Tom Poje

hmmm. my original response was focused on if you fail coverage, how do you go about correcting. hence the asking about 'fail safe' language, because if you have that, then there is no need for a corrective amendment for the document requires you to bring enough people in to pass testing. 1.401(a)(4)-11(g)(3)(v) (A) - benefit must be provided to a nondiscriminatory group - you have to test the newly benefiting group separately example 4 in 1.401(a)(4)-2(b) actually increases the rate to HCEs to bring them up to NHCEs. that was a no-no because the plan was not a safe harbor formula, even though after the amendment the plan would satisfy 410(b) and 401(a)(4), because if you separately test the group benefiting it would only be HCEs. absolutely fascinating - I would never have thought of increasing the HCEs. who makes up these examples! 1.401(a)(4)-11(g)(3)(v) (B) - basically ignore the extra step in (A) if the plan is being conformed to one of the safe harbors in 1.401(a)(4)-2(b) see example 1 of 1.401(a)(4)-11(g)(6) ERSIA Outline Book describes it as follows: Any additional alloaction must be able to satisfy 401(a)(4) when tested separately (unless its conforming to a safe harbor) chapter 9 XII A 2 also 9 XII A 4 can a corrective amenment be used solely for satisfying the gateway? yes, and once the plan satisfies the gateway, if it passes 401(a)(4) on a benefits basis, no further correction is needed. In addition, the group receiving the additional contributions would need to pass 401(a)(4) separately taking into account only their additional contributions. this shouldn't be a problem since the gateway is only required for NHCEs. a warning message is also carried that the amendment must have substance -just in case the people receving the additional contribution are terminated and 0% vested. as someone commented above, I think you have to be careful to avoid 'reducing' someone's benefit (e.g. increase all other NHCEs instead of a corrective amendment) depending on the document language

in the past ASPPA had offered cram-session at the Annual conference - I don't see those on the list this year, though they do have the webcasts (which should be the same thing) if that is in the budget. The cram sessions got me through the CPC exams (or at least I think they helped)

failsafe language is language in a document that makes is 'safe from failing' coverage. usually worded something like 'if plan fails 410(b) then provide a contribution to the terminated employee with the most hours'... the drawback of having failsafe language is that you can only use the ratio % test to pass coverage, so a lot of documents do not include the language. and if you have it, you have to follow the terms of the document and use it.couldn't tell you where to look in your particular document, I think Corbel documents had it in section 4, but its been a long time and we don't use it in anything we presently have. as for language of a corrective amendment, hmmm, something like the following: Amendment to the XXXXX Plan In order to satisfy the general non-discrimination test under 1.401(a)(4)-2© or the coverage test under 1.410(b)-2 for the Plan Year ended xx/yy/zz , and in accordance with the provisions of IRC 1.401(a)(4)-11(g) regarding corrective amendments, the Plan is hereby amended as follows: For the Plan Year above only, an additional Allocation of % of Compensation or $ shall be provided to the following Participants: Russel Cattle D. Barbara Seville Roland Butter This amendment has been executed this _______________ day of _________________, 20___. By______G. I. Luvmoney_____________

you are thinking of the rule that if you are below 120 participants and file a short form the year before you can file the short form again. but once you drop below 100 its joyful day. I have actually heard of cases of a company having 2 plans just to keep the count under 100 in each one and avoid the audit requirement.

if at the beginning of the year you have less than 100 participants you can file the short form. I am a bit confused as to how, on 12/31/2008 you could have 123 participants and on 1/1/2009 you have 118. It doesn't effect anything as far as being required to file the long form, but how did the count drop? I can understand it going up due to people entering on 1/1, but I can't imagine how it could drop unless somehow how 6 people merged into 1 person or something similar to that.

