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JJRetirement

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  1. JJRetirement
    I was catching on on last week's news this morning, and can't believe what I am reading. I have a missed RMD application ready to submit for a single participant failure in a plan of between 50 and 100 participants. Huge fee increase!! Now I have to go back to client and see if they still want to file or it they will self correct the plan and leave the participant on her own to try to get a waiver by filing a 5329. I seriously doubt the plan will want to file for the benefit of the participant.
  2. JJRetirement
    I recently had a somewhat related situation. The participant whose RMD was missed was a 5% owner for purposes of 401(a)(9) because her P.C. was an adopting employer of the firm's plan and she is the 100% owner of her P.C. The P.C. was less than a 5% owner of the firm sponsoring the plan. The 401(a)(9) definitions leads to 416 definitions and those specifically provide that the rules of 414(b), (c) and (m) don't apply for determining 5% owners. To answer the VCP question, however, there is no direction of what is meant by a 10% owner of the plan sponsor. If they wanted to say that 414(b), (c) and (m) don't apply for this purpose, they could have - or they could have referenced 401(a)(9) or 416. Since they did none of that, we felt comfortable checking "no".
  3. JJRetirement
    Unfortunately, the late contributions couldn't be considered insignificant. Too many plan years, too long ago, and too many participants affected. Non-discrimination isn't an issue here as no HCEs involved. I thought that the document didn't have a time limit for deposit, so there was no operational defect to correct. However, I have learned that there was a change in documents during the applicable period. One document made no mention of timing, but the other (earlier) document states: "All other Employer Contributions are to be remitted to the Trustee not later than the date prescribed by law for filing the Employer's federal income tax return, including extensions thereof, for the fiscal year of the Employer." I think this language really is intended to be for deductibility purposes, but it doesn't say that. I've done many corrections over the years, but I had never before considered that not every failure to follow plan terms was a de facto operational failure. The definitions of Operational Failure and Qualification Defect in EPCRS are somewhat circular (unhelpful). The 'singing happy birthday' example does help put things in perspective! A plan doesn't need to state when employer contributions for a plan year will be deposited (other than safe harbor, QNEC, etc.) and one of the applicable documents in fact doesn't specify, so it's hard to say it's part of the definitely determinable qualification requirement. I'm getting some comfort that no VCP is required here.
  4. JJRetirement
    I have a client who has just closed a U.S. DOL investigation for (very) late deposit of prevailing wage contributions. They have now paid in all of the unpaid contributions and paid and allocated estimated interest based on a method approved by the DOL investigator, paid corrective distributions to former employees and they have received a closing letter. I expected that these late contributions would also be an operational defect that would require a VCP filing, and my client is prepared to do this. My biggest concern had been whether the (DOL-approved) method of allocating interest would be acceptable to the IRS. But, I am now wondering if there is in fact any operational defect, because I cannot find any plan provision that specifies when these contributions have to be made. The plan has a schedule to the Adoption Agreement that lists the prevailing wage fringe benefit portion to be paid for each covered hour. The plan provision for Time of Payment of Employer's Contribution states: "Unless otherwise provided by contract or law, the Employer may make its contribution to the Plan for a particular Plan Year at such time as the Employer, in its sole discretion, determines." I don't think the "unless otherwise provided..." language incorporates the statute or contractual language by reference. There is also plenty of typical plan language about when annual addition are credited, and when contributions must be made to be deductible for a plan year, or to be taken into account for testing, but those aren't really the issue here. State law does in fact require the contributions to be made quarterly, and there clearly has been a violation of this law. If the plan document doesn't have a deadline for the contribution, is there an operational defect when contributions are made later than the statutory or contractual deadline? I had assumed the answer was yes. But after parsing all the plan language relating to employer contributions, I am now thinking that the answer is no. And that would mean there is no operational failure that could be corrected under VCP. Agree or disagree?
  5. JJRetirement
    Could excluding her raise an age discrimination claim?
