justanotheradmin

I agree with ETA consulting. the only time I have seen it be an issue was a plan that typically only does deferral and SH Match, AND the plan was top heavy. The HCEs deferred (they were also the keys), but received no other contributions. The SH Match, as the only ER contribution, under the terms of the pre-approved doc, was deemed to satisfy the TH min. One year the employer wanted to give 3 managers an additional contribution. But doing so meant the SH match was no longer the only ER contribution, and the full regular TH minimums would apply. It would mean a number of NHCEs who were not deferring would have needed to receive a 3% TH minimum, which they did not want to do. The employer ultimately decided not to do the contribution to the 3 managers.

That's a start. I wasn't looking for a published rate of fines, even under EPCRS the types of taxes and penalties vary greatly, but there is a list of what things the IRS considers when coming up with their penalty number. I'm only familiar with the IRS prohibited transaction excise tax 15% and 100% respectively of the amount involved. For the small plans I primarily see, even the amount involved in minuscule (less than $100 usually), so if the difference is paying a TPA/ CPA / Attorney hundreds of dollars to prepare an submit a VFCP I could see the plan sponsor opting to just pay the 100% excise tax. Perhaps this is splitting hairs, but I would argue there is a technical difference between "making the plan whole" and reporting the failure and subsequent correction to the DOL. the later is procedural, and protects the fiduciary from penalty, the former provides the benefit due to the participants. If anyone has clients that have received these newer threatening letters that decided not to do anything about them, what kind of response has come from the DOL after the 60 days is up? I'd be curious if anyone is willing to share. I'm agree the late deposit itself is a prohibited transaction - Is the failure to report the late deposit and the subsequent correction to the VFCP a prohibited transaction? Is the argument that failure to comply that with technical requirement for "completeness" negates the other parts of the correction that were done (lost earnings, 5330, excise tax etc.)? Such that if you don't correct perfectly and in full, the penalties are the same as if no correction was done at all? I don't think any reasonable person would make that argument. So i'm not asking about the penalties for the late deposit - I'm asking about the penalty for failure to check the last box and submit to the VFCP. If anyone has ideas about that, I'd be curious to hear. I'm sure there must be something out there, even if just informal information from a PLR or a Q & A session or something.

If a plan sponsor files their 5500 late, there are published daily penalties, if there are problems found under Audit CAP EPCRS provides parameters from which penalties are derived. Surely there is similar guidance for VFCP?

that may be the case for some - in which case they need to know the penalties for failing to do that part of the correction so the fiduciaries can make an informed decision. I'm still waiting for someone to give a link or citation that gives guidance on what those penalties might be. Specifically the penalty for failing to submit.

Also, just because VFCP might be easy for some, does that mean it should be required under threat of enforcement? For many small employers it is intimidating and they would not be comfortable doing it themselves. They WANT to run their plan correctly, and would end up spending money on an outside provider to do it for them.

The burden of an audit is a scare tactic. It doesn't answer my questions - why the DOL would want to start this now? I didn't think increasing their audit case load was something they were trying to do, nor is an audit a civil penalty for failure to submit to the VFCP. Even assuming an audit is done and there are NO other issues, where is the dollar amount / formula / parameters listed for a civil enforcement action for failure to submit to VFCP?

Why take this enforcement action now? I suppose that is what I don't understand. So if the small plan sponsor doesn't submit a VFCP - and then the DOL does their enforcement measures - what civil penalties would be assessed? I've never looked into it because I've never seen civil penalties assessed for late deposits - The fiduciary breach in my example has been corrected, the participants have been made whole, new processes or cross-checks in place to prevent reoccurance, etc. Its just that the breach and correction weren't reported to the DOL. So honest question, in this example what is the civil penalty for failing to use the Voluntary Fiduciary Correction Program? I'm sure someone smarter than me has a citation for it that I can review.

This is definitely NOT the same letter. The prior letter was way friendlier and did not require a VFCP submission in 60 days. Also, it does cost something. For a small employer, it either comes at their own time to figure it out, or they have to hire an attorney, CPA, or TPA to figure it out for them. For a small employer the difference between using the actual rate of return and the DOL calculator is small. We routinely see plans with lost earnings to make up of less than $10, but we charge hundreds to do the calculations / 5500/ VFCP etc. using the DOL calculator to save a few cents is not enough incentive. But saving the additional TPA / CPA/ Attorney fee to prepare the forms, plus all the back-up documentation (payroll records, deposit records, etc) can be substantial for a small plan. If the plan sponsor has already made the participants whole, plus filed and paid an excise tax, the VFCP should be voluntary, which the ARA has been pushing for. The DOL threatening enforcement measures is definitely new.

