kmhaab

While calculating the annual true-up match, a safe harbor 401(k) plan recently determined that the value of the imputed income for non-cash fringe benefits was incorrectly included in Eligible Compensation when calculating employer matching contributions during 2025. These amounts should have been excluded from compensation according to the plan document. The amount of the employer matching contributions attributable to the error (let's call them "excess matching amounts") for an individual participant ranges from $20 - $80. My interpretation of IRS ECPRS rules is that these are Excess Amounts under Section 5.01(3)(a) and do not need to be forfeited under Section 6.02(5)(e) if the Excess Amount is under $250 for an individual participant. But we are getting significant pushback from the recordkeeper who is insisting that negative adjustments must be made to participant accounts to remove the excess matching amounts. We have gone back and forth and they keep insisting there is no de minimis correction amount (which I know is accurate for missed contributions, but that's not the situation here). Am I missing something? Is my interpretation incorrect? Section 5.01(3)(a) states that an Excess Amount includes “...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...” Section 6.02(5)(e) says, "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).” If you agree the excess matching amounts are Excess Amounts that do not need to be forfeited because they are under $250, and the plan sponsor chooses not to forfeit the amounts, is there any impact on the plan's safe harbor status? Does it matter if only HCEs received these amounts? TIA for your input!

Thank you Brian, that's helpful! I have another question for you, if you don't mind - if the ESRP is being triggered by reporting errors, do you see ALEs including supporting documentation in their response? Or is describing the corrections needed in the ALE's response enough? And if the error was the MEC offer indicator in Part III, column a of the 1094-C (i.e., incorrectly checked "no" to offering MEC to 95% of full-time employees), and supporting documentation is required, what type of supporting documentation is sufficient?

I know the ACA "good faith" reporting relief ended in 2020, but I'm wondering if anyone knows it the IRS is actually assessing penalties for errors on a 1094-C or 1095-C filed after the relief ended?

I'm looking into whether correction under ECPRS is required in this situation and want to make sure I'm not missing something. A Safe Harbor plan makes Traditional Safe Harbor Matching Contributions. The AA says the safe harbor matching contributions are based on salary deferrals for the Payroll Period, instead of the Plan Year. The Basic Plan Document says the safe harbor matching contributions must be deposited into the Plan by the last day of the Plan Year quarter following the Plan Year Quarter for which the salary deferrals were made if the employer uses a period other than the Plan Year, which I believe reflects the regs. In operation, the plan has been depositing the safe harbor matching contributions into the plan at the end of the year - not be the end of the following quarter. I believe this is an operational failure under ECPRS and must be corrected? The correction method being adjusting participants for lost earnings from the date the safe harbor matching contributions should have been contributed to the actual date they were contributed? But the plan sponsor and recordkeeper see no issue, say the plan has been operating like this for a long time, and they have no concerns - Am I missing something?? TIA.

If a plan provides that an employee will become a participant eligible to receive employer contributions "immediately" upon meeting the eligibility requirements, and the eligibility requirement is 2 eligibility computation periods in which he completes 1,000 hours of service, does the employee enter the plan on the last day of the second eligibility computation period, or the day after? In this situation the eligibility computation period is the 12-month period beginning on date of hire and then switches to plan year. Date of hire is 1/1/2022 and plan year is calendar year. So eligibility computation periods are 1/1/22 - 12/31/22 and 1/1/23 - 12/31/23. Does the employee become a participant on 12/31/23 or 1/1/24? I have generally interpreted similar terms to mean that the day has to be completed for the eligibility period to be completed, meaning the ECP ends at 11:59 on 12/31/23 and then the employee becomes a participant immediately at 12:00 am on 1/1/24. But the TPA's interpretation is the employee became a participant on 12/31/23. This is a money purchase plan, if that's relevant, and the issue is whether the participant should have received a contribution based on his compensation for the day of 12/31/23.

