Belgarath

You can implement an ACA mid-year. Can't for an EACA or a QACA as you mentioned.

We did buy it - it just arrived yesterday, and I haven't even looked at it. Probably won't get to it for a while. But it isn't really all that expensive, and I expect it will likely be well worth it, particularly if, like me, you aren't an ESOP expert.

Yeah, and since it is a cutback, my solution under VCP (in addition to changing retirement age to 62) would be to amend the plan to add an early retirement provision at age 60, and allow distribution at age 60 of all accounts EXCEPT for the pension accounts. That way everyone can still get distributions at the same time (age 60) that they could before. Sigh...

I have a personal bias against assuming plans of another employer. By the time you do all the due diligence to feel comfortable with assuming all the assets and liabilities (especially the liabilities) I swear it is often easier, possibly less expensive, and cleaner to just set up a new plan and credit prior service with the old employer. Let the prior employer worry about terminating it. Probably everyone else thinks my opinion is crazy, but I'm used to that.

Thanks Kevin - again, sadly, this was missed. Although such an interim amendment was available, it was never executed.

Sadly, no. The PPA interim amendment has language for age 62 distributions of pension funds, but has nothing increasing the NRA to 62 or later.

I just came upon a PS Plan with a NRA of 60 - normally fine in a PS plan, BUT, this was formerly a MP plan that was amended and restated to a PS plan. Since there are pension assets, the NRA of 62 isn't allowable in this case (it isn't an industry that can reasonably demonstrate or argue that NRA of 60 is normal or representative of the industry) So here's the conundrum - easy to amend to 62, but it seems to me that this is an impermissible cutback. What does one do in this situation? If you leave it alone, it is noncompliant and you can't rely on the pre-approved language. If you amend, it is a prohibited cutback. Do you have to submit to IRS under VCP as a document failure? And even if you do, what "fix" can reasonably be proposed? Should have known better than to review a plan on Friday the 13th!

I believe, offhand, that 5a is ALL participants, whereas 5d(1) is only "active" participants. 1. Active participants (i.e., any individuals who are currently in employment covered by the plan and who are earning or retaining credited service under the plan). This includes any individuals who are eligible to elect to have the employer make payments under a Code section 401(k) qualified cash or deferred arrangement. Active participants also include any nonvested individuals who are earning or retaining credited service under the plan. This does not include (a) nonvested former employees who have incurred the break in service period specified in the plan or (b) former employees who have received a “cash-out” distribution or deemed distribution of their entire nonforfeitable accrued benefit.

Suppose you have a plan where compensation is defined as W-2 - as many are. Further suppose you have a taxable fringe benefit, such as life insurance over 50,000. (P.S. edit - the taxable amount of the life insurance is not considered part of the salary, but is in addition to it) Using a simplified example, suppose the employee has a salary of $52,000, paid weekly. The taxable amount for the life insurance for the year is $1,000. This amount, while taxable, isn't "paid" in cash to the employee, but shows up on the final pay stub only - it isn't listed per payroll period during the year. And of course it shows up on the W-2. If the employee has a 10% deferral election in place, do you find most payroll providers/employers: A. Withhold 10% of $2,000, or a total of $200, or B. Withhold 10% of the normal $1,000, or a total of $100, or C. Something else. Just curious.

Yup, we are all in agreement. Thanks for the responses.

Just wanted to make sure I'm not missing anything. Employer has SIMPLE-IRA - didn't make appropriate contributions for 2014 - didn't allow eligible participants to participate. This will be self-corrected via RP 2013-12, by an employer make-up contribution. I don't believe this employer contribution is listed anywhere on the W-2. Only employee deferrals to the SIMPLE would be listed on the W-2. Any disagreement?

Yes - that's what actually brought up the question.

Oh, I can definitely see (and have seen) situations where an employee also is legitimately paid on a 1099 as an independent contractor. One real example that comes to mind - employee worked at a lumberyard as an employee building roof trusses by day, but also had an auto repair business on the side repairing trucks. The lumberyard would sometimes have him repair trucks, as his rates were somewhat cheaper than many local garages, and they trusted the quality of his work. However, Austin's point is well taken - this is an area where there is a lot of abuse, and is subject to a lot of scrutiny. Depending upon the facts and circumstances of the "special project" it could be legitimate, or it could be crapola. Personally, I would just question the employer to make sure it is legitimate 1099, and then I've done my due diligence. If it turns out it was incorrectly classified, it is the employer's problem (and they can pay me to fix it.)

On the assumption that your document language either allows it or is neutral on the issue, I wouldn't see any problem with that. Life insurance premiums, for example, can be done in a lump sum in a given year, again, because the incidental test is aggregate.

Employer has a SIMPLE-IRA, but inadvertently excludes an employee for all of 2014. This will be corrected in 2015 via a make-up contribution. Is employee an "active participant" in a plan for 2014 for determining deductibility of any IRA contribution? Unless I'm off base, under 1.219-2, it is the later of the date the contribution is made or allocated. So since made - or will be made in 2015, then not an active participant for 2014. Any other thoughts?

I believe this is an aggregate test. So the 25% limitation is based upon the aggregate contributions, and aggregate amounts allocated to the 401(h) account. If your plan allows life insurance, you need to take this into account as well. Take a look at the last paragraph of 415(h), which discusses the aggregate nature of the test. Caveat - I've never actually SEEN a plan with a 401(h) account... As for words of wisdom, free advice is worth what you pay for it!

