justanotheradmin

They can't just sit on them. There are other threads on this topic - money deposited to the trust by the end of the plan year MUST be allocated and cannot be carried forward. True forfeiture (non-vested money) is an exception to this rule. So if an employer deposits more than they intended - it has to be allocated as SOMETHING unless all participants are at their 415 maximum.

I would probably view those amounts as incorrect deposits. Not necessarily match, or non-elective or anything specific, until the terms of the plan are used. So the plan has extra deposits (that might be coded as match at a recordkeeper- but they might not be match) - what does the employer want to use them for? Does the plan allow for an additional discretionary match on top of whatever fixed match you say they exceeded? Does the plan allow for nonelective / profit sharing? Once the plan decides what the extra money is - and the amounts are calculated and allocated - then you run the ACP test using whatever amounts are accrued (not necessarily what is actually in people's accounts - since adjustments between participants might be necessary). And I would not refer to them as forfeitures. They aren't.

There's no chance of QSLOB status? I would do testing (maybe pick a few years as a starting sample) and see if it passes. If it passes - then there isn't anything to correct. If it fails - then look at VCP, cause most likely yes, it would be hard to categorize this as a insignificant failure.

I think you've got it right. Only to the extent applicable is doable. I suppose from a practical purpose it means if a participant dies without a beneficiary designation the domestic partner would be first in line for the benefit (before any children, parents etc.). I would wonder if there are step-children if they would need to treated the same as regular children under the terms of the document. That might get hairy. If one dies with both children and step children and some how the benefit has to be split equally among them. Hmm. I'm sure there are a number of permutations that would be tough to parse out. I feel like this ordinance and it's intersection with Federal law would be a good topic for a law review article. Maybe there is one out there. If someone knows of one or writes one, please let me know. Ratherbegolfing - does the document for your client just reference Domestic Partners (to be treated the same as Spouses to the extent possible)? Does it make similar claims for the treatment of Step Children (to be treated the same as Children to the extent possible)?

This is an old thread on the topic - does anyone have any more current insight? A plan sponsor is trying to get a contract with San Francisco - and would be subject to their equal benefits requirements. Considering that a domestic partner cannot rollover money to their own IRA the way a spouse would be able to, I don't know how the plan sponsor can affirm that the distribution options are the same. They are not under current Federal tax law. As far as I can tell preemption applies, but is there something else I'm missing? And certainly step-children are not treated the same as regular children in retirement plans. Also the RMD upon participant death options are usually different depending on the type of beneficiary. Here is an except from the contract info page from the city / county:

Below Ground - good point, but not one that happens to apply here. I should have mentioned the one HCE happens to be the owner, and the only Key, and they would not receive the Top Heavy minimum under the current terms of the plan or the proposed revised terms (the plan actually isn't top heavy at the moment, but that could change). She doesn't want to do anything but deferrals for herself, and deferrals + Safe Harbor and occasional additional discretionary ER for a core group of NHCE.

Yes, to be effective with the start of the next plan year. No changes this year. Thanks for the confirmation, not sure why I was second guessing myself.

I believe this has been addressed before - if so, please feel free to link to the other discussions / posts and I'll read through them. Small employer has a a fairly vanilla 401(k) plan with deferrals, safe harbor, and profit sharing. They would like to reduce the contribution to the NHCE by adding an excluded class. The one HCE would also be excluded from everything except deferrals. A number of the eligible NHCE would be excluded from the plan. Assuming coverage testing passes, this feels like a cut-back, or a violation of BRF, but I know the ability to defer is not protected, nor is right to receive an employer contribution. Usually if initially setting up a plan we are proactive in class exclusions as part of the design process, so I don't see requests for exclusions after the fact and just feel like I am missing something. What say all of you smart people? Is there something I'm missing that would prohibit or make this type of amendment problematic?

I don't see why not, but why? Is the Safe Harbor NEC being used towards some other testing? combined with a discretionary employer contribution? Is there a pension plan it is being tested with?

The 30 day notice requirement is only if the plan is continuing, but suspending the safe harbor. If the plan is completely terminating, usually 30 day notice is not required, immediate notice is sufficient.

You will need to consult with an attorney. There are lots of questions - is this your personal advisor? An advisor for the whole plan? An advisor the school hired? Not all plan advisors have the authority from the plan to actually move money. Some will help participants pick investments, fill out investment change forms etc, but in those cases it's the participant actually making the change, or instructing the financial institution to move the money from one fund to another. Also, there were 6 years from 2009 - 2015, and 4 years from 2015 to 2019, one of the first questions asked will be why didn't you notice the issue sooner?

Why does the turnover affect it? There is no one eligible for it? If a participant receives an allocation, but then quits a short time later, and not vested, so the money is forfeited, you have a new forfeiture, and a new year. It's not the old money again. Sounds like you will have newly forfeited money each year to allocate, for quite a few years, until everyone is either 100% vested, or paid out / forfeited. That scenario is pretty common in small plans that discontinue regular employer contributions. The forfeiture money usually takes 6 years of being allocated and forfeited each year to be used up.