first, reading through this thread raises an issue about what needs to be 'paid back' the old regs , under 1.401(k)-1©(2)(1)(ii) stated "The contributions are disregarded for purposes of applying section 411(a) to other contributions or benefits." [it's nice that I still have that buried in my copy of the regs] the new regs 1.401(k)-1©-1 state they are disregarded for purposes of applying section 411(a)(2) - this section only applies to vesting. your guess is as good as mine why this was changed. no, wait, your guess is probably better than mine, I'm terrible at guessing. so the new thought is that a buy back would have to include deferrals. (see also ERISA Outline Book chapter 4 section VI 2) a zero % vested person by terms of the document is 'deemed' to have received their distribution. I'd hold, therefore, upon return, they are 'deemed' to have paid back that portion, and forfeitures should be restored, assuming, that if deferrals were distributed they were also paid back - at least based on the above comments. sorry, I don't see anything written up one way or another as to how to treat such pay backs - its gotta be out there somewhere.---oooooooooooppppps. I had a vision - look in Chapter 7 of the ERISA Outline Book. A basis is created Chapter 7, section III part D

basically, if the document uses the rule of parity, my notes say Plan disregards prior service for eligiibility if the following occurs Employee was an actual participant when break in service occurred (e.g. has met eligibility and entry date requirements) Employee has at least 5 consecutive breaks in service Employee is 0% vested in the accrued benefit / account balance in the plan deferrals are taken into account in determining if a participant is vested or not. Since deferrals are 100 vested at all times, it is almost impossible for service to ever be ignored in a 401k plan under the 5 year break in service rules. ............ if the plan uses a one year break in service rule, then you can exclude them until they complete a year of service, but then the entry date becomes retroactive to date of rehire, which in a 401k plan botches everything since you can't defer after the fact. I believe the IRS expressed an opinion you can't use this option if you are talking about the deferral portion of the plan.

you did not indicate if the NHCE who terminated with less than 500 hours received a contribution or not. a corrective amendment made under 1.401(a)(4)-11(g)(2) says you can grant an alloaction to an individual who did not benefit during the year. So you could put in a corrective amendment to provide something to a terminated employee who did not benefit (assuming the amendment also provides 'substance' (e.g. vesting if the ee was 0% vested) or a corrective amendment may make a benefit, right or feature available to an employee whom it was not previously available. all this assumes your document does not contain fail safe language in regards to coverage testing (in which case you can't use the avg ben test for coverage purposes anyway)

again, you are doing this under self-correction. it's suppose to be for situations which arise despite your 'established practices' being in place to prevent such things from happening. If you are doing this every year an IRS auditor may disallow such practice.

http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf#page=2 clicking on the link for Q 10 (though in your particular case it sounds like maybe SCP is still available, but this is the IRS reasoning) Example 3: Employer M maintains a 401(k) plan with 7,500 participants. Plan provisions allow for hardship distributions to participants. During a review of its operations, Employer M determined that 10 hardship distributions made during the 2007 plan year did not have proper documentation. Further investigation by M revealed it did not base five of the distributions on any hardship, but were nothing more than in-service distributions. There were no written procedures in place to review a participant’s application for a hardship distribution. Correction Program(s) Available: SCP: This mistake may not be eligible to correct under SCP since there were not adequate practices and procedures in place with regard to hardship distributions. VCP: Employer M may correct this mistake under VCP. M must request that the five participants who received distributions that did not meet the hardship requirements of the plan repay the amounts plus earnings to the plan. In addition, M must improve the plan’s administrative procedures regarding hardships. Expecting participants to repay these amounts to the plan in full may be problematic because the participants may have already spent the funds. A plan document requiring spousal consents for distributions, plus possible tax issues on the distributions could further complicate the final correction. Correction will depend on all the facts and circumstances of each individual situation and may include, in some form, paybacks, employer corrective contributions and even some form of plan amendment. If this represents your situation, file a VCP application and work with the Voluntary Correction agent to determine the proper correction. so lets see, if the hardship was $5000, and the person paid it back and then took a distribution because they are terminated, what is the net effect? Maybe the iRS wants their taxes on the lost interest. The person should have already paid taxes on it, so I suppose the possible tax consequences are the person paid taxes in the wrong year ?(if the hardship was from last year)

under Appemdix A .03 of Rev Proc 2008-50 (EPCRS) a QNEC may be made as you described. under 4.04 of the same program you must have 'established practices and procedures' to prevent such events from happening - otherwise you can't self correct. can you do what you want and get away with? - that is a different question. If I was an auditor (boy, talk about a fairy tale) and found you self corrected in Aug 2010 for plan years of 2007 and 2008, and then again you self corrected in 2011 for 2009, I would say you obviously don't have established practices to prevent things from happening since the same error occurred again - and disallow all corrections. (but then no body says I was a nice guy) you did not indicate if top heavy has been satisfied. (granted HCEs and Key ees are possibly different) but if top heavy hasn't been made, then you might be able to get aroung part of your problem by providing a top heavy in the form of a QNEC and using it in ADP testing.

