriate "fail-safe" language if they ever go over 1,000 hours. Now, they have a small collective bargaining unit agreement in place for a few employees, where the collective bargaining unit employees can participate regardless of hours. 1.403(b)-5((b)(4)(i) generally provides that if any employee in (4)(E) is included, then NO employee under (4)(E) may be excluded. Does this preclude allowing the part-time union employees to participate, or does the general "you can do pretty much anything you want with unions where the agreement is subject to good-faith collective bargaining) override this? I'm inclined toward saying it is ok, but I'm not sure I'm specifically getting there based upon the regs. I don't really read 410(b)(4) as specifically supporting where the client wants to be. Any thoughts?

Big caveat - I'm not at all sure I know what I'm talking about! With that in mind, I did look into a similar question some years ago, and from memory... Although the situation you describe shouldn't fall under the nondiscrimination testing for Section 125, I do believe that this is a fringe benefit subject to ADEA and EEOC. Also, I believe a state's disability insurance laws are not preempted by ERISA, so you may have to check the state laws re nondiscrimination requirements for such a plan, if any.

In general, I agree that it will fail ACP. But there are plans with no HC (certain non-profits, for example) or plans ONLY with HC, such as only family, or sole props, whatever. So it can work in very limited situations. Problem is that most of the "buzz" out there neglects to mention the ACP problem.

I'm doing restatements as of 1/1/15. If I'm changing any provisions, (other than permissible changes) those changes are effective 1/1/16, and are specifically listed/designated as effective 1/1/16 in the Appendix.

Without knowing facts and circumstances, and assuming plan year is calendar: Yes, I agree - typically the restatement is effective either 1/1/15, or 1/1/16, or effective 1/1/15 with some provisions not to take effect until 1/1/16, etc... It may well be that the employer is OBLIGATED to pay for the restatement work already done, under the terms of their contract with prior TPA. I have no opinion on that. If it is optional, then certainly it makes no sense to restate twice in a few weeks.

Thanks. Every answer seems to bring up another question, and I may be completely misunderstanding what you are saying. I thought that to remain qualified, a plan has to be administered according to its terms - even a governmental plan. So if the terms of the plan are that there is a vesting schedule - (not because ERISA requires it, but because the employer has chosen to have a vesting schedule) say 6-year graded, for the sake of argument - can't the IRS disqualify the plan even if such a provision isn't legally required, if the plan operationally ignores its own terms? As far as participant enforcement against the plan if the plan operationally violates its own terms, then I assume you are back to State law? (contract law, employment law, etc. - whatever might apply?) Thanks again.

On the surface, I agree this isn't a controlled group. But make sure you explore other issues - is this potentially an affiliated service group, which used different (IRC 318) attribution rules? Even on the basic ownership level of stock ownership - ownership can be based on either voting power or stock ownership, and you also have to consider stock value, so if you have different share classes, be careful. Are there stock options? This could create additional attribution. A wonderful minefield. Clients rarely give all the information necessary to make these determinations, so they should run this by legal counsel if there is any doubt. Of course, when you tell them to, they rarely do...

Yes. See Section 6 .07(3) of Rev. Proc. 2013-12, and update in Rev. Proc. 2015-27 as applicable.

Remember that "The Service reserves the right to limit the use of the correction methods...to situations that it considers appropriate; for example, where the loan failure is caused by employer action." Unusual for an employer to take this step, or give a damn about the employee, unless it was the fault of the employer. Was it? I'm not saying the correction can be used ONLY due to employer action, but the IRS may reject it depending upon facts and circumstances. Was this person, by chance, the owner/a Key Employee, or a self-employed? If so, you can't use the new 14568-E, Schedule 5 under Rev. Proc. 2015-27.

