tpacpa

Thank you for your help. (In my opinion), employer's should never be put in the position of having to determine the data needed to run the ADP/ACP tests. Apparently, this is what happens when that occurs. If the HCE/participant refuses to return the money, in the above link, it indicates that the employer is not required to deposit the overpayment if the amount incorrectly distributed was part of the participant's vested balance...which it was in this case (100% vested in salary deferral distributed and received only his vested portion of the ER match). In this case, the HCE/participant is NOT over 59 1/2, but the above link interprets that part of the Rev Proc as not requiring a payment by the employer, because the overpayment came from the participant's vested balance. 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? 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. 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? 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 employer has 200 participants and 1 HCE (the CEO) in a 401(k) plan. They ran their 2017 ADP test; it failed; they processed the ADP refund and forfeited the related employer matching contributions of the 1 HCE in March 2018. Late in the 2018 year, they determined that the ADP test was run incorrectly--ineligible employees who were not participants were included in the ADP test as 0% deferring. As a result, the plan would not have failed the ADP test by as large of an amount and the HCE received too large of an ADP refund. The HCE was distributed in 2018 more of his salary deferrals than he should have been (and more of his employer matching contribution were forfeited than should have been if the ADP refund were less) for the 2017 plan year. As a side note, the board of directors of the employer gave the HCE additional comp during 2018 to make-up for the HCE not being able to fully defer into the 401(k) plan and receive the full resulting employer match. First, I believe the ADP test must be rerun correctly so that a correct ADP test is maintained in the employer's files (even though we know that it will not indicate additional refunds that must be made, but an overdistribution of refunds)? But then what is the employer required to do? I've never seen this happen.

My client will have to file a 2015 Form 5500, instead of a 2015 Form 5500-SF, because of a non-qualifying asset. Strangely, the 2014 Form 5500 instructions are slightly different from the 2014 Form 5500-SF instructions. The 2014 Form 5500 instructions indicate (emphasis added): Notes. (1) If the filing due date falls on a Saturday, Sunday, or Federal holiday, the return/report may be filed on the next day that is not a Saturday, Sunday, or Federal holiday. (2) If the 2015 Form 5500 is not available before the plan or DFE filing is due, use the 2014 Form 5500 and enter the 2015 fiscal year beginning and ending dates on the line provided at the top of the form. I'm not sure why there is a difference between the two forms, but the Form 5500 seems to indicate to me that if the Form 5500 will be available before the filing is due (February 28, 2016), then I must wait and use the 2015 Form 5500? So, I guess I wait until February 28, 2016 (if the 2015 Form 5500 has not been issued before then) to see which form I file? It seems to me, based on the 2014 Form 5500-SF instructions, that you may have a case for going ahead and filing the 2015 Form 5500-SF on the 2014 Form 5500-SF. However, it appears that we will both have to file the 2015 Form-SUP if, and whenever, the IRS decides to release it for the 2015 year (either paper or electronically, depending on the applicable rules)? All of this is a very long time to wait (5 to 7 months) to finalize all of a terminated plan's filings. If this is the case, this should really be changed. Sigh.

I have a plan that will be officially terminated by 7/31/15 (all plan documents updated for current legislation and all plan assets distributed). Of course, this will require a short plan year 2015 Form 5500 that will be due by February 28, 2016 (without extension). Am I reading the 2015 Form 5500 and 5500-SUP instructions correctly in that I CANNOT file the short plan year 2015 Form 5500 on the 2014 Form 5500 because the Form 5500 is not due until after December 31, 2015 (February 28, 2016)? I must wait for the 2015 Form 5500 and Form 5500-SUP to be released? My client is in a huge hurry to be "completely done" with this retirement plan and will not want to hear that they must wait until early 2016 to file the final Form 5500. Is there not a way around this?

After further review, it appears the Utilization Test would have to be run for JUST the employer contributions to the HSA, as well?

