Belgarath

Thank you for your thoughts on this. Yes, we'll agree to disagree. I interpret the section in conjunction with the definition of Overpayment in Section 5.02(4), which states that "Overpayments include both payments either made from the participant's or beneficiary's 403(b) custodial account or annuity contract under the plan or not permitted to be paid under the Code, the regulations, or the terms of the plan." (My emphasis) I think this approach also may make more sense (although when does that matter) in that otherwise, if the employer is unsuccessful at recovering the money (as is likely in a hardship situation) the employee receives a windfall. I'm dubious that this would be an intended result of the correction program in this situation. So, I'll stick with saying the Employer doesn't have to make up the payment if "reasonable" efforts don't succeed, but I very much appreciate your comments.

Thanks for the responses. Flyboy - the Revenue Procedure specifically states that the "make-up" employer contribution doesn't apply in this circumstance. See Section 6.06(4)(b). Hence my question as to how extensive the actual correction will be.

Old post here, but I was curious about the same basic question. Does anyone do updated SPD's every 5 years? Most folks I know do them only when plan is restated. There's no civil penalty, as long as you provide an updated one when asked by participant or DOL, so it would only be possible criminal penalties - which seems ridiculous - I've never heard of them being imposed for a plan that timely provided an SPD and provides timely SMM's.

This may not be that uncommon, but I can't say I've seen it. 403(b) plan has custodial accounts only - not annuities. Plan provides for hardship distributions on deferrals. So far, so good. However, the employer allowed hardship distributions from employer contributions, as well, and disn't restrict it as they were told to do. This happened on 5 out of 60 or 70 participants. There's no allowable SCP correction by amendment on this, as there might ordinarily be on hardship issues, because the plan can't provide for hardship withdrawals on employer contributions in the custodial accounts. So, this is an overpayment that would need to be corrected under Section 6.06(4) of Revenue Procedure 2013-12. This means the employer must take "reasonable steps" to have the overpayment returned, with interest. Well, since these were hardship, chances of getting it returned are about nil. In this situation, there's no requirement for the employer to "make up" any overpayment that isn't returned. So here's my question - it seems like the only "piece" of the correction that still applies is the notification to participants that this wasn't an eligible rollover distribution. Well, they already know that - they were informed at the time that they took the distribution that it would be subject to 10% penalty tax if they didn't meet one of the other exceptions. So really, what is the actual correction here? I can't see what it might be, other than to "NOT DO IT ANY MORE." Is there any actual correction that can be done, other than a basic letter attempting to recover the impermissible distribution plus interest? And when that doesn't happen, end of story? Anyone had any experience, or audit experience on such a situation?

Just wondered if anyone had any thoughts on the following - excerpt from a discussion among "DB people" - which I am not! A little background - fairly young - mid-30's S-corporation owner, no employees, app. 200,000 in high 3-year average compensation, looking to potentially start a DB plan. The discussion was on which method to use to get maximum contribution, and whether there are any potential downsides to using the 10 year approach? I'd appreciate any thoughts. When designing a new plan, and coming up with a formula, I have usually been taking the conservative route and using a unit credit formula that funds for 100% at NRD when taking into account the number of years to retirement. So for example, if a 40 year old was interested in setting up a one-person DB plan, and wanted to know what type of annual contribution he could expect, I would probably set up a 4% per year formula for 25 years of participation assuming NRA of 65. My question is in this example, could I do 10% for 10 YOP? This person would be limited by the 415 $ limit and I'm just trying to figure out what the plan would look like once he's accrued the full benefit. There may be COLA increases for the 415 $ limit, but otherwise wouldn't he be keeping the plan for 15 more years (age 50 to age 65) with the chance that there may not be much in the way of deductible contributions during those years? I just don't know if I have flexibility to use a formula that accrues the benefit quicker than the number of years to retirement. If so, would it make sense to do so if someone is interested in higher annual deductions now. Response: The formula is limited by IRC section 415, which phases in the DB dollar limitation over 10 YOP and the 415 percentage of compensation limitation over 10 YOS. For a very-high-paid owner, the DB dollar limitation will be lower, and hence will apply. Thus, even if you give a 100% per YOP formula, the 415 limit regulations effectively converts the formula into a 10% per YOP formula for the very=high-paid participant. The 10% x (YOP not > 10) x AvgComp is the most common formula I see for one-person plans. It is simple, easy-to-understand, and it corresponds approximately to the DB 415 limit phase-in.