  6. JJRetirement
    Filing for excise tax refief for missed RMD (through VCP) and struggling to correcting answer this: At least one affected participant is either an owner-employee (see IRC Section 410(c)(3)) or, if the plan sponsor is a corporation, a 10 percent owner of such corporation." Plan sponsor is a partnership. Some partners are professional corporations. Affected participant is the 100% owner of her P.C., which is less than a 10% partner of the partnership sponsoring the plan. For 401(a)(9), she is a 5% owner because Section 416 is cross referenced for that determination and those rules apply ownership test separately for members of the affiliated service group. But it isn't clear to me whether the VCP form question is intended to refer to the partnership that sponsors the plan or would include owners of the P.C.s that are members of the affiliated service group (and related participating employers in the plan). I'm not seeing an answer in either the form or the definition in 401(c)(3). There is no reference to 416 so I am inclined to apply the ownership test only at the partnership level. Can you offer any insights?
  7. JJRetirement
    Town DB plan with employer pickup contributions (yes - formal action was taken when implemented). Town is amending plan to retroactively include position that was previously excluded. Employee will need to make up contributions for period of credited service she will be granted (and she will start contributing prospectively for future service as well). Do the contributions for the period of past service need to be made on an after-tax basis or is there some way to draft the plan so that these contributions are picked up by the employer as they would have been if she had been included all along. I know she can't be given a choice, but can the plan specify that payment of the past contributions will be paid over a certain period and will be picked up by the employer? I have the same question for making up contributions after returning from a leave of absence. If the plan bridges service and requires the participant to contribute for period of leave, can these be picked up?
  8. JJRetirement
    I would also consider the impact of bonuses over time before counting SCP out. Are bonuses given every year or are they more infrequent? If they are pretty much part of compensation each year, I agree that SCP doesn't seem appropriate here. And I have serious doubts about getting approval for a retro amendment where participants get less than the plan's written terms specified - unless the all or most of those affected are HCE.
  9. JJRetirement
    I have a question about the application of the exception to full correction in EPCRS allowing a sponsor to not make a corrective distribution of $75 or less "if the reasonable costs of processing and delivering the distribution to the participant or beneficiary would exceed the amount of the distribution." (section 6.02(5)(b) of Rev. Proc 2016-51. The provider's fee is $100 for each distribution and it is charged to the participant (rather than paid by the sponsor). Is the $75 threshold applied to the full amount of the distribution before fees are taken out or to the amount of the distribution that the participant would be entitled to after fees are deducted? As an example, say a participant terminated some time back and no longer has an account balance - they have been paid out their balance in a prior plan year. They are due a now correction of $90 for lost interest. Given the $100 fee, for purposes of the de minimis exception, are they due $90 or $0 (net the fee). Similarly, if a participant has no balance and is due $110 (gross), that would be $10, net of the fee. Presumably, the $100 fee would cover the reasonable costs of distributing the amount, so the vendor would need to send a check to the participant for $10. The amounts of any distributions not made due to application of this de minimis exception would be allocated to other participants in the plan. Not that it matters for purposes of this question, but this error was the subject of a DOL investigation, and the DOL has already issued a closing letter. They have requested that the client confirm deposit of the interest amounts and allocation to affected participants. That will take care of the fiduciary issue. I am comfortable proposing to DOL that amounts under $100 be reallocated to other participants, and expect that this will be acceptable to them. However, I realize the qualification defect will also need to be corrected, so I don't want to think this is all wrapped up and then have the IRS tell us we need to do something else with those account balances between $75 and $100, likely several months after all of the other distributions have been made.
  10. JJRetirement
    Although the plan is no longer eligible to submit for a determination letter, the plan can and should still be corrected for any missed amendments. It needs to be reviewed against the Cumulative lists for both missed Cycle Cs and the cumulative lists and/or required amendment lists since that time. Also, I don't believe there actually was any requirement to restate a plan document unless you were submitting is for a D letter, which has never been required. You may be pleasantly surprised to see just how few items on those lists would have applied to governmental defined benefit plans. Then if there are missed amendments, you can submit a VCP application to correct them.
