justanotheradmin

I would guess that the allocation schedule is for the employer contributions, whether it be match, nonelective etc. It would show how the employer contribution is calculated or the basis for the employer contribution amounts. For example, if an employer does a year-end profit sharing contribution and the contribution is pro-rata, I would expect a list of everyone's plan compensation, and the employer contribution amount, so that the auditor could cross check it. I would expect the auditor to check that the compensation used for the employer contribution is accurate based on the amounts reported on payroll records and the plan document, and that the allocated contribution conforms with the plan document methodology (match formula, profit sharing formula etc). Just because an employer deposits an employer contribution each pay period doesn't mean the information about how that contribution is calculated is on the payroll reports. If it isn't then whatever separate allocation report / schedule should be provided. You could just ask the auditor. I have found most to be very reasonable and agreeable.

I agree with ESOP Guy in general - but for this specifically - it would be unusual to have a true plan merger of a DB plan and a 401(k) plan, where the participants have no choice, and pension provisions are preserved. I understand there are some hybrid DB/k plans out there, but they aren't common (and I don't know anything about them) and it doesn't sound like that's what you have based on describing it as a rollover. But it is still good to consider ESOP Guy's point in case it for some reason it is a plan merger.

The plan does need to do a distribution for the earnings. It will need to include a breakdown of the earnings calculation with the VCP submission as well. So I would suggest working on that as well.

Answer 1: From Revenue Procedure 2019-19, page 85. .06 Failure to timely pay the minimum distribution required under § 401(a)(9). In a defined contribution plan, the permitted correction method is to distribute the required minimum distributions (with Earnings from the date of the failure to the date of the distribution). The amount required to be distributed for each year in which the initial failure occurred should be determined by dividing the adjusted account balance on the applicable valuation date by the applicable distribution period. For this purpose, adjusted account balance means the actual account balance, determined in accordance with §1.401(a)(9)-5, Q&A-3, reduced by the amount of the total missed minimum distributions for prior years. In a defined benefit plan, the permitted correction method is to distribute the required minimum distributions, plus an interest payment based on the plan’s actuarial equivalence factors in effect on the date that the distribution should have been made. See section 6.02(4)(d) of this revenue procedure. If this correction is made at the time the plan is subject to a restriction on single-sum payments pursuant to § 436(d), the Plan Sponsor must contribute to the plan the applicable amount under section 6.02(4)(e)(ii)(A) as part of the correction. Answer 2: Based on the above, yes. Answer 3: Yes, those two to start. I would suggest reading the VCP submission portion of the revenue procedure, particularly the portion for using the model forms (starting on page 60), and the rules for what to include (starting on page 62) You will need to include quite a bit more than just the two model forms. https://www.irs.gov/pub/irs-drop/rp-19-19.pdf Since the submission is for only an HCE, be prepared for the possibility that the IRS reviewer will have questions. Usually these types of submissions go through without any hiccup, but on occasion if the only participant affected is an HCE I have seen additional questions. Doesn't mean it won't get approved, just means they are reviewing it a little more carefully.

From the Instructions to Form 1099-R (emphasis added). It's pretty straightforward, a 1099-R is required, even for rollovers. There is no exception for plans that happen to be sponsored by the same employer. That actually happens fairly regularly. https://www.irs.gov/pub/irs-pdf/i1099r.pdf "Direct Rollovers You must report a direct rollover of an eligible rollover distribution. A direct rollover is the direct payment of the distribution from a qualified plan, a section 403(b) plan, or a governmental section 457(b) plan to a traditional IRA, Roth IRA, or other eligible retirement plan." As for how to correct it, and penalties - I would suggest reading the General Instructions. The Penalties portion starts on page 18. Looks like the penalty might be $110 if filed before August 1st? Assuming there is no exception? I would suggest filing now, and see if the IRS sends a notice. Since it sounds like a non-taxable rollover, there should be no other tax impact. https://www.irs.gov/pub/irs-pdf/i1099gi.pdf

It depends specifically on what you hired the attorney for. If you hired the attorney to process paperwork only, then pro se makes sense. If you hired the attorney to represent you in court for this matter, then pro se doesn't make sense. Did your attorney review the order and give you advice? or just file it for you? If your agreement with them is that they are to review the order and answer any questions from the other party, and represent you, then typically their name would be listed. Who drafted the order? If the other party doesn't know you have an attorney representing you then they would not know to include their information.

