Belgarath

I've seen a whole bunch of SIMPLE's that were operated incorrectly due to this, and I agree that it is very poorly communicated. And yes, I agree that it is stupid. A landmine for any "average" client who thinks a "SIMPLE" plan is actually "simple."

Agreed. Or perhaps more accurately, it doesn't fall under one of the "pre-approved" fixes under RP 2018-52, but still an operational error. The correct amount of deferral was withheld - just misclassified, so given that it was only for one participant, certainly an "insignificant" error IMHO, and eligible for self-correction.

Ugh. How much money is involved? Does this help? https://www.irs.gov/retirement-plans/fixing-common-mistakes-correcting-a-roth-contribution-failure

Perhaps something along these lines, in the "other" option, or whatever you have available in your particular Adoption Agreement. Tailored, of course, to your specific situation. And just for safety, I'd have similar language in the Resolution adopting the amendment. Effective (date), the normal service and entry date requirements are waived for (name(s)) ONLY, for all contribution types. This special retroactive amendment is for correction under Revenue Procedure 2018-52.

Get it from the client. Otherwise, you incur the liability for any error that occurs due to using incorrect compensation.

Thanks for the confirmation. I didn't think I was missing anything, but I've been wrong a time or two...

My apologies. It was a sole prop originally, but had previously changed to an unincorporated partnership. Then just changed to the LLC. We were informed that the EIN did not change when this change to the LLC took place.

EIN does NOT change. Plan name changes, and name of plan sponsor changes, but no change in EIN, nor is there any change to the Trust id#. This doesn't call for filing an 8822-B, since neither the address nor the "responsible party" is changing. No SS-4, since Trust id # doesn't change. The name change will be reflected on the 5500 form when filed. Am I missing anything here? Client's attorney is telling client IRS needs to be notified of this. If so, how? Maybe when they file their tax return?

I find that the term "excess annual additions" often means different things to different people. Do you mean there was a 415 violation, or that under the terms of the plan they received more than the maximum allowed by plan formula, (e.g. comp used was $100,000, and they received a 3% SH of $3,000, when their comp was really $90,000, so the SH 3% would have been only $2,700), etc., or something else?

Thanks for the responses.

Gracias.

Larry - this is related to a different question I had asked, re the timing of employer matching deposits. Is the TIMING of such deposits considered an "other right or feature" and therefore just has to pass normal BRF testing, or is it something else? Was the IRS discussion in a BRF context, or nothing quite so formal? Thanks.

Thanks. And of course, amending plan to add this provision would be really popular with those less than 20 hour employees who have been deferring all along, and now you tell them they can't...

When considering this further (and maybe I'm thinking backwards) it seems to me that utilizing this exclusion for prospective (new) employees only would violate the "consistency" requirement. In other words, adding the 20 hour exclusion to apply only to new employees would mean that some existing employees who have been eligible to defer, and never had sufficient hours to move out of that exclusion category would be permitted to defer. And that negates being allowed to use it, right? So I think you have an all or nothing scenario - you amend the plan to exclude EVERYONE who meets the parameters to be under the 20 hour exclusion, or you can't use it, period. Thoughts? Have I mentioned that I hate 403(b) plans? For the less than 20 hours per week exclusion and for the student exclusion, if any employee who falls under one of these exclusions has the right to make elective deferrals, then no employee who falls under such exclusion may be prevented from making elective deferrals.

Unusual situation. Suppose safe harbor match, with a per payroll match. Deposit requirement for match on deferrals made in a given quarter is therefore by the last day of the following quarter. Reasons don't matter, but payroll system is such that for most employees, the match is actually deposited per payroll. For other employees, system won't handle it, so deposit of their safe harbor match is proposed to be made monthly or quarterly. This seems to me to fall under the "other right or feature" category in 1.401(a)(4)-4(e)(3), and therefore subject to BRF testing. And so, as long as these employees represent less than the 50% safe harbor percentage, it would pass. Other opinions/thoughts?

