Tom Poje

I believe the issue involves the ability to take a new loan. even though the loan has been defaulted, it is kept track of on the 'books', but doesn't show elsewhere. so in the defaulted amount was 45,000, in a short time that amount would hit 50,000 the max outstanding loan at any one time a person could have, so the person could take no new loan. The IRS doesn't want someone 'beating' the distribution rules by taking a loan for 50,000, then defaulting. the taking another loan for 50,000 and defaulting again. then taking another loan....

well, if you follow the regs, 1-416-1 T-24 says ....However, in the first year of the plan, the adjustment should also reflect the amount of any contributions made after the determination date that are allocated as of a date in that first plan year. As far as I recall, most would hold that means you include the receivable.

since, as you describe, it is a mess, use EPCRS and VCP and 1099R in the year of correction not the year of failure. not sure what the worse can happen, maybe the IRS says 1099r in the year of failure. SECTION 6. CORRECTION PRINCIPLES AND RULES OF GENERAL APPLICABILITY .01 Correction principles; rules of general applicability .02 Correction principles. .03 Correction of an Employer Eligibility Failure. .04 Correction of a failure to obtain spousal consent .05 Submission of a determination letter application .06 Special rules relating to Excess Amounts .07 Rules relating to reporting plan loan failures .08 Correction under statute or regulations .09 Matters subject to excise or other taxes .10 Correction for 403(b) Plans .07 Rules relating to reporting plan loan failures. (1) General rules for loans. Unless correction is made in accordance with this section 6.07(2) or (3), a deemed distribution under § 72(p)(1) in connection with a failure relating to a loan to a participant made from a plan must be reported on Form 1099-R with respect to the affected participant and any applicable income tax withholding amount that was required to be paid in connection with the failure (see § 1.72(p)-1, Q&A-15) must be paid by the employer. As part of VCP and Audit CAP, the deemed distribution may be reported on Form 1099-R with respect to the affected participant for the year of correction (instead of the year of the failure). The relief of reporting the participant’s loan as a deemed distribution on Form 1099-R in the year of correction, as described in the preceding sentence, applies only if the Plan Sponsor specifically requests such relief. Appendix C, form to fill out SECTION IV. DESCRIPTION OF PROPOSED METHOD OF CORRECTION If the Plan Sponsor is requesting relief from reporting loans as deemed distributions, then complete Sections IV A, B, or C, as applicable D. Correction for Deemed Distributions (check if applicable) The Plan Sponsor is not eligible to or will not correct in accordance with Parts IV A through IV C of this Appendix C, Part II Schedule 5. The Plan Sponsor proposes that the loans be reported as deemed distributions (using Form 1099 R) for the year of correction instead of the year of the failure. The Plan Sponsor shall pay any applicable income tax withholding amount that was required to be paid in connection with the failure. (See Income Tax Regulations § 1.72(p)-1, Q&A-15.) EPCRS revproc2013-12.pdf

I did get one response from an IRS individual through someone else in regards to using the 'reversion' assets "it's a close call ... he leans towards "yes," but it's not definitive by any stretch of the imagination" I do have it in for the Q and A session for the next ...what is it now...ARA Conference, I think they changed the name....

page 36 of the LRM for CODAs (p 39 of the PDF file) clearly states you can't use forfeitures for safe harbor ............. as for whether safe harbor contributions are QNECs or QMACs 1.401(k)-3(e)(1) last sentence says if...safe harbor match or nonelective contributions....that the contributions will be QNECs or QMACs.... I suppose you could argue that this section "only" applies if such contributions are made to another plan, but to me that would seem strange, but then the regs are strange at times. ............ since safe harbor contributions are used to satisfy the ADP test, that in itself implies they have to be 100% vested when made to the plan. (the exceptions being QACAs which could be on a 2 year cliff, or safe harbor match used in the ACP test. coda lrm.pdf

I'd go further and say that the whole concept of top-heavy is to 'penalize' key employees for having the majority of $ in a plan. it would seem rather absurd to count earnings from non-key employees' rollover to reduce this possibility. ................................ As a side note - and only because I suspect most people wouldn't even know it - the only item I know specifically addressing earnings is in regards to SEPs, in which it is optional to include or exclude earnings - IRC 416(I)(6) why the heck that rule is in there is beyond me!

But I've had DC plans that had a suspense account before for such assets, and these $ were gradually released as profit sharing 'contributions' that were not 100% vested. I don't see any requirement that these assets have to be 100% vested when released.

1.401(k)-3(h)(3) permits a plan to provide safe harbor contributions to those who have completed the minimum required age and service. the paragraph is entitled "Early participation rules" so there is nothing wrong with having immediate eligibility to defer and a 1 year wait for safe harbor you lose the get out of safe harbor free option rule.... ooops get out of top heavy free option

correct, these assets do not belong to the participants, and they would otherwise be treated as a reversion if not transferred to the 401k plan. the fully vested requirement has me leaning toward caution as to the ability to apply them safe harbor contributions.

db plan terminates and assets are transferred to a safe harbor plan. of course the question becomes "Can these assets be used to fund the safe harbor" the assets weren't 100% vested when made to the DB originally, so my thought would be no, they can't be used certainly they can't be used if it is a match, because the IRS said you can't prefund a match. on the other hand, technically the DB plan terminated so everything would be 100% vested, but that makes no sense, because there is nothing that says when you allocate the excess assets in the DC plan they have to be 100% vested as well.