We'll agree to disagree, but I think you are misinterpreting the document language. I agree it says you "may" - but the "may" allows you to exclude "all" - NOT "all or some" - so you have discretion to exclude all, or none. Anyway, that's just my take on it - and free advice is worth what you pay for it. And mine is probably worth even less!! TGIF

I don't know offhand of a listing, although there is undoubtedly one out there somewhere. A SEP can be maintained by any employer. 408(k) doesn't restrict governmental or tax exempt employers. HOWEVER, a SARSEP was/is restricted - see 408(k)(6)(E) - and of course they are now restricted anyway... As for a SIMPLE, tax-exempts and governmental may establish them (if you pass the 100 employee test, etc.) see IRS Notice 98-4. http://www.irs.gov/pub/irs-irbs/irb98-02.pdf

Unless I'm missing something here, the excess amount wasn't an "eligible rollover distribution" under 1.402©-2, - see Q&A-4. It seems to me that it already was distributed from the plan in 2013 (so no further amount is due from the plan for the ADP failure) but the IRA has an ineligible amount in it, and it must be distributed from the IRA. Then again, maybe I'm looking at it backwards...

Are you allowed, as a payor, to charge for a corrected 1099 if the error was not your fault? I guess I'm just cranky this morning, but I'm so sick of having to waste my time for the screw-ups by other people that I could scream! Possibly it's just the 16 below zero temperature in March that seems a bit excessive. People are starting to get very short-tempered...

I'm not so sure about the arbitrary choice. Seems like an aggressive interpretation - personally, I'd lean toward having to include all of the otherwise excludables in the separate testing plan, rather than just some of them.

Is there any reason to think it would be excluded, in the absence of a specific modification to W-2 definition in the Plan? Seems to me that it should be included. This is just my own "from the hip" take on the subject - haven't done any research.

I'm not certain that anything new is actually required. However, if the original SPD didn't specify that Plan expenses may be paid from the Plan, I'd sure do a SMM. But perhaps I'm beong overly cautious.

I see no problem with what you propose - with the usual caveats - plan and loan policy must allow it, proper documentation necessary to prove valid principal residence loan, etc., etc.

"Does anyone know Wachovia's policy as of May 2010? Anyone have a pdf of the actual Plan?" I'm not an investment person, so I honestly have no idea, but a couple of thoughts - someone may know the answers to this. Is it possible that this language from Wachovia for their IRA had to be registered with the SEC, and if so, is it possible to easily obtain it from them? Same question with the IRS - IRA agreements, I believe, are approved by the IRS? If so, is it possible to obtain easily from them?

Thanks for the responses. FA - those aren't real numbers - it was strictly to attempt to illustrate the point. As I reread the original post, I probably could have made the question a lot easier: If one plan of a separate corporation in a controlled group has qualification problems, does it "taint" any of the other plans in the group? Or in this case, if one plan fails testing, does it taint the remaining plan that can pass testing? Mweddell - thanks for your response.

An expansion on the topic from a few days ago, and I'm not sure about this question. Background: You have a controlled group, corporations A and B. Each corporation has a separate 401(k) plan. Assume 401(k) deferrals and match only, no other contributions. For employees who have met age/service and are eligible: Plan A has 10 HC, 9 of whom are deferring. It has 90 NHC, 80 of whom are deferring. Plan B has 2 HC, both of whom are deferring. It has 10 NHC, 7 of whom are deferring. When testing the plans separately for coverage using all employees from both plans, Plan A passes with no problems. But Plan B does not pass. Here's my question - does Plan A get "tainted" or potentially disqualified due to the problems with Plan B failing coverage testing? Or is Plan A ok, and just Plan B has the problems to deal with? I'm really not sure on this.

Gracias. Of course, since a lot of plans have an HC who is eligible in both plans, and the plans can't pass coverage separately when considering all employees, you're going to end up testing them together anyway... Anyway, thanks for the responses - nice to find out I hadn't completely lost my mind. I was starting to wonder...

Thanks Tom - but specifically with regard to #2 - do you agree that it is a true statement? I believe I'm correct on this, but as I said, today isn't a good day...

