ErisaGooroo

Thank you for your reply.

Per Rev. Proc. 2021-30, pg 31/140, there is a consistency requirement based on like failures: "(3) Consistency requirement. Generally, if more than one correction method is available to correct a type of failure for a plan year (or if there are alternative ways to apply a correction method), the correction method (or one of the alternative ways to apply the correction method) should be applied consistently in correcting all failures of that type for that plan year. Similarly, Earnings adjustment methods generally should be applied consistently with respect to corrective contributions or allocations for a particular type of failure for a plan year. In the case of a group submission, the consistency requirement applies on a plan-by-plan basis."

Hello all - Wondering if you have an opinion on whether the $250 or less de minimis rule applicable to excess amounts also applies to excess allocations? As you know, an excess allocation is a subset of an excess amount. Pg 21/140 of Rev. Proc. 2021-30: Excess amount: "A Qualification Failure due to a contribution, allocation, or similar credit that is made on behalf of a participant or beneficiary to a plan in excess of the maximum amount permitted to be contributed, allocated, or credited on behalf of the participant or beneficiary under the terms of the plan or that exceeds a limitation on contributions or allocations provided in the Code or regulations. Excess Amounts include: (i) an elective deferral or after-tax employee contribution that is in excess of the maximum contribution under the plan; (ii) an elective deferral or after-tax employee contribution made in excess of the limitation under § 415; (iii) an elective deferral in excess of the limitation of § 402(g); (iv) an excess contribution or excess aggregate contribution under § 401(k) or (m); (v) an elective deferral or aftertax employee contribution that is made with respect to compensation in excess of the limitation of § 401(a)(17); and (vi) any other employer contribution that exceeds a limitation under § 401(m) (but only with respect to the forfeiture of nonvested matching contributions that are excess aggregate contributions), 411(a)(3)(G), or 415, or that is made with respect to compensation in excess of the limitation under § 401(a)(17)." Excess allocation: "The term “Excess Allocation” means an Excess Amount for which the Code or regulations do not provide any corrective mechanism. Excess Allocations include Excess Amounts as defined in section 5.01(3)(a)(i), (ii), (v), and (vi) (except with respect to § 401(m) or 411(a)(3)(G) violations). Excess Allocations must be corrected in accordance with section 6.06(2)." Pg 34/140 of Rev. Proc. 2021-30: "(e) Small Excess Amounts. Generally, if the total amount of an Excess Amount with respect to the benefit of a participant or beneficiary is $250 or less, the Plan Sponsor is not required to distribute or forfeit such Excess Amount. However, if the Excess Amount exceeds a statutory limit, the participant or beneficiary must be notified that the Excess Amount, including any investment gains, is not eligible for favorable tax treatment accorded to distributions from the plan (and, specifically, is not eligible for tax-free rollover). See section 6.06(1) for such notice requirements. There are differing opinions on whether the $250 de minimis rule applies to an excess amount that is also an excess allocation. An example, employee elects to defer 5%, but the plan sponsor withholds 7% in error. The 2% would be considered an excess allocation. Could the plan sponsor elect to use the $250 de minimis rule here? According to the ERISApedia.com webinar presenters, the answer is no. I even challenged this statement during the webinar and the presenter said the $250 de minimis rule doesn't apply. I cannot find anything on the web except one article from Newfront that says the de minimis rule doesn't apply to excess allocations. And, the Rev. Proc. doesn't really make it clear enough to be certain. Any feedback is greatly appreciated! Thanks.

Thank you all for taking the time to reply to my question. Greatly appreciated!

It means that the missed match is funded as a non-elective contribution and may be subject to vesting or may be contributed as a Q-NEC. The "missed match" shouldn't be sourced as a match, it should be sourced as a non-elective contribution. This is the reason the ACP test doesn't need to be redone after a missed match is corrected.

Plan makes a corrective allocation under EPCRS for a missed deferral and missed match in the form of a QNEC to the plan, plus attributable earnings. The RK is partly responsible for the error and offers to cover the cost of earnings on the QNECs involved. Question - Can the RK fund the earnings directly to the Plan or should the RK reimburse the Plan Sponsor/Employer for the earnings amount by other means outside the Plan? Clearly, a corrective allocation must come from employer non-elective contributions (including forfeiture account if the plan allows "use to reduce" method) but unclear part is whether the earnings attributable to the corrective allocation should also be required to be funded from ONLY employer non-elective contributions (including forfeitures). Any help is greatly appreciated. Thank you! From Rev. Proc. 2021-30, page 31/140: (4) Principles regarding corrective allocations and corrective distributions. The following principles apply where an appropriate correction method includes the use of corrective allocations or corrective distributions: (a) Corrective allocations under a defined contribution plan should be based upon the terms of the plan and other applicable information at the time of the failure (including the compensation that would have been used under the plan for the period with respect to which a corrective allocation is being made) and should be adjusted for Earnings and forfeitures that would have been allocated to the participant's account if the failure had not occurred. However, a corrective allocation is not required to be adjusted for losses. Accordingly, corrective allocations must include gains and may be adjusted for losses. For additional information, see Appendix B, section 3, Earnings Adjustment Methods and Examples. (b) A corrective allocation to a participant's account because of a failure to make a required allocation in a prior limitation year is not considered an annual addition with respect to the participant for the limitation year in which the correction is made, but is considered an annual addition for the limitation year to which the corrective allocation relates. However, the normal rules of § 404, regarding deductions, apply. (c) Corrective allocations should come only from employer nonelective contributions (including forfeitures if the plan permits their use to reduce employer contributions). For purpose of correcting a failed ADP, actual contribution percentage (“ACP”), or multiple use test, any amounts used to fund qualified nonelective contributions (“QNECs”) must satisfy the definition of QNEC in §1.401(k)-6. Page 26/140: .04 Earnings. The term “Earnings” refers to the adjustment of a principal amount to reflect subsequent investment gains and losses, unless otherwise provided in a specific section of this revenue procedure.