I have a question on filing an amended Form 5500 to include the audit report with the following facts: The Form 5500 for 2022 was initially field without the required audit report. The plan sponsor has received and paid a penalty notice from the IRS regarding the incomplete filing, but has not received anything from the DOL. The audit is now complete and they ready to file an amended 5500 with the audit report. Do they do this through the DFVCP?

When a TPA processes distributions for a retirement plan sponsor, including federal tax withholdings and deposits and related tax filings, is it typical for the TPA to use their own EIN on the Form 1099-R and Form 945? Does it depend on whether the TPA is also the custodian and/or trustee? Thanks in advance!

Yes, you read that right. Apx 10 years ago plan sponsor adopted an amendment to freeze contributions to a money purchase pension plan, but the intent was to cease contributions to the profit sharing plan instead. The plan sponsor has been operating and making contributions to the pension plan as if it were not frozen and has made no contributions to the profit sharing plan since that time. Thoughts on whether this can be corrected through VCP by retroactively amending the pension plan to revoke or rescind the freeze amendment? The plan was operated as if it were not frozen, participants' expectations were that it was not frozen, and I believe revoking the freeze amendment increases the benefits to participants (as they are entitled to $0 with the freeze amendment in place). (The profit sharing plan has a discretionary contribution and a freeze amendment was not necessary to effectively cease contributions, so the profit sharing plan has been operated correctly.) Thanks in advance for any insights.

Thank you CuseFan, that's helpful. I'm not sure of the details re: Fidelity's role yet. In the scenario you described, I assume the funds would need to flow through an account in the name of the plan? The employer can't deposit the funds into a general account and then cut the check from there, right? This seems very wonky to me. I'm trying to make sure this process won't mess up the direct rollover (and doesn't violate ERISA, of course).

I've run into something that I need to run by others and confirm whether I'm missing something... An employee terminated employment and requested a rollover from the 401(k) plan in a letter to the employer and the employer forwarded the request to Fidelity. The request was for a direct rollover to an IRA. Apparently a check was issued to the employer, who deposited it into a company account and will be issuing a check to the IRA custodian. Is there a scenario where this is ok? Shouldn't the distribution go from the trust directly to the IRA custodian? But I feel like I must be missing something if Fidelity issued the check to the employer? TIA!

Thank you both for your input.

Is there any guidance on the difference between a true change in residence and extended travel (i.e., length of time)? In February of this year Employee submitted an election change form to remove spouse from health coverage due to spouse's move out of the country. 6 weeks later Employee requested to add spouse back to health coverage due to spouse's move back into the US. Employee has now requested to remove spouse from health coverage again due to spouse's move out of the country again. The Employer thinks the spouse travels back and forth to the couple's home country a few times a year for 6 weeks at a time. Are these qualifying life events?

Yes, thank you, but HOW should they return the overpayment to the participant? Can it be paid as a distribution from the plan, similar to an excess amount? Can it be reverted back to the employer due to it being contributed in error and then paid to the participant as wages? In searching the message boards I came across comments on a similar situation where a commenter stated the amounts could not be paid back from the plan because the amounts became plan assets once they were contributed to the plan. I've been unable to identify any guidance confirming this opinion so far.

Plan sponsor terminated a previously frozen DB plan last year. All benefits were settled by the purchase of annuity contracts at that time. There were no active employees in the plan at the time of termination. The DB plan was overfunded and there is $180,000 excess amount left in the plan. Plan sponsor wants to transfer the excess amount to the Company's current 401(k) plan. My understanding is there is no clear guidance on whether the 401(k) plan would qualify as a Qualified Replacement Plan (QRP) when there were 0 active participants in the terminated DB plan at the time of termination. I'm interested in whether others agree or have different opinions on this?

What should a plan do with 401(k) loan overpayments? Overpayments occurred due to an administrative error by the plan sponsor (they deducted one too many loan payments from a couple of participants' earnings and transmitted these amounts to the plan. Can these amounts be distributed from the plan back to the participants? Does the answer change if the overpayments were made in a prior plan year/tax year?