ah, you must still have hair. for those of us grey hairs - at one time you had the choice of filing a 5500 C or a 5500 R (a short form, could be used 2 out of 3 years) at the company I used to work for, the policy was file the C if you had the time and save the short form for years when you might be behind. so its really personal preference

the other point in regards to Roth: if you set one up in a 401k, its probably a good idea to set up a personal one (no matter how small) outside the plan as well. that starts the 5 year clock ticking. if you terminate, you can then roll your distribution into your Roth. you do not have to wait an additional 5 years before touching the money again.

The instructions for the 5500 EZ for 2009 state the following: One-participant plans that covered 100 or more participants at the beginning of the plan year are not eligible to file Form 5500-SF, and must file Form 5500-EZ. hmmmmmm. I guess this rule must apply to those plans which covered over 100 participants but who are only partners (and spouses). guess there would be no audit either. Just how many plans are out there like that?

welcome, - might not find the book you want, because such material is a good resource. I imagine people like to hang onto such things, but you have found a pretty good source for other information with this website.

yes and no. suppose you defer $1000. you have not paid taxes. you take a loan for $1000. you put the money under the matress (still no taxes) , and a month later pay back $1000 with the cash from under the matress. you still have yet to be taxed, so you will never pay double taxes on the "principal". so why would it make a difference if you spend the $1000 and pay it back by other means? It doesn't. That initial $1000 was never taxed in the first place. Arguably on the amount of interest you will get double taxed, beacuse you do have to come up with $ for that, and those $ have been taxed, but supposedly their are studies that show even this overall amount is minimal. If its Roth money then the interest payments are like being able to make extra contributions (with taxed money), but then you pay no taxes when you withdraw. ............ so you have the choice: borrowing hurts you more so beacsue you pull out $ that could be getting gains (if you took a loan before the crash you have come out ahead) or instead of borrowing from the plan, just use your charge card and pay 18% interest or whatever to someone else. much better than the possible effects of being double taxed on the interest portion.

modified the report so if an HCE rate group fails, it will indicate how many NHCEs are needed in that group to pass testing (that modification is in addition to eliminating extra spacing, using a smaller font to squeeze a few more bits of info on the report.)

chc93, you are correct, I meant to say that my screen print shows 'filing signer' only. PAL - have not had any submissiion timing issues (or none that I've heard of). if I had to change something, I would change the software's message from "Accepted" to "received", since , even after receiving the filing, the DOL may at a later date ask for some minor corrections or whatever. I have gone out to the DOL website within an hour after receiving an "accepted" (had to file our own plan) and the 5500 was already up for viewing. the software has a report that lists which reports have been accepted or even not accepted (or no status if not filed yet), so it has made things a little easier.

switched to FT William this year. my initial concern about switching systems was having to 'start over', but they have a feature you simply type in the EIN number and the system pulls up any form from the DOL so that was not an issue. after completeing the 5500s, you set up the client with a log in name and password (but nothing complicated as it sounds like Relius has) and then the system generates an e-mail to them. all they need do is click on the link, enter the name and password and they can sign the form by entering the user ID and PIN # from the DOL. the only problems we've experienced was a few clients either didn't have (or entered incorrectly) their DOL codes. As a general rule we've sent out a walk through (screen prints of what the client will see at the DOL) so no one has missed filling out a password at the DOL, which I understand has been a problem in many cases. Not much different between our package and what the DOL has available as a walk through, but modified so, for example, the client knows they sign as filing SIGNER only. (my bad, I typed author earlier. exactly what I didn't want. I have edited it)) I think the DOL example has all user types checked which I would have found confusing. overall, been well pleased with the whole experience of e fast 2

personally, it does seem kind of goofy. you don't include the amount on the 5500 becasue it shows up as a distribution. however, it is still an 'asset' and counts toward top-heavy. The ERISA Outline Book gives a blurb in Chapter 7 IX E.2.d. (2006 edition) talking about how the IRS ruled there was a prohibited transaction when the trustee failed to charge interest on a defaulted loan (even though that interest doesn't make a bit of difference once the person is eligible for an actual distribution)

one reason for keeping track of the loan (and accruing interest) is if the individual requests another loan. you must reduce the amount of any future loans by this amount as it is still considered an outstanding loan.