I would suggest that the plan administrator remove the expense account funds from the the employer's account (including attributable earnings) and place it back in the expense account. Reallocate it as earnings to the participants in the 2021 plan year. Refer to the plan document for the allocation method of those funds.

Participant A is actively employed and receives an in-service distribution in an amount that he/she was not entitled to receive due to a vesting error. The funds received were rightfully allocated to the participant's account but the amount distributed exceeded the accrued vested percentage at the time of distribution. All other terms of the plan were followed in processing the distribution. The bold text states that if a payment was made to a participant in the absence of a distributable event but was otherwise entitled to receive the funds - then the make whole requirement doesn't apply. Would an overpayment made to a participant which exceeded the portion of the account to which he/she was vested be considered an overpayment that qualifies for the exception to the make whole requirement? The participant was entitled to receive the funds distributed, but received the funds too early due to a vesting error.

I think the Notice being discussed here is Notice 2005-92 (not Notice 2005-98).

Thank you all very much for your help. I appreciate it.

Hello, Everyone: Thanks for the replies. It is a distribution from a church plan (nothing to do with an IRA). My concern was whether or not the housing allowance (for the most part, a non-taxable distribution) would satisfy at least a portion of the RMD requirement (a taxable distribution). The participant takes a distribution for a housing allowance and is also now required to take RMDs.

Happy Friday! A minister's housing allowance is excludable from gross income for income tax purposes. Considering Treas. Reg. 1.401(a)(9) Q&A9 below, would a distribution made for a housing allowance count toward satisfying the RMD for a participant? Thoughts? https://www.law.cornell.edu/cfr/text/26/1.401%28a%29%289%29-5 Q-9. Which amounts distributed from an individual account are taken into account in determining whether section 401(a)(9) is satisfied and which amounts are not taken into account in determining whether section 401(a)(9) is satisfied? A-9. (a)General rule. Except as provided in paragraph (b), all amounts distributed from an individual account are distributions that are taken into account in determining whether section 401(a)(9) is satisfied, regardless of whether the amount is includible in income. Thus, for example, amounts that are excluded from income as recovery of investment in the contract under section 72 are taken into account for purposes of determining whether section 401(a)(9) is satisfied for a distribution calendar year. Similarly, amounts excluded from income as net unrealized appreciation on employer securities also are amounts distributed for purposes of determining if section 401(a)(9) is satisfied. (b)Exceptions. The following amounts are not taken into account in determining whether the required minimum amount has been distributed for a calendar year: (1) Elective deferrals (as defined in section 402(g)(3)) and employee contributions that, pursuant to rules prescribed by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2) of this chapter), are returned to the employee (together with the income allocable thereto) in order to comply with the section 415 limitations. (2) Corrective distributions of excess deferrals as described in § 1.402(g)-1(e)(3), together with the income allocable to these distributions. (3) Corrective distributions of excess contributions under a qualified cash or deferred arrangement under section 401(k)(8) and excess aggregate contributions under section 401(m)(6), together with the income allocable to these distributions. (4) Loans that are treated as deemed distributions pursuant to section 72(p). (5) Dividends described in section 404(k) that are paid on employer securities. (Amounts paid to the plan that, pursuant to section 404(k)(2)(A)(iii)(II), are included in the account balance and subsequently distributed from the account lose their character as dividends.) (6) The costs of life insurance coverage (P.S. 58 costs). (7) Similar items designated by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin. See § 601.601(d)(2)(ii)(b) of this chapter. Any feedback would be greatly appreciated! E

Thanks for the reply. That's what I think, also. Now to see if there have been any permissive withdrawals processed so I can discuss EPCRS SCP.

Plan uses prior year testing method for ADP. Yes, they make a reasonable match (100% up to 3%). Most HCES receive slight refunds each year which they hate. They do not want to do QACA - I've mentioned SH ad nauseam - and it's always a NO. Most HCES have made an affirmative election to defer at least 5%. My concern is the off chance that one HCE has not made an affirmative election, is considered a "covered employee" and per the special rule in the AA is not subject to the auto increase. I am thinking this violates the uniformity requirement which negates the EACA. The reason I'm concerned about that is that they've processed 90 day w/d for some participants who were at the time a part of the auto enroll provision. Thoughts on this?

They want to exclude the HCEs from the automatic escalator of 1% each year because they already have issues with failed ADP test and there are many HCEs who take advantage of the plan. HCEs usually make an election well above the 2% default rate, (usually around 5% or so to avoid ADP failure). They don't want to include the HCEs in the auto escalation of 1% up to 8% due to increased potential for ADP failure. If the HCE makes an affirmative election, that means he/she is not a covered employee, and would not be included in the EACA feature. But, there are some that haven't made an affirmative election, so I'm concerned with EACA status because plan uses that 90 day permissive w/d feature.