WCC

This discussion is opposite of your question #2. We obtained an opinion from an ERISA attorney and he agreed with the recordkeeper that the uniformity rule had to apply to everyone, there could not be two separate groups at different default rates. Not sure if that is helpful to you.

Company A and Company B both sponsor 401k plans. Company A purchases Company B in a stock acquisition. Prior to the acquisition, the attorney's draft a board resolution establishing a termination date for Company B's plan. The plan termination date was the day before the closing of the purchase of Company B. The resolution was executed timely. The TPA for Company B's plan is stating that since the plan was not restated for the tricycle amendment prior to the establishment of the termination date, they are now considered a non-amender and must file under VCP to bring the document current. They state that had they known about the acquisition ahead of time, they could have avoided VCP by restating the document before the termination date. Note - the purchase happened within the past two weeks, all assets are still in the trust. I know the document needs to be updated, but I have never heard that it must be updated before the termination date is established. Is the TPA correct that Company B must file via VCP to restate the document as if they are a non-amender? Thank you (I should have posted this under the termination message board, not sure how/if I can move it or if a moderator can move it for me, thanks)

A participant submitted a CARES distribution request in November 2020. The request was valid and in good order, however the recordkeeper did not process it. The recordkeeper is a large national bundled provider. The plan sponsor was upset and has been in an argument with the recordkeeper since it was not processed timely. The solution from the recordkeeper is to process the CRD today and issue a 2020 1099R and call it a CRD. The recordkeeper will file a VCP submission asking the IRS to approve a 2021 distribution based a procedure error since the paperwork was received in good order and the recordkeeper failed to process it. Apparently, this happened with multiple plan sponsors because the recordkeeper is filing a VCP submission of behalf of multiple plan sponsors. (note - the participant does not qualify for any other type of in-service distribution). Does the IRS have authority to approve a VCP submission to treat a 2021 distribution as a CRD due to the recordkeepers error? Thank you

A calendar year 401k plan began on January 1 with an enhanced safe harbor match (100% on 4%) with a plan year calculation. Due to Covid, the match was eliminated. Notices were properly sent and the match was funded through the date it was eliminated which was May 31. The plan sponsor is in a better position now and wants to fund a match for the entire year as was originally promised. Obviously the safe harbor match cannot come back, but they want to fund a plan year match of 100% on the first 4% for the entire year. The document allows for a discretionary match on the plan year, but my question is this: If a discretionary match is funded, do we have two match formulas (1) safe harbor from January 1 - May 31 and (2) discretionary match from January 1 - December 31? Is there a doubling effect of the match or can the safe harbor deposit be counted toward the discretionary match formula? We don't want to inadvertently create a doubling of the match from January 1 - May 31. Nor do we want to amend to a fixed match from June - December because participants who maxed out early will be "shorted" match. The document does not seem to address this and the document provider has referred us to outside council. Thank you

My opinion is the recordkeepers biggest source of revenue comes from financial advisors bringing them business. The RK does not want to be in situation where they compete with advisors and therefore upset their referral base. Some offer a direct solution (without an advisor), not sure if they require the use of their 3(38) service to be direct. They offer the 3(38) service since most plan sponsors know (or should know) that they need help selecting and monitoring an investment line up.

I remembered over the weekend that Voya offers a product called Flexprecision. They use a third party 3(38) manager in which a plan sponsor can use it without an advisor. It can be used unbundled.

I know of a couple online 401k recordkeepers who can operate with or without an advisor. This is not an endorsement as I have never worked with them, but I know of 401Go or Guideline 401k. Both have a 3(38) investment management offering that a plan sponsor can rely on for an appropriate investment line up. They will pay a fee for the 3(38) service, but it will most likely be less than 50bps. But if you are looking to do the TPA work, these two are not built to unbundle.

This is a great write up from Ferenczy Law. FLASHPOINT: SEP, MEP, OR PEP IDENTIFYING THE KEY DIFFERENCES IN RETIREMENT PLANS https://ferenczylaw.com/wp-content/uploads/2020/08/00634855.pdf

Thank you Lou S. I appreciate your help.

Companies A and B were related due to a controlled group. Company A sponsors a qualified plan, Company B is a participating employer. Due to recent ownership changes the companies are no longer related. Company B decides to terminate all employees and the entity will no longer exist. Company B will be removed as a participating employer. Company A does not want the balances of Company B participants to remain in the plan due to administrative concerns. Question: What can be done with the balances of the terminated Company B participants who have funds in the plan? Is there any exception to forcing out a participant whose balance exceeds $5,000 in this situation? I have not found this situation addressed in the plan document. Thank you

Thank you for the comment. Their legal group told me that in their opinion that does not apply to this situation. They stated again that all employees who have ever been auto enrolled must be reduced from 6% to 3% to keep the EACA benefit. I appreciate the help.

