Belgarath

So, now that we have self-certification for hardship reasons for hardship withdrawals... Some plans allow loans only for hardship reasons. We generally draft the loan procedure to define "hardship" as one or more of the 401(k) "safe harbor" hardship reasons. Occasionally, there are other oddball hardship reasons which are added due to a specific participant situation - furnace died, dog ate the homework, broke a fingernail, etc.... Anyone see a problem with allowing employee self-certification for a hardship reason that is one of the 401(k) "safe harbor" hardships? I feel quite comfortable with it, but perhaps I'm missing something. Thanks for any opinions.

I've always found the following requirement somewhat scary, as it is subjective on the part of the IRS: An explanation of how the failure occurred and a demonstration of the existence at the time of practices and procedures reasonably designed to promote and facilitate overall compliance. Obviously, even if you have great procedures, mistakes can happen, which is one reason that EPCRS exists. I'm curious if anyone has ever had a plan audited, where SCP was used, and the IRS disallowed the SCP due to a perceived defect in such "reasonable" procedures?

Agree, assuming the plan has the requisite language.

Re your first question only - not necessarily. If the bond is increased to at least the full amount of the non-qualifying assets, and you meet enhanced SAR requirements, you could still avoid the audit. Take a look at DOL regulation 2520.104-46 for detailed info on the subject.

Hi Peter - I haven't given this an exhaustive reading, but it appears to me that re question #1, the most potentially useful changes (for what I perceive as the majority of practitioners on this board) are #'s 2, 4, and 6 under Q&A-3. Self-correction is now allowed under 2 and 4, and the correction period for Significant failures is no longer limited to the "3 year" period. I didn't have a "wish list" so I have no comment on your question #2. As to question #3, I've never had a real rule of thumb - it has always been facts and circumstances, as we don't do a lot of VCP submissions. Someone who deals with them on a more regular basis could doubtless provide you with some thoughts on this. Being of an essentially conservative nature on these issues, I guess if the Self-Correction is "gray" I'd at least tell client they should check with ERISA counsel as to whether they believe VCP is indicated, or if they are comfortable with Self-Correction.

Well, theoretically (or maybe practically) speaking, an employer might not want to match these higher catch-up contributions, either for financial reasons or considering it "unfair" to younger catch-up eligible employees, or both. Possibly other reasons I haven't considered. I'm feeling particularly antiquated myself these days, so I need some reprogramming. Our son was discussing a new "smart" TV with us the other day which I'm not smart enough to understand, and I informed him that he was (A) going to go to the store with me to tell me what I should buy, and (B) he was going to set it all up for us at our house. With what it costs to raise your kids, there needs to be SOME small return on the investment...

I see Mr. Bagwell and I were typing responses at the same time!

Depending upon your plan design, you might well satisfy ADP via the safe harbor, yet STILL need ACP testing if there are matching contributions that don't satisfy the ACP safe harbor. The testing for the Profit Sharing, again, will depend upon your profit sharing formula, and whether you utilize a "design based safe harbor" under the 401(a)(4) regulations, or whether you are general testing, etc. Also, there's no automatic top heavy exemption, even in a 401(k) safe harbor, if you are making profit sharing contributions or reallocating forfeitures. So be careful on this. Your 401(k) safe harbor contributions can be used toward top-heavy, but may not be sufficient if you are allocating safe harbor based on compensation from date of participation. There are enough possible "hooks" or complications, depending upon the specific plan design and employee census, so that using general answers from this board is risky business. If I were you, I'd discuss with co-workers/supervisors/etc. to get some clear direction/instruction, and consider sources such as the Erisa Outline Book, for example to give you a better understanding of these issues.

I'm just not sure I will thrive along with them...this foolishness is turning me into a grumpy old man. ☠️

if all HCE's are excluded, not an issue.

Most people these days used pre-approved DC documents, which as advised above, will almost certainly have language dealing with this situation. I'd add that if there is one, you should carefully look at the Appendix to the Adoption Agreement, as this often contains overrides to the "boilerplate" language in the basic plan document for this (and other) provisions. I speak from the embarrassing experience of occasionally forgetting to check the Appendix in the past - I'm much more careful now - the burned hand teaches best!

To my non-legal mind, this seems like a reasonable and equitable decision.