  11. JJRetirement
    I don't think this would work as a solution to your problem because IRAs cannot hold life Insurance contracts. Please see section 408(a) of the Code.
  12. JJRetirement
    Thanks. I couldn't find anything myself. The statute, regulations and Rev. Proc 91-40 are all directed at protecting the employee who is not eligible for social security benefits. Seems a little unfair sitting here now that a spouse would lose spousal benefits if the employee had a replacement plan that didn't include spousal benefits. The circumstances involve a rather long story, but the quick story is that certain spousal benefits disappeared from the written collective bargaining agreement. The mark-up shows that they were intentionally removed. However, there is some disagreement whether the change was truly bargained or if the omission was the result of a misunderstanding that those benefits duplicated those in another section. Plan administrator was looking for support that removal of these benefits was not possible because they were required in a replacement plan. I don't think there is any such support, but I do think the omission of the benefits was a drafting error.
  13. JJRetirement
    Understood. But - assume that state law doesn't have any prohibition to bargaining to remove or reduce spousal benefits. Would a lack of spousal benefits affect social security exemption?
  14. JJRetirement
    I should add that I have searched for any guidance indicating that spousal benefits are required, I have not found any. The question I am interested in is whether the local government and the bargaining unit could bargain away the spousal benefits that are currently in the plan.
  15. JJRetirement
    Client is a local government entity that has a FICA replacement plan, so employees who participate in the plan don't pay into Social Security OASDI or receive those benefits. My question is - the requirements for replacement plans are framed in terms of what the employee must receive. Is there any requirement that a replacement plan provide spousal benefits? Thanks -
  16. JJRetirement
    Thanks again. From our perspective, the only thing keeping us from filing the corrections very quickly is the same thing that is keeping the auditor from issuing its report - quantifying all of these errors for some as yet unknown number of years. So even though quantification, filing and correction are different items, once we have the information for one, we have the information necessary to complete for the other.
  17. JJRetirement
    Thank you everyone who commented. It's very helpful to get some other perspectives. They have hired an ERISA attorney (me - with plenty of VCP and VFCP experience) to file the corrections when the investigation is complete. The correction methods for the kinds of errors discovered are pretty clear cut, but the digging has just begun, so we won't be in a position for quite some time to conclude we have identified all of the errors, calculated the required corrective allocations and distributions, located former participants, etc. The 5500 was due on 4/15/17, and the sponsor has been working diligently to review all records since then. They also have changed administrative procedure in the last year or so to prevent the kind of errors that have occurred. Many changes were implemented prior to the audit, and more have been changed since the auditor identified additional issues. Could RatherBeGolfing please comment further on verification of opening balances? What is the requirement and how would this ever be done with certainty for the first year with a required audit for a plan that may be decades old? Thanks WillSanDiego for the suggested wording relating to pre-2009 records. We have asked the auditor if it could issue a qualified opinion or a disclaimer opinion now and revise the audit after the corrections are determined. No luck so far on that. I did have an informal conversation with a DOL investigator I was working with on another client's matter to see if he had any ideas on how to 'stop the bleeding' of the late filing while we figure out the errors and corrections. He suggested getting a qualified opinion, but didn't have any other ideas on how to proceed.
  18. JJRetirement
    Thanks CuseFan. I understand the VCP option - that's what should have been done initially, and it can still be fixed. But for now, we are just trying to quantify the failure. Did it end as of the first day or the plan year in which the amendment was adopted - or does it continue to this day because the amendment was entirely void? The operation of the plan was more favorable to participants than the document (prior to amendment). The amendment attempted to align the plan language with this more favorable operation.
