WCC

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)).

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.