I'd suggest you contact FT William directly and ask them these questions? I have found them to be very helpful and straightforward, and they can probably answer this question for you very quickly.

Assuming catch-up eligible, catch-up is not an "annual addition" subject to 415. See 414(v)(3)(A)(i) and 1.415©-1(b)(2)(ii)(B).

I've never seen plan loans at prime rate. First, I might think about checking with the auditor for the 5500 forms to see if they think prime is acceptable. I guess I'm a little surprised that it hasn't been questioned (or perhaps it has, and they decided prime was ok). If so, I'd ask them to look at it again, and provide documentation/citation for that position. I'd probably then ask if this decision was made in conjunction with or reviewed by tax/legal counsel. If so, I would ask to see the opinion, or try to discuss with that advisor. Assuming the above isn't applicable or doesn't resolve anything, I'd then refer the client to 2550.408b-1(e). I find it very hard to believe that "persons in the business of lending money" would charge prime rate for loans which would be made under similar circumstances. But maybe I'm wrong... And then I'd point out the consequences of having a loan program that fails to meet the Prohibited Transaction exemption rules. But all done very carefully, of course, as I understand you don't want to alienate a new client and/or auditor/legal/tax counsel. Seems like the TPA is always the bad guy. Have fun! (e) Reasonable rate of interest. A loan will be considered to bear a reasonable rate of interest if such loan provides the plan with a return commensurate with the interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. Example 1: Plan P makes a participant loan to A at the fixed interest rate of 8% for 5 years. The trustees, prior to making the loan, contacted two local banks to determine under what terms the banks would make a similar loan taking into account A's creditworthiness and the collateral offered. One bank would charge a variable rate of 10% adjusted monthly for a similar loan. The other bank would charge a fixed rate of 12% under similar circumstances. Under these facts, the loan to A would not bear a reasonable rate of interest because the loan did not provide P with a return commensurate with interest rates charged by persons in the business of lending money for loans which would be made under similar circumstances. As a result, the loan would fail to meet the requirements of section 408(b)(1)(D) and would not be covered by the relief provided by section 408(b)(1) of the Act. Example 2: Pursuant to the provisions of plan P's participant loan program, T, the trustee of P, approves a loan to M, a participant and party in interest with respect to P. At the time of execution, the loan meets all of the requirements of section 408(b)(1) of the Act. The loan agreement provides that at the end of two years M must pay the remaining balance in full or the parties may renew for an additional two year period. At the end of the initial two year period, the parties agree to renew the loan for an additional two years. At the time of renewal, however, A fails to adjust the interest rate charged on the loan in order to reflect current economic conditions. As a result, the interest rate on the renewal fails to provide a “reasonable rate of interest” as required by section 408(b)(1)(D) of the Act. Under such circumstances, the loan would not be exempt under section 408(b)(1) of the Act from the time of renewal. Example 3: The documents governing plan P's participant loan program provide that loans must bear an interest rate no higher than the maximum interest rate permitted under State X's usury law. Pursuant to the loan program, P makes a participant loan to A, a plan participant, at a time when the interest rates charged by financial institutions in the community (not subject to the usury limit) for similar loans are higher than the usury limit. Under these circumstances, the loan would not bear a reasonable rate of interest because the loan does not provide P with a return commensurate with the interest rates charged by persons in the business of lending money under similar circumstances. In addition, participant loans that are artificially limited to the maximum usury ceiling then prevailing call into question the status of such loans under sections 403© and 404(a) where higher yielding comparable investment opportunities are available to the plan.

I believe, from memory, that you don't have to submit if it is a Demographic Failure. But since this sounds like an operational error, then I think you have to submit. If you did a 401(a)(4)-11(g) retroactive amendment, this would be a Demographic Failure, and wouldn't require a d-letter submission. Big caveat on this one - no research done to confirm if above memory is correct!

"Just how is the refund going to be made by the 15th since the PO is closed?" You will make the refund by the 15th if you do it on any day up to the 15th, inclusive. If the PO is closed on the 15th, you make sure it is done no later than the 14th. If the PO is closed on the 14th, you make sure it is done no later than the 13th.

So here's my approach, being generally disinclined toward potential confrontation with the IRS: Who wants to fight with the IRS, even if you use MJB's approach and are ultimately proved right? Do the refund by the 15th. If by some accident, lack of time, whatever, you don't get it done until the next business day, you treat it as done timely if that would have been your approach anyway. If the IRS disagrees, you can fight it out, and you are no worse off than if you had taken that position to start with.

Caveat - I have done no research on this whatsoever. But I seem to have a faint memory of a correction under Revenue Procedure 2013-12, and I think it may have been Appendix A under improper exclusion of eligible employees. My hazy recollection is that the ADP failure must first be corrected with regard to those employees who were actually provided the opportunity to defer. Then you'd have to deal with coverage issues, and the appropriate correction for excluding employees. But again, this is very much off the cuff, so don't trust this opinion! I'm sure you'll get some better answers. Another question - any possibility that the 401(b)(6)© exclusion applies for the plan year in question, so that you don't fail coverage? Probably not - that would be too convenient!

FWIW, I come down on the side that deferrals shouldn't have been withheld. Assuming the plan specifically defines the entry date to be, in this case, January 1 of 2015, and assuming the plan requires employment on the entry date, it seems like a stretch to me to say it is ok to withhold deferrals when they clearly terminated employment prior to the entry date.

Just the nonelective.