WCC

Thanks for the reply. The transaction closed Q4 2018. I appreciate your thoughts. Thank you

Hello, Company A purchases Company B in a stock purchase. Company A sponsors a non safe harbor plan, Company B sponsors a safe harbor 3% non elective (both calendar year plans). Purchase transaction has closed and Company B did not terminate its plan beforehand. I have reviewed Notice 2016-16 and understand there is limited guidance on mergers when safe harbor plans are involved. However, I have a bit of a twist: 1.401(k)-3(g) and 1.401(m)-3(h) provide guidance on a suspension of a safe harbor contribution mid year. Let's say Company B's plan complies with all these requirements to remove the 3% safe harbor mid year. I don't believe they can be merged mid year because Company B's plan needs to be tested for the entire plan year (1.401(k)-3(g)(ii)E and 1.401(m)-3(h)(ii)E). Can the plans merge mid year after the removal of the safe harbor contribution? Could they be merged but then tested in separate groups? Thank you

Thank you, I will ask the attorney's who filed the VCP if they addressed this.

A plan discovered a significant error from plan years ending December 31, 2012, 2013 and 2014. The plan submitted a VCP application and it was approved. Part of the correction is to fix the ADP failures. The plan was not tested correctly and refunds were never processed. Every participant needing a refund has taken their money and rolled it to an IRA. In which year should the 1099 for the excess amount be coded? Is a corrected 1099 sent to the participants for 2012, 2013, 2014 respectively? Thank you

A 403(b) has been sponsored by an ineligible employer for many years. Had it been sponsored by an eligible employer, 5500's would have been required due to employer involvement. However, no audits were performed and no 5500's filed since the inception of the plan. We will proceed with the VCP procedure outlined in Rev Proc 2018-52. Under Section .03 it states: (3) A plan that is corrected through VCP or Audit CAP is treated as subject to all of the requirements and provisions of §§ 401(a) for a Qualified Plan, 403(b) for a 403(b) Plan, 408(k) for a SEP, and 408(p) for a SIMPLE IRA Plan (including Code provisions relating to rollovers). Therefore, the Plan Sponsor must also correct all other failures in accordance with this revenue procedure. Does this mean delinquent 5500's should be filed even though the employer was ineligible to sponsor a 403(b)? Thank you

A current QACA safe harbor plan auto enrolls at 3% and escalates to 6%. Effective 1.1.2019 (calendar year plan) sponsor wants to amend the document to auto enroll new participants at 6% and increase to 10%. Is there a restriction on sweeping back and bringing all participants without a positive election to 6%? For participants who have already been escalated to 6%, is there a restriction that would not allow us to annually increase them to 10%? Will we end up with two different groups of QACA participants? I have reviewed the plan document and there does not seem to be any mention of what happens when the default rate changes. Also reviewed the EOB and don't see anything there either. Thank you

Thanks, very helpful!

Hi - can you help me understand the logistics of the Tax Reform change allowing payment of loans before the due date of the 1040? I have reviewed the new rule but am trying to figure out how it will actually work. I have not been able to find details of the logistics. Let me give an example: Participant terminates today with an outstanding loan. The outstanding loan balance is $10,000 and cash with the record keeper is $50,000. Participant completes a distribution form to roll the $50,000 to an IRA. Participant is subject to the early withdrawal penalty as no exception applies. Record keeper will prepare a 1099R with a code M1 for the loan balance. Participant does not have $10,000 in cash ready to pay back the loan. Participant wants to pay installments before the deadline of the Form 1040. Questions: If the participant wants to pay the loan back, how does this get sorted out? Do the loan payments before the due date of the 1040 happen with the IRA or with the 401(k) plan? If the loan payment happens with the IRA provider, the record keeper will send the 1099R since they won't know of the participants repayment to an IRA. How does the IRA custodian know what the loan amount was and what to accept as repayment of the loan vs contributions (has anyone see this happen with an IRA custodian)? Does the participant then prove at the time of filing the 1040 that loan payments were made to an IRA? Is that proved similar to the 60 day rollover transaction? Thanks for your help.