Yes. No. See 1.416-1, T-24.

Thanks Kevin. Especially for a relatively large employer with a lot of part-time employees, I think this offers nearly unlimited opportunities for screw-ups, and I certainly wouldn't recommend it!

Can you add a "less than 20 hour" exclusion prospectively, to eliminate people who have been deferring already? So for example, everyone is eligible to defer. But, (pick a number - say 20 out of 200) of these employees have NEVER worked 1,000 hours. Can the plan be amended prospectively to add the <20 hour exclusion, and therefore exclude these employees? Arguably this wouldn't violate the provision that if ANY employee in this exclusion category (<20 hours) is allowed to defer, then no one else in this exclusion can be prevented from deferring. Mind you, I fully agree that this whole thing is typically a disaster waiting to happen...

Well, plans MUST provide for the RMD distribution, (for the more than 5% owner) regardless of other distribution provisions. That doesn't require anything special. An in-service distribution doesn't even need to be an "option." If a plan sponsor insists on an annuity option, etc., while we would attempt to persuade the sponsor otherwise, we certainly would amend the plan. We wouldn't lose a plan over this! After all, we get paid by the hour - if the plan sponsor wants to engage in what we perceive as foolishness, it is ultimately not our problem, and their choice. We try to guide and counsel them, but sometimes they ignore our advice for their own reasons.

We always recommend lump sum only, but a few plans choose to allow periodic payments of some sort. In defense of the IRS, they did allow us to remove all the periodic payment options without an anti-cutback problem, as long as lump sum is available. 99% of the clients follow our recommendation, but we do allow the option for something other than lump sum.

That was my assumption as well. But I do enjoy asking crazy questions sometimes.

Do you have a citation for that? I'd have said (absent additional research) that this rule applied to deferrals, but NOT to employer contributions. Thanks.

Basically a ridiculous academic question, although I suppose it might have some applicability in the future for some sort of required amendment that pertains to all plans. In these days of mostly pre-approved DC plans, suppose there is a required amendment, let's say something like the DOL disability regs or whatever, that is adopted by the document sponsor on behalf of all clients. It requires an SMM. Is an SMM legally required to list the Plan and Employer name? Clearly the SPD must do this as per the DOL regs, under 2520.102-3. But I'm not certain that this specific requirement pertains to the SMM, as this information isn't changing - I didn't find, on a mid-level look, where it is specifically stated. Didn't use the fine-toothed comb. If not legally required, it could facilitate a "generic" mailing to all clients. At best, I think it is foolish not to include plan and employer information, but is it ever an option not to? Curious as to any opinions on this.

Working through this - getting there, but still some basic questions. For purposes of Cafeteria plan Contributions and Benefits (C&B) testing, let's say you have a plan that includes several types of benefits, one of them being health insurance. While the plan was amended to allow for owners to elect pre-tax salary deductions for health insurance, NONE of them have elected to do so. So it appears that there are three potential tests. First, the "safe harbor for health plans" test under 1.125-7. It appears that this automatically passes, as no HC is paying premiums through the plan. Correct? And the fact that there are other benefits (FSA, dental, vision, whatever) doesn't affect this? Second - the "availability standard" test. Since the plan has no "employer contributions" and all benefits are available on a nondiscriminatory basis, this passes. Question - does this often fail? Seems like most plan designs would typically pass with no trouble, but I have little experience in this, so I'm curious. Third - the "utilization standard" - this is just mathematical testing, and will require salary data, etc... Thanks in advance, and any observations are most welcome! P.S. When there are HSA "catch-up" contributions, are these included in the testing? In the qualified plan arena, catch-up deferrals are excluded for 415, etc., but I don't know that there is any such dispensation in the 125 world?

I suspect you will get different opinions on this. I've heard at least one ERISA attorney describe the process as a "get out of jail free" card where such errors can be retroactively corrected via the restatement. Not necessarily sure the IRS would agree. Did the SPD correctly describe the matching provision, as well as any other employee communications?