Tom Poje

I think there are a number of reasons why people want to use forfeitures to cover safe harbor 1. document said yes/ always did it this way to me, I think this is a carry over from when safe harbors were first started. Initially everyone thought you could have the language in the document, but unless you issued a notice the plan wasn't safe harbor (or something similar to that) there were lots of issues like that - e.g. discretionary match could have allocation conditions and still be safe harbor.) I think the idea of forfeitures is probably the last one to be cleaned up. 2.save money at the moment (it's all in the same bucket - eventually the employer will use up that amount so what difference does it matter) logically that makes sense, and since the IRS doesn't like leftovers, why not use up the amounts and be done with it 3. avoid top heavy issues. This is probably the most important, because yes, if you allocate them as an additional contribution you lose the monopoly card 'get out of top heavy free card', though I am not sure what % of plans this would really apply to.

in the lrm (Listing of Required Modifications) the IRS clearly stated that forfeitures can't be used for QNECs, etc (which include safe harbor contributions) I believe the one exception are QACAs, which could have a 2 year cliff - the exception because QACAs are not 100% vested when deposited) I realize people point to their document and say "But it says...." but the IRS also has said we don't have to amend or restate a document every time there is a change, we only have to do that every six years as long as we are in compliance in operation. I would hold this is one such situation. see the attached lrm, in particular page 16 of the pdf file (page 14 of the lrm) .......... note: the language in the documents we are using for restaments is as follows Effective for Plan Years beginning after the adoption of the 2010 Cumulative List (IRS Notice 2010-90) restatement, forfeitures cannot be used as Qualified Non-Elective Contributions, Qualified Matching Contributions, Elective Deferrals, or ADP test safe harbor contributions (Code section 401(k)(12)). Any such disposition of forfeitures from a Participant's account shall be made no later than the end of the Plan Year following the Plan Year during which the forfeiture occurred. coda_lrm1011.pdf

plan could be tested in 2 parts (otherwise excludables tested separately) I am assuming there are no HCEs in the otherwise excludable group, so this test could be done on an allocation basis, but then since it is not cross tested, no gateway needed. of course, with no HCEs in the group no testing is even needed.

my copy of Rev Proc 2013-12 (EPCRS) under Appendix B One-to0one correction method (1)(b)(iv)(B)(2) [page 91] says (2) This paragraph (1)(b)(iv)(B)(2) applies to a plan that uses the prior year testing method described in §§ 1.401(k)-2(a)(2) and 1.401(m)-2(a)(2) and, for periods prior to the effective date of those regulations, Notice 98-1. Paragraph (1)(b)(iv)(B)(1) is applied by substituting "the year prior to the year of the failure" for "the year of the failure." so unless something has changed in the last year I know nothing about it appears you can use this for prior years.

I actual sent a few comments, including the point you made about having to put the ACK code and get the signature all by the filing deadline. There were a few other points - what if plan satisfies ADP safe harbor but not ACP safe harbor while I don't have any, it is possible to have prior testing for ADP and current for ACP (I could see doing this if the plan has a discretionary match) while I didn't raise the issue, remember with the schedule T at one tome there was a space for coverage but only one line, and then they modified it so you would put down how plan passes coverage for 401k, 401m and nonelective. I imagine they will need to do the same thing again. but that is good news that we will be able to file the thing electronically.

I'd hold the answer is somewhat unclear in this scenario. The regs are clear if the QNEC is used to pass the ADP or ACP test then you have to run 2 nondiscrim tests - one with and one without the QNEC. 1.401(k)-2(a)(6)(ii). obviously if you run the test without the QNEC, then the QNEC can't be used for the gateway (but then, unless the person received an additional nonelective, he wouldn't need the gateway) but what happens when the QNEC isn't used to satisfy the ADP test? in this particular case, you indicated a Safe harbor match is provided, and so I would say that the QNEC is indeed used to satisfy the ADP requirements and thus you need to run 2 nondisctim tests - one with and one without the QNEC. but that is my best guestimate.

I cautiously say yes. you can't have allocation conditions on the additional match. if it is discretionary, then it must be capped at 4% of comp. e.g. you could have 66% of the first 6% deferred. if discretionary or required match it is limited to 6% deferred. the ERISA Outline book uses an example of a basic match and an additional match of 30% on the first 5% deferred

agree with comments on FT William. we switched in 2009 when electronic filing was first required and had no problems back then. (the software was ready to go mid-Feb and the one we had been using wouldn't be ready until a month or 2 later. if you aren't aware of it, all you have to do is type in the plan EIN number and the 5500 is all the prior year info is there. that was the trigger to getting us to switch. was able to write a report to extract the SSA info from Relius and easily import into the 5500 - what a lifesaver that has been. (I haven't looked at other software since then, so I can't speak for other programs. I'm sure there are other programs out there. I sat in on a session on electronic filing after the 5500 deadline back then, and the speaker talked about all the problems/grumblings people had. he asked for a show of hands of people who were happy with the new filing method and I was one of the few who raised my hands. he caught me afterwards and seemed surprised when I said I had no problems - I'm assuming it was all which software was up to speed that first year. )

