WCC

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.

Yes it is legal. However, does your plan document restrict deferral change timing (i.e. quarterly)? The election will apply to the next pay pay date when the cash is made available - unless your document says otherwise. Below is a prior discussion on constructive receipt.

I don't think you can based on IRC §402(c)(11). This defines eligible parties for non spousal inherited IRA's as individuals and trusts.

Thanks - that's what worries me, it has always just been considered an "adjustment". Thank you for the reply.

A 401k plan is written with a safe harbor match plan year calculation formula. They fund the match per pay period and provide a true up after year end. They also fund lost earnings on the true up. I have never heard/seen this before. For example, if a participant is owed a true up, they fund it in September (for a calendar year end plan). They also calculate lost earnings from the last day of the plan year (12/31) to the date they fund the true up. When asked why they fund lost earnings... "because this is the way we have always done it". They feel that since the match does not happen until September, they "owe" their employees the earnings. They feel that had the employee deferred evenly throughout the year, all their match would have been funded by 12/31. Can lost earnings be funded on the true up? Thank you

In the first example, the discretionary match applies to the first dollar again. The below example ignores the first 4% under the discretionary match formula similar to the original question?? 5.a.1)b) Example - enhanced match on first 4% of compensation with discretionary match on higher levels of compensation. A safe harbor 401(k) plan provides a 100% match on the first 4% of compensation deferred. The employer also wants the discretion to contribute an additional amount on deferrals exceeding 4% of compensation but not more than 6% of compensation, limiting the rate of the discretionary match to 100% of such deferrals. When presented with this example at a Q&A session at the 2012 ASPPA Annual Conference, the IRS stated that this would not satisfy the requirements for the ACP safe harbor. The enhanced match formula of 100% match on the first 4% of compensation deferred is used to satisfy the ADP safe harbor, and the discretionary match cannot be combined with the enhanced match for ADP safe harbor purposes. Thus, the discretionary portion must be separately analyzed and it fails the requirements for the ACP safe harbor because it doesn’t match deferrals below 4% of compensation. In other words, where a portion of the match is used to satisfy the ADP safe harbor, the remaining match also must be able to stand alone under the ACP safe harbor. Where that formula is discretionary, it must allocate matching contributions starting at the first dollar of elective deferrals and otherwise meet the requirements for the ACP safe harbor. The IRS didn’t provide a citation to support this interpretation of the law. Treas. Reg. §1.401(m)-3 does not explicitly state such a rule. The IRS’ concern, although not expressed in the Q&A session, might be that where the discretionary match applies only to deferrals above a certain level, the employer may decide to make the discretionary match only when only HCEs are deferring at such levels or only a low percentage of NHCs are doing so. Note that in the example in 5.a.1)a), each matching formula could individually satisfy the requirements of the ACP safe harbor, so the IRS apparently wouldn’t challenging the analysis shown in that example, even though all of the matching contributions (including those used to satisfy the ADP safe harbor) are combined to demonstrate compliance with the ACP safe harbor. Note, too, that the IRS did not take the position that the discretionary matching formula caused the fixed formula to fail to satisfy the ADP safe harbor. It was just the ACP safe harbor that was failed.

I have found a few prior threads on this board, but the outcome is still a bit unclear. The EOB references an IRS response from the 2012 ASPPA conference, but the book does not take a strong stance: A 401k plan is written with a safe harbor match formula of 100% of the first 4%. The plan allows for discretionary match. The plan sponsor wants to fund an additional 2% discretionary match so employees who defer 6% receive a 100% match. However, I see this as two separate formulas: 1. safe harbor match is 100% of the first 4% deferred 2. discretionary match is 0% of first 4% deferred, 100% of next 2% deferred Therefore, I believe they are subject to the ACP test because of IRC §401(m)(11)(B)(ii) where the rate of match cannot increase as deferrals increase. One of the large record keepers disagrees. They say this approach complies because the formulas are in a sense "aggregated" and the match is uniform and does not increase as the rate of deferrals increase. Does this match formula indeed satisfy ACP? Thank you

Plan document uses the safe harbor definition for hardships. Participant submits a current past due outstanding invoice for secondary education. However, the invoice is for a semester almost two years ago. Should this be denied based on the clause of "up to the next 12 months". Can historical education costs be paid or only costs associated with the next 12 months? Payment of tuition, related educational fees, room and board expenses for up to the next 12 months of post-secondary education... Thank you

see Rev Proc 2016-51. The match amount needs to be funded. No QNEC for the deferral is required - if you follow the Rev Proc. Pay close attention to the notice requirements. To use this correction method a notice must be given to the affected participants within 45 days. The notice must contain the items listed in the procedure. The notice needs to tell them how to adjust their future deferrals to make up for the error - if they so choose.

