justanotheradmin

What was the HCE ACP average %? How do you have a NHCE ACP of 0% pass?

Yes. But the loan has nothing to do with earnings or not. It actually happens frequently that the loan wipes out half the account, then the hardship wipes out the other half. Especially in the not-so-distant days of plans requiring participants to exhaust the plan loans first before hardship distributions.

I agree with MoJo.

Is the employer contributing both a safe harbor contribution AND an additional discretionary employer contribution? Will the plan be top heavy? if yes to both then I agree with Pam S. If the plan IS top heavy, and the ONLY employer contribution is the Safe Harbor, then I would suggest reading your plan document (including the underlying document if necessary). Many pre-approved documents these days mirror the allowance in the IRS rules that say Top Heavy minimum is met with the Safe Harbor contribution alone (yes, even with only partial year comp) if no other employer contribution is made. If the plan is not top heavy, well then, I'm not sure what you are reading in the EOB. Maybe the question isn't about Top Heavy at all? Something else?

It might be possible, if the HCE average is very low, low enough that compared to a 0% NHCE average the test passes. But that is rare, and in my opinion, unlikely. I would probably plan on the test failing and advising the client accordingly. Edit to clarify - this only works on first year where the NCHE rate was elected / deemed to be 3%.

Its okay that the other NCHEs aren't allowed into the plan. The question is of ratios, if ZERO HCE are allowed into the plan, then the coverage test will pass even if the plan only covers 1 NHCE. We have a plan that wanted a specific match for a specific NHCE. They did not want the match for any other employee. It passes coverage.

So if I understand this correctly, the only affect group is someone who deferred more than 24%? Instead of a match of 25% of the deferral amount, the match is capped at 6% of pay. As other have mentioned its no longer a compensation issue. Someone who deferred the maximum $24,500 in 2018 at most would have a match of 25% of that, which is $6,125. 6% of $275,000 is $16,500. Their match ends up being limited because of their deferral, NOT because of their compensation. If the plan document was silent (and ACP passes)- then no retroactive corrective amendment is needed. I would say they should do a quick write up perhaps in a format geared toward what a SCP memo would contain, document it for their records, call it good and move forward. And I agree, simplifying the formula to be 25% of deferrals period would be easier. If my math is correct it would only affect participants who make less than $104,166 (6,250 /.06)AND who deferred more than 24%, so if it is just the 3 people you've found, that's a pretty small group.

There is a decent chance there will be correspondence from the IRS. You would have a reasonable explanation, but that doesn't mean the IRS isn't going to send a form letter in a year or two asking where the Form 5500-EZ is.

Not quite. In this scenario there are no NHCE in the test at all. The HCE ratio doesn't matter, it is deemed to pass if there are zero NHCE in the test. If there were NHCE in the test, but their % were 0, then yes, the HCE % would be limited.

You mention it's a fully discretionary formula in the plan document - does that mean there is no cap at 6% for deferrals considered? And that the employer was just desiring to cap the matched deferrals at 6%, but the requirement is not actually in the document? If there is no cap in the document - the first error doesn't exist. If I as the employer meant to contribute 10%, but later on forgot and contributed 12%, well guess what, the 12% sticks.

I agree with duckthing. The match not being capped at 6% (if that's the cap in the document) is easily fixable, I would have a hard time seeing the IRS not approving a retroactive corrective amendment, especially in light of the update to retroactive amendments in Rev Proc 2019-19. The second error, the failure to limit considered compensation, is a bit trickier. I would probably suggest in the VCP submission asking if it can be left alone for earlier year (such as 2017 and earlier), and just corrected according to EPCRS principals for 2018 and future years. Unless there is a top-paid group election that limits the HCE count, anyone over the comp limit affected by this failure is likely HCE, so it is hard to justify leaving the match as is for those earlier years when only HCE's benefit from it. If you have ERISA counsel available, at least this error should be run by them to see what they say. I would also want to know what the auditor will say. Some auditors will not provide an unqualified opinion if errors are fixed in certain ways. It doesn't provide protection while under review, but if the employer is reticent to go through VCP anonymous submission is an option. Also, if I was a new employee, I might start with the auditor, and see what version of the plan document they are working from. Is it possible they have a different version with a more flexible match formula in it? Sometimes the document the client has and the one the auditor has has diverged because the auditor hasn't been provided copies of amendments or updates.

I don't think it's been reviewed in the past. There is a difference between having a very undetailed report, and having a report where the transactions are not coded correctly. For the forfeitures, a number of participants had distributions during the year, and the forfeiture account had a decent balance at year end. The trust report has a forfeiture column on it. But there isn't much shown in that column. After asking for more detailed information, it turns out that the forfeitures were shown as any of the following: forfeitures, transfers, realized gain / loss. So a participant (or trustee) looking at a statement or trust report would have no way of knowing how much was actually forfeited without asking for additional transaction information. I expect that lack of detail from brokerage statements, where there is no recordkeeping at all. I don't expect it from a company specifically hired to do recordkeeping, but just seems to do it really poorly.