One thought, I would suggest asking an attorney if creates a CODA- type arrangement. An employee in theory is choosing between $1,200 going towards their student loans (which is taxable income to them), OR being eligible for a plan match (that may or may not be equal to the $1,200). It has been a long time since I reviewed those rules, but one factor was definitely the employees ability to choose how to receive the money. I don't know if the fact that actual cash is off the table changes the analysis. Maybe someone else (Luke?) can chime in.

Is the K-1 earned income? I would confirm with the partner (or their CPA) that it is not passive (such as from real estate or an investment etc) If so, then check the document. Ours would say yes, earned income from all entities counts towards plan compensation. The self-employment tax calculation may need to be adjusted as a portion of the social security that would typically be accounted for when using the K-1, would have already been paid as part of the W-2 withholding. If you use software to help calculate the SE-Tax adjustment for self-employment earnings to plan compensation, it may do it for you if input correctly. You should check with your help file or provider. Many allow you to input both W-2 wages and SE income into the calculation.

What you are suggesting, a class exclusion from the match, is materially different than the PLR. In that instance the plan wanted to GIVE a match to people who did not defer, but were making student loan payments. I'm not aware of anything that would make the fact that the exclusion is tied to a non-retirement plan benefit impermissable, assuming, as you point out, that testing passes.

C.B. Zeller - clever on the rounding! :-) thepensionmaven - Rollover versus Contributions, those are two very different things. that needs to be figured out and squared away before anything else ( ADP, 415 etc). As C.B. Zeller said - if they can show where the money came from it should be easier to determine if it was a rollover or an after-tax voluntary contribution.

Hmm 10(A) In general - An event described in this subparagaph is the termination of the plan without establishment or maintenance of another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7))." How curious. So if a 401(k) plan terminates and then a PSP is started, the PSP could be a successor plan, but if a PSP terminates, and a 401(k) plan is started, it wouldn't be?

There is always confusion about the successor plan rule - the prohibition isn't that a business can't have another plan within 12 months. It's that if there is a successor plan the participants in the first plan did not have a distributable event due to plan termination, and unless they had another event (employment termination, age etc) they should have NOT been allowed to take the money, and it must go to the successor plan. Maybe this isn't a big deal if the money in the PSP hasn't yet been paid out. Now, as to the question if there is a successor plan - my gut says yes, as both are plans under 401(a), and a 401(k) plan is actually a PSP with a COPA provision, but for short is just called a 401(k) plan. It's a profit sharing plan with a 401(k) provision. Is the new plan going to be deferral only and not allow for employer contributions? If so , then yes, I would think for sure it would be a successor plan. Also, did it know it wanted the 401(k) plan when it terminated the PSP? Seems odd to want a new plan so quickly. Would it have been simpler to update the PSP to add a 401(k) feature?

Gilmore - might be the 1.25% that Ack suggests. My math says 0% times 125% is still zero, but perhaps the regulations accounted for that and clarified it somewhere. I haven't actually looked into it. If you find the reg or publication that says, please share. I'm sure it's covered in the ERISA outline book, or on ERISApedia.

Gilmore - I don't think there is one. thepensionmaven - after-tax voluntary contributions only have their basis post-tax. The earnings on it are subject to taxation when distributed. Usually if I have someone who has take the time to do an after-tax contribution, they know they immediately have to convert it to Roth (which results in zero additional income since the after-tax voluntary was already taxed), and then the money is considered Roth, and the earnings occur post-tax as well. If part of a 401(k) plan - they are not Roth IRA conversions, they are Roth conversions within the retirement plan. The participant makes an election (usually similar to filling out and signing a distribution form) requesting the conversion of plan money from non-Roth to Roth. Yes, there still might 415 excess, and an ACP failure. Those are completely separate from the conversion request. I'm still curious to know how the ACP passed with O% for NHCE, and X% for the HCE.

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.