I've been confusing myself here, and now I'm questioning what I think I know. Two corporations - A & B. They are a controlled group. Each maintains separate plans. Let's assume deferrals and match only - no employer PS contribution. 1. IF there is no HC eligible for both plans, then the plans can remain separate, and be tested separately for all purposes - coverage, ADP, etc., etc. - Agree/Disagree? 2. IF there is at least 1 HC eligible for both plans, then they can still test separately for coverage. Assuming they pass coverage testing separately, they can also perform separate ADP/ACP testing, BUT, they must take into account the deferrals and match by the HCE's on BOTH plans (due to mandatory aggregation) when performing each separate ADP/ACP test in Plan A and Plan B. Agree/Disagree? 3. Now let's assume in 2 above that the plans cannot pass coverage separately - once aggregated for coverage, they must also be aggregated for ADP/ACP testing. Agree/Disagree? Other thoughts? I need a vacation...

GROAN!!! Real life is a PIA. I'm not certain without looking at all the facts and circumstances of a given situation - since paid in September, it is past the 2-1/2 months to be considered post-severance compensation, so I'd probably leave 2012 alone, and no deferrals or PS on it for 2013. This certainly isn't etched in stone. I might change my opinion in a given situation - as I said, hopefully it will never rear its ugly head.

From the very first time you posted it, I've always referred to it as the TPA Theme Song. It captures the essence of the TPA experience.

Wow, interesting question. FWIW, I'd include it as compensation for 2013, use the 2013 deferral election, and ADP test it for 2013. (As an aside, many docs define the compensation for a plan year as W-2 for the determination year - the determination year being the plan year in the absence of any other election). While I recognize the 415 issues that must be considered, I think the document language (if defined as above) provides sufficient justification not to re-do history going back possibly several years. It's also more "reasonable" as far as I'm concerned. The potential problems and expense involved in retesting, possibly failing, top heavy, HC determinations, etc - you name it, are so ridiculous that I'd absolutely avoid it if there's any reasonably justifiable alternative. In fact, even if the document language is silent, which seems unlikely to me, I think I'd still do it based on 2013. That's my story and I'm sticking to it. Until I change my so-called mind... P.S. - I sincerely hope I never have to deal with this in a real life situation!

Tom - it occurs to me there's a song there for you to perform. Add a chorus, and use the tune of Merry Wanderer. It's not my job to run the train. The whistle I don't blow. It's not my job to say how far, the train’s supposed to go. Chorus: It wasn’t me. Use SCP. Audit Cap. It was you so please just shut your trap You see. It wasn’t me. Please pay me quoted fee. I'm not allowed to pull the brake, or even ring the bell. But let the damn thing leave the track, And see who catches hell! Chorus: It wasn’t me. Use SCP. Audit Cap. It was you so please just shut your trap You see. It wasn’t me. Please pay me quoted fee.

Just a thought - IMHO it seems to me that the plan would still be "covered" for 2013. The PBGC premium filing instructions state that PBGC premiums must be made "through and including" the plan year in which the plan ceases to be a covered plan under ERISA 4021. I'd interpret this to mean that until the year following when the participants are paid out, the plan is "covered" under PBGC. In addition, under ERISA 4021(a), coverage applies for a "plan year" unless one of the exceptions under 4021(b) applies. Again, it seems to me that since it is not maintained exclusively for substantial owners until the plan year beginning in 2014, it is subject to ERISA 4021 for 2013, and therefore the combined plan limits do not apply. However, I'm not a "DB person" so I think you'd be better off relying on the opinions of the actuarial types here on this board! When Filing Obligation Ceases You must continue to make premium filings and pay premiums through and including the plan year in which any of the following occurs:  Plan assets are distributed in satisfaction of all Benefit Liabilities pursuant to the plan’s termination.  A trustee is appointed for the plan under ERISA section 4042.  The plan disappears by transferring all its assets and liabilities to one or more other plans in a Merger or Consolidation.  The plan ceases to be a covered plan under ERISA section 4021. The following examples illustrate when the filing obligation ceases: Example 1 – A calendar-year plan terminates in a standard termination with a termination date of September 30, 2012. On April 7, 2013, assets are distributed in satisfaction of all Benefit Liabilities. The Plan Administrator must file and make the premium payments for the 2012 and 2013 plan years.

Thanks!