Belgarath

Wow, you really do know people in high places...

I have no opinion...

Snow hasn't made it up North yet, but depending on which forecast you get, anywhere from 6 to 20 inches. I suspect we'll be closer to a foot or so. Springtime! Not nearly as severe as the blizzard of '78, when I was in college in the Boston area. A week without classes! But we had power, food, and plenty of beer. The best of all possible worlds, if you didn't have to work for a living... I'm not overly nostalgic about "the good old days" but that was a great week.

Your instincts are correct. The answer is no.

Ah, I get what you are saying - the dispensation under (10)(B)(ii). Thanks.

Thanks, but even if a wholly owned subsidiary, how can Corporation B sign on as a Participating employer in the Corporation A plan, without violating the "only plan" rule for a SIMPLE? Corporation B would then be sponsoring both a 401(k) and a SIMPLE during the same calendar year. That's the part that is hanging me up.

Corporation A sponsors a 401(k) Plan. Corporation B sponsors a SIMPLE-IRA. Corporation A is purchasing Corporation B in a STOCK sale, not an asset sale. Question is, can the employees of Corporation B participate immediately in Corporation A's 401(k) plan? I don't think so. While there is the IRC 410(b)(6)(c) transition period and the 408(p)(10) period available for continuing to run the plans separately, since this is a stock sale rather than an asset sale, the corporation still exists, and the SIMPLE can't be terminated mid-year. If it were an asset sale, then no problems. Any other thoughts/opinions?

For anyone who cares, yesterday the IRS announced a revised (downward) HSA contribution limit of $6,850 (a $50 reduction from previously announced limit) for participants with family coverage. Participants with self-only coverage are not affected. https://www.irs.gov/pub/irs-irbs/irb18-10.pdf

Perfectly possible that client performed legitimate services while in prison - correspondence, corporate decisions, etc. - I would check with the CPA first, to see how this was paid, (W-2, Schedule C or K, etc.) and then move on from there once you have that information.

In your example, since you are within the SCP period, I think it should be 25% across the board, if you comply with the notice requirements, etc., plus of course full appropriate matching if applicable, and earnings. Also see examples from the IRS fix-it guide. Example 2 is included because it contains data for example 3, which appears to be the appropriate example for your situation. Example 2: Corporation XYZ maintains a calendar year a 401(k) plan that contains automatic contribution features. In this case, all employees in the 401(k) plan automatically have salary reduction contributions of 3% of compensation withheld from their pay. Participants may decrease or increase this amount by filing an affirmative, written election. In 2016, XYZ realized four employees hired in June of 2015, were improperly excluded from the plan due to an administrative error. XYZ discovered the failure in 2016 and auto-enrolled the employees in the 401(k) plan as of April 1, 2016, and began withholding 3% of their compensation as salary reduction contributions to the plan. On May 1, 2016, XYZ issued a special notice to employee that satisfied the content requirement specified in Rev. Proc. 2016-51, Appendix .05(8). XYZ does not have to provide a corrective contribution for the missed opportunity to make salary reduction contributions due to the employees’ improper exclusion from the plan in 2015 and first three months of 2016. The conditions of the Appendix .05(8) safe-harbor were met when: Improperly excluded employees were enrolled; special notice provided within the applicable 45 day period; and The above actions occurred within 9 ½ months after end of the plan year which the failure first occurred (i.e., before October 15, 2016); and XYZ is still responsible to pay corrective contributions to the 401(k) for any 2015 or 2016 matching contributions or employer contributions, if applicable, that the employees would have been entitled to under the terms of the 401(k). Example 3: Assume the same set of facts, except that the terms of XYZ’s 401(k) plan did not provide for automatic contribution features. Assume the excluded employees become plan participants on April 1, 2016, and at that time were given the opportunity to participate in the 401(k) plan. XYZ issued the special notice on May 1, 2016. Under these facts, the lost opportunity cost for the missed deferrals would be 25% of the missed deferral amount for 2015 and first three months of 2016. Adjust this amount for earnings through the date of correction. This is permitted because XYZ complied with the special safe harbor requirements in the Appendix A.05(9) safe harbor discussed in Rev. Proc. 2016-51. XYZ would still owe 100% of any owed corrective contributions associated with matching or non-elective employer contributions, if applicable, and all corrective contributions would have to be paid to the plan before the end of the second plan year beginning after the initial year of the failure.

IMHO, the transition period is not available in the situation you describe.

Gracias.

I don't have much information, but extrapolating/guessing from what I do know, the following situation may be the actual situation, or close to it. Suppose you have a non-profit foundation, that does whatever - provides canoe trips for blind dogs and cats so that they are less stressed. They have a U.S. operation, and a Canadian operation. Let's ASSUME that the same board controls both organizations, so they are a related group. The U.S. organization has a non-ERISA, deferral only 403(b). They have NOT been allowing the Canadian employees to participate, and there is no separate plan. Now, I can't find where the Canadian employees (I THINK they are all Canadian citizens, not U.S. citizens) can be "excluded" under the Universal availability regulations. But, perhaps the plan could simply exclude all non U.S. source income COMPENSATION, which would accomplish the same thing, as they are paid purely for work in Canada? Or actually, as I think about it, they should be able to exclude Nonresident aliens, I think, which depending upon the circumstances should take care of that "problem." Never seen a situation even approaching this, and curious if anyone else has? By the way, no highly-compensated employees, apparently.