You've probably checked this already, but have you used their EIN to see if 5500's have been filed for 19, 20, and 21? If so, did client prepare themselves, or have their CPA do it, etc.? Seems like the client or CPA/financial advisor should know SOMETHING about what happened, but maybe not... Hopefully someone here will have some better ideas for you. Good luck!

Agreed - we routinely recommend that the employer have this option in their plan - if they never use it, no harm, no foul, but it is there. Sometimes, they still don't want it there, as they do not want participants to have any expectation of a profit sharing contribution, but that's unusual.

Our clients are so wildly diverse in their employee populations/employment patterns, human resources/payroll competencies, HCE "greed factor" etc., that I haven't been able to formulate a "general standard" - although to be truthful, I haven't expended excessive thought on it. These conversations are helpful in that regard, so thank you for your observations!

I know nothing about finding records, etc., but I pulled this write-up off the internet. I can't vouch for its accuracy, but if true, perhaps the regulatory authorities might be able to provide you with some insight. https://www.fa-mag.com/news/ex-lpl-advisor-pleads-guilty-to-robbing-clients-of-more-than--2-8m-69610.html

Hi BG - with the editorial comment that the "less than 20 hour" exclusion is administratively hateful, I think this link will answer your questions. For the first year, as long as the employer "reasonably expects" the employee to work less than 20 hours per week then even if that employee goes over the 1,000 hour mark, the first year exclusion is still valid. Thereafter, if the employee has ever worked 1,000 hours in a prior year, that exclusion is no longer valid. Hope this helps. Also there's the usual caveat re specific document language. https://www.irs.gov/retirement-plans/issue-snapshot-403b-plan-the-universal-availability-requirement

Hi Paul - that's exactly the discussion I was just having with a co-worker about 10 minutes ago! Truth is stranger than fiction...

Hey Bill, I submitted mine on April 4th, and they mailed it on April 28th. Maybe they were giving me special Senior treatment...

And just to give credit where it is due, I submitted for this new cycle in April, and received my updated certificate in LESS than 4 weeks. Fastest turnaround I've had for this.

When you say "no issue" I assume you are asking/meaning if it is PERMISSIBLE to have different requirements, and you are correct, there is no prohibition against it. A lot of plans aren't top heavy anyway, so the loss of the automatic top heavy exemption is meaningless in many cases. Although we prefer same eligibility requirements for administrative reasons, we have a fair number of plans that have different eligibility requirements.

Thank you. That's precisely the answer I came up with, but I was questioning myself... nice to have greater minds than mine agree!

Starting with the applicable plan language: Rehired Eligible Employee who had not satisfied eligibility. If any Eligible Employee who had not satisfied the Plan's eligibility requirements is rehired after severance from employment, then such Eligible Employee shall become a Participant in the Plan in accordance with the eligibility requirements set forth in the Adoption Agreement and the Plan. However, in applying any shift in an eligibility computation period, the Eligible Employee is not treated as a new hire unless prior service is disregarded in accordance with Section 3.5(d) or (e) below. Ok. The underlined language does NOT apply (that is, 3.5 (d() or (e) don't apply) in the following scenario, so we can ignore the underlined clause. This is concerned with entry date. Plan uses age 21, 6 consecutive months with at least 500 hours for eligibility, entry date quarterly. If eligibility requirements not met in the initial specified time period (6 consecutive months with at least 500 hours) then the employee is subject to the 1 Year of Service requirement. After the initial 12 month eligibility computation period, the computation shifts to Plan year, which is calendar. Original date of hire, 6/6/2017 - Date of termination 8/20/2017. Had 200 hours of service. Rehire date of 8/2/2021 - had 833 hours in 2021, over 2,000 hours in 2022. So, since the employee had not met eligibility prior to termination, then what is the entry date? Is it 4/1/2022? 1/1/2023? Other? It appears that since the employee is not treated as a new hire for the eligibility computation period shift, then the eligibility computation period shift has already occurred, and is now Plan Year 2021, then 2022, etc. Thoughts?

Paul's suggestion to first check the plan document is excellent. I personally haven't noticed (but I haven't really looked) a document that specifically defines what constitutes a "complete discontinuance" - ours merely says that if there is a complete discontinuance, then any affected participant will become 100% vested. Which still leaves it up to Administrator discretion to determine what constitutes a complete discontinuance. Unless there is a whole lot of money at stake, I say discretion is the better part of valor in these determinations.

Yes. You always have to fila a final form.