I would point out, the regs say that the match 'may' be forfeited. to some that means, I may forfeit it but I don't have to if I don't want to. bad interpretation of what the regs mean! probably a better interpretation of 'may' in this case is that normally you have no reason to forfeit (e.g. suppose the person was 100% vested) but in this situation you go ahead and forfeit (otherwise you have a problem with rate of match, which would lead to plan disqualification.

assuming the plan has a last day provision for profit sharing, you could change the formula. but if the plan only required 1000 hours, then at this point in the game, someone has probably already met the requirements under the old formula and you can't take that away. as someone else noted above, if the plan is a safe harbor you aren't suppose to change anything until a new year starts.

correct. dol doesn't consider an owner an 'employee' so they don't care about the 5500ez (though the instruction for the 5500 may refer to them. buried in the material at the website are the 1988 instruction, which had the ez filing at 25,000, but that is as close as I could come to finding anything on a quick search. I'd be surprised if the IRS cared about anything going back that far. http://books.google.com/books?id=dDM4AQAAMAAJ&pg=RA1-PA74&lpg=RA1-PA74&dq=irs+form+5500ez+for+1986+instructions&source=bl&ots=NAmVm_m6iz&sig=SPdtHhzV73LRCX1ePDVAi4HEbBs&hl=en&sa=X&ei=bCFhVIn7CsWfgwT-s4CYCQ&ved=0CEkQ6AEwBw#v=onepage&q=irs%20form%205500ez%20for%201986%20instructions&f=false

The sequence number might not be as big a deal as you think. I think that is used mainly to distinguish between one plan from another. I've seen some form use 333 or 555 for a particular type of plan, not to imply that there were an additional 332 plan before. the DOL website only goes back to 1995, showing the forms needed, with instructions how to file electronically for the old forms, etc http://www.dol.gov/ebsa/5500main.html

Applicability dates. The multiple-employer plan reporting requirements under the CSEC Act apply to plan years beginning after December 31, 2013, which created an immediate need for changes to the Form 5500 and Form 5500-SF. Accordingly, the CSEC Act form changes in this document will be applicable beginning with the 2014 Form 5500 Annual Returns/Reports filed for plan years beginning after December 31, 2013. the Annual Return/Report filed for a multiple-employer plan must include an attachment that identifies the participating employers in the plan by name and employer identification number (EIN) and includes for each participating employer an estimate of the percentage of the contributions made by each employer (including employer and participant contributions) relative to the total contributions made by all participating employers during the plan year. This attachment, entitled “Multiple-Employer Plan Participating Employer Information,” supplements and does not replace other Form 5500 filing requirements that apply to multiple-employer plans. the complete article is found here http://www.businessofbenefits.com/wp-content/uploads/sites/83/2014/11/Interim-Final-Rule.pdf\ ha ha ha - in the instructions is the following comment: (they always list the number of hours they estimate to complete the filing, so they say... Based on data from the 2012 Form 5500 filings (the latest year for which complete data are available), the Department estimates that 5,527 multiple-employer plans are subject to the requirements of the CSEC Act amendment (280 defined benefit plan, 4,739 defined contribution plans, and 508 welfare plans). The Department assumes that plan administrators will comply with the new requirements; therefore, the entire burden is hour burden. ha - sound more to me like the entire burden is 'our' burden.

then the only thing I can think to watch out for is what the document says. I have seen some that say distribution occurs plan year following the year of termination (just to avoid having to pay someone 'twice') arguably 'as soon as feasible' falls under the same argument - if it creates a problem or issue with the asset house - e.g. if you are charged $50 for every distribution the participant is out an extra $50 because of a second distribution. (does that create fiduciary liability as well?)

my understanding is you can carve them or put another way, if you had a 1 year wait, those people would not have been on last year's test.

most likely yes, since with no HCEs benefit plan DEF will always pass since one plan is safe harbor and the other not, you can't aggregate for testing assuming there are some HCEs in DEF that should make ABC passing either, but of course that depends on how many NHCEs from DEF aren't 'benefiting' in the ABC plan

if the 5% gateway consists of a 3% safe harbor there are possible issues as the IRS frowns upon using forfeitures to pay any portion of a safe harbor (as those monies were not 100% vested when made to the plan)

one additional thought, I think an after tax contribution would also negate "get out of top-heavy" free card (assuming no profit sharing contributions were made)

not missing anything. I noted the cite above - 1.401(m)-3(j)(6) so in a safe harbor plan if everyone defers and gets max match, then the most after tax an HCE could get is 2%. (assuming there is not another HCE who is not deferring) if one or more NHCEs don't defer it will drop e.g. if there are only 4 NHCEs and only 1 defers and gets the basic match (4%) (and you include those amounts in testing then that would leave an ACP avg of 1%. The owner has received 4% match so plan fails ACP test - so you can't have any after tax. so you don't include the safe harbor match in testing. now the ACP avg is 0%, so you can't have any after tax if 2 of the 4 NHCEs defer and you include the match in testing you have an avg of 2%. the HCE is at 4%, so that is enough to pass, but leaves no room for after tax

