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LANDO

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Everything posted by LANDO

  1. LANDO
    Bird, in an ideal world that's how it should work, but on my larger plans sponsors sometimes engage outside counsel to "review" their amendments and restatements, and of course they need to justify their fees and show why they should be included in every minor decision and amendment, and I guess that's what I'd do if that's how I got paid, but that was the genesis of this debacle. Fortunately it doesn't happen that often. The funny part is, the way the outside counsel drafted the permitted dispartiy language they want included, it would fail the 401(l) safe harbor. Sheesh! MoJo, I don't know that you'd need to recordkeep the two contribution types separately since all the non-elective contributions are going to be tested together anyway. It does make some sense from the perspective that you could certainly set up a separate plan for each contribution. I guess if you can do something with two separate plans, you should be able to do it with a single plan??? Tom, I haven't really thought through the math, but if a pro-rata or integrated plan had to pass 401(a)(4) I think it still might be possible to fail non-discrimination if they have allocation conditions. As in, they pass coverage, but becasue you bring zeros into the averages for testing 401(a)(4), you could fail non-discrimination. So I could be wrong, but I believe there is still an advantage to having a formula that qualifies as a fail safe. Maybe that wasn't even your point, but I thought is was in interesting intelectual exercise.
  2. LANDO
    So I have a plan sponsor that wants to draft their profit sharing allocation formula to allow them to decide on an annual basis if they’re going to make either a pro-rata based on comp contribution, a contribution using permitted disparity (two tiered), or both. Seems to me, with all this discretion this “formula” with all its flexibility would violate the definitely determinable allocation formula requirements. In my mind, I’ve always thought discretion meant a sponsor could determine the amount they will contribute each year, and a participant should be able to determine from the formula how that amount would be allocated. That said, you can put each participant in their own allocation group, so does “definitely determinable” really mean anything anymore? Since an allocation using any of the possibilities this sponsor is contemplating (pro-rata, integrated, or both) would meet the permitted disparity rules, seems like they would still have a safe harbor allocation formula. Agree? They also are expecting us to jam this formula onto our VS document…a long describe line! What prevents a sponsor from selecting all the allocation options in a VS document and saying they’ll choose one at the end of each plan year? Maybe I just don’t like stuff that is out of the box, but this doesn’t smell right to me. Anyone care to share their thoughts?
  3. LANDO
    Yes, there is significant common ownership, but not enough to make it a CG. Well, if no one cares...I'm jumping on that bus!
  4. LANDO
    Thank you QDROphile. I will look at the Regulation and see what Rev Procs I can dig up. That said, I guess I'm still not clear what you're saying. So are you saying you'd have a good comfort level with retroactively amending and not filing, or are you saying I may be able to find some support for not filing? Generally, I take a pretty conservative approach to corrections and I'm just trying to get a feel for how others view this scenario.
  5. LANDO
    Let me put that a different way...I would LOVE to get my head around that approach. I wouldn't think this is the type of amendment that could be made retroactive, even to the beginning of the current plan year. Generally, retroactive amendments are allowed in only narrow circumstances...do you feel a supportable arguement can be made that a correction like this is one of them? And if so, how do I get there?
  6. LANDO
    I have considered that, but is this an amendment that can be retroactive to the first day of the plan year? If there is any authority for that I'd be all ears!
  7. LANDO
    David that sounds like a bit of a trick question, but maybe you're being sincere. I guess technically it wouldn't be a multiple employer plan unless the plan were amended to be a multiple employer plan. Right now it's just a single employer plan with an operational defect because they have allowed an unrelated employer to participate in their plan without a participation agreement and the plan document does not accommodate multiple employer plan provisions. One of the ways I proposed to correct the operational defect was to retroactively amend the single employer plan to be a multiple employer plan to accommodate the unrelated participating employer.
  8. LANDO
    Excellent point Peter. I will incorporate that reasoning into my repertoire. The pressure always comes in trying to make sponsors and sales folks understand the gravity of the situation. Many sponsors would prefer to retroactively amend and call it a day...no filing. Same old story, low probability of the problem ever being caught, but high (or at least higher) consequences if it is, but there are always those risk takers. Unfortunately, we act as a fiduciary on most of our plans, and my concern in not following IRS guidance with these corrections is that we would get sucked into sharing in CAP correction costs as a co-fiduciary if we allow sponsors to take shortcuts.