Thanks David and ESOP Guy. I suspect the account balances might be okay, but unless someone takes the time to request a complete detailed transaction history (which I doubt is available) and go through it line by line, I doubt there is any way to verify. I agree it seems like a contract issue. The recordkeeper does (or rather did) send participant statements out, so in the case of the incorrectly recorded deposits, it could easily look like someone did not receive all the money they were due. The plan is not audited. It has too few participants. The trustees are just trying to keep accurate records, and that is hard to do when the reports don't show things correctly. I'm concerned about the errors we haven't identified. The only ones that have come up so far are the super obvious ones. If they are willing to lump forfeiture transactions into earnings for participants, what else is being randomly lumped into earnings? More deposits?

A 401(k) plan sponsor used a daily recordkeeper for it's plan assets. It has become clear from the trust report (which is by participant and money source) provided by the recordkeeper, that the transactions are not recorded accurately. For example, several distributions were processed in 2018 with the non-vested account balances to be forfeited. The report has a column for forfeitures, but in many instances, it isn't used. The forfeited amounts are variously lumped into Transfers, or Gain/ Loss, etc. Similarly, several items which I would expect to show up as Contributions, are instead listed under transfers. The known errors have been pointed out to the recordkeeper and several requests for an updated trust report have been made. The recordkeeper will not provide an updated report unless someone agrees to their hourly fees for the time it would take to fix the transaction history and trust report. I suspect there are a number of other mis-coded transactions that haven't even come to light yet. At what point should the plan sponsor and trustees contact the DOL? Would that be futile? For what it's worth, due to other issues with the recordkeeper the money and recordkeeping was moved away to another provider, so future errors should be limited. I usually only see DOL involvement when it looks like fiduciaries might mis-handling plan money. I don't usually see the plan fiduciaries go to the DOL (or IRS) over an issue with a service provider. So i'd love some suggestions, or to hear of people's similar experiences and how they were resolved.

You'll want to look up "transition rule" or "transition period". There are several threads here on BenefitsLink about it, as well as articles from other places that can go into detail. Assuming the plans can utilize the transition period, yes, you can test them separately for the year of acquisition. Ilene has some great columns on it, here is one to get started. http://ferenczylaw.com/article-the-elusive-irc-section-410b6-transition-rule/ https://www.erisapedia.com/static/CommonProblemsinMergersAcquisitions.pdf

You'd have a 415 excess. Either the excess is moved to suspense and used toward something else, or if due to the EE contributions, a distribution would be processed. The question I would have is typically the employer contribution is reduced first, but if they were allocated SH, which they are guaranteed to receive, is the SH reduced? That seems counter-intuative. I don't know the answer, but I'm sure someone does. The Rev proc is clear that if the 415 excess is due to employee contributions ( including after-tax) then a distribution is processed. There are several examples in the revenue procedure, but here is basic part. From Rev Proc 2019-19 "beginning before January 1, 2009, the permitted correction for failure to limit annual additions (other than elective deferrals and after-tax employee contributions) allocated to participants in a defined contribution plan as required in § 415 (even if the excess did not result from the allocation of forfeitures or from a reasonable error in estimating compensation) is to place the excess annual additions into an unallocated account, similar to the suspense account described in §1.415-6(b)(6)(iii) (as it appeared in the April 1, 2007 edition of 26 CFR part 1) prior to amendments made by the final regulations under § 415, to be used as an employer contribution, other than elective deferrals, in the succeeding year(s). While such amounts remain in the unallocated account, the Plan Sponsor is not permitted to make additional contributions to the plan. The permitted correction for failure to limit annual additions that are elective deferrals or after-tax employee contributions (even if the excess did not result from a reasonable error in determining compensation, the amount of elective deferrals or after-tax employee contributions that could be made with respect to an individual under the § 415 limits) is to distribute the elective deferrals or after-tax employee contributions using a method similar to that described under §1.415-6(b)(6)(iv) (as it appeared in the April 1, 2007 edition of 26 CFR part 1) prior to amendments made by the final regulations under § 415. Elective deferrals and after-tax employee contributions that are matched may be returned to the employee, provided that the matching contributions relating to such contributions are forfeited (which will also reduce excess annual additions for the affected individuals). The forfeited matching contributions are to be placed into an unallocated account to be used as an employer contribution, other than elective deferrals, in succeeding periods. For limitation years beginning on or after January 1, 2009, the failure to limit annual additions allocated to participants in a defined contribution plan as required in § 415 is corrected in accordance with section 6.06(2) and (4)."