I think you will have to be a bit more specific. Are you looking for a sample service agreement? Between a TPA and Plan / Plan Sponsor? Is there a specific issue with a TPA and you are writing a legal opinion to address the issue? There are quite a few well known law firms that provide legal services to TPA, and I think at one time or another most TPAs have either encountered their work product (when onboarding an existing plan they might have access to existing contracts), or used them directly. I can think of Hall Benefits Group, Ferenczy Law, Trucker Huss, etc there are lots more those are just three off the top of my head.

I think most non-producing, non-fiduciary TPAs are similar to yours. For that type of TPA, often the TPA service agreement will often address the client's responsibilities, including who communicates what to the participants, who determines eligibility etc. I do these types of corrections regularly - but usually it is because someone other than me has spotted it. A new advisor, or CPA, etc might notice that the plan is out of compliance, and this will often be one of several things that need fixing, so they find a TPA that can help. Internally, we occasionally notice it when an employer turns in a census and only the HCE or principals are making deferrals. In which case we try to confirm that really is accurate. The converse can also raise the question. If everyone on the census is deferring, that might be unusual, so we would try to confirm that the employer actually reported ALL employees to us. If they didn't, sometimes it is because they don't think certain people are eligible, and they don't have to be included. If that's the case and the employees were eligible, you would have a missed opportunity to defer. I would say a TPA that is providing additional services (enrollment meetings, 3(16), etc) would have a different process for catching these kinds of failures.

I suggest starting by reviewing the parent - subsidiary control group rules. If the U.S. entities are wholly owned by a parent entity, there seems a high likelyhood some sort of control group exists (absent something like a QSLOB).

What is the plan's definition of compensation in the document? If compensation is on a W-2 basis, it should be easy to explain since compensation for W-2 purposes is based on when PAID, not when earned. So partial year compensation would similarly be based on the period in which it was paid, not when the hours were actually worked.

The control group issue is separate from the MEP structure they are choosing to use. Just because they are both adopting employers of the MEP doesn't mean they aren't a control group. If they are a control group, combined testing might be required, and someone needs to be looking at that and performing it each year. I'm not aware of any exceptions to the related employer (control group, affiliated service group, etc) rules just because one of the owners happens to be a foreign entity.

I agree with RatherBeGolfing - there really shouldn't be any true-up. There might be a few things that create a true-up (such as health insurance premiums for 2% s-Corp shareholders, but those are not super common). The SH nonelective can be calculated and deposited each pay period, but the final calculation should be on an annual basis. The deposit frequency can be more often than the actual annual calculation / accrual.

Thank you Peter for laying it out so nicely. It has been a number of years since I've had a request like this but all of that is line with my understanding. I'm not convinced the purported restorative payment is appropriate, (there are other relevant details not posted here) but that's for them to decide, not me.

Thank you!

Yes, that is one that I recall seeing. I just can't put my finger on where I saw it... hmm. I didn't think it was a Revenue Ruling, but maybe. Any ideas as to which one? or even about which year? Or a decent way to search them?

I am fairly certain there are threads on this topic already - could someone help me find some? I'm not having much luck with my searches. The plan transferred assets and there were significant surrender charges related to annuity investments. The sponsor is trying to reimburse the plan for those charges. Can they? I know there was some publication (maybe a PLR?) that addressed investment losses due to a possible fiduciary breach, where the sponsor was permitted to make up the loss to the plan even if the participant's hadn't brought a lawsuit. I know it's not quite the same fact pattern, but if someone knows what I am talking about, and has a cite on it, I'd appreciate it. I think there was a different publication that did directly address reimbursement of plan expenses, and how to treat them depending on the type (annual addition or not). If someone has that cite I'd appreciate it too. Thanks!

Making a few assumptions, but after fixing the 415 excess the plan would have: Edit to fix number of HCE, there are probably 8, not 7. Outcome is the same. Voluntary after-tax of $28,250 for the two HCE that made them , assuming max comp $275,000, each has a match rate for the ACP test of 28,250/275,000 = 10.27% 2 HCE/Owner = 10.27 x 2 = 20.545% 1 HCE/ Owner = 0% 5 HCE non- owner = 0% HCE average ACP = 2.57% and none of the NCHE have voluntary after-tax, so the NCHE ACP is 0% HCE 2.57%, compared to NCHE 0% = ACP test fails.

Still doesn't explain how ACP was met. So the owners have deferrals, SH NEC, and volunaty After-tax. Let's assume maximum comp, $275,000 Deferrals (excluding catch-up) $18,500 SH NEC (usually 3%) $8,250 After-tax voluntary greater than $28,250 since of of the issues was 415 was exceeded. If the excess above $28,250 is distributed due to the 415 limit being reached, I can understand. But that still leaves $28,250 subject to the ACP test. And the original post mentioned that the only people who had voluntary after-tax contributions were the owners, which would give the plan an HCE ACP of X%, and the NHCE ACP of 0%. It would fail. Is there something else that the plan is doing to make ACP pass? QNECs?

ACP test met, knowing the voluntary made in 2018 will be pulled out shortly. Why is the money being pulled out? ACP refunds? Or are they trying to say it was a mistake and correct it by undoing the deposits? If the latter, I would be very very careful. The IRS mistake of fact rules are fairly narrow, and if it doesn't meet them, you may have a prohibited transaction on your hands, or at the very least a reversion subject to excise tax.