I think the comment above is thinking of catch up contributions and not after tax contributions. I would run far away from such thoughts, far, far away (my opinion, of course) the following was drilled into my so called brain years ago a couple of issues Strike One from the IRS website (the numbers are a bit dated, but nothing has changed) http://www.irs.gov/Retirement-Plans/Fixing-Common-Plan-Mistakes---Failure-to-Limit-Contributions-for-a-Participant A qualified 401(k) plan must provide limits for contributions and forfeitures allocated to a participant’s account. The total of employer contributions, employee contributions and forfeitures allocated to a participant’s account cannot exceed the limits under §415© of the Internal Revenue Code. Section 415© generally provides that during a limitation year (the calendar year, unless another 12-month period is specified in the plan), the total of employer contributions, employee contributions and forfeitures made for a participant cannot exceed the lesser of: 1) $40,000 or 2) 100% of the participant’s compensation. Section 415(d) of the Code provides for a cost of living adjustment to the $40,000 dollar limit. In 2007, the dollar limitation was $45,000. For 401(k) plans, the types of contributions subject to the limit include: (This is what you were trying to get around) elective contributions (pre-tax or Roth); after-tax employee contributions; employer matching contributions; and employer profit-sharing contributions. let's pretend that wasn't the issue Strike 2 after tax contributions are used in the ACP test - in a small plan the test would probably fail. and since everyone could make them, you can't exclude anyone from the ACP test (even those who might have terminated with less than 500 hours, if the plan didn't provide for match for terminees) Strike 3 even if the plan was a safe harbor, you still have to test after tax 1.401(m)-3(j)(6) This ump says you are outta here.

given the possibility they could actually be eligible, 1. if they don't defer they show on the test with 0 and that helps testing 2. if they actually defer you can always test otherwise excludable employees separately, and as long as you have new NHCEs in that group that portion will pass testing. (ees less than 21 can be tested separately)

ok, since I am posting this it is questionable as to whether it is humor or not, certainly as questionable if not more so than any posts on the pension board I make. warning: read at your own risk, maybe best on an empty stomach. ............................................ Fred was in the fertilized egg business. He had several hundred young' pullets,' and ten roosters to fertilize the eggs. He kept records, and any rooster not performing went into the soup pot and was replaced. This took a lot of time, so he bought some tiny bells and attached them to his roosters. Each bell had a different tone, so he could tell from a distance, which rooster was performing. Now, he could sit on the porch and fill out an efficiency report by just listening to the bells. Fred's favorite rooster, old Butch, was a very fine specimen, but this morning he noticed old Butch's bell hadn't rung at all! When he went to investigate, he saw the other roosters were busy chasing pullets, bells-a-ringing, but the pullets, hearing the roosters coming, would run for cover. To Fred's amazement, old Butch had his bell in his beak, so it couldn't ring. He'd sneak up on a pullet, do his job and walk on to the next one. Fred was so proud of old Butch, he entered him in the Brisbane City Show and he became an overnight sensation among the judges. The result was the judges not only awarded old Butch the "No Bell Piece Prize," but they also awarded him the "Pulletsurprise" as well. Clearly old Butch was a politician in the making. Who else but a politician could figure out how to win two of the most coveted awards on our planet by being the best at sneaking up on the unsuspecting populace and screwing them when they weren't paying attention. Vote carefully in every election, you can't always hear the bells.

I had forgotten they said that, though thinking about it more.... taking their response in the other direction if you didn't grant them past service they would have been excluded. so how is that not 'otherwise excluded'. sigh.

well, if it was a stock purchase I would say definitely not, because you can't exclude prior service for an asset purchase, my understanding (but I would be first to admit I could be wrong) there is no requirement you count prior service. thus, if I were to ask "Could the person have been excluded", I would have answered "Yes" and therefore conclude he is otherwise excludable. (or maybe a better term would be "could he have been excluded"

my understanding you have an operational failure - a failure to follow the terms of the document, so it would be correctable under EPCRS - put the plan in a position as if the error hadn't occurred, so I don't believe you would include such amounts on the test. I don't think that is any different than if you hadn't stopped deferrals after a hardship withdrawal.