kmhaab

Any thoughts on whether the IRS considers the average rate of return for the plan as a whole a reasonable rate to use to adjust earnings on corrective contributions for missed deferrals? The plan participants had made investment elections, but employer wishes to avoid that level of complexity. Most participants are NHCEs. It seems that many service providers advise clients to use this approach. Any thoughts?

Two non-profit entities are merging - Employer A (the surviving entity) has a 401(k) plan and Employer B has a 403(b) plan. I'm curious what others thoughts are on whether they should terminate the 403(b) plan or adopt it and freeze it? I generally prefer the termination of a target's retirement plan prior to a merger/acquisition to reduce liability, administrative costs, etc. But do the complexities of terminating a 403(p) plan outweigh the potential benefits here? I believe assets are held in a group annuity contract, but there may be individual annuity contracts (I am checking).

The sponsor of a governmental 457(b) plan would like to reduce the number of investment vendors/providers from 5 to 3. They would like to stop all new contributions going to 2 of the vendors, but allow participants to keep any existing assets invested with these 2 vendors. Is there anything preventing them from taking this approach?

Employer has a policy whereby tipped employees pay health insurance premiums by check (because income fluctuates and they may or may not have enough to deduct from one pay period to the next). Employer has a Section 125 plan. Can a tipped employee's wages and tax withholdings be adjusted so that the impact on the employee is the same as if the premium were deducted from pay pre-tax? The answer is a clear No, right? I don't think it's a 125 issue as much as a tax withholding/reporting issue. The employer must accurately report all wages paid and the premium amount is wages paid - even if the employee writes a check back to the employer for premiums. Correct?

Interesting question. Lots of information is available on the IRS website about repayment of a subsidy due to an increase in income during the year, however I do not see anything on repayment due the employer having actually offered affordable coverage. However, IRS Publication 974 (Premium Tax Credit) states affordability is determined at the time of enrollment in marketplace plan by the Marketplace and that an individual is not disqualified from taking the premium tax credit (PTC) when filing his tax return even if his required contribution for coverage was not more than 9.69% of the household income, unless the individual 1) did not provide current income and premium information to the Marketplace, or 2) provided incorrect information with intentional or reckless disregard (see page 12). My interpretation is that an employee making an honest mistake in whether he was offered affordable coverage or not will not need to repay any subsidies or tax credits, however that is only my interpretation. As such, the employee should only have to repay the subsidy if he presented fraudulent info, or didn't follow the directions to provide current info. In that case, why worry about upsetting the employee? Regardless, I would be very careful making a decision not to address the penalty, for several reasons. It may be one employee this year, but what if it's 10 employees next year? You will need to treat all employees in that situation the same. And did you report an affordability safe harbor in your 1095-Cs that year? If so, I think you would want to be consistent. Lastly, it's not so much that you are proving the employee was not entitled to the subsidy, but you are proving that you offered affordable coverage. You're not antagonizing an employee by doing that. Whether the employee is ultimately eligible for a subsidy is between the employee and HHS/IRS.

Thank you both.

Should late matching contributions be adjusted for earnings? Are matching contributions "late" if they are deposited within the time period specific in the plan document, but later than the employer's established practice? An administrative error resulted in a failure to make matching contributions on a bonus payment at the end of February. Error was discovered in May and matching contributions were calculated and deposited in participants' accounts at that time. Plan document states that matching contributions shall be paid to the Trustee no later than the Form 5500 filing due date. The practice has been to make matching contributions each pay period at the same time as employee contributions. The plan provides for a match true-up at the end of the year. Should the matching contributions deposited in May have been adjusted for earnings from the date they would have been deposited if the error had not occurred?

Thank you!

Plan sponsor realized that elective deferrals are not being withheld from terminated employees' last paycheck during 2017. We have confirmed this is inconsistent with the terms of the plan document and I am looking for input on the appropriate correction method under ECPRS. Can this be considered an Employee Elective Deferral Failure that does not exceed 3 months under Appendix A Section .05(9)(a) allowing for a QNEC of only missed matching contributions? Section .05(9)(a) provides 3 conditions that must be met, including that correct deferrals begin for an affected employee no later than 3 months after the failure occurred. Here, deferrals ceased due to employee's termination, so there is no opportunity for correct deferrals to begin. But the failure occurred for less than a 3 month period for each affected employee (one paycheck), which I think is the spirit of Section .05(9)(a). Any thoughts?

Thank you for your responses. The plan is a 403(b) plan and the correction is for missed participant deferrals due to a failure to withhold deferrals from eligible compensation. Essentially mistakes made by a payroll clerk - i.e. failure to withhold deferrals from a final paycheck or bonus. Amounts are small. I see this as a failure to apply the correct definition of compensation under the plan. Does this change any prior advice?

Thank you both!

Is a corrective contribution required for a former participant who has taken a complete distribution and no longer has an account in the plan? Section 6.02(5)(b) of Rev. Proc. 2016-51 states, "Corrective contributions are required to be made with respect to a participant with an account under the plan." But I cannot find anything specifically addressing individuals without an account. Thanks in advance!