  19. JJRetirement
    Discretionary plan amendment for defined contribution plan is adopted after the end of the plan year during which is became operational. Assume it's operational during 2015 (calendar) plan year and adopted July 1, 2016. Amendment says it's effective 1/1/15. What is the effect? Is the amendment entirely void? or Is the amendment deemed effective 1/1/16 (first day of the plan year in which it was adopted), limiting the operational failure to only 2015? Or - is there another possibility?
  20. JJRetirement
    I'm not sure whether this issue is better placed in EPCRS 403(b) or Form 5500 because it applies to all. A client has a 403(b) plan that is now a large plan requiring an audit. The auditor uncovered several operational errors and a lack of adequate procedures to make sure the plan is compliant. The client has investigated the 3 prior plan years and has found similar errors. These are pretty typical errors: the employees may not have been made aware that they were eligible to defer upon hire, some employer contributions didn't start as soon as the participant became eligible for them, some late deferral deposits, contributions weren't always calculated using the correct compensation definition, some investment directions were not followed and contributions were invested in a default fund. The client will be correcting operational failures under EPCRS with a VCP application, with assistance of counsel. They expect to correct the late deposit of deferrals by calculating interest and depositing in participant accounts, without a VFCP application. But here's the more immediate issue. The 5500 is now overdue because the auditor will not issue a report. So a new late filing error has occurred and the penalty amount will continue to increase. The auditor wants all of the failures quantified, and won't proceed until the entire 30 year history of the plan has been investigated to uncover all errors. This appears to be unique to the first audit year because opening balances have to be verified. But when corrections are made, aren't they deposited and credited to the account in the current year? I have submitted many VCP applications that correct for multiple years (for large plans) and have never heard that the 5500 should be redone for prior years because the errors mean that the opening balances aren't correct. Is an auditor able to issue a qualified opinion in these circumstances - stating the types of errors that were found and indicating that the sponsor is working with counsel to make appropriate corrections? May be a separate question whether the DOL/IRS would accept this. There has to be a way to move forward and get the 5500 in (even if it needs to be corrected later) before the investigation is completed for prior years, the VCP application filed and a compliance statement received.
  21. JJRetirement
    It was quite a while back, but I submitted a VCP (during EGTRRA RAP) for an employer that had adopted a plan in 1987 and hadn't amended since. The plan was a generous money purchase plan for a tax exempt employer. I did not use the streamlined schedule that would have required all amendments be adopted retroactively as the correction method. Instead I proposed to correct by adopting a current (then) EGTRRA volume submitter plan. We received a compliance statement without having to go back to TRA 86 and GUST documents and interim amendments. I was surprised and needless to say, very pleased with the result.
  22. JJRetirement
    Thank you both. I was pretty sure that as long as all NHCE who were eligible to defer got the SH contrib, then excluding some but not all HCE from the 3% contribution would not affect the SH status of the plan. Seems there is some agreement on this.
  23. JJRetirement
    I have a safe harbor design question - 401(k) regulations provide that "the safe harbor nonelective contribution requirement of this paragraph is satisfied if, under the terms of the plan, the employer is required to make a qualified nonelective contribution on behalf of each eligible NHCE equal to at least 3% of the employee's safe harbor compensation." I know a plan can limit the safe harbor contribution to only NHCEs or it can provide it to everyone. Is there anything stopping a plan from providing the safe harbor contribution to NHCEs and also to HCE's in a certain identifiable job category (but exclude all other HCE from the contribution)? Thanks,
  24. JJRetirement
    John, What you refer to as the cash balance plan contribution (a percentage of pay) is really a pay credit or accrual that defines what is credited to the hypothetical account balance for the participant. That is very different from the minimum required contribution for funding purposes, which could be higher or lower. I think "the usual advice" you refer to is that having a defined benefit plan if income is volatile may not be advised because a contribution could be required when there isn't enough income to support it.
  25. JJRetirement
    thanks - good idea. Confirms nothing much happening for DC plan changes and I don't recall anything in the news since May 24th.
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