An employer is going to offer an HDHP (in addition to their “regular” health insurance plan) to employees, and will add an HSA to their cafeteria plan at the beginning of the year. (The health FSA will be limited for those participants with an HSA.) Can the employer contribute $100 per month to ONLY the employees’ HSAs that elect the single coverage HDHP, and pass nondiscrimination testing? It is my understanding it should pass the eligibility and availability tests. Further, in order to test for BOTH the utilization and the 25% key concentration test, BOTH employee pre-tax salary reduction contributions and the employer contributions will be added together and tested for both of these tests? And further, there is no nondiscrimination test that requires the employer contribution to just be considered alone?

So, your clients have received the DOL letter and just not responded to it, and nothing more happened? Or they responded to it explaining to the DOL how it was corrected? If the employer in this situation files the Form 5330s and doesn't file under VFCP, and IF an explanation to the DOL's letter is needed, they would just explain to the DOL they filed the Form 5330s, made the late deferral deposits, and paid the lost earnings? I think even under VFCP, the employer would still be required to file the Form 5330s and would not be eligible for the class exemption because these transactions occurred more than once--4 quarters to be exact. Your third paragraph explains my concerns under VFCP, "If deposits are combined, they will need a breakdown of each deposit so they can tie the deposits to the list of amounts withheld each paydate." If the employer files under the VFCP, they will have to indicate not only the late deferrals, which the employer is filing to report, but also the "early deferral" deposits. I don't know that the DOL will be concerned about the early deposits, but if the DOL notifies the IRS, they may be. As to your final paragraph, unfortunately we've already done what you suggested, and there are "early deferral" deposit issues, regardless of how you classify it, for 2013 and 2014. The problem is that the employer also (generously) put in the 3% nonelective safe harbor contribution each time he made a salary deferral deposit, so the "early deferral" deposits could not be considered safe harbor contributions, because those were already put in. It will obviously be the employer's decision to make, I just want to make sure he understands all the various ramifications...especially when complete and full filings (VCP, VFCP, Form 5330s) for all of this may cost him $8,000 to $10,000. Paying the lost earnings is truly nothing compared to the cost of the filings. Since this is a brand new plan and the total plan assets aren't even very large yet, I'm not sure the maximum sanction amount under Audit CAP would even be that high.

If the law requires it, the employer doesn't have a problem, going forward, paying it to the plan semi-monthly as the employees are paid. The problem is what has already, inadvertently, happened.

This just keeps getting worse. It just occurred to me if there were in fact late deposits, and the employer files under the DOL VFCP, the employer will have to submit documentation to prove that the deposits were made. In submitting this documentation, it's going to indicate one large deposit (each quarter) that will obviously be more than just the late deferrals that were deposited. That "one large deposit" will also include the 3% safe harbor elective contribution, as well as the "early deposit" of the deferrals above discussed. And keep in mind, this plan has self directed participant brokerage accounts for the three participants. So any documentation provided will include documents from each participant's brokerage account. I've never had to file under VFCP for a late deferral. I assume the employer will have to show a canceled check and/or a monthly statement showing the deposit of the late deferral. The monthly statement will obviously show that regular deposits of the deferrals were not made. The canceled check will be for an amount that is much larger than just the one or two late deferrals that the employer would be reporting. Does the client have to submit the monthly statements? Will the employer have to explain the total amount of the check, or will it be sufficient to say the late deferral was included in that canceled check? What documentation will the employer need to provide the DOL, and will this be a dead giveaway to the DOL about the early deferral deposits? As you indicated above, the DOL shares with the IRS, so can I assume the DOL will notify the IRS about this situation? If that is the case, does this start a train wreck, where if the employer reports late deferrals on the Form 5500, files the Form 5330s, files under the DOL's VFCP, then they will also have to file under the IRS's VCP and report ALL of these problems, and ask the IRS to rule on the "early deferral deposit" situation? Or, what if the employer reports the late deferrals on the Form 5500 and files the appropriate Form 5330s, but doesn't file under the DOL's VFCP? I assume the DOL will send one of those letters "suggesting" that they file under the VFCP? Then what? Can the employer get by with NOT filing under the VFCP in this situation? How would they get out of it? Write a letter back to the DOL and explain how they corrected it? In this case, would they have to send documentation to the DOL proving they corrected it, or would just a letter of explanation suffice indicating how they corrected it and that they filed the Form 5330s? At this point I'm sure the employer would gladly file the Form 5330s if this could possibly make it go away...but I'm concerned about that "followup VFCP suggestion letter" from the DOL for the Form 5500 reporting the late deferral. Will this cause the entire situation to implode?