Anyone else find this alarming?! Seriously? What if i'm a small plan sponsor and I've done my own lost earnings calc and deposited to the participant accounts, I've done an amount involved calc and filed and paid excise tax with the Form 5330. Seriously, the DOL is going to come after me for also not filing a VFCP?! ARA article: https://www.napa-net.org/news/technical-competence/regulatory-agencies/ebsa-threats-of-alternative-enforcement-actions-trigger-ara-response/ Letter from the DOL (see the last paragraph in particular): https://www.napa-net.org/wp-content/uploads/letter-from-DOL-4.27.2018-002.pdf ARA letter to DOL: https://www.napa-net.org/wp-content/uploads/18.06.07DOLEnforcementFinal.pdf

The terms of the plans would govern. 1. Does the plan document automatically revoke beneficiary designations to a spouse upon divorce? Some do. 2. If it does, (or there is no signed beneficiary form) the order of benefit named in the document governs. typically, spouse, children, sometimes parents, and then estate. I've never seen a document that includes ex-spouses in the order of default beneficiaries. So unless his parents are alive, likely whoever is getting the rest of his estate would get the money.

So - to play devils advocate - could a participant take a hardship to make a mortgage payment? perhaps for the portion of the payment that is principal and not interest? They are "purchasing" that part of the home back from the bank. I've always said no - the participant should demonstrate foreclosure related paperwork, but perhaps I've been looking at it wrong. And would the answer be state specific? I understand in some states the lender has a much more protected right in the home than others, and may hold primary title, etc. I don't really know, i'm not real estate lawyer, but maybe someone else here does know.

I've never heard otherwise. Not having an account should never be a barrier to receiving a required benefit. I'm guessing the plan and trust is set up for each participant to have their own individual recordkept account (as opposed to some sort of pooled arrangement). Whether someone has an actual physical account for their money, or if the plan just maintains an account on paper, the contribution should show as being for that participant. The participant's consent is not needed to set-up an account. I have occasionally seen sponsors deposit the corrective amount into a holding or suspense account for the plan, and then immediately pay it out (subject to the plan's distribution force-out rules). In that case, the participant's account something that is tracked or shown on the year end accounting, but isn't necessarily going to show up on any statements from the financial institution because the money will be labeled "holding account" or whatever. what kind of plan is it? 401(k)? 403(b)? what is the asset arrangement? recordkeeping accounts subject to participant direction? brokerage account? pooled investment account?

Thank you Larry, this helps.

Thanks Mike! I was thinking more along the lines if there was a specific exemption/waiver that it would be written somewhere and possible to cite, but yes, I see what you mean about citations. We've gotten pushback, so if there was a citation I could go look up, I would have wanted to read it. I rarely work with PBGC covered plans, so its just not an area I have much familiarity.

I would read the plan document - ours says that they are a participant for purposes of their rollover account only, and specifically addresses loans from rollover accounts for limited participants. Our doc allows them (assuming the plan allows loans) unless a limitation on such has been written into the adoption agreement (there is a specific spot available to do so).

hmm - maybe start a new plan for the spouse, write it however you want - test it with the existing plan at year end - then merge the two for next year? Or maybe the doc for the existing plan allows for different contribution allocation formulas for different participating employers? More like a multiple employer plan would be drafted (but not actually since you say they are control group)?

Are PBGC plans exempt from an ERISA bond? Specifically asking about small DB plans that typically would not be subject to audit if the bond requirement is met. Does anyone have a citation for an answer?

We submitted a determination letter request for a defined benefit plan with a normal retirement age of considerably less than 62. The IRS is asking for statistical data to verify the NRA of less than 62 is acceptable for the industry standard. The plan is a one person plan for a professional athlete with endorsement deals. Can anyone point me to what kind of information and sources of information the IRS is willing to accept? Are there other threads that have already covered this question?

thanks Bird. I did miss that. Does the P.C. shareholder receive a W-2? So the 2017 W-2 box 12 shows more than $18,000? (or 24k if over 50?) - Ignoring the fact that the deposit was probably late if it didn't occur until 2018- the result is a simple - 402(g) excess. Corrective distribution for the excess, plus earnings, plus 1099-R. it gets paid out to the principal. The 1099-R taxable amount counteracts the excess in box 12 on the W-2. Earnings probably taxed current year. Probably needs to happen ASAP (April 15) though to avoid double taxation.