I am unclear on whether a pre-approved plan needs to be updated for qualification requirements prior to the plan sponsor terminating the plan. A favorable Determination Letter was received for the pre-approved plan for the 2nd remedial cycle (addressing the 2010 Cumulative List of Changes). Does it need to be updated for the 2017 Cumulative List prior to termination?

Employer has an NQDC plan in the form of "appreciation units." Executive wants any payments under the plan to be paid to a trust, of which he and his wife are the trustees, instead of to him directly. My understanding is this does not avoid taxation for him, but he wants the trust to hold all of his assets. Plan currently does not permit the assignment of rights under the plan. My question is this: Does amending the plan to allow a participant to assign his/her right to payment to a trust present problems under 409A? Any right to payment is still subject to forfeiture. Any thoughts on this would be much appreciated.

Thank you for the helpful reply! I'll double check.

Apologies if this has already been discussed, I searched and could not find anything on point... Employer offers voluntary life insurance with premiums based on age bands. Without realizing it, they have been administering the plan such that premiums automatically increased mid year when a participant reached a new age band (i.e. 40th birthday). A couple questions - 1) Is this practice consistent with 26 CFR 1.125-4(f)(2)(i) below (if plan document allows)? (i)Automatic changes. If the cost of a qualified benefits plan increases (or decreases) during a period of coverage and, under the terms of the plan, employees are required to make a corresponding change in their payments, the cafeteria plan may, on a reasonable and consistent basis, automatically make a prospective increase (or decrease) in affected employees' elective contributions for the plan. 2) If it is permissible under the regs (if plan document allows), but plan document does not currently allow, can the plan document be amended retroactively to correct? Thanks

Thank you both. How far back should QNECs be made? My understanding is for all years, no matter how far back?

A local church sponsors a 403(b)(9) plan offered by the pension board of the denomination. The Plan meets the definition of a church plan for ERISA and IRC purposes. Adoption agreement states that all employees working 20 hours or more per week are eligible to participate. Church did not realize this and has only been allowing employees working 40 hours per week to participate. Can this be corrected by adopting a retroactive amendment changing eligibility to 40 hours per week? IRS fix-it guide says that a failure to operate a 403(b) plan according to the terms of the written plan can be corrected by adopting a retroactive amendment conforming the plan to its operation, but I am unclear whether this would apply to the situation at hand. It just seems too simple....

Yes, Grant date was 12/31/2007. My apologies for the typo. FMV is higher now than on the grant date. But the company is private and valued once per year, so the FMV would be the same on 10/1/2017 and 12/31/2017 (the date they want to extend to). The expiration date actually snuck up on the company and the grantee. Prior CFO had been notifying employees of upcoming expiration dates, but new CFO has not. And new CFO incorrectly thought expiration date was 10 years from date of grant.

Payroll employee fraudulently paid herself additional compensation in the form of bonuses, PTO payouts, etc. She was terminated recently for cause, the police were involved and the case is currently in court. This has apparently been going on for 4 years and employee deferrals and employer matching contributions were made to the 401(k) plan on the stolen amounts. I have never run into this. 1) Can the plan sponsor make corrections to recoup the fraudulent contributions? (We know they cannot get repayment of the entire stolen amount from her 401(k), but are asking only with respect to the contributions made in error based on the stolen amounts.) 2) Participant just requested a distribution of her entire 401(k). (Ha!) Can employer delay her distribution until this is straightened out? They are still looking at payroll records, etc to determine the scope of the theft. I believe the prosecutor has asked the judge to freeze her account, but I am not certain if that would be preempted by ERISA? Any thoughts would be appreciated. I have searched the forum for "Embezzle," "Embezzlement," "Theft" etc., but there are no prior discussions on point. :-) Thanks!

Generally an Adoption Agreement is incorporated into and part of a "Plan Document" and it should be provided to a participant upon request.

Fair point. I did not mean to suggest I did not care about the tax or legal ramifications, I was trying to get at the threshold question of whether it is even possible to legally amend awards that have expired already. I am aware there would be an accounting impact to any award modification and that's what I was suggesting be "set aside" for the moment. But happy to hear comments on that as well.

Can a stock option award be amended to extend the term AFTER the original expiration date? Set aside any ISO/NQSO and accounting issues for now, I'm just trying to determine if it can be done. Award agreement states that option expires upon the earlier of 10 years from the date of grant, or the expiration date shown on the grant notice. Grant notice shows a date about 3 months earlier than 10 years from date of grant (related to date vesting begins). Example: - Grant date: 12/31/2007 - Expiration date (as shown in grant notice): 10/1/2017 Can this award be amended to extend the expiration date to 12/31/2017?

Thanks, that was very polite and helpful Mike.

Thank you for your response. To clarify, what if B passes as a stand alone plan, but A does not pass either as a standalone plan or when aggregated with B? Can one plan pass as a standalone and the other as aggregated? Historically, they have been aggregated and Plan A has had to make QNECs to Plan A to NHCEs employed by the sponsor of Plan B (i.e. giving them a benefit in Plan A) in order to pass. If Plan A must do that for a prior year, and file a VCP, it wouldn't affect Plan B if Plan B passes on it's own - is that correct?