Yeah, but unless your clients are different than ours, regardless of the fact we tell them to seek legal counsel, abut 1 in 100 actually does. And really, for your run-of-the-mill plan, most provisions are pretty well established, and it rarely matters that much. It seems to me that governmental plans are less standardized in that ERISA does not apply, so you can be all over the place with State law, and the likelihood of noncompliance seems greater. That may just be 'cause I've seen very few governmental plans.

Thank you Carol. This raises another question - even if you have a pre-approved governmental plan document from a document provider, some of those items you mentioned are unlikely to be specifically addressed - for example, if you have a Sungard "governmental" document, I doubt it will take into account specific State provisions? If that's the case, does the language have something generic incorporating any State law provisions by reference? If generic, sounds like attorney involvement would be far more crucial for governmental plans than ERISA plans?

Hi Kevin - it is just a Profit Sharing plan. But it was completed based upon a "tax exempt corporation" rather than as a governmental plan - consequently, it contains all the ERISA stuff, which doesn't really matter. I'm more concerned with reliance, but they haven't had that anyway, and wouldn't without filing for a d-letter. Operationally, it looks like everything ok - unnecessarily rigid, as the document is requiring provisions that aren't LEGALLY required (coverage, nondiscrimination, etc.)

This probably isn't that uncommon, but... Found a governmental plan using a normal ERISA VS document. The document has all the normal provisions and specifications including that it is an ERISA plan, etc... Now, as far as I know there is nothing preventing a governmental plan from adopting provisions that aren't legally required - nondiscrimination testing, whatever, whatever. The employer, being governmental, isn't subject to ERISA, so doesn't file 5500 forms, but otherwise operates the plan according to its provisions, even though it doesn't have to adopt a document containing many of the provisions it has. Only problem I see is that they have never filed for a d-letter (which of course isn't required either). So I suppose they could re-adopt a VS document, updated for PPA, by 1/31/2016 (going from memory, that's the Cycle E deadline) and continue to not file. Since they don't have reliance, because the VS isn't a governmental plan document, then I don't think they are in a position that is any worse than they are now. And probably better than not adopting anything, because it at least shows some efforts at good-faith compliance. Or, do you think they would be better off just waiting until someone like Sungard gets IRS approval for a prototype/VS governmental pre-approved plan, which I think is coming in the next year or two, and adopting that?

Thanks Kevin.

Re the correction for 415© violations under the new Section 4.04 in RP 2015-27. Is this limited to plans that do NOT provide matching contributions? The language could probably be read either way. I'm not sure if this is meant to act as an example, or if it is meant to limit it only to plans with no match. Any opinions? "A plan that provides for elective deferrals and nonelective employer contributions that are not matching contributions is not treated as failing to have established practices and procedures to prevent the occurrence of a 415© violation in the case of a plan under which excess annual additions under 415© are regularly corrected by return of excess deferrals to the affected employee within 9-1/2 months after the end of the plan's limitation year."

Anyone know why the IRS doesn't allow SCP for "significant" violations in the 2-year correction period otherwise applicable for "regular" qualified plans? Just curious - seems strange to me. To add an example: Revenue Procedure 2013-12 allows SCP for SIMPLE-IRA plans, but only for “insignificant” violations. Suppose a relatively small business intends to terminate a SIMPLE-IRA, but due to their misunderstanding of the requirements, they do not give appropriate advance notice to the employees for 2014, although they do notify the custodian (sometime in mid-2014) that they are terminating the plan for 2014. When this error is discovered late in 2014, they realize this must be corrected, and that the correction will involve the normal 50% of the missed deferral opportunity, plus the full 3% match, for a total of 4.5% plus earnings for ALL eligible participants, based upon entire 2014 salaries. In spite of the fact that this involves all participants, it is a one-time occurrence. Can this reasonably be considered an “insignificant” violation eligible for SCP? My inclination is no, but I wondered what others think.

Thanks MoJo - a question, and this is just for my own edification, and nothing I'd discuss with a client. In such a situation, if there were an audit, and the penalty/correction would literally bankrupt a client, is the IRS typically open to some sort of "reasonable" negotiated settlement that allows a client to remain in business? That's an end of the business that I just don't see, so I really have no idea, and I'm just curious. Or is it just an unanswerable question, totally dependent upon facts/circumstances?

