WCC

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?

Yes Yes $54,000 is the max amount you can receive plus the catch up for a total of $60,000, but see my next answer. Your limit is $18,000 plus the catch up for a total of $24,000, the remainder must be funded by your employer with match and/or profit sharing money. Your cap is $54,000 plus the catch up, not 70,800. The profit sharing variable depends on the plan design. You would need to speak with your employer about how the profit sharing allocation works. Yes, that counts towards your $54,000 limit if they are funding it into the profit sharing/401k plan. you need to engage a personal financial adviser for this question. (or be very comfortable with online financial calculators)

All the plans we work on do hire a consultant or have an existing adviser and our average plan size is much smaller. There are a handful of specialty (i.e. qualified plans) regional and national advisory firms that do not have proprietary platforms or ties to record keepers. For an experienced adviser, the project billable is attractive project work because they will have templates built and all the right contacts in place already. Depending on their client base they may have the advantage of historical bids they have received for other clients. This can benefit you in terms of negotiation power for an adviser to say "well you bid this one at $x per head... why the difference...." But of course the adviser will hope to be hired long term.

Not sure, but you can call the DOL regional office and they are usually quite helpful. They can probably tell you the process of how they handle a claim and what procedures they follow. The San Francisco office is helpful with general inquires.

We see many advisers using third party scoring systems that take into account sharpe ratios, stan dev, beta etc. Many third party vendor platforms use feeds from Morningstar. Most plans we deal with have advisers who have access to these scoring systems. The advisers are generally not doing this alone or with their own analysis, it is the major broker dealers and RIA's that have their people building these systems.

Has the ER made the suggestion that he defer his $6500 (or more) to the 401k plan for 2017? I know participants have reasons for not using the 401k (i.e. investment flexibility), but he would get his tax deduction and his free money.

yes, if done correctly. Here is a recent discussion similar to this question:

thank you all for the responses.

Short plan year. I edited my OP to make that clear, thanks for the clarification. It was adopted early December and it took them a pay period to get the deferral elections processed. 5500 instructions say the following. All pension benefit plans covered by ERISA must file an annual return/report except as provided in this section. The return/ report must be filed whether or not the plan is “tax-qualified,” benefits no longer accrue, contributions were not made this plan year, or contributions are no longer made.