justanotheradmin

"So if the participant doesn't repay, then ER is not required to either (even though the participant isn't 59 1/2 yet)? I would think this would apply to both the ER matching contribution as well as the salary deferrals? But appears that Form 1099-R should be issued so that the overpayment portion is subject to 10% early withdrawal penalty?" - Yes, that's my understanding. "Will there be any repercussions or other issues (possible fiduciary issues) if the HCE/participant, who is the CEO, refuses to return the money? I'm going to hope he wants to return the money, but if he is unable to (for whatever reason), I'm just trying to anticipate their questions." - Is he a fiduciary? If so, then yes. He may argue that his rights as an individual outweigh his responsibility as a fiduciary.But his responsibility as a fiduciary are to the plan and ALL of the participants. If a fiduciary knows of an error they are supposed to try to fix it. If he insists on not returning the money (and he is a fiduciary) then I would suggest he talk to someone about self-dealing, hopefully decent ERISA counsel. "If the HCE/participant returns the money, that specific forfeited ER match contribution has already been utilized for other ER match contributions during the year. However, I would think that 'other' ER matching forfeitures could be utilized to restore his balance, and if there are none, then the employer would need to contribute it to the plan?" - Yes that sounds correct based on EPCRS "If the HCE/participant returns the money, is he required to repay earnings from the time of the distribution to the time of the repayment? How are these earnings calculated?" - The revenue procedure gives several reasonable ways to calculate earnings. I believe they are in Appendix A or B. Typically I would start by looking at actual earnings of two things 1.What the money earned while it wasn't in the plan. 2. What the money would have earned while in the plan. The actual earnings rate has some flexibility as long as it is reasonable, EPCRS allows use of the highest returning fund in the plan, the plan RoR as a whole, etc. I've seen each participant's actual rate of return calculated, etc. The actual mechanics of a RoR return calculation will vary based on how you weight contributions / distributions, calculate time involved etc. Perhaps most importantly - how are they going to prevent this from happening again? Will you be performing the ADP for 2018 instead of them?

I've seen this several times in the past few years. While the cause of the error is the test, the actual error is overpayment of a distribution, which is addressed in EPCRS. The participant should return the money (adjusted for earnings), and the 1099-R can be adjusted (if not issued yet) or amended to reflect the portion that was correctly refunded to the HCE. If the participant refuses to return the money - and they would have been eligible for an inservice withdrawal ( typically over age 59 1/2) then basically the HCE has taken an in-service withdrawal of the extra $. If the participant refuses to return the extra $ -well there are other threads on here about what to do when distributions are too much and how to try to recoup or next steps. Presumably the forfeited match is still available, if not, the sponsor should make a deposit to the plan to cover the match that needs to be restored to the HCE's account. I've seen all of this done as self-correction (which is a decent option if fixed all within the same year - minimizes tax impact). I've also seen this done as a VCP, which is good too. Since the plan would have an annual IQPA I would also suggest checking with the auditor if they are the kind that are sticklers about things being done exactly their own way. Good luck.

While I agree that the answer to the original question is No, I disagree that employer contributions can never be "Roth-ized" Plenty of 401(k) plans allow for Roth deferrals, and under the Roth conversion rules (not the old Roth rollover rules), those plans could allow participants to convert existing balances to Roth. This can include employer money. If done as a Roth conversion, the money retains the characteristics and restrictions of the source money. So while I don't care for it, we do occasionally see a participant with Roth Profit Sharing, or Roth Match, etc. But perhaps the distinction is those occur at the individual participant's request, the plan has not made a carte blanche change to a source for all participants. I rarely see Roth conversion requests, so perhaps the rules have changed, but that's how I remember them working with the rules came out for Roth conversions.