For $500 bucks an hour, I'll give you an opinion. Heck, I'll even give you a second opinion!

Not so sure about that. If you take the approach that option A is allowable, then how is it automatically a cutback? Also, under the "3 year continuation" - probably the next paragraph - doesn't that also appear to indicate by its very nature that such an amendment isn't automatically a cutback? Haven't really thought this through - just a couple of quick thoughts...

Hi Austin - I'm sure you know this already, but a client such as you describe almost certainly will throw you under the bus if anything goes sour with option A. Are you even presenting this to them as an option? I'd certainly be inclined not to, although I don't know the details of the situation. I suppose you could do the old, "I don't recommend this, but if after getting an opinion from ERISA legal counsel you wish to proceed in this manner, here's a hold harmless to sign if you instruct me to proceed in this fashion" routine. Now, I'm not an attorney, and I don't know how successful a hold harmless is if defending yourself in a lawsuit - any attorneys out there who would like to weigh in on this? But it usually scares the clients enough so they don't proceed with the risky option - they just hate to sign a hold harmless. Good luck on this one - clients like this make me wish I'd listened to my Uncle Jerry, who counseled me to become an optometrist.

FIS will apparently be sending some clarifying information on this in the very near future.

Hi Larry - can you elaborate as to why the regulations don't affect the plans? (I understand that in "real life" a denial of disability status is uncommon, so mostly it doesn't affect anything.) However, in many of our plans, "Total and permanent disability" results in 100% vesting, as well as a waiver of normal allocation conditions - I'm focusing on the DC plans for the moment. So I don't see how we could tell our clients that the regulations don't affect them. We certainly can, and probably will, say something along similar lines, such as "These regulations don't affect you UNLESS you have a situation where you are denying "Total and Permanent disability status" for a participant, and that denial has a negative effect on any provisions in the Plan that are applicable to that Participant." A few other items for discussion - there is no formal amendment date that I can see, but the regulations are effective after April 1. So are you going to notify your clients to follow these regs, prior to doing the amendment? Also, I haven't really thought through the implications if the regulations aren't followed. Assume total and permanent disability status is denied. What can the participant "get" if the Participant goes to court - in other words, what damages are realistically available, beyond simply 100% vesting them? I will say that in all my years in this business, I've never seen a problem situation arise, in a DC plan, due to this disability issue. Doesn't mean they haven't happened behind the scenes, but nothing has ever been brought to my attention. This might be a more serious issue in DB plans. Anyone have special thoughts on that issue? Thanks to all for the discussion.

Thanks Peter. Good to know. Hopefully the situation will never arise!

Boo. Hisss!

Like many people, I'm looking for methods to have these regulations not apply to normal 401(k) plans. Amending hundreds of plans (and attempting to explain this crap to clients) isn't high on my fun list. Sure, we can do a plan sponsor level amendment - and that's probably where we'll end up... So I toss this out there for you attorneys. Suppose a pre-approved Plan document currently says that the determination will be made by a licensed physician. Doesn't specify who chooses the licensed physician. If the Plan Administrator institutes a written policy that the determination of Total and Permanent Disability is made by a licensed physician CHOSEN BY THE PARTICIPANT, (and also accepts a SSA determination or under the employer's LTD program) is this sufficient to remove discretion, so that an amendment isn't even necessary? (I'm not saying this is necessarily a good idea - in fact, might be a very bad idea if participants get names of licensed physicians who are "easy" and will certify practically anything.) Just trying to look at any angles. It is frustrating, because the real life application of all this is so limited and a denial situation so uncommon that it is a whole lot of time for, generally, nothing. Whoops, I guess that describes my life in the TPA world.

Impossible to say. I do believe there is a "risk" of, at the very least, an auditor giving a client a rough time. Our clients are mostly "small" (less than 100 employees) and have little to no tolerance for additional fees for us to fight/educate the IRS, much less any additional legal fees if it becomes necessary. Of course it is sometimes necessary, but we try to head off potential trouble as much as reasonably possible. As Tom mentions, others may take a much more aggressive stance. They may well be right - I haven't seen audit results for such a plan, 'cause we don't do them. As an aside, I have rarely see a plan designed to be truly aggressive in this manner, or, depending upon your viewpoint, not being aggressive, but "utilizing this technique to reach the very limits of its applicability."

I tend towards cowardice on this issue when it comes to pushing the very edge of the envelope. I have visions of IRS auditors packing .44 magnums and saying, "Go ahead, make my day."

Wow, even worse than I thought! Interesting discussion. So taking something a bit less "legalistic" than a QDRO, what about a hardship withdrawal? Plan allows it, but subject to the vendor/funding company decision. Funding company, in turn, says they won't process it unless the Plan Administrator "signs off" on it. So a participant who has a legitimate hardship can't get it. Is this now a fiduciary problem because investments weren't properly selected? Can State law compel one party or the other to "do it" or does this just circle right back to the same issues discussed above? And while all this plays out with the lawyers fighting, the participant's hardship, which is presumably an immediate need, sits in limbo. What a ridiculous set of conflicting rules/responsibilities.

Thanks Peter. I don't actually have any such situation - my questions are, at this point, academic. The small 501(c)(3) plans that often use elective deferral only plans, rarely engage legal counsel in situations where it should be sought, I'm willing to bet. Certainly they don't when sponsoring 401(k) plans...