BW

The expanded EPCRS correction for loans under 6.07 seems to contemplate a loan correction scenario in which the Employer would be required to make the loan payments in the case where the Employer caused a default (due to failure to withhold payment). Has anyone had this scenario where the employer did make the loan payment? Was it self corrected or did they file a VCP?

It would make the ADP failure larger for that plan and they don't want to force any additional distributions. Also there are a lot of participants in the NHCE bucket that don't participate (thousands) and there is a rather large gap between accounts of the HCE's vs. NHCE which leads my concern they'll fail ABT and be forced into a large QNEC.

Two Employers in one control group each have their own 401(k) plan. This year they wished to run ADP and ACP on a disaggregated basis. As a result of this we ran coverage testing the same way. One plan passes, plan "A", the other just fails the 70% ratio test. I am doubtful that the ABT will pass. Let's call the failing plan "B" Question- the employers have employees that move between the plans. If a participant ended the year in plan A and was counted in plan A's coverage test but at some time in the year was covered in plan B can that participant also be counted in plan B's coverage test for the same test year? Aggregating the ADP/ACP would have solved the problem but the results would have hurt plan B so they did not want to re-run the test on that basis.

I think that is correct as well.

If a plan participant making after tax contributions converts the entire balance to Roth and the plan later fails ACP how would one operationally suggest the ROE be handled? Would you unwind the conversion for amount of the ROE plus earnings and distribute or simply process the ROE from the Roth source? It may be a difference without distinction since it is all after tax and you just have to deal with the earnings but curious if anyone has dealt with this yet.

I have two companies in a control group. Each company sponsors its own plan. Currently the plans are identical. They run their own payroll and have their respective benefits managers. One company now wants to add a Roth provision. Other than the potential for a BRF coverage issue is there any rule that requires this specific (or any other plan design feature) be coordinated between plans provided each could pass the BRF test?

Can you cite or explain the rationale? I've read the regulation under 1.401(k)-1. As I read the subsection for hardships section iii defines the acceptable definitions section iv lists the qualifications which includes the suspension.

Plan sponsor offers hardship withdrawals but the plan document only requires a 6 month suspension for one of the participating employers. The client believes that they are not required to suspend deferrals at all for the other participating employers after a hardship distribution. While the IRS uses the word generally in its description of suspensions I believe the context is that it could be longer or may not apply if deferrals are not withdrawn. Otherwise I'm unaware of any ability to bypass this minimum 6 month suspension requirement. If they are not using a safe harbor definition for hardship is there some exemption?

Trying to dust off my memory on this issue. A new company is establishing a 401(k) in 2016. The selected record keeper will serve as the discretionary trustee. We are in the process of establishing an oversight committee. Currently the board has three members, one U.S. two from London. Assuming the board retains the final decision making authority for the plan memory serves that I have a domestic trust issue. Is that the case or has this issue been resolved somewhere in the past 15 years?

I found out today that my client has been filing the 5500 as a multiple employer plan while they are actually a single employer plan (participating employers are in the same control group). This has been going on for at least the past 3 years. They can't be the first to have this happen. Does anyone have any experience with this? I assume they should simply file corrected forms. Thoughts?

The how is actually straight forward. The company is international. It is not uncommon for Europeans to come stateside and obtain eligibility. The company also does work in emerging markets. When they send someone to a place like Nigeria the employee negotiates pay in Euro's or dollars. If they get paid in dollars the U.S. division issues the pay. It would seem to make for a rather complicated tax filing situation but these people are very well paid. This is effectively the situation. In many cases the Europeans won't choose to participate but this one did. The CPA was filing for the refund and noticed the deferral. From my perspective the fix seems pretty straight forward. This was not eligible compensation and needs to be returned with the corrected 1099. The match should be forfeited. What is blowing my gasket is an 800 pound gorilla of a plan vendor is suggesting deferrals be forfeited. In 20 years of doing this I've never heard anyone credible suggest that as solution.

I've had some very compelling stories around defaulted loans but every IRS agent I've ever asked says it is a tax issue more than a plan issue. Payment is the responsibility of the participant. If you are more than 2 quarters out you're outside the window for repayment the loan should be deemed a distribution.

Unless the 7 are in their own identifiable group I'd amend to allow everyone. You may also want to consider the impacts on coverage and other NDT testing.

Given the very limited SCP options for retroactive amendment I'd go VCP.

This may have been covered previously. If so, sorry. How would you handle the following situation. An employee changes their deferral election from a high percent to a low percent.(e.g. 10% to 3%) For some reason the employer fails to update the payroll system and the participant never complains. None of the regulatory limits are breached (no ADP, 415, 402(g) etc. failures) This situation endures for several years, Mistake of Fact wouldn't apply. Assuming there really is an operational failure, what action if any, would you take given the IRS guidance that assets should remain in the plan?

I think that is why they suggested forfeiture of both the match and deferral.

For the period in question he was a non-resident alien with no U.S. source income.

He was a resident alien. Payroll must have been via the employer's payroll system since deferrals continued. He was somewhere in South East Asia when this occurred. Two CPA's have weighed in that he was not eligible. They both seem to agree the deferrals need to be returned.

An eligible employee is deferring into the plan. This participant then moves into an ineligible class (He became a non-resident alien). The employer failed to stop deferrals into the plan for 2013 and part of 2014. In accordance with the concept of EPCRS my proposed solution would be to treat this as a minor operational defect. To put the plan back to where it would be if the defect hadn't occurred I'd propose wire the deferrals back to the participant and forfeit the match. A major vendor has proposed treating this as a mistake of fact, with a correction that would forfeit the match AND the deferral and correction via payroll. I can't get my head around that. Am I missing something?

This reply assumes that B was purchased in its entirety and no portion continues to exist as an ongoing concern. All the regulations I can recall deal with when assets CAN be distributed. If no action to terminate the plan was taken prior to the transaction the safe course would be to merge the plans (which seems the intent). The resolution could be a little problematic but should be something a good ERISA attorney could overcome. Most plans have a transitional relief built into the document to allow for the plans to run concurrent prior to merger at a later date. You'll have to deal with protected benefits and I agree with Bird's comment regarding plan B's advisor. B's plan could also be frozen prior to merger. I'm not an attorney but every one I've worked with has taken the approach that if no action to terminate the plan prior to or concurrent with the transaction there's little room after the fact. If some part of B continues to exist outside the purchase then based on what you've described things get messy.

That's my take as well. It seems to me that vesting credit should also continue under Corp A's plan.

Rev-Proc 2003-86 might help. As I read it each worksite employer is tested individually. Since the plan converted into the MEP I don't see it a s a plan termination. The employer could always de-convert back to a single employer arrangement so I think one test is the right answer. The MEP provider may also be able to shed an opinion here.

A foreign corporation has two U.S. subsidiaries. Corp A and Corp B which are treated as QSLOB's. Periodically an employee will terminate from one QSLOB and be hired by the other. Each Corp has its own management, payroll, benefit Plans etc. The plans grant predecessor service for eligibility and vesting. The questions: If employee leaves Corp A and is immediately hired by Corp B should vesting service continue under the Corp A plan? Currently Corp A would treat the employee as terminated. All the QSLOB rules I've read deal with testing but I find no exemptions for related companies as it relates to service and vesting credit. Should the "termination" even be treated as a distributable event?