might look at If impermissible hardship distribution, have participant return hardship distribution amount plus earnings Potential mistake #10, 401-K Fix It Guide http://www.irs.gov/pub/irs-tege/401k_mistakes.pdf#page=2 nothing there that the IRS speaks of VCP that I recall amazing some of the things I have at my finger tips, huh? (got stuck trying to throw some notes together for a talk on different issues involving distributions, so I included this, about all I can find on the topic) ........... by the way, the IRS put out some nice guidelines on hardships last year http://www.irs.gov/pub/irs-tege/rne_sum09.pdf

this is one of those reports with 'bells and whistles', so to speak. its the rate group report (landscape), so if you dare to even want to look at this report, you would rename gndrategrpl.rpt to something else, that way you can always get it back if you don't want this report. added contrib, comp and % of pay. age and the numbers for the ratio pct test. so if you print this report and select the HCE with the smallest e-bar you end up with a report sorted by E-Bar (largest to smallest, but not NHCEs who are not in any HCE group) In addition you get to see what is 'going on' for you'll see a group of nHCEs starting with the youngest, then an HCE, then another batch of NHCEs, the next HCE, etc., but you also see the age ranges of the NHCEs compared with the HCE in the rate group testing. suppose you gave the NHCEs 1/3 the rate of the HCEs (The HCEs received '3 times' what the NHCEs received) you would expect the age groupings between the NHCE and HCE to be 13 years (because, if 8.5% interest rate is used you have 1.085 ^ 13 = 2.88 (slightly less than '3 times', but by the time you imput disparity it all works out)

arguably someone who is in need of a hardship is a bad credit risk, and therefore could be denied a loan, and I'll stress the word 'could', proving it may be another thing, but still if someone needs a hardship because they can't pay bills, how can you expect them to pay the loan? going way back, at the 1999 ASPPA Conference #46. A participant took a 401k hardship distribution pursuant to the hardship safe harbor rules, but was allowed to continue making 401k deferral contributions in violation of the 12-month suspension rule. What are the possible methods of correcting this error under APRSC? 1.Start a full 12-month suspension when the error is discovered? 2.Distribute impermissible deferrals and earnings? 3. Return deferrals and suspend for balance of original 12-month period? IRS response; Starting a new 12-month period doesn't meet the rules. Deferrals (and match, if applicable) should be forfeited and the balance of the 12-month suspension should be applied. Of course, the employee should be made whole outside of the plan (i.e., no distribution from the plan to the employee). ............ from an old benefits link thread We have submitted a VCP to the IRS on this very issue. Initially, we proposed to take out the contributions that should not have been made plus earnings and this was approved. In attempting to implement this, however, we found that most of the affected participants did not have sufficient amounts in the money types in question (because of subsequent loans and/or withdrawals) to make this an unworkable solution. We went back to the IRS and they proposed a prospective suspension. The problem was that a number of years had elapsed between the time the amounts were improperly contributed, the first compliance statement was issued and then the second VCP request was submitted and resolved and a final compliance statement issued, that the participants who were impacted complained that the prospective suspension would be coming when they earned a much higher rate of pay. The bottom line is, if you are consider the refund method, take a look to see if there would be sufficient money in the participants' accounts to effect the refund. If not, then use the prospective suspension. 8/10/2007 Benefits Link posting (Note: I wouldn’t try it other than under VCP)

"little glops" - is that a technical term? I tried looking it up and found 1. A soft soggy mixture, as of food: cafeterias serving nondescript glop. 2. Something, such as a piece of writing, that is judged to be worthless. -------------------------------------------------------------------------------- Noun 1. glop - any gummy shapeless matter; usually unpleasant matter - that which has mass and occupies space; "physicists study both the nature of matter and the forces which govern it" 2. glop - writing or music that is excessively sweet and sentimental