As often happens when employers inadvertently "mess up", they never intended it to be discriminatory, weren't trying to "beat the system", and feel they are being punished for just ultimately trying to do a good thing for their employees. Sigh. Thanks for the discussion. It consists of everything that's been running through my mind, but it's good to see others thinking it too.

It's a weird situation. One I've never run across ever...an employer that wanted to put the salary deferrals in the plan early for the participants. He just determined what the salary deferrals were going to be for the upcoming payrolls based on the participants' elections at the time and deposited them early into the plan. (He was assuming the participants would not change their elections during that time, quit, etc. Both participants were on salary, so he knew the amount of each payroll...assuming of course they wouldn't quit during that time.) As the payrolls were paid in the upcoming weeks/months, they were withheld from the participants' paychecks as they elected. I'm sure he thought he was doing a good thing depositing it into the plan "early". And no, it's not a safe harbor match. He is doing the 3% nonelective. He's just also depositing that quarterly in addition to the participant "deferrals".

As soon as it was determined that he was just making quarterly deposits, that was immediately stopped and he began making deposits with each payroll. The problem is what to do about the year's worth of quarterly deposits he has already made. (There were no hardship distributions, no other issues during this time.) The deposit he made on 9/11/13 was for the 8/15 - 9/30 payrolls...so possibly 1 or 2 late deferrals with that one. Another deposit in November, for 10/15 - 12/31...so possibly 1 or 2 late deferrals with that one, etc. I know what to do with the late deferrals (contribute lost earnings, etc.). The guidance on that is very clear. It's the EARLY deposit of the salary deferrals that I'm concerned about. Can he still treat those "early deferrals" that he's made over the last year as participant salary deferrals and just immediately stop making quarterly deposits and start making them with each payroll? If not, what to do?

Employer started a new 401(k) safe harbor plan in August 2013. Problem: The employer has only been making quarterly contributions of the participant deferrals, as well as the safe harbor 3% contribution. His first quarterly contribution was made mid September 2013, and every 3 months thereafter. Therefore, this first quarterly contribution included about 1 1/2 to 2 months of salary deferral contributions that hadn't been withheld from participants comp yet. There are only 3 participants total. The owner is self employed, so his "early" contributions really aren't an issue. It is basically the other two participants that are an issue. And to complicate matters further, all 3 participants have self directed brokerage accounts. The employer does not want to make a PSP contribution for the 2013 year. Among the many issues that are presented, what are the issues with the early deposit of the participant contributions? Can he just "go forth and sin no more" (start making contributions with each paycheck going forward)? If he does this, is the concern that the IRS would audit the plan and require him to reclassify the "early" participant deferrals as a PSP contribution instead? Which of course would mean that all the allocations from the beginning of the plan would be incorrect? Any other problems this would present if he doesn't reclassify it as a PSP contribution?

I think I completely agree, and 2014 is certainly a much better solution for ALL involved. Thanks so much for all of your help!

I'll try and put it in a little more perspective. It was only $310, but it was a HCE. (There are only 3 employees/participants in the plan--owner/HCE, HCE, and non-HCE). So, it wasn't the owner, but still an HCE, and only $310. I know the amount is ultimately irrelevant, but still.