We are a scrivener. As to why the employer is involved - well the loan payments would be processed from pay, and the employer remits the payments to the trust. So the ER is involved every time a payment is made. Some employers are very traditional / paternalistic / conservative and this one clearly wants to discourage loans to the point where I think it is going to end up hurting NHCE. Allowing a provision that ends up hurting plan participants is counterproductive to me.

Assuming there is reasonable compensation, how can a sole proprietor have excess deferral? There is no W-2 to offset a 1099-R corrective distribution of a 402(g) excess. Wouldn't the SP just claim less as deferral, just the 18K on their taxes? Wouldn't the extra just be reclassified as a mis-directed / over deposit? I agree the money should not be removed from the plan, - under the principals of EPCRS once deposited to the trust, absent a specific distributable correction, it should remain in the trust, and be allocated. If the deposits all occurred in 2018, why can't the excess be counted as his personal deferral for 2018? Has he already made the maximum 2018 deferral deposit? As to why making his match deposit before everyone else's - its a discrimination issue - he as the HCE would get the benefit of the investment gains / losses, he could count it if considered an allowable loan, etc. None the NHCE get the same benefit. If anything his match deposit should always be last because his compensation as a SP isn't calculable until after year-end. If his employees receive W-2 based compensation, they could in theory receive the SH Match on a per paycheck basis, and then an annual true-up after year end. (I'm assuming the SHM is on a full year basis since he seems to be depositing things in large lump sums once a year). As to the TH issue - SH NEC is only more favorable if the dentist wants to use a PS to get a higher contribution. If they are satisfied with the SH Match (maybe its a 6%?) and possibly a layer discretionary match (such as an additional 4%), then no PS is needed. Maybe cross-testing doesn't work well, due to ages, comp, whatever. The doc we use (and I would guess many others are similar) provides that a SH MAtch contribution is deemed to satisfy the TH min as long as no other employer contributions are given. It does say an additional Match is also allowed if it is within the ACP SH 4%/6% rule.

I agree with you QDROphile. I guess the last sentence in the original post should have been worded better. I think this is a bad idea - there are plenty of times where I think certain provisions are a bad idea - But unless there is some compliance reason not to allow a provision, we usually help the sponsor amend their plan to work the way they want. But the question still remains - is this a permissible provision? Or is there some discrimination or compliance issue I'm overlooking?

"My understanding is you can self-correct on those loans that are within the three-year statute of limitations by reporting on a 1099-R in the year of the failure." What citation do you have for a three year SOL for loans failures? My understanding is that loan failures have to go through VCP for anything outside of the box, including treating the loan as taxable in a year other than the year of the failure. Specifically, that the IRS is the only entity that can grant tax relief, so any correction that changes the standard taxation of a loan failure can't be done as a Self Correction. From the Revenue Proc. "As part of VCP and Audit CAP, the deemed distribution may be reported on From 1099-R with respect tot he affected participant for the year of correction (instead of the year of failure)." the Rev proc goes on to explain that taxable relief is sometimes available/approved if the loan is corrected in accordance with the Rev proc, AND the failure is submitted to VCP, AND specific relief is requested on the submission to the IRS. Because the type of tax relief you are seeking is only available under VCP, from the IRS, I think the question as to whether these failures are significant or not is moot.

Small (less than 100) 401(k) plan does not presently allow for loans - but would like to add them, subject to the hardship rules. they would like to restrict salary deferrals while a loan is being repaid. Meaning the participant cannot make deferrals until the loan is repaid in full. The thinking is that if the participant has extra cash available to make deferrals, then they should be using that extra cash towards the loan. i don't see anything on the face that would make this provision a problem - except a possible BRF issue. If loans are available only for hardship purposes, probably NHCE will be the primary users. If so, then the deferral restriction will primarily affect NHCE. HCE that do take a loan would likely have more means to repay it quicker. Am I over thinking this? Thoughts? Should this provision be allowed?

https://revenuelaw.floridarevenue.com/LawLibraryDocuments/2000/07/TIP-38278_487282ff-105d-48b9-8df7-4a4d989faa2a.pdf This publication is old, but I'm wondering if any portion has been challenged what the outcome has been in the 18 years since it was published.