It's a conundrum. Just looking at a SIMPLE-IRA case where they have had the mandatory 2% contribution in place for nearly 20 years. Don't have all details yet, but it may be that for all those years, they only gave the 2% to those who CONTRIBUTED, not to everyone who is eligible - and it is a LOT of employees, not just a few. They will need to get the advice of counsel, but they are left with some unsavory choices. They have a lot of people improperly excluded, and they probably have no way that they can possibly raise the money for a full correction for all years, if it truly goes back that far. Submitting under VCP seems like a near guarantee that the prior years will be questioned. They can self-correct for two years, but technically to do that, they have to correct ALL years, even the closed years. Or they could terminate the plan (for 2016) and play the audit lottery. I suppose they could try a John Doe submission, but I'm not overly sanguine about their chances of getting an affordable solution approved. I'm not permitted to advise them based upon the audit chances, etc. - I can only tell them what a full correction would be. Ethics question - if they seek the advice of counsel (or they don't, even if I advise them to) and they decide to self-correct for the last two years only, am I committing unethical practice if I assist them in calculating the correction amounts/interest for those two years? If they instruct me in writing to consider all prior years as being in compliance even though I have reason to suspect they weren't?

Not saying the IRS is correct, but they take the interpretation that contributions to fund a safe harbor under 401(k)(12) must be nonforfeitable WHEN MADE to the plan, thus precluding the use of forfeitures. It seems like a pretty strained interpretation as far as I'm concerned, but who wants to try it in court? Plus, as far as I know, the pre-approved plan docs for PPA already incorporate this interpretation ('cause that's what the IRS wanted in the LRM's) so it is a moot point as to whether it is technically correct or not - that's what the plans say. Looks like Tom already beat me to it...

Good points. I like your approaches better than mine!

You are right, of course, but I understand that this is an attorney who is belligerent and argumentative by nature, and once the plan language is pointed out will then want proof that it isn't permissible under the Code/ERISA/Regulations. "Why is the Plan written this way?" I think you are all familiar with the type. So I thought I'd look at this in advance to try to forestall a lot of foolishness. Sigh...

Thanks Lou. The only other thing I could find was the Rodoni case. The Rodoni case in 1995 involved an IRA, and was, I believe, a case of first impression. It isn’t directly on point here, but it does provide some useful discussion as to the right to rollover contributions being specific to the individual.

Employer A sponsors Plan B. Mrs. X is a participant in Plan B. Mr. X works for an unrelated employer, and will be terminating, and wants to roll his money into his wife's (Mrs. X) account in Plan B. We all know you can't do this, but it is difficult to provide citations. All I could think of was the exclusive benefit rule under 401(a)(2) and ERISA 401(a)(1)(A), as well as the regulation under 1.401(a)(31)-1, Q&A 3 that specifies clearly specifies that a direct rollover that satisfies 401(a)(31) is “…an eligible rollover distribution that is paid directly to an eligible retirement plan for the benefit of the distributee.” Clearly the spouse is not the distribute. Not to mention, of course, the plan document, which naturally wouldn't allow this. Any other easy pertinent citations that I'm missing? I'm sure I've seen something on this before, but couldn't find the thread.

I agree, I don't think the regulations address this specifically. I vote for not counting the interest. It seems absurd to me to suggest that earnings on an IRA rollover, for example, which has nothing to do with employer contributions, should affect top heavy testing. And I would assume that was the intent of excluding non-related rollovers in the first place. FWIW, I checked with our folks who do valuations, and Relius does NOT include the earnings on unrelated rollovers.

ADP refunds are reported on a 1099-R, not a W-2. And yes, the employee has been told that the distributions are reported to the IRS. As I said, don't know why he refuses to cash the checks.