  9. LANDO
    Thanks Lou. I think expanding coverage with a retroactive amendment is only available where an otherwise eligible employee has not met the plan's age or service requirement, or simply entered the plan before their entry date. [Early Inclusion of Otherwise Eligible Employee Failure, Rev Proc 2013-12, Appendix B, Section 2.07(3)] In this case it would hard to make the arguement that the employees of an unrelated employer, or even a related employer, were otherwise eligible employees when the document defines "Eligible Employee" to inlcude only employees of the plan sponsor or other employers that have adopted the Plan. The only thing I'm seeing in Rev Proc 2013-12 relating to corporated mergers/acquisitions is related to "Transferred Assets" [section 5.01(7)], which doesn't fit my situation. As far as option #1 above, I was thinking putting the plan back into the same position it would have been had the operational error not occurred...as in, treating the ineligible contributions as mistaken employer contributions, and then having the employer make their employees whole outside the plan (i.e. adjust payroll,withholdings, W2 information, etc...very ugly!)
  10. LANDO
    One of our sponsors acquired interests in a couple of companies late in 2014 and decided to bring the employees of their newly related entities into their 401(k) plan effective as of 1/1/2015. Unfortunately, they neglected to tell us, so no participation agreements were executed. Now here we are in late October 2015. To complicate things, one of the participating employers isn't part of a controlled or affiliated service group with the sponsor, so they also created a multiple employer plan. Obviously we have document and/or operational issues here. The way I see it there are two alternatives: 1) Correct the operational errors using SCP, although I haven't thought about what that would mean or if it would even be possible under SCP, but I'm sure nobody would like this result, or 2) Retroactively restate the plan effective as of 1/1/2015 onto our VS document, incorporate multiple employer provisions, and include participation agreements for the participating employers. Then file under VCP. I have no doubt the IRS would issue a compliance statement on these facts, but I'm looking for a way to avoid the costs of a filing for this sponsor without jeopardizing the qualified status of their plan, but I'm not seeing it! Anyone????
  11. LANDO
    I too am struggling with a very similar issue. Prior QACA was 3% initial with a 1% ratchet to 6%. Effective 1/1/2016 they want to go to a straight 6% QACA, but only for those hired after 1/1/2016. I'm thinking this won't meet the uniformity requirement, but I am still looking for confirmation. Traveler, were you able to find an answer to your question elsewhere, and if so what did you learn? Thanks LANDO
  12. LANDO
    It is possible to apply an automatic escalation feature to non-ACA participants? In other words, can a sponsor automatically escalate participants that have made an affirmative deferral election? Plan sponsor wants to have an ACA (at 3%) with an escalation provision of 1% per year up to 8%, but also wants to auto-escalate participants who have elected to defer less than 8% by 1% every year till they hit 8%. Example: Participant affirmatively elects to defer 2% on July 1st, sponsor wants to auto-escalate this participant to 3% on the following January 1st. To me this is like an having a new auto-enrollment date every year for participants that have made an affirmative deferral election, however, instead of being autoenrolled at 3%, they just get increased by 1%. Part II: Does the escalation of non-ACA participants feature need to be in the plan document, or can this simply be an administrative policy and be described in the enrollment form? Our Volume Submitter document is not well suited to incorporating this feature as the only auto-escalation language is tied to the auto-enrollment feature. Part III: Must a participant be able to elect out of the auto-escalation feature? Is there a way to avoid allowing a non-ACA participant to opt out of auto-esclation? Believe me, I would never recommend this feature to a sponsor, but as you know, some sponsors are a lot smarter than the rest of us. Any insights would be appreciated.
  13. LANDO
    Let's hope there aren't any sales people eaves dropping on this conversation. Yikes!!! The answer has to be, this isn't allowed! That said, I agree the plain language of the document appears to allow for it, or at least it could be reasonably interpreted to to allow for it. I think the most plausible arguement for not allowing it would be that such an interpretation doesn't meet the definitely determinable allocation formula requirement. That said, PS can be person by person, and somehow that's currently acceptable. Hmmm.
  14. LANDO
    That's what I was concerned about. Seems like what you call it is irrelevant, it has to be what's really going on under the surface that matters. My suspicion is that they may well be trying to link the exclusion to those who are actively enrolled in school/college, which as is pointed out above is impractical, but I also suspect the net effect is to exclude what I would consider to be short duration employees. I know for a fact that some of the employees held out under this exclusion have rehire dates and would have met the 1000 hour YOS definition. However, this is a pretty large plan and I’m sure they have other (non-student) part-time or temporary employees that are not being specifically excluded and come in under their normal service requirements.
  15. LANDO
    Now you're talkin service based exclusion, in which case I'd be inclined to define them as Interns, or Temporary employees and then just use the 410(a) YOS failsafe provisions. That would be something our VS doc already anticipates. Man I hate describe lines...unless I need them for something.
