Belgarath

I have the following excerpt from an old write-up. Can't recall the name of the firm that posted it. Maybe "Plan Sponsor" ? Any opinions as to whether this is still accurate? The final 403(b) regulations do not state conditions under which an entire 403(b) plan would lose its tax-qualified status and thus fail to be a 403(b) plan. However, the final regulations do list three situations where all of the contracts in a 403(b) plan would not be section 403(b) contracts, as follows: a) If the employer fails to have a written plan which, in form, satisfies 403(b) (plan document requirement); b) If the employer is not an employer eligible to sponsor a 403(b) plan; and c) If a plan fails to satisfy the nondiscrimination rules (including the universal availability requirement for elective deferrals). Well, if they are not section 403(b) contracts, what are they? They become nonqualified annuity contracts under Section 403(c), where the contributions (but interestingly, not the earnings), would become taxable to employees. Note that, though it is not entirely clear, it is presumed that custodial accounts would be treated the same as annuity contracts for this purpose, since 403(b)(7)(A) of the Code treats contributions to a custodial account as amounts contributed to an annuity contract.

Thanks Bird. The FIS "standard" notice does include this, but I agree with you that this crosses over the ridiculous line. We're updating our notices, but also not losing any sleep if we miss any.

Hi Bird - thanks for the response. I had thought of that, but 1.401(k)-3(d)(2)(iii) doesn't list this as one of the items that can be cross-referenced in the SPD. We discussed this issue in staff yesterday afternoon, and sort of a "benign neglect" stance seemed reasonable. In many cases, we won't know in time to do the normal safe harbor notice anyway. I agree, the "risk" seems minimal, particularly since the employees will be notified via a SMM when an amendment is adopted, and will be notified semi-formally before that. A lot of angst over something which to my mind is relatively insignificant...

Suppose you take the approach that the 5,000 cash out limit will increase to 7,000 for 2024, unless the employer informs you otherwise. Is there any dispensation on the timing of including this in the safe harbor notice? Or, realistically, issue an updated one once it is truly "known" as to whether or not, and exactly when, it is effective? I presume the latter...

Well, based on this sketchy information, I'd say the employer is correct. If the leave was PAID by the employer, that would be different. But it sounds like it wasn't, and an employer is not required to count unpaid FMLA hours of service for benefit accrual purposes. And don't confuse VESTING service with benefit accrual hours. Your SPD should have detailed procedures for you to appeal the Plan Administrator's decision if you wish to pursue it. Follow the procedures to the letter if you choose to appeal. Free advice is what you pay for it, so don't rely on this. You could, of course, engage ERISA counsel, but I seriously doubt the benefit, even if you were to prevail, would be worth it.

So, employer (A) is purchased in a stock sale by Employer (B), let's say on April 1 (yes, humor intended). Employer A has a 401(k) plan, Employer (B) has a 401(k) plan. Both are calendar year corporations. (A)and (B) become a controlled group as of the date of the purchase. Most of the employees of (A) transfer to (B) as of the date of purchase Employer A does a plan termination as of November 30 of that same year, and DISTRIBUTES all assets, except to the now employees of (B) who ELECTED to have their funds transferred to (B)'s plan. Others chose to receive a distribution. (I'm going on incomplete information here - all details not yet known). So when there is an impermissible distribution of deferrals under the Successor plan rule, what's the correction? Anyone gone through VCP and gotten an approval for a correction that doesn't require heroic and "unreasonable" results? P.S. - I know we've discussed this before - and in a VCP filing where participants rolled to the new plan, we'd probably ask to consider these as "transfers." Or something like that. It's more the participants who rolled it out to an IRA, or took in cash that I'm not sure of.

We normally prepare and submit VCP filings. We did have one case where the attorney formally submitted it, but hired us to prepare everything. Normally there is no attorney involved. Luke's suggestions seem good to me, but typically our plans are small employers, and they don't want to pay attorney fees for what are normally fairly routine corrections.

I agree with Lou, although it always does seem like the time involved is an absurd exercise. Was there any missed match associated with the $5.00? If so, the missed match, plus earnings, should be included in the correction. Maybe the correction will turn out to be a whopping $6.00 instead! 😁 It's been years since we had a client submit a 5310 upon plan termination, even though we always notify them of the option and make it their choice. No one here laments the loss of that process...

Going to climb up on my soapbox for a minute. These penalties are asinine beyond belief, and the authorities should be thoroughly ashamed of this. Totally inexcusable. I don't object to "reasonable" penalties for compliance failures, and to be a little bit fair (although it pains me) the IRS is usually pretty reasonable if good faith efforts have been made. But the assumption of guilty until proven innocent just frosts me, particularly when the penalties are all out of proportion to the severity/effects of the violation. Climbing down now. A long, steep climb...

My favorite definition of chutzpah is a child who murders both his parents, then throws himself on the mercy of the court because he's an orphan. As to the more important issues here, aside from the possible illegalities or violation of professional conduct codes, (about which I know nothing) it is a shocking breach of general professionalism and common courtesy. P.S. - I'm guessing that this attorney is not an ERISA attorney? I find it hard to even imagine that an ERISA attorney would take this stance, but I'm not an attorney, so maybe such an opinion is justifiable somehow from a legal standpoint - I'm not qualified to judge. Sounds to me like you did everything you could from your end, properly and professionally! Thankfully, your client had the trust to bring you into the loop rather than blindly following the attorney's pathway.

