WCC

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)).

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.