I'm assuming the company has been around and participants would have compensation from 1/1/18 - 12/31/2018 to consider if possible. The basic plan document we use addresses the limits and short year issue. It also makes clear that the adoption agreement has a spot where compensation can be clarified. In ours it is titled "Period for Determining Compensation". If a sponsor wants to use 12 months of full compensation (subject to the limits, pro-rated as necessary) the document would say something like "the 12-month period ending on 12/31 which ending during the Plan Year" So even if the plan has a short plan year, the full 12 months of compensation is used. Hopefully your document has similarly clarifying language.

For the Form 14568, when I have something addressed on another form I write the answer "See item X on Form 14568-E" or whatever the particular form number or item is. So the question isn't answered twice. I would not omit Form 14568, at least not if you want the submission timely reviewed.

I'm a bit confused. Do she have an active DB plan? Are these trustee to trustee transfers? I would use the term rollover to refer to a distribution from the DB plan to an actual IRA. If the only change was the investments then I would typically call that a transfer since the money is staying within the trust, just changing accounts or investments. I suppose part of it depends on how clean the paper trail is. Has the DB money been co-mingled with other IRA money? Can she clearly demonstrate or have documentation that the money is part of the DB plan all along? What information has the actuary been using for the calculations? Brokerage accounts are registered / titled incorrectly all the time (which is one of the reasons I don't like them), but that in an of itself doesn't necessarily mean the money isn't part of the plan. As for the form 5500 - I'm not sure why one might think it is required. If the plan is less than $250,000 and means the requirements, it doesn't have to file. This is true for both 401(k) plans and DB plans. Even if somehow this account was considered a 401(k) Plan (highly doubtful) the $250,000 filing threshold is the same. Was she intending to terminate the DB plan and do an IRA rollover? If that is the case, then yes, a Form 5500 is required because it is a plan termination. Did she do the rollover a few years ago? Are you asking if she can consider the plan closed as of the original asset transfer date? Treating that date as the rollover date even though the receiving account wasn't an IRA? What are you taking over exactly? If the plan is terminated and long paid out, are you just helping / advising about a possible final Form 5500 filing?

If the owner controls 100% of both companies - and they are a control group, wouldn't that be a single employer (though comprised of multiple entities?) thus if their plans are combined into a single plan, it would be a single employer plan (NOT a MEP) just with several participating employers? Sounds like the resulting plan would be audit sized, so perhaps not the way to go, but the talk of a MEP (either open or closed) seems like a misnomer. Is there something I over looked from the fact pattern?

Not everyone received a prevailing wage contribution. Only about half the workforce received prevailing wage. Unfortunately one of the people who received prevailing wage contributions into the retirement plan was the owner, who is also the only HCE.

Sorry - update -edit to add, I think I'm getting myself confused. 1. Ratio percentage test OR average benefits ? Does the reasonable classification test apply to PW? Is the Average benefits percentage test good enough. All of that passes. I think its fine now...

Is there a minimum rate that needs to be given as profit sharing? Facts and Circumstances Plan Sponsor (C-Corp) has a 401(k) plan. the only contributions are typically 401(k) deferrals, discretionary match, and prevailing wage. Prevailing wage goes to everyone (stupid I know, but we did not write the doc), and the owner did receive a very very small (less than 1%) PW. 401(a)(4) passes, but 410(b) coverage does not. 1. I'm not aware of any special rules for PW - but if there are any that would negate the need for 410(b)? Is average benefits good enough? I'm thinking no, because the allocation method and groups aren't a safe harbor or definitely determinable as in an older style new comp plan. 2. the plan allows PS - on a pro-rata basis, and if a PS is given according to the document, and 410(b) is combined with PW it does pass. But how much PS should be given? - plan is not top heavy, and 401(a)(4) passes on an allocation rate basis, so no gateway minimum either. Surely someone has encountered this before? It is 10/15 so there may be something simple and stupid I'm not thinking about clearly.

This is from Rev Proc 2018-52 for those wondering.