It depends on the business entity type. From the 5500 EZ instructions " A one-participant plan means a retirement plan (that is, a defined benefit pension plan or a defined contribution profit-sharing or money purchase pension plan), other than an Employee Stock Ownership Plan (ESOP), which: 1. Covers only you (or you and your spouse) and you (or you and your spouse) own the entire business (which may be incorporated or unincorporated); or 2. Covers only one or more partners (or partners and their spouses) in a business partnership; and 3. Does not provide benefits for anyone except you (or you and your spouse) or one or more partners (or partners and their spouses)." I've always understood the instructions to mean that a corporation ( LLC, S-Corp, C-corp etc) could NOT file as a one-participant plan (and thus use Form 5500-EZ) unless it was a single owner, or single owner plus spouse, or two owners who happen to be spouses to each other. Multiple owners who aren't spouses don't seem to qualify. A general partnership with more than one partner WOULD meet the requirement for one-participant plan.

Trying to understand a bit better... Were these policies tied to a retirement plan for a company your father used to work for? And his former employer no longer exists, nor do the insurance companies that issued the policies? If the policies were part of an old profit sharing retirement plan, its quite possible the plan cashed out the policies and your father was given a distribution ( cash or rollover) of the money if the plan closed down, or he elected a withdrawal either when he stopped working for that company, or reached retirement age. Life insurance policies in retirement plans used to be more popular, but they aren't anymore and over the years I see plans reducing or eliminating the life insurance part of their profit sharing plans.

No problem with it. I think it happens regularly.

I think all of the software out there used for plan administration pretty much has proposal capabilities and report options built in. ASC, Relius, FT William are three of the more common ones. Datair is another that comes to mind. I'm sure there are lots others out there. I don't know of any specifically just for proposals though.

The 5-Percent owner status is as of when they turn 70 1/2 . Specifically "(I) except as provided in section 409(d), in the case of an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains age 70 1/2, or" that's from 401(a)(9)(C)(ii)(I). So if they sell before then, it's fine. If they sell after then, they are still forever for RMD purposes a 5% owner. the table is the same, with Uniform table for most, and Joint Life if spousal beneficiary is more than 10 years young ( see pub 590-B).

ASC's document software has a similar option, but during the last DC restatement cycle ASC made crystal clear during webinars that the collapsed document could NOT rely on the IRS opinion letter. If I recall they had tried to get the IRS's blessing, but did not. So the suggestion was to have the regular fully expanded AA signed as always, and use the collapsed version only as a reference copy. For the reason you mention, familiarity, I prefer to use the full adoption agreement, and I prefer sending it to clients. I have seen other TPAs send just the collapsed AA out for signature, which I think is less than ideal, though for an unsophisticated plan sponsor it is definitely easier to read and use.

From Rev Proc 2019-19, page 45. (emphasis added) "(5) Treatment of Excess Amounts under a SEP or a SIMPLE IRA Plan. (a) Distribution of Excess Amounts. For purposes of this section 6.11, an Excess Amount is an amount contributed on behalf of an employee that is in excess of an employee’s benefit under the plan, or an elective deferral in excess of the limitations of § 402(g) or 408(k)(6)(A)(iii). If an Excess Amount is attributable to elective deferrals, the Plan Sponsor may effect distribution of the Excess Amount, adjusted for Earnings through the date of correction, to the affected participant. The amount distributed to the affected participant is includible in gross income in the year of distribution. The distribution is reported on Form 1099-R for the year of distribution with respect to each participant receiving the distribution. In addition, the Plan Sponsor must inform affected participants that the distribution of an Excess Amount is not eligible for favorable tax treatment accorded to distributions from a SEP or a SIMPLE IRA Plan (and, specifically, is not eligible for tax-free rollover). If the Excess Amount is attributable to employer contributions, the Plan Sponsor may effect distribution of the employer Excess Amount, adjusted for Earnings through the date of correction, to the Plan Sponsor. The amount distributed to the Plan Sponsor is not includible in the gross income of the affected participant. The Plan Sponsor is not entitled to a deduction for such employer Excess Amount. The distribution is reported on Form 1099-R issued to the participant indicating the taxable amount as zero." To me, the excess amount failures describe above in Section 6.11 are separate and distinct from the employer eligibility failure described in Section 4.06 and Section 6.03, though like everything else they may be related or coincide with each other.

Have you read the updated EPCRS publication? Revenue Procedure 2019-19? Typically I would say if you are issuing the 1099-R for 2018, then yes, the interest stopped in 2018. If showing it as taxable in 2019, I would include the accrued interest. Page 33, Section 6.02 - But if the failure is the employer's fault, the employer should really pay the difference in the interest. I doubt that will actually happen, but it's worth considering.

A more conservative approach would be to give it to anyone who was active and eligible at any poitn in the year (even if terminated w/o a balance at year ). as well as any terminated participants who had a balance at ANY point during the plan year, even if zero balance at year end. That's based on the fact that the A in SAR stands for Annual, so anyone who was part of the plan during that Annual period I would think should be included. BUT: I don't have a cite to support that conservative approach. Nor is it terribly practical . If I had some eligible employees who left during the year and never had an account balance, am I (plan sponsor) really going to send them the SAR? Probably not.