Two tax exempt organizations create an affiliation (their words) by combining service offerings. As part of the affiliation, they created a single board of directors which governs both organizations. The board is comprised of an equal number of members from each organization. I have reviewed the controlled group rules relating to control of directors/trustees and will make a referral to an attorney. However, I am curios if this is a straight forward issue. Since there is a single board is it clear a controlled group exists? They are telling me that since half the board is selected from each entity, neither organization has control over the the other. Therefore, they are stating the 80% control and/or common representation of directors/trustees is not applicable. Thoughts?

Participant was forced out of the plan with a balance of under $1000. Participant received the check which was made payable to him but did nothing with it for 90 days. He realized he missed the 60 day rollover window and would rather not claim the funds as income. I have never been asked this before - but can he purposefully let the check stale date then ask the record keeper to send a new check? Will that start the 60 window over again? I am guessing no, but thought I would ask the experts. The record keeper refuses to reissue a check to the IRA provider. Thanks

Thanks. We have gone through the participant fee disclosure and there is definitely revenue sharing being paid from the funds. The frustrating part is the MEP provider is telling them the plan is "free" when it comes to admin fees. There is no asset charge and no direct billable, just revenue sharing. We have fund tickers so we can determine the 12b-1 and sub TA's being paid. Not necessarily. But... we have been on this fee transparency wagon so long that it bothers me not knowing what the service provide is being paid by plan participants. Thanks again.

An employer is considering becoming an adopting employer in a MEP. We advised this potential adopter to ask for a copy of the 408b2 notice. The sponsor of the MEP refuses and states they have no obligation to provide the 408b2 notice to adopting employers. Their reasoning is that the 408b2 regulations apply to the covered service providers and themselves as plan sponsor of the MEP (i.e the fiduciary referenced in 408b2). They state the adopting employer is not a plan fiduciary and therefore will not provide it. After reviewing 408b2 I think the MEP sponsor is right. However, how is an employer supposed to make a good decision for their employees if they don't know who is being paid what? All they have is the participant fee disclosure and cannot compare total cost between a MEP or sponsoring their own plan? Curious of anyone's thoughts. Thank you

Yes, they are required to keep it. No, they cannot terminate it mid year. https://www.irs.gov/retirement-plans/terminating-a-simple-ira-plan

Is this an asset purchase or a stock purchase? Here is a similar discussion if this is a stock purchase.

Yes they can exclude highly compensated employees from receipt of the safe harbor contribution. Based on the SPD wording you provided, it seems to be a blanket exclusion for all HCE's - it is not selective. Generally speaking, plans either exclude all HCE's or none. Maybe others on this board have plans that exclude HCE's by name to make it more selective, my plans do not. Keep in mind highly compensated employees are based on either compensation or ownership percentage. Compensation is based on the look back year. For example, what you made in 2016 determines if you are a HCE for 2017. So if your friends/co workers were under $120,000 in 2016 they are not HCE's for 2017 (regardless of how much money they make in 2017).

Did you earn more than $120,000 during 2016?

here's a prior discussion on this topic.

This plan has about 90 ee's. The new decision makers are looking to cut out the match and came up with the idea to reduce the compensation for everyone who defers by making them sign an agreement as previously mentioned. They asked me my opinion to which I told them it could not be done and referred them to an attorney. I was curious if there really was a way to do this and posted the question here. Your strategy is very interesting, something I have not thought about. thanks

thank you, I appreciate your help.

What they are trying to do is this: Participant's salary is $100,000 Participant elects to defer $18,500 Employer provides a contract to this employee that says: "Dear Employee, Employer will match dollar for dollar on your deferrals. However, every dollar we match directly reduces your salary. For example, if we match $18,500, your compensation paid monthly will be $100,000 minus $18,500 divided by 12 pay periods. Your monthly gross pay will be $8,333.33 ($100,000/12) minus $1,541.66 (your match). Sign this form and agree or you do not receive any match." The section from the EOB refers to a deemed CODA.