  16. LANDO
    I agree that it's administratively unworkable! Sheesh! This is the kind of poop you get when sales people get involved in drafting documents. Can we put this in???...sure fits in the describe line perfectly! Thanks for putting it into perspective. That makes sense that it isn't related to service with the Employer. I was probably overthinking this one. Never the less, it needs to come out of their PPA restatement.
  17. LANDO
    Just to be clear, if we were talking about a 401(k) you'd use the average deferral rate for the group the EE falls into unless it's a safe harbor 401(k) plan, although the above makes sense since you were really talking about a SIMPLE IRA, in which case the missed deferral is "deemed to be 3%".
  18. LANDO
    Nope, this is a for for profit C-Corp with a regular old 401(k) plan. I did find the rules for students not subject to FICA, but this isn't that. I am just struggling with figuring out what factors to apply to decide if an exclusion might be a disguised service based exclusion. Seems like excluding "Students" might just be a backhanded way of saying short duration, or part-time, but I'm not sure how to go about evaluating that.
  19. LANDO
    I have a plan that excludes "full-time students", and then goes on to define "full-time students" as follows: an Employee is a full-time student for any period during which the Employee is enrolled as a full-time student or is between academic years/terms at an educational institution and there is reasonable assurance the Employees will be a full-time student the next academic year/term. The plan does not include a 410(a) failsafe for eligibility, so I assume someone thought this would be a reasonable business classification not based on service. I am just digging into this, and am trying to figure out what I need to know to evaluate this. Do I need to know if there are both full and part-time employees that fall into this classification? Seems that even classifications that end up excluding only part-time employees could still be legitimate business classification...for example, all the employees at location A are part-time and the plan excludes location A employees. Since the employer/plan sponsor wouldn't have any control over whether an employee is a full-time student, how can this be a legit business classification? What if a full-time student decided not to go back to school, when would they enter the plan? Can someone help me get my head around this one?
  20. LANDO
    That would be sweet. I would certainly be good with that, but ours has no such language. Sponsors want to have their cake and eat it too, i.e. the benefit of showing the match going into the account over the course of the year, AND not having to make match for terms. Any thoughts about funding the match into a non-allocated account in the trust? I don't know that this would be a pre-funding match issue, as the deferrals to which the match relates is already in the plan.
  21. LANDO
    Thank you for your reply Belgrath, and the operational defect of failing to follow the terms of the plan document is the position that I've taken on the issue. I hadn't thought of the angle that continually correcting using SCP is not available as procedures must be established to make sure the same error doesn't happen in the future. That is a wrinkle that I will add to my arsenal.
  22. LANDO
    I am sick of sponsors that insist on allocating matching contributions to participant's accounts over the course of the year AND insisting on having allocation conditions (last day, 1000 hours, or both)! I am looking for support for the propostion that allocating a match to participant's accounts before the allocation conditions have been met is a Code, Reg, or IRS or DOL Guidance violation. Any thoughts?
  23. LANDO
    I have a plan that wants to use a fixed match for "Administrative and Hourly" employees (50% on 4%), and a discretionary match for "Patternmakers". Any HCE's would be in the Administrative and Hourly group, and the Patternmakers would have no HCEs. I assume if the fixed match for Administrative and Hourly employees exceeds the match made for the Patternmakers we would have to test for Benefit, Rights or Features (BRF) issues since the rate of match available to an HCE would exceed the match available for a NHCE. However, if the sponsor decided not to make any match for the Patternmakers in a plan year, would that simply be a coverage issue, or would the rate of match for the Patternmakers be considered to be zero and, therefore, BRF testing comes back into play? Clearly, excluding certain groups from receipt of match completely is just a coverage and ACP testing issue, and I guess I am struggling to see the differnce between saying the Patternmakers are excluded from the match, and saying the Patternmakers are eligible for a match, but the matching rate is zero. That leads me to the conclusion that BRF testing wouldn't apply in years where the discretionary match for Patternmakers is zero. Can someone please clarify when Benefits Rights and Features testing would apply to this situation? Thanks LANDO
  24. LANDO
    Actually, I just asked for confirmation about whether the owners had actually terminated prior to the end of the year or not, as that would certainly make me more comfortable with the 11(g) route. I have seen previous posts here on BenefitsLink that left me less than convinced one way or the other on the need for a failure. Seems like it was still up for debate. In any case, thanks for your feedback Bill.
  25. LANDO
    I guess the question is, is anyone comfortable with an 11(g) amendment to accomplish this? Thanks for any feedback.
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