Is this confined to one or two districts, or is it a nationwide mess?

Deleted.

I once heard, a long time ago, that there was such a thing. I only see it now with expletives.

Fascinating!

Thank you for the information!!

Thanks Peter. Assume this was a mistake by the employer/Plan Administrator. Aside from correcting, is this a Prohibited Transaction for a fiduciary breach, and the appropriate penalty tax should then be paid?

A somewhat simplistic example - Plan has a default investment - investment (A). Participant chooses to invest funds in (B) and (C). There is a failure on the part of the Employer/Plan Administrator to implement these investment choices, so for some period of time, Employer continues to deposit the Participant's funds into (A). What is the proper remedy here, IF the default investment underperforms the investment returns under (B) and (C)? I can't find that this falls under one of the fiduciary breach correction options under VFC. It does appear that the Participant can perhaps seek relief under IRC 502, as per the LaRue case, but I'm no lawyer, and the implications of various court cases can best be interpreted by those who are! Can the fiduciary simply compare the returns, and if the Participant "lost" higher investment returns, just deposit the lost gain? If they don't, then does the Participant then have to go through the steps for an ERISA claim and first exhaust the administrative remedies available, then bring suit? (And an ERISA suit for very small returns would cost far more than the potential gain...) I'm sure this can't be all that uncommon, yet I find very little discussion of specific remedies or options. Maybe just a "regular" PT - correct and pay the penalty? Thanks for any thoughts.

😁 Yes, it is a constant mystery to me why some clients PAY us (not nearly enough, of course) to do admin, then refuse to do what we tell them to do!

Thanks Paul. Yeah, we'd love it if the spinoff plan was to be maintained going forward, (we suggested that) but the withdrawing employer doesn't want a plan at all. So the spinoff plan will be established and immediately terminated. A Royal PIA, which is why I was hoping there was something easier. Ah well...

Maybe I'm just being stupid here - seems like an excessive amount of silly work when there's maybe a sensible workaround. Real situation, but first time I've encountered this particular situation. A MEP. Big "lead employer" (A) and a 3-person (no HCE's) participating employer (B) as a MEP. Participating employer (B) withdrawing, so will no longer be a MEP. Participating employer (B) does not want to maintain the plan, but the employees of (B) are not terminating employment with (B). As I understand it, there needs to be a spinoff plan with (B) as the sponsor. It is (B's) intention to have the assets transferred to the new spinoff plan, and immediately terminate. (B) does not want to allow any deferrals or contributions to the spinoff plan. Since the existing plan permits Roth deferrals, one of the participants has Roth deferral account. Trying to figure out if the new plan can accept this Roth deferral account if the spinoff plan doesn't allow deferrals at all, so that there is technically no "designated Roth account" - and/or is there another way around this that isn't penetrating my skull? Am I worrying about nothing?

Thanks. In this case, modesty is inappropriate, so a FULL fee would seem indicated!

Getting pushback from an advisor (CPA) on this, and while I'm always ready to consider that I'm wrong, I don't THINK I am on this. For a 1-person plan (sole prop, corp, whatever) the CPA is saying the lifetime income illustration is required. I say otherwise. SECURE amended ERISA 105(a) to add this requirement. ERISA 105(a)(1)(A) exempts the pension benefit statement requirement for one participant plans described in ERISA 101(i)(8)(B). The lifetime income disclosure under 105(a)(2)(B)(III)(iii) falls under 105(a)(2)(B) in general, which refers to statements required under clause (i) or (ii) of paragraph (1)(A) which as stated above, exempts the one-participant plans. Am, I missing anything?

Yes! Monday morning brain cramp - wasn't thinking clearly...the 401(k) feature isn't effective until the plan year beginning 11/1/2023 anyway. Duh. Sometimes I scare myself.

I've seen no formal guidance on this question. Grandfathering for the SECURE 2.0 auto-enrollment for plans established prior to 12/29/2022. If a plan with a plan year of 11/1/2022 to 10/31/2023 is signed prior to the end of the plan year, (i.e. prior 10 10/31/2023) is it considered "established" for purposes of the grandfathering, or must the document have been SIGNED prior to 12/29/2022? Any formal guidance that I've missed? Otherwise, I've seen differing opinions...

Well, perhaps consider the following scenario. (Excerpt from OP below.) Let's assume, just for the heck of it, an April 15, 2013 DOH. First eligibility computation period is 4/15/2013 to 4/14/14. Less than 1,000 hours in that period. Second eligibility computation period is calendar year 2014, with 1,000+ hours. So entry date is 1/1/2015. Furthermore, if 1,000 hours in 2015, would have 2 years of vesting service, so under a 6-year graded, would be 20% vested. Seems possible, although not necessarily likely. Not enough information yet to tell. "A former employee who worked from April 2013 through October 2015 was rehired in 2021. We are currently trying to find out from the employer whether this participant - although they were eligible for the plan on January 1, 2015 - received an allocation for 2015"