Plan sponsor wants to match dollar for dollar up to $18,500. The catch is, the employees compensation will be reduced by the match amount. I don't think this is possible under the CODA rules. Ignoring ACP testing for the moment, is this even possible? After I posted the question, I found this in the EOB. I think this answers my question, but still open to thoughts. Thank you 2. Facts and circumstances test for non-partners. When an election to waive or vary a contribution is offered to common law employees (including the common law employees of a partnership or sole proprietorship), the existence of a deemed CODA depends on the particular facts and circumstances. The IRS does not apply to common law employees the automatic deemed CODA rule described in 1. above. This is true even for shareholders of a corporate plan sponsor who are participants in the plan because they also are employees of the corporation. However, the election by a shareholder of the corporation to waive or vary the employer contribution made on his behalf to the qualified plan will be carefully scrutinized by the IRS. The IRS warns its field agents of this situation in its audit guidelines in Announcement 94-101. The guidelines include the following example to illustrate this issue. 2.a. Example. A profit sharing plan permits an employee to elect in or out of participation on an annual basis. For a 3-year period, Employee C elects out of participate for the first of such plan years, and then elects to participate for the other two plan years. Employee D elects to participate for the first and second of such plan years, and then elects out for the third plan year. C's and D's salaries increase and decrease for each of those years in a way that is roughly analogous to the contribution that would otherwise have been made to the plan. The guidelines state this arrangement is probably a CODA, but, if the facts and circumstances suggest that the changes in salary have nothing to do with the elections, it may not be a CODA. If C and D are shareholders of the corporation that maintains the plan, it will be difficult to prove that the elections do not have any effect on their salaries from the corporation. 3. Tax consequences of a deemed CODA/treatment as nonqualified cash or deferred arrangement. When a CODA is deemed to exist in a qualified plan, the contributions made to the plan pursuant to the CODA are taxed to the employees that are deemed to have elected those contributions, unless the CODA satisfies the requirements of IRC §401(k). See Treas. Reg. §1.402(a)-1(d). If a qualified plan contains a deemed CODA, but the CODA does not satisfy §401(k), the plan has a nonqualified cash or deferred arrangement. Under a nonqualified cash or deferred arrangement, all of the employees’ elective deferrals (i.e., contributions made by the employer which are deemed to be elective deferrals because of the existence of the deemed CODA) are includible in gross income.

this is very helpful!!! thank you

No

Doesn't 401(a)(30) apply to the plan, not the participant?

A participant contributed $15,000 Roth deferrals to plan A and $10,000 Roth deferrals to plan B. Participant is not catch up eligible and the plans are unrelated. Participant informed the plan sponsor today of the excess. My understanding is that the excess cannot returned after after April 15. However, the bundled recordkeeper (one of the large ones) says they will refund the excess anytime. This does not not seem right to me based on other threads (like the one below) but I cannot find specific authority for this stance. Is it just based on distributable event rules? Since neither plan fails 401(a)(30) can they return the excess after April 15? Can anyone provide authority for this? Thank you!! Edit: I finally found this in the EOB after I posted this question. 1.d. Are corrective distributions allowed after the April 15th deadline? The last sentence of IRC §402(g)(2)(A) provides that a distribution described in IRC §402(g)(2)(A)(ii) (i.e., one made by the April 15th deadline) may be made notwithstanding any other provision of law. What if the distribution hasn't been made by then? Treas. Reg. §1.402(g)-1(e)(8)(iii) provides that distributions of excess deferrals after the correction period may be distributed from a 401(k) plan only when permitted under IRC §401(k)(2)(B). Thus, unless the 401(k) participant has satisfied a permissible distribution event under §401(k)(2)(B) (e.g., attainment of age 59½ or severance from employment), the excess deferrals could not be distributed. An exception is made if the excess deferrals also cause the plan to violate the section 401(a)(30) limit. See the EPCRS Program and the discussion in Part E of this Section XI.