This statement is not quite true "SH regs say that the SH much be made for all comp during the period in which an employee is eligible defer," the safe harbor rules may be applied only to those who have satisfied the max stat requirements. hence otherwise excludable ees, while eligible to defer, could be excluded from the safe harbor. you lose the "top heavy free" under those conditions in addition, 1.401(k)-3(b)(2) defines safe harbor comp 'could be limited to employee's period of participation' in this case the participant didn't participate in the match portion for the whole year. (plus you are matching per payroll) one of the issues with the match is that an HCE can't receive at a higher rate than an NHCE. If you weren't matching per payroll then you might have problems with this rule. if you match per payroll, the rate of match is looked at per payroll as well.

stopping short of folks who fought against electronically filing the 5500s, claiming it was easier to file on paper, I can't think of a single reason. you have to file the 5500 electronically anyway, so why not just fill in the other stuff electronically. I will go out on a limb and guess the following: The 5500-SUP is an IRS issue, not a DOL issue thus, like the 5500-EZ, paper is ok, but electronic preferred

to clarify a comment made a few posts ago "1) If each plan satisfies the 410(b) ratio percentage test separately, then each plan needs to have a separate ADP test" I don't think I would word this quite this way - but rather If each plans chooses to test 401(k) coverage separately, then each plan needs to have a separate ADP test. (in other words, even if each plan satisfied 410(b) coverage separately there is no requirement to do so, they could be tested together, in which case the ADP test would be combined as well)

none that I can think of it well, ok, if the plan has failed to be amended timely and you check that box 'no', then maybe sending the SUP on fluorescent paper just to speed the process of a return letter from the IRS...

this may sound silly, but what does the document say? for example, in the basic plan document for FT William, in the section labeled forfeitures ...(re-employment) the document I am looking at has: (2) At any relevant time the Participant's nonforfeitable portion of the separate account will be equal to an amount ("X") determined by the formula: X = P(AB + (R x D)) - (R x D) For purposes of applying the formula: P is the nonforfeitable percentage at the relevant time; AB is the Account balance at the relevant time; D is the amount of the distribution; and R is the ratio of the Account balance at the relevant time to the Account balance after distribution. ............ as a side note, I believe the software I use is hard coded as the second option, you can't even select which one to use, so ultimately the software would be wrong in this situation.

or have the other plan handle the excess deferrals

the preamble to the final 415 regulations states that: As noted above, the final regulations provide that a plan cannot take into account compensation in excess of the section 401(a)(17) limit. In addition, the final regulations provide that elective deferrals can only be made from compensation as defined in section 415©(3). However, in applying these two rules, a plan is not required to determine a participant's compensation on the basis of the earliest payments of compensation during a year.” in other words, things don't grind to a halt once someone hits the comp limit (unless I suppose you actually wrote a document to say 'once you hit the comp limit that is it. end discussion, no more deferrals'

well the IRS website http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Definitions has the following definition (but perhaps the financial manager knows something the IRS doesn't. if he does, he should tell them). Highly Compensated Employee - An individual who: Owned more than 5% of the interest in the business at any time during the year or the preceding year, regardless of how much compensation that person earned or received, or For the preceding year, received compensation from the business of more than $115,000 (if the preceding year is 2013 or 2014; $120,000 if the preceding year is 2015), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.

here is the most recent version looks like they have removed the questions pertaining to ESOPs and amounts deducted, etc. good chance to plan ahead, since many plans will be restated in the upcoming year. you can compile and have the required info ready to go 5500 SUP latest version.pdf

I would not use the expression "can he make catch-up contributions" I thought it was simply a matter of deferring, and then, if any of the deferrals were greater than a limit - 402(g), plan imposed limit, failed ADP test, those amounts are then treated as a catchup

Bingo, go to the head of the class. 50 points. yes, you could easily run your nondiscrim test and pass using average ben test and forget about looking at coverage and not even notice it.

if I have a last day rule then someone who terminated does not show on the ACP test if I have an hours requirement and they fail hours they do not show on the ACP test. I guess if they defer less than 5% they can't get a match so they don't show on the ACP test. however, for coverage any actives in that group are includable and not benefiting, and any terminees > 500 hours as well. while you may not have many NHCEs, if none can take advantage of this there may be issues., which ultimately is the point Lou is raising.

Let's take it one step further. I have actually seen this written up this way. Company A has no match Company B has a 100% match. so now the guy defers 24000 at company B. He takes the whole amount as excess deferral from A, and gets a full match from B on top of that! you'd be crazy not to do it that way. of course what is not addressed is what the plan document says. neither plan has violated excess deferrals, so unless the plan has a provision for removing excess deferrals should it arise due to unrelated plans you have issues my concern in the original question is that you have a one month plan year. so comp for testing is only 22,083.33 (1/12 of the comp limit) I'd be surprised in a situation like that the refund wasn't more.

I believe if each person is in their own rate group, you have to pass ratio % for coverage. if there are enough terminees not benefitting you could fail this test.

you hit the nail on the head there is nothing in the regs about preparing a 'new' notice, or being able to provide different notices for different people. are they going to have that many people possibly enter that it makes a difference? it still smells bad to me. you are getting a free ride on ADP testing (and top heavy) again, you 'promised' in order to get those freebies you would give anyone a gateway