The adoption agreement has a check box to apply the percentage to new participants only. However, the service provider states that does not apply to existing EACA arrangements. The basic plan document quotes §1.401(k)-3(j)2. The service providers document group says the rule is based on the EACA uniformity rules of §1.401(k)-3(j)(2)(A) and changing the percentage for future participants is not part of the exceptions listed under §1.401(k)-3(j)(2)(iii). (2) Qualified percentage - (i) In general. A percentage is a qualified percentage only if it - (A) Is uniform for all employees (except to the extent provided in paragraph (j)(2)(iii) of this section);

Five years ago a 401(k) plan implemented an EACA with an auto enrollment of 6%. The plan administrator has decided that 6% is too high for future participants. The administrator would like to lower the percentage for new participants only to 3% effective January 1, 2021 (calendar year plan). The record keeper is a large national vendor (who is also the document provider) states that if they lower the % on January 1, 2021, they must lower all auto enrolled participants to 3%. This includes any participant who was auto enrolled at 6% during the past 5 years. They state that the EACA uniformity rules will not allow new participants to be enrolled at 3% while leaving the existing participants at 6%. Is the record keeper correct, in that if the EACA % is decreased, it must be decreased for everyone who was ever auto enrolled in order to keep the EACA benefits? Thank you

How can the plan sponsor be okay with this? Having the participants pay excess TPA fees beyond what is necessary and prudent is a problem. I would work with the investment advisor and the sponsor to eliminate (or at least reduce) the revenue sharing by changing the investment share classes to avoid the excess. The TPA can then attach an asset charge or a flat fee paid by participants. Having the participants pay excess fees (even if the sponsor is okay with it) via revenue sharing would not be the prudent route.

Plan sponsor wants to provide a greater match formula for lower paid participants. For example: Tier 1 – if you make < $45,000 your match is 100% on 5% Tier 2 – if you make > $45,000 < $75,000 your match is 75% on 5% Tier 3 – if you make > $75,000 < $125,000 your match is 50% on 5% Tier 4 – if you are a HCE your match is 25% on 5% Let's assume the match is based on plan year comp (not funded per pay period) so at the end of the year you know which category each participant is in. If the plan passes BRF for both current availability and effective availability, then is this acceptable (pending ACP testing)? Is this type of match formula possible within the regulations? If so, we obviously need to make sure our document allows for it. Our document allows for us to write in tiers, but I am not sure that tier section means compensation bandwidths. Thank you

Thank you for the ideas, this is helpful. I am not authorized to speak with the record keeper, just getting ready for a presentation and trying to come up with ideas as to why/how this could happen. Thanks again.

I am reviewing a 2017 Form 5500 prepared by a large record keeper. The record keeper name is listed on Schedule C Part 1, 2(a). Under (d) their direct compensation is listed as a negative number. Does anyone know how a record keeper receives a negative direct compensation number? Does it have to do with revenue sharing and the way it is credited back? Thank you

Thank you all, I really appreciate the expertise of those who responded. Mr. Watson, I was actually reading a Q&A you wrote on a somewhat similar topic before I posted this. Thank you for the detailed clarification.

Company A owns 20 other companies at 100% ownership. All 21 (20 plus company A) entities have their own separate plans with different record keepers, TPA's and financial advisers. No one has performed combined coverage testing for the past 15 years. The plans vary from safe harbor to traditional 401k with profit sharing. All plans are small plans so on their own have not had an audit requirement. All plan year ends are calendar year. Question: Is this an obvious VCP submission requiring them to go back and run coverage testing for X years? Or can this be self corrected? Thank you

I will take a stab at this. The hardship rules require that the distribution relieves a financial burden. At this point you don't have a financial burden to relieve (anticipated yes, but not yet). So you cannot request a distribution until you have a financial burden (which I think is your point). When you register for your classes later this year you will be provided with a tuition invoice based on classes/credits. At that point you can then request the distribution using an actual invoice for future classes. Until you have the invoice, you cannot request the distribution for future classes.

This is an IRS rule. see the following rollover chart: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

That is scary. Here's how I explain it (this is a general explanation as there will be exceptions): Each mutual fund has multiple different share classes. Mutual Fund ABC has share classes A, B, C, R1, R3, R6, Z, I etc. depending on the mutual fund family. Regardless of share class, the manager of Mutual Fund ABC needs .x% to manage the fund. .x% is the same regardless of share class. Yet, each share class has a different total annual expense. The share class expense minus the manager fee results in excess revenue (revenue sharing). The excess fee is then collected by the record keeper and distributed to the TPA, advisor, rebated back to participants and/or kept by the record keeper to cover costs. This impacts participants because they pay your fee (and other fees) rather than receiving a higher investment return. The revenue sharing is taken from the investment return and is netted from participant accounts. This is usually done quarterly. In this structure it is likely every participant pays a different admin fee because the mutual funds in the plan don't all produce the same level of revenue sharing. The calculation is based on the participant balance and the funds they choose. Many plans we see have moved away from this arrangement into a zero revenue sharing structure with an asset charge to cover cost.

That section in the adoption agreement has the typical check boxes for discretionary and fixed formulas (all unchecked in this case). Under the discretionary section it says the match "... is at the complete and sole discretion of the Employer and may vary" The basic plan document has almost the identical sentence in the discretionary match section as the safe harbor section: The Employer may make Matching Contributions at the same time as it contributes Elective Deferrals or at any other time as permitted by law and regulation.

We took over the admin of a plan that uses a safe harbor enhanced match formula. However, the document does not state the calculation period for the safe harbor match formula. The SPD and safe harbor notice just say participants will receive a match of 100% of 4% of compensation. I asked the document provider to point to the calculation period and they provided the following sentence from the plan doc: The Employer may make ADP Test Safe Harbor Contributions at the same time as it contributes Elective Deferrals or at any other time as permitted by law and regulation. The document provider is adamant that the calculation period is not required to be in the safe harbor notice, SPD or adoption agreement. They say this language provides the most flexibility so the plan administrator can decide at any point if the calculation will be done per pay-period, quarter, annually. It is a pre-approved plan document. I have never seen a document silent on the safe harbor calculation period. Is this common?

Yes, it can be removed if certain conditions (as mentioned above) are met. See IRS notice 2016-16 III B (iii) (iii) Reduction or suspension of safe harbor contributions or changes from safe harbor plan status to non-safe harbor plan status (permitted only as described in §§ 1.401(k)-3(g) and 1.401(m)-3(h)).