Is your fact pattern that there is an existing, single employer plan, and the plan sponsor wants to instead participate in an MEP? Well - in theory the employer could sponsor both a stand-alone single employer plan AND participate in an MEP, though unless the employer was large and there was a compelling business reason to do so, it would be very impractical. Employees would have access to two plans, testing issues, etc. So if the desire is to get rid of the stand alone plan, the sponsor should 1. work with the MEP master sponsor such that it accepts the merger of the old stand-alone plan, including tracking money types, (I guess I'm assuming this is a DC plan), protecting required provisions etc. and all of that is reflected in the adopting agreement that the employer signs as part of the MEP plan document. I would hazard a guess that most PEO style MEPs aren't going to have a flexible enough document to do all of that. But assuming that is possible, then - 2. The existing stand-alone plan will need an amendment / resolution stating that it is merging into the MEP and ceasing to exist as of whatever date. There will be some transition accounting, testing issues, asset transfer, etc Alternatively, the existing stand alone single employer plan could go through a traditional termination and closure, and then wait the year, and then join the MEP.

I should caveat that my thoughts are based on DC plans. The way it would work for DB plans is similar, but different. As for a Pension Equity Plan, I'm not familiar with them, and I don't think a regular DB plan with an annuity based benefit would be easily converted to a PEP, if at all. I would think that would be similar to converting a traditional pension plan to a Cash Balance plan, no? Which I've never done. I'm not an actuary, so hopefully someone else give their insight.

There is a lot going on in your post. It might be helpful to distinguish a classic plan termination (with everyone being paid out) and a plan merger (where the plan is combined in part or whole with another plan and ceases to exist as before). A stand alone plan can absolutely merge into a MEP, or the reverse, do a spin off from an MEP. Sometimes an MEP happens when a former controlled group is no longer a controlled group, but the business entities still want to leave the 401(k) plan as is, which is fine. A plan termination doesn't always create a distributable event. If the plan is being merged into another plan, or a successor plan of some sort is created, there probably wouldn't be a a distributable event. The way I've seen it is the old plan just moves everything over to the new plan. If a new plan is started within a short time period (typically 12 months) of the old plan termination, and the new plan is a successor plan, yes protected Benefits, rights, and features should be analyzed, particularly as they pertain to the money that moved into the new plan (the non-distributable money) I should point out, that for a simple plan merger of two stand alone plans, the money typically doesn't have to move right away. there is sometimes a rush or anxiety to get separate investment contracts combine on the exact day the merger is effective, but plans are allowed to have multiple investment contracts in the trust, and usually the accounts are actually physically consolidated a short time after the plan amendments / resolutions etc are effective.

how old are the plans? More than 6 years? The older the 403(b) the less of a potential issue. Are there any impacted participants? It should be fairly easy to determine. How many 403(b) participants have original dates of hire that pre-date the plan start? How many of those are less than 100% vested? Hopefully the answer is zero - and it becomes a moot point.

Thanks shERPA for confirming its systemic. I had to spend a bit of time last week educating an advisor about Form 5498. Apparently two participants who received the letter had some sort of communication from the IRS agent that the form was needed. The advisor was pretty adament that we needed to prepare 5498 for that 401(k) plan. Of course I refused. I see things like this crop up every so often, it just seemed noticeably worse this year. And yes, some of the amounts the IRS is claiming is due are scary! At least it would be to someone who is leery of the IRS.

One option is an anonymous VCP submission. If you like the IRS answer you can disclose the name of the plan. If not, you do not have to. But keep in mind, if the plan is subject to audit while the anonymous submission is being reviewed, you will not have protection under VCP. Whereas typically if a plan is selected for audit after starting VCP the IRS can't resolve any VCP submitted errors under audit cap. And yes, this happens, I had a plan selected for audit the day after it submitted an error for correction under VCP. That was a regular submission, not anonymous so the IRS agent did not ding the plan for the error since it was already underway with VCP.

Sounds like you need to know if the transition rule applies to the SEP, and Company A. I don't actually know the answer. Usually coverage testing the the main concern, and I've never don't coverage testing on a SEP, I don't usually deal with SEPs. If you want more reading on the transition period rule, here is an article to start: http://ferenczylaw.com/article-the-elusive-irc-section-410b6-transition-rule/

Thanks Larry. I agree, some correspondence and communication with the reviewer does seem to work, but it just seemed like a lot all at once. And in the meantime, the advisor and the participant are stressed out. Two came up last week, and another this morning. I guess it's just a coincidence that there have been several all with the same kind of notice.