Sorry, vendor meaning recordkeeper/investment company/insurance company in a bundled scenario.

No idea, does it matter? It does not matter when looking at implementing an incorrect deferral election when too little was withheld and the employee does not say anything for six months.

Not sure, I think the average employee never looks at their pay stubs or lives by any kind of budget. Therefore they would not notice until one night when something reminds them that they opted out 6 months ago and they better check to see if it actually happened.

Plan auto enrolls at 5%. Participant completes the online process with the vendor to opt out. Plan sponsor does not stop withholding for 6 months. Participant wants the money back. Vendor says "too late you can't have the money back" because too much time has passed. I don't think their answer is valid. EPCRS does not have an example of this nature, but is it reasonable to return the deferrals and forfeit the match using the logic in EPCRS of: (1) Restoration of benefits. The correction method should restore the plan to the position it would have been in had the failure not occurred, including restoration of current and former participants and beneficiaries to the benefits and rights they would have had if the failure had not occurred. Any other thoughts? (participant wants the money, so leaving it in is not an ideal option)

In addition to what has been said, the Fidelity "solo" prototype document has a section to elect the eligibility conditions. If you hire an employee, the document can be restated, but it is not required to be. The employee will be subject to the eligibility conditions you choose. Once he/she meets those eligibility conditions, he/she is a participant and that may/will significantly change your contribution allocations.

"should I have made more?" - that question cannot be answered with only the details in the post. This depends on risk/reward, risk tolerance, your investment goals, deposit timing, which investment options you have access to, etc. "do I have any options?" - if you think you were harmed or received bad advice, you can start by voicing your concerns to your employer. Ask them their opinions. If you don't receive satisfactory answers from them or your service providers, then you could seek outside professional help from a qualified plan consultant or an attorney.

The vendor is taking the stance that since it was not typed into the prototype doc and since the vendor did not produce it, it is now a retro active amendment request.

On November 30, 2016 plan sponsor decides they want to change the safe harbor match formula from plan year to pay period effective January 1, 2017. They call the vendor, vendor says no way it is too late as the safe harbor notice is due the next day. Plan sponsor decides to hand write on the document crossing out plan year and writing in pay period. Required signatures and dates are written in to the margin as well as the execution page making it clear their intent. Plan sponsor changes the safe harbor notice by typing the notice and just changing plan year to pay period. Plan sponsor delivers the safe harbor notice timely with pay period wording. Plan sponsor sends the hand-written amendment and signatures to the vendor. Vendor refuses to honor the hand-written changes. Thoughts? Are hand written amendments acceptable? Thank you.

What about the self help legal websites that provide DRO services? For example, I received a DRO recently that was prepared by a self help legal form website where the participant paid a few hundred dollars and they generate a DRO? The provider of the forms adds a very clear disclosure stating they are providing "legal information" not "legal advice". I am not an attorney, but I am curious if a self help option is different than what Austin is referring to?

It appears he is trying to credit predecessor service for himself, even though he was not an employee (as RBG stated), and ignore service for the others. This does not work. From the EOB: 2.b. Granting of pre-participation service. Pre-participation service means any service prior to the employee's commencement (or recommencement) of participation, with the employer maintaining the plan or with a prior employer. For the granting of pre-participation service to be nondiscriminatory, the provision must apply to all similarly-situated employees, there must be a legitimate business reason to grant the service, and there must not be significant discrimination in favor of HCEs, neither by design nor by plan operation, resulting from such grant of service. Treas. Reg. §1.401(a)(4)-11(d)(3)(iii).

Who is the plan sponsor of the new plan? Who is the employer? Is the son starting his own practice and hiring the employees away from the exiting business?

I am not familiar with "safe harbor loan provisions". Will you please elaborate as to what you are looking for? Are you referring to loans issued from safe harbor contribution sources?