I would read the basic plan document as well as 416(g)(4)(H) as Tom suggested. HCE do not have to share in the SH Match for the the Top Heavy minimum waiver to be intact. But make sure your document mirrors the code, it may not. The document may provide for a more generous TH min. If you want to amend as Bri suggested, to include the HCE - non-Key employees, you can, but neither 416 nor 401(k) or 401(m) require it. But your document might in order to avoid an additional TH min. The basic plan document we use mirrors the exemption in 416 and also provides that forfeitures that are allocated as discretionary match, as long as they are within the ACP additional match rules, those forfs don't even trigger a TH min. but the moment a dollar in ER contribution comes in from outside the plan (as match, PS, whatever) the TH min applies.

Is the contribution amount to the employees known? The Employee Pension Cost? If that is known, then it works out the same as any other SE tax calculation, but initially I would ignore the split between the PS and the Match. Are you able to calculation the owners compensation with the max contribution? Once that is known let's say it is $200,000 and the contribution to reach 415 is $36,000. Well, then you know 36/200 = 18% ER contribution to divide between PS and Match. If the owner is eligible for SH Match ( does it go to NHCE only?) then 4%(or whatever your SH formula is) of 200,000 = $8,000 If $8,000 is SH Match, then the rest $28,000 ($36,000 - $8,000) has to be PS. If the EE pension cost is NOT known and it is fluctuating because of testing, well, then that is more involved calculation. Unless the owners compensation is really high and they are going to be above the compensation limit anyhow, in which case, the math gets simpler. $270,000 plan comp, $36,000 total er contribs, 4% of 270,000 = $10,800. $36,000 - 10,800 = $25,200. Hope that helps.

Has anyone else had a problem with the IRS issuing letters stating that an IRA rollover is taxable income? Five different participants rolled traditional IRA money into their 401(k) plans (4 separate plans, all different employers) in 2016. the 1099-Rs appear to have been issued correctly, showing a code G since they were all direct transfers, and zero taxable amount. These five individuals all received letters in the last few months stating the amounts rolled over were taxable and listed the amount of tax and interest due. In at least one instance the letter even mentioned that the 1099 had a code G on it. I'm not sure, but I think the common denominator may be that none of these individuals reported the rollover on their personal tax returns. Rather than reporting the rollover with zero listed as taxable, I think it was left off the return completely. I can't confirm for all of them, but for at least one this is the case. I do know the IRS sends out letters if things are reported to them by employers / financial institutions / etc and don't match up with what some reports on their personal return. But ultimately, the amounts aren't taxable, so saying the rollover IS taxable seems ridiculous. We see our clients do a lot of rollovers, usually without a blip from the IRS, so to have several this year with inquiries feels like a lot, but maybe it is typical for the IRS.

Correct, the rules do not change. If the participant took a private loan from a bank, the loan payments back to the bank would be post tax, the fact that the loan is from the plan does not change how loan payments are treated under the internal revenue code.

I agree with Larry. See §1.401(a)(9)-2 A-2(c) "For purposes of section 401(a)(9), a 5-percent owner is 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." She turns 70.5 in 2019, she's not a 5% owner in 2019.

That depends - has the plan been terminated? Just because the practice was sold doesn't mean the plan is terminated. Was it a stock sale? Do the new owners want to keep the plan? Was it an asset sale? Are the current owners terminating the plan? Upon plan termination full and immediate vesting is required for all affected participants. When there is a partial termination the IRS is clear that only those that terminated during the year are made 100% vested. For full plan termination though, everyone with a balance is affected, so I don't see how the doctor wouldn't be 100% vested. Maybe someone can provide